Economic Reality: Bottom 50% Of Americans No Longer Matter

Tyler Durden's picture

Authored by Mike Shedlock via MishTalk.com,

The Fed likes to brag about the “We saved the world” recovery.

However, the unfortunate truth of the matter is a record Half of American Families Live Paycheck to Paycheck.

Does it Matter? Let’s investigate.

Unprepared for Nearly Anything

  • 50% are woefully unprepared for a financial emergency.
  • Nearly 1 in 5 (19%) Americans have nothing set aside to cover an unexpected emergency.
  • Nearly 1 in 3 (31%) Americans don’t have at least $500 set aside to cover an unexpected emergency expense, according to a survey released Tuesday by HomeServe USA, a home repair service.
  • A separate survey released Monday by insurance company MetLife found that 49% of employees are “concerned, anxious or fearful about their current financial well-being.”

Deleveraging? Where?

A Fed study shows U.S. Households Will Soon Have as Much Debt as They had in 2008.

The Federal Reserve announced Friday that the U.S. has $1 trillion in credit-card debt. Consumers hit that number in the fourth quarter of 2016, but eased on revolving credit during January 2017. The Fed announcement showed revolving consumer credit hit more than $1 trillion once again in February 2017.

 

“Credit card debt is rising quickly, but delinquencies are still really low,” said Matt Schulz, a senior industry analyst at the credit cards site CreditCards.com. “Many Americans are doing a good job of controlling their debts, but eventually with big debts and rising interest rates, it’s likely that something will have to give.”

Paycheck to Paycheck “Good Job”

Excuse me for asking but if half the nation lives paycheck to paycheck, is that really indicative of doing a good job at managing debt.

And as for “low delinquencies”, I remind you of my April 26 article Subprime Credit Card Losses Bite Capital One: Income Down 20%, Charge-Offs Up 30%.

Nonetheless, I remind you of an important perception.

We Saved the World

Two Reasons Not to Worry

  1. The stock market and housing are still going strong. We heard the same thing in 2007 but it’s different this time.
  2. The bottom 50% of the economy simply do not matter.

The real crux of the matter is point number two.

The Fed does not give a damn about the bottom half of the economy even though it spouts continual lies about “income inequality.

The Bottom 50% Do Not Matter

As long as the Fed can keep stocks and home prices elevated, there is no concern about the food-stamp, rent-subsidized, Medicaid-supplement, disability-income, Obamacare-subsidized 50% of Americans struggling paycheck-to-paycheck.

That money rolls in guaranteed, month after month!

That 50% cannot afford a house is irrelevant as long as suckers keep paying $500,000 to two-bedroom shacks in LA.

The game is to keep asset prices up so that the top 50% keep spending. The bottom 50% are taken care of by government (taxpayer) subsidies noted above.

Here’s the real deal: Fed Expects a Second Quarter Rebound, Higher Equity Prices.

Repeat Performance

The Fed needs to keep asset prices elevated even though it’s pretty clear concerns are mounting over bubbles.

Can the Fed save the world again?

Previously, the bottom third did not matter. Then the bottom 40% did not matter. Now the bottom 50% do not matter.

That statement is a bit over the top. By how much I don’t know. But the trend is clear, as is the fly in the ointment.

Brexit was the first warning shot. Trump was the second.

As soon as the bottom 65% don’t matter, those 65% may vote to take matters into their own hands.

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whatswhat1@yahoo.com's picture

ahem!  More like the bottom 99.99% don't matter.

Wheresthesolutions's picture

The 0.01% - pedophiles, satanists, power whores and poor little souls. Their opinion means nothing on the grand stage ;)

Looney's picture

 

Brexit was the first warning shot. I agree.

Trump was the second. Not so fast – he turned out to be just a “warning fart”.  ;-)

Looney

Rich Stoehner's picture

More like an unexpected shart.

Haus-Targaryen's picture

In the spirit of all honesty, for most Americans ... I have little pity.  

Instead of staying with their 42" Plasma, their 1400 square foot bungalow, their Samsung Galaxy S6, their 2011 Ford Fusion and their 2012 Macbook Pro ... they're running to Best Buy to grab that new 65" OLED Smart TV, because "they deserve it"; they run to their local D.R. Horton subdivision to get their latest 4000 square foot McMansion, because "they deserve it" -- I mean, who *DOESN'T* need 3 living rooms, multiple kitchens, an on-suite bigger than their previous house (builders grade materials only need apply); gotta run to Verizon to "rent-to-buy" that new S8 flagship device, because "they deserve it" and only poor people have old phones, they run to their local Lexus dealer ... to get a 4 year old CPO?  Nope.  Lets lease a fully-loaded RX, because "we deserve it" and then they run to the local Apple store to get that brand new MacBook Pro retina for $3k, not because their old one no-longer works but "golly-gee, I sure would like that screen thingie about the numbers".

