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The Uncomfortable Truth About The Great Boom And This "Recovery"
Submitted by Harry Debt via EconomyAndMarkets.com,
A Yahoo Finance headline this morning reads: “Unhappy New Year: The U.S. Economy Is Stalling Out.”
We recently learned that existing home sales in November crashed 10.5% from the month before.
Guess when the last time was when we saw these levels? The housing crisis of the mid- to late-2000s!
I also recently shared a chart showing a cataclysmic 82% drop in the ratio of new home sales to the U.S. population. To put it simply, we won’t need more real estate for decades to come, with baby boomers increasingly dying to offset rising millennial home purchases.
I and a few other experts like David Stockman have continued to argue that this re-bound since 2009 has been all smoke and mirrors – artificial stimulus that has only created greater bubbles in financial assets like stocks, and financial engineering to create rising corporate profits. None of it goes toward real expansion for future jobs, productivity and growth… things like new office space and industrial capacity.
Wall Street analysts and corporate CEOs can argue against this with their “this is not a bubble” logic, but this chart tells the real story.
Below is a chart that shows the office space per worker in square feet. It shows a rise into the height of the financial crisis, after which it’s fallen like a rock!
At first this could seem counterintuitive. Why did the square footage per worker go up into the worst of the recession into mid- to late-2009? That’s because companies were laying off workers going into that recession, meaning there were more workers per square feet.
But the real story comes in the recovery from late 2009 forward.
Square footage per worker has declined very sharply from 371 square feet to 270, down a whopping one-third in just over six years as businesses have rehired a large portion of the laid-off workers – which means largely NOT creating new jobs.
You should not look at this chart and assume that because less square footage per worker means more workers than in the past that everything is hunky dory.
What’s more important is that the sharp decrease in square footage implies a lack of demand in commercial real estate. And that’s because commercial real estate is already way over-expanded! We overbuilt it in the great boom of 1983 to 2007, so even these hires have not filled up the available space. Which means businesses aren’t expanding their office or industrial space!
So while hiring more workers sounds fine out of context… it’s masking much more severe, deeper-set issues in our capacity to build for the future.
This is the hard truth that no one is looking at: businesses are merely re-employing their past capacity, and not creating new plants and offices for future employment. All the 200,000-plus jobs numbers per month, if they are even fully real, are just catching up with the past. And we shouldn’t be investing in such new work space as we already have all we need for decades ahead.
This is the reality of demographics that clueless economists just don’t get.
Meanwhile, more and more people drop out of the workforce either from giving up on finding a job, or retiring earlier once their kids have left the nest.
And more jobs are part-time or in the low-end service sector – like bartenders and waiters, not the higher-paid manufacturing and professional jobs of the past.
To top it off, fewer and fewer people are entering or staying in the workforce. Hence, the workforce participation rates continue to edge down – after falling sharply for years.
And all of that means… we’re not even at capacity for all this overbuilt real estate.
Folks, this “recovery” isn’t working! And no one has expected it to given the over-expansion in the greatest debt bubble in U.S. history from 1983 to 2008.
Inflation hasn’t risen due to excess capacity here and around the world, especially China…
Money velocity continues to drop without lending and productive investment to expand it…
Businesses are struggling with stagnant earnings because we already hit the peak of debt capacity and demographic spending growth in the great boom that finally peaked in late 2007, as I forecast two decades before.
Debt was running at 2.54 times GDP for 26 years. It doesn’t take a rocket scientist or nuclear physicist to tell you that pretty much guarantees a massive period of deleveraging and depression – not continued expansion.
So since growth is all but impossible, corporations have resorted to financial engineering to keep the wagon rolling – all courtesy of the Fed, with near-zero short- and long-term interest rates.
They’ve had two options: either increase stock buybacks to leverage their stagnant earnings with rising earnings-per-share on fewer shares, or increase dividends to compete with lower and lower yielding bonds (also courtesy of the Fed). And they’ve been milking both options for all they’re worth!
But financial engineering does not result in real growth.
And speculation does not expand the money supply.
It is only a sign of decreasing money velocity, and a bubble that will only burst – like in 1929, 2000, and now again!
It’s a mirage.
It isn’t real.
And it isn’t sustainable.
Despite such endless financial engineering, sales for the S&P 500 have been declining for the last three quarters. And profits have declined for the first time since the 2009 expansion.
I’d be surprised if both didn’t continue down in the 4th quarter.
