“What’s even more astounding is that, while reports of slowing activity and falling sales have appeared over the summer for nearly every industry, since last spring not one single one can admit that the reason might be a lack of sufficient income or confidence. Not only has there been no recovery, the monetary policies enacted since 2008 are deliberately ensuring that there will be no gains for the vast majority of people and businesses.
“It’s like there is some prohibition to telling the truth. All declines in data are blamed on the weather, geopolitical instability, or even worse, spun to suggest that the slump is only temporary and that ‘unleashed demand’ or ‘cash on the sidelines’ will reappear shortly to restart growth to the moon. I simply cannot understand why no one can admit that sales and profits are down because people are broke.
“Infinite growth is impossible in a closed system with finite resources. There is nothing at all on Earth that is infinite in supply.
“Our entire way of life as it is arranged currently, from every angle, be it financial, environmental, human, etc., is sustainable only in a hypothetical world of infinite and inexpensive resources. It must collapse upon itself sooner or later and central bank counterfeiting has only been an experiment to see how far we can walk on air before falling, having walked off the cliff a long time ago, as in those Wile E. Coyote cartoons.”
For 90% Of Americans: There Has Been No Recovery
Every three years the Federal Reserve releases a survey of consumer finances that is a stockpile of data on everything from household net worth to incomes. The 2013 survey confirms statements I have made previously regarding the Fed’s monetary interventions leaving the majority of Americans behind:
“While the ongoing interventions by the Federal Reserve have certainly boosted asset prices higher, the only real accomplishment has been a widening of the wealth gap between the top 10% of individuals that have dollars invested in the financial markets and everyone else. What monetary interventions have failed to accomplish is an increase in production to foster higher levels of economic activity.
With the average American still living well beyond their means, the reality is that economic growth will remain mired at lower levels as savings continue to be diverted from productive investment into debt service. The issue, of course, is not just a central theme to the U.S. but to the global economy as well. After five years of excessive monetary interventions, global debt levels have yet to be resolved.”
The full report can be found here. I have selected a few of the more important charts for the purpose of this post.
While the mainstream media continues to tout that the economy is on the mend, real (inflation-adjusted) median net worth suggests that this is not the case overall.
(Click on charts to view larger)
However, when broken down into age groups, the story becomes a bit more interesting.
While many economists have tried to explain that the plunging labor force participation rate (LFPR) was a function of “baby boomers” entering into retirement. This is hardly the case when considering that the net worth of individuals 65-74 fallen since 2007. It is even a more dire story for individuals approaching retirement (55-64) that have seen their net worth plunge by almost 50% during the same time frame.
The “economic recovery” story is also extremely fragmented when looking at median incomes. According to the Fed survey, median household before-tax incomes have fallen from near $52,000 annually to roughly $47,000 currently.
Again, the story deepens when viewed by age groups.
Interestingly, the ONLY age-group where incomes have improved is for those between the ages of 65-74. Again, this suggests that the plunge in the LFPR is not a function of “retirement” as individuals are working well into their retirement years, not because of a desire to work, but due to necessity.
Another mainstream media theme has been that the surging stock market, driven by the Federal Reserve’s monetary interventions, has provided a boost to the overall economy. However, as I have suggested previously, given that the bulk of the population either does not, or only marginally, participates in the financial markets, the “boost” has remained concentrated in the upper 10%. The Federal Reserve study breaks the data down in several ways, but the story remains the same.
The median value of financial assets for families has fallen sharply since the turn of the century.
Except for those in the top 10 percent of the population.
While the Federal Reserve hoped that inflating asset prices would boost consumer confidence, consumption and economic growth, the problem is that with falling incomes and rising costs of living, the ability to save and invest eluded the majority of families. (Note: I am only showing “pooled” investment funds since that is what is most commonly held.)
Again, the benefit of the Federal Reserve’s interventions was clearly concentrated in the top 10%.
When looking at the financial landscape of families, the future does not look bright. The percentage of families with retirement accounts has fallen since 2007, despite surging asset prices. Again, this is a function of the disparity between incomes and the cost of living.
But once again, for the top 10% the last five years has been a windfall. However, it is interesting to note that values dropped in 2013 despite the surge in asset prices. The 80th percentile performed better.
Lastly, as I discussed recently in relation to the Bureau Of Labor Statistics adjustments to the employment report, there is little evidence to support the “birth/death” model. Since 2009, the “birth/death” adjustment has added 3.5 million jobs to the employment roll. The assumption is that each month individuals are either starting or closing a business that is not reflected in the more normalized employment data. The problem, however, is that the number of families that owned equity has plummeted during that same period.
Well, except for those in the top 10%.
The wealth gap is clearly evident across all data points. However, it has been the very policies of the current administration that has fostered that wealth divide more than anything else. While the ongoing interventions by the Federal Reserve propelled asset prices higher and fueled the demand for risks, the majority of American families were left behind.
The data clearly explains why many Americans, as shown in a recent WSJ poll, believe that the economy is headed in the wrong direction.
While the financial media incessantly drones on about the rise of the stock market, what is missed is that after two devastating bear markets many families no longer have the capacity to participate (particularly after following Wall Street advice).
Furthermore, the structural transformation that has occurred in recent years has likely permanately changed the financial underpinnings of the economy as a whole. This would suggest that the current state of slow economic growth is likely to be with us for far longer than most anticipate. It also puts into question just how much room the Fed has to extract its monetary support before the cracks in the economic foundation begin to widen.
Lance Roberts is the General Partner and Chief Portfolio Strategist for STA Wealth Management. He is also the host of “The Lance Roberts Show”.
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