Occupation?  Shift manager at Guess, average income $55k.  

All paid for on credit. 

Fucking morons.  Let them all eat cake. 

The above is a list of purchases someone on my FB feed has picked up over the past 18 months.  I assume only on credit. They take photos of every "high-end" thing they purchase to show all their FB-friends how "blessed" they are.

MEFOBILLS's picture

Says law = circular flow.

If peasants are amaking OLED TV's, new Ford turdmobiles, new Computers, new appliances, etc.... then they are making goods as prices.  If their fellow citizens are also making goods as prices, then they can buy from each other.

Today, circular flow is vectored away.  It is not a circular flow, but instead has leakage paths.  After paying fees, taxes, payroll deductions from income, insurance; there is little money left over to buy other people's output.

Say's circular flow also vectored overseas as jobs were exported.  The flow now works for elites to take wage arbitrage.  Captains of industry and wall street take wage arbitrage by importing goods back to America at China price.  Captains of industry and wall street elites then take more arbitrage in the form of tax shifting (tax offshoring), or taking income in various tax shelter mechanisms.

Peasants are eating what their teeevee tells them to.   Hollywood is completely kiked as it receives diverted flows, to then buy ownership, with the objective of controlling the narrative. These diverted flows source as usury from tribe centrally owned banks. 

 

swmnguy's picture

My grandfather ran a hardware store in Appalachia through the Great Depression.  He was a big advocate of paying cash for everything, and if you don't have the cash, come up with a different solution.  Exceptions to that being a house and a college education, but only under the right circumstances.  Never a car, and certainly never consumer goods or expendables.

In recent decades, the cost of necessities has outpaced the cost of frivolous items.  And it's now difficult unto impossible to get the base-level offering of a quality brand, which also used to be the way to stretch the purchasing dollar; buy something good without frills.

When the cost of living outstrips income, people cut back on spending.  In a financial system based on debt at interest, economic activity has to exceed the real rate of inflation.  When that can't happen, the risk is that growth stops.  If growth stops, the system will collapse, because it all depends on yesterday's debt being paid off with today's money, and tomorrow's debt being borrowed today.  To prevent collapse, cultural norms have to be changed so people don't expect to pay cash and own things outright.  Instead, people have to get used to using today's income as the down-payment on tomorrow's debt, with the expectation being that future debt will always be able to be refinanced and rolled over.

This works until it doesn't, as in the residential housing market 2007-2009.

But what's the little guy to do?  The same things my grandfather did in the 30s, and advised us kids to do.  Start with your income, subtract out the absolute necessities and live on that.  Pay cash.  If you can't buy a car, don't rent one; ride your bike or take the bus.  Don't live where you have to have a car.  Don't buy a house you don't need.  You actually do have to have a cell phone, internet and computer these days to even apply for a job, but it's possible with some effort and due diligence to do that on the money you currently have.

And never, ever, ever take out a loan to buy groceries or luxuries.  That means using a credit card, unless you already have the cash in hand to pay it off in full when the bill comes in the mail.  Sure, enough people taking those steps will collapse the over-extended business sector which isn't actually growing but rather consuming itself and drawing forward demand.  But that has to happen anyway.  Just like the guy you know who is a drunk or a junkie.  Letting him stay in your home or lending him money isn't going to help him in the long run.  He needs to crash now to start the rebuilding process, and the sooner he gets on with it, the more likely he is to survive and start getting better.

 

Solio's picture

The cost of items has not risen, no; the value of the dollar has plummeted, since 1913.

Thanks for nothing, because that is pretty much what we've got.

What a plan!

Mr Kurtz's picture

There is an upside, though, to run away credit card spending. If the world comes to an end tomorrow, then all that shit just purchased is free!!

On a more serious note, my old man's theory of credit card usage was based upon cash flow and using other people's money interest free. Sock away enough cashola for 6 months emergency and then budget so as to pay off the cards each month. Works everytime.