This will end badly… which is the only way bubbles end.
My forecast today: the stock market will start to crash by early February, if not sooner, when it gets this clear realization.
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There was and never has been a boom, it was just papered over to look like it was. Must keep the great Nobel peace prize winner looking like the smartest elf in the hut.
An epic failure on many fronts.
What? No boom?
It's New Year's eve...Can't we at least dream a little longer?
Happy 2016!
We have been"'recovering" for 7+ years now
Layoff / Closing List: http://www.dailyjobcuts.com
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The epic failure has been in gold, where QE3 sent its price into the toilet (not to the moon).
Stop squandering your family's limited resources by investing in doomed assets that will go nowhere in 2016 or even 2020.
Resolve that in the upcoming year you will not be part of the dumb money crowd assembled here!
Stop squandering your family's limited resources by investing in doomed assets that will go nowhere in 2016 or even 2020.
Savings that you can afford to set aside for the long term are another story. Even if prices go lower, PMs are a bargain at today's prices. PMs are one of the very few assets that have no counter-party risk as long as you have physical possession.
These markets are so illusory, there is no telling when they will collapse on you.
If you can explain GE, you can explain the S&P.
http://www.bloomberg.com/quote/GE:US
Put on the 5 year chart and explain.
Hypothesis for consideration: Multinational corporations don't need a U.S. middle class to mint money.
"Hypothesis for consideration: Multinational corporations don't need a U.S. middle class to mint money"
well, they like... consumers. how consumers get to finance their consumption...
"
If not explanation fully then at least partially. US federal tax laws/codes and written by GE legal department.
Just like Obola is trying to run out the clock on ISIS by doing nothing and hoping there's not a major attack on US soil, the Feral Reserve will pull out the stops to keep the "markets" from crashing until after the election.
Snovim goddom, Russki durichki!
my google translator isn't working and my Russian is rusty. Perhaps it's the spelling of the cyrillic words you are using. But I'll vote you up
This bull market in equities has legs, so sell those disappointing metal hunks and jump aboard the bullet train!
Who's Harry Debt? :-)
All debt is big and hairy.
i provide my own insurance, my own office space, everything. screw commercial space. I don't need it. all i needs is my internet and a friendly wifi.
Why buy office space when you can offload the costs of office space on peon employees?
The last decade has been spent putting lipstick on a corpse.
However, the “Just Us and minions” maggots are doing just fine.
Barney Frank legislated bail ins for the USA in 2010,bail ins today become law in Europe the only boom coming is the raiding of deposits
I keep asking myself what will prices look like when this deflation runs out of steam? To what they were a hundred years ago when it all began? Or to what they were after WWII when the recovery began? Or somewhere else?
Wherever it goes, I make it a first priority of personal finance to not owe or own debt. And I keep my bank account at a minimum balance for everyday expenses.
Velocity of money is to slow. Demographics are collapsing. How will the CRE collateralizing all those bank loans be propped up. Only through the devaluation of the currency will a complete back collapse be avoided. Expect the tbtf to get bigger and absorb the next layer.
Numb Le Bum find theeself a nunnery and repent your one week week membership of the Turden Clan, obviously you have stumbled into the wrong house of ill-repute.
here we go again .. we gots to burn this mf'er down (debt bubble that is )
What happened in early 80's to set off such growth in debt?
The idea that US taxpayers could be used for collateral.
Our politicians saw the "Golden Parachute" model and didnt want to be out done.
A credit card in every wallet < like a chicken in every pot >
Everything that is happening proves this article is pretty close to right on. The new gun law they are trying to pass? They will use this crash as the "shock doctrine" to try to pass all this Bullshit. Including TPP and WW3... Its going to be an absolute barrage of Complete BULLSHIT coming at the people. This is unreal. I cant believe how sheepish everyone really is? Evil is driving the bus. All we need to do is regain control and stop the insanity we call America these days? This is not the America I grew up in, "We arent in Kanas anymore Toto."
until the American dollar is not perceived as the best place to lock up and park your sorry assets in a world of bad neighborhoods the creep show will continue
What happened in 1980's to set off such debt? it was not the 1980's, it happened in 1971 under Richard M. Nixon when he took the dollar off a gold standard that this party of crooked politicians and criminal banksters began in earnest
Corps finally getting smart and letting plebes work from home. Voila, less office space per worker.
Just imagine what the number would be if I weren't carrying 41,000,000 sq. ft. per worker!