CJgipper's picture

So who's the smart one?  The one doing without and saving up some money, or the one blowing 100's of thousands on credit with the reset to zero for both of them coming in hot?

hannah's picture

swmnguy... you left out a huge difference between the great depression and the coming collapse....fiat wont be worth anything this time.save money for what...? the government will make $100bill equal to 2 $20 bills. then they will do a bail-in and just take the $40.

 

fiat will go bye bye so why save it now....go buy all the frying pans you can load in a wheelbarrow. at least they will have more value than toilet paper fiat.....

how_this_stuff_works's picture

And that's the wildcard; what will anything be worth?

Or will everything be worth nothing? If Russia and China succeed in replacing $USD, what "currency" will there be for America? And will the dollar exist in its current form or will it be "orange" money?

pods's picture

Still have the same tv we recieved as a gift like 8 years ago. I think its a 43 inch. Not sure. But it is a 1080p.

Still using my 3+year old Blackberry Z10. Bought a new battery for it this year. Splurged and got the OEM battery for like $7 bucks.

Car: lol, 15 year old corolla with it's second engine.  Leaks oil like a stuck pig, so I just pretend it's a two-stroke.

House: "starter" home purchased in 2002. I see no reason to move as our interest rate is ~3% and house will be paid off in ~10 years.

Of course I never told anyone this on facebook, as I do not have a fb account.

pods

(okay, I did spend $700 on a fishing reel and line last year, but I saved up for it and paid cash, and the reel will last forever)

UmbilicalMosqueSweeper's picture

Fifty years ago, I was hitch-hiking from New Orleans to Biloxi. A beat-up old car, smoking like a cheap cigar pulled up, and the two guys inside offered me a ride. As we drove on, I notice that the passenger was pouring something into a funnel and tube that went through the firewall of the car. He said it was re-refined oil.  There were about 10 gallons of it in the back seat with me. They had bought the junker for scrap from a salvage yard. "Cheaper that a bus ticket!", said the driver. They then offered me a swig of mooshine from a jug they had been sharing. Economy plus!

man from glad's picture

LOL that's great!. I had a 1962 beetle I got from my buds parents for $50. I had to bolt the drivers door shut as the thing was so rusty the doors were letterally falling off. Being in Chicago it was cold as witches teet, but this thing would always start - 20 below zero - no problem! I had a boat load of fun with that car, it had an enormous sunroof that folded back. Great memories!

man from glad's picture

Well done. We think alike.. 

hannah's picture

pods...many many years ago i bought my first house with a mortgage that was reasonable. when i sold that home the 'payment' each moneth had tripled....due to school tax mostly. i have a fixed rate loan so it was stillthe same but taxes had gone crazy. you will pay the rich one way or another. you cant frugal your way thru this world today.....

HardAssets's picture

Well, there's a lotta truth in what you say. Some relatives are about to spend tens of thousands to remodel their kitchen. Instead, they could get a few new knobs for some of the (working perfectly fine) old appliances. But wifey's best friend recently had their kitchen redone - - so, by gollie they're going to have theirs done too !
In a nation where shopping at malls was considered a form of regular weekend entertainment, many will deserve what's on the economic horizon.

techpriest's picture

Tens of thousands? If you live in the southern half of the US you could off grid a modest house for that amount, and likely have enough left over to build a raised-bed garden that would offset 20-30% of your grocery bills.

Seriously though - outside of keeping the house in shape, spend the money on getting your cost of survival as low as possible first. Once those "investments" start paying off, you find that you have way more money freed up.

dot_bust's picture

That's not the norm. Most Americans are underemployed and have acquired credit card debt because they just don't have the money to pay all their bills.

Miskondukt's picture

I typically don't reply because good God all the comment-whores who love their first page presence; however, I recently said Frak off to renting an $800 (That's a second 20-thread processor for my PC's big data needs) phone so I can simply call/text and went with a cheapy $150 phone but holy frak is this things a frustrating POS. 

Talk about erratic behavior from a phone. I am certain they programmed it to be a hardly-functioning POS to get people to go back on the big spending-still, frak that! 

RAT005's picture

Find a $200 used Samsung Galaxy Note 3. Incredible phone.  Years ahead of its time.

detached.amusement's picture

I'm going on 5 and a half years on mine, works just fine cept for the cracked screen

hannah's picture

i paid $15 for a dumb-phone. does everything a phone should do...makes calls. thats it....

RAT005's picture

If you're a business road warrior, the features of a smart phone are essential.  I only have 1 gig of data each month with 1500 minutes and basically unlimited texts, $28/mo.  Communication has now become quality over quantity.  Unlimited isn't too important but all features and capability is critical.

CJgipper's picture

I paid 125 bucks for my samsung s5 and use straight talk unlimited for 45 bucks a month.  You're doing it wrong.

roadhazard's picture

I have an off brand flip phone and buy a years worth of air time from Trac phone for $109.00 per year and it comes with 400 minutes that doubles to 800. Every year I have two or three hundred minutes left from the previous year so I have over a thousand minutes to start the year.  That's all I need. I leave it at home most of the time. I don't want to talk to anyone anyway.

man from glad's picture

When i grew up we had an old black and white vacuum tube TV with perpetual V-Hold issues. Used to go to the drugstore and "test the tubes" and fix it ourselves. So a 42" plasma.. LoL. I still run mine picture is plenty good enough! Has the added benefit of heating the house on chilly nights. I still sport an iPhone 4s. 20 year old truck, 40 year old sedan. 2 properties paid cash for. Yeah I'm frugal - but not cheap. I spend the money wisely.

Justin Case's picture

All paid for on credit.

The merican economy and wages stopped growing decades ago. People would have stopped buying and shopping long ago b/c their income hasn't kept up with true inflation. As the economy slowed, the FED kept opening the money spigot for the populous to draw on future income to sustain the lifestyle that they have. If the consumer debt wouldn't grow the economy would have fallen into recession decades ago. Easing availability to borrow  money kept the illusion of prosperity going and the population happy.

We have now arrived at the end of this illusion. Consumer debt is maxed out even at the current rate of interest the minimum monthy payments are beyond the ability of consumers to take on any moar debt. As the stats show, GDP is now contracting. Consumers will have even less discretionary spending as rates rise and money goes to interest. Consumers will start purging debt obligations as rates rise. Auto industry is the first to feel this. It will eventually cascade to housing again.

The FED crossed the Rubicon when they started ZIRP and QE. There is no eazy exit from this conundrum the FED created. Add to this the de-dollarization taking place around the globe, just as merica needs trillions moar in financing the MIC and Gov't. 

Things are just going to keep going down hill as they have been since 1950, when merica had it's peek prosperity, only now it will start to accelerate exponentially.

HardAssets's picture

The current Ponzi system is based on debt note fiat creation. Fabricating more debt notes does not create the interest needed to pay that so-called 'debt'. So even more debt notes must be fabricated to roll over the existing debt. Long term loss of purchasing power is inherent in the system. Great depressions are inherent in the system. The debt note fabricators use depressions to steal people's real wealth.

People are fooled into thinking the 'money', 'loan', and 'debt' is real.

Justin Case's picture

Debt creation precedes the creation of currency. Then fractional banking allows a large multiplier factor of the new issue.

The problem the FED has is it's current balance sheet. They want it to go to the banks, where they will lend it out. The FED doesn't want to pay interest on that surplus. FED needs to move out almost $5 trillion, now multiply that by fractional reserve banking ratio of 10. This is the inflationary gene still bottled up for now. Raising rates to cool the demand/availability for that money coming into the system.

Every dollar of the monetary base (or "narrow money" or "high-powered money") comes into existence with a one-to-one increase in the public debt, collectively owed by the taxpayers. Then, private banks use that base to create more dollars (in "broad money") that come into existence with a one-to-one increase in private debt.

Going the other way, if people in the private sector ever paid off all of their debts, and the federal government paid off all of its bondholders, then the supply of US dollars would be virtually extinguished.

This is the sense in which our fiat-money, fractional-reserve system uses "debt-based money." Although market prices are flexible and can react to deflation much better than most people realize, it is still true that our system is tragically absurd.

The debt is real as the currency is. When you sell yoar house, you part with yoar asset. In turn you recieve a worthless debt note(dollars). What happens as you say "it's not real" and you cannot exchange it for another asset or trade it for something you want or need??

These wothless pieces of paper are used for the settlement of accounts between 2 parties. They are very real. There are times in history where currencies have failed to perform the settlement of accounts, as one party refuses to accept the Gov't issued bank note. Those with assets store their wealth and those with Gov't debt notes  have nothing.

It's real, debt supports assets and debt is fiat currency. If people in the private sector ever paid off all of their debts, and the federal government paid off all of its bondholders, then the supply of US dollars would be virtually extinguished.

govtsucks's picture

+1000 They don't have savings because they don't have the self-control to stop spending. Always needing newer and bigger. Buying their eight year old kid an iPhone. Constantly eating out because they're too lazy to cook. Leasing their vehicles instead of keeping them for 10-15 years. Watch these housing shows on cable - the people are always talking about their max budget. That's a payment equal to one third of their gross income, which amounts to over 40% of their take home pay. What kind of idiot would do that? And that doesn't include property taxes and possibly HOA dues.

Spigot's picture

The economic and financial environment (Eco-Fin) in which people operate has a very large impact on their values, decision making and morality. In a corrosive Eco-Fin atmosphere the vast bulk of people degenerate into "live for today", "no plan for the future", "go the easy way" kind of living. All of their peers are doing this as well so the social momentum is there to carry them along.

Yes, you are right that they have a choice. But also understand that most of them have an IQ of 105 or less, have no understanding of what is destroying them or what to do about it. Alcohol and drug use is very high right now as well as 20+% of the population being on some form of anti-depressant which zeros their ability to feel a shred of concern.

Pity the Americans. They are being bitten by the throat and pulled under by the alligator of their overlords' making.

The total mismanagement of the national debt, national currency and interest rate environment is killing America.

Feel self satisfied and superior for now. Enjoy the drug of judgementalism. I'm sure it makes you feel better.

Haus-Targaryen's picture

It has nothing to do with being self-satisfied or superior, it has everything to do with using the internet for something other than porn and "ESPN.com" 

Economics isn't rocket science, its more asking yourself "what would I do in that situation" than anything else. 

While I appreciate the average idiot cannot grasp fractional reserve banking, what a "yield curve" is or how impact negative interest rates impact housing prices, that same idiot can wait in line for 8 hours for a paid of shoes and then flip them two hours later for twice the cash.  He/she clearly understandy supply and demand. 

If you have the intellect to flip tennis shoes you have the intellect to learn why you are getting fucked. The question is what do you do with your intellect? 

Most people waste it.  Who was Greenbay's best wide-receiver in their history?  There are people who know that without having to look it up.  How does your bank account work?  Not a fucking clue. 

 

ElTerco's picture

If eight hours of labor only amounts to the price of a pair of shoes, this guy does not understand what he is doing.

Justin Case's picture

The average Joe Sixpack is in a beer and sports induced coma. That's what the establishment wants. They continuously dumb down the educational indoctrination centers and never teach finance in schools for a reason. The bankers come to the colleges and universities to get the students to apply for a credit card. If the kids understood finance how would they succeed in getting these suckers in debt?

El Vaquero's picture

Hell, I'm just happy that I finally got my lower for my AR-10 in and am now in the working up a load for it phase.  

Justin Case's picture

Ah come-on, times aren't that bad. Put it down and relax a bit. Go see a family member or a good friend you can open up to. You might want to see a psychiatrist before you do something you will regret. Yoar family loves you and it would be hurtful to them, don't just think of yoar self at times like this.

El Vaquero's picture

Projecting much?  When did I threaten to go shoot somebody with it? Some of us like guns. 

 

I've wanted an AR-10 for years, and had to wait 10 fucking months until a lower that was compatible with my lower was even on the market.  Now, I have one, and am happy with it.  Just not the lot to lot consistency of H4350. 

Offthebeach's picture

Other than buying crap, shooting junk, what's a bottom 70% to do?  They neither have the intellect, curiosity,  diciplinw, nor brain power to advance humanity.  The days of their lives are wasted as conumer soldiers, only they are not killed on a battlefield.   They are born, work a bit, consume and die.  I suppose they produce more consumers.

Besides, if not them consuming, who?  Who's going to buy all this crap?  Weirdly, I could see with overproduction, people being paid to buy.  

 

 

 

HumanMan's picture

I agree with the sentiment but please be careful equating your facefuck loser list to all of us. You'll find plenty here to counter your anecdote, and I myself don't even reach for the examples set out in your "should be happy with" list.

Haus-Targaryen's picture

If the American population more closely resembeled ZH'S comments section, we would be materially better off. 

ElTerco's picture

If anything, the person making $55K and living well beyond their means is the snob. They want to look better than their neighbors rather than exercising common sense.

CNONC's picture

I used to be a builder developer. The last three houses I built (2006) had, amongst them, 15 bedrooms and 16 baths. To this day, a total of four people live in those three houses.

Justin Case's picture

I read an Arab pissed off a neighborhood when he built a house in California. It had 35 bedrooms, a heli-pad, multi-level garage for his fleet of cars and the house was 85,000 sq/ft.

new game's picture

the sic cock sucking sons a bitching basterds...