Paycheck to Paycheck

GUALFIN, ARGENTINA – The Dow was down 118 points on Wednesday. It should have been down a lot more. Of course, markets know more than we do. And maybe this market knows something that makes sense of these high prices. What we see are reasons to sell, not reasons to buy.

 

DJIA daily (incl. Thursday)… it was just taking a rest – click to enlarge.

 

Nearly half of all American families live “paycheck to paycheck,” say researchers. Without borrowing, 46% couldn’t raise $400 to cover an emergency. This is at least part of the reason why retail sales dropped for the second month in a row in March. Despite seven years of economic “recovery,” millions of Americans don’t have much money.

According to Census Bureau figures, 110 million Americans receive benefits from means-tested federal programs – food stamps, disability, and the like. And according to the Bureau of Labor Statistics, about 125 million Americans have full-time work (with another roughly 112 million without jobs).

That means there are only 125 million people in full-time jobs supporting the whole kit and caboodle of the U.S. economy, with a total population of 323 million. At that rate, each full-time worker supports about 2.6 people… including almost one person receiving money from the feds.

They are also supporting a government debt of $20 trillion and private debt of another $40 trillion or so. That puts the debt-to-full-time-worker ratio at $480,000. The average salary for a full-time worker is just $48,000. At a modest 5% interest, his share of the debt cost would set him back $24,000 each year.

He’d have only the remaining $24,000 to support (1) his own family… and (2) all the malingerers, cronies, and zombies who are drawing government benefits. Obviously, those numbers don’t work. But they explain much of the weakness in the U.S. economy.

The feds’ cheap credit keeps moving money (mostly in the form of asset price increases) to the wealthiest ZIP codes… while the average person’s budget gets tighter and tighter.

 

It’s not just better to be rich, it’s double-plus-better! – click to enlarge.

 

Crisis Level

Foot traffic in chain restaurants is dropping, too. It’s down 3.4% from last month year over year. And all across the country, retail stores are closing their doors and shuttering their windows as though a hurricane were coming. And maybe it is…

Household debt is once again at more than $14 trillion – the level that set off the crisis of 2008–’09. At that level, consumers have a hard time spending. Despite these warnings, the Fed is still patting itself on the back. Bloomberg:

 

The economy continued to grow across the U.S. at a modest-to-moderate pace in recent weeks as a tight labor market helped broaden wage gains, though consumer spending was mixed, a Federal Reserve survey showed Wednesday.

 

Not only that, it is still talking about undoing the damage it has done over the past eight years, hoping to get down from its debt-mountain perch without breaking any bones. Bloomberg again:

 

After heading into the uncharted territory of quantitative easing [QE], the world’s central banks are starting to plan their course through the uncharted waters of quantitative tightening.

How the Federal Reserve, European Central Bank and – eventually – the Bank of Japan handle the transition could make the difference between a global rerun of the 2013 “taper tantrum,” or the near undetectable market response to China’s run-down of U.S. Treasuries in recent years.

Combined, the balance sheets of the three now total about $13 trillion, equating to greater than either China’s or the euro region’s economy.

 

Assets held by the BoJ (lhs), the Fed and the ECB (both rhs) – the Fed pioneered the post 2008 special printathon, but has become almost stingy since 2014. But worry not, ye liquidity junkies – more is apodictically certain to come… – click to enlarge.

 

Easy-Peasy

Let’s see… central banks began buying debt eight years ago. Now they own $13 trillion of it. Hey, it was fun, wasn’t it?

Nothing bad happened. So now they can get rid of the debt… and nothing bad is going to happen again, right? The Fed bought the debt, adding money into the economy –  especially the richest part of it. Now all they have to do is sell it. Easy-peasy.

 

The main effect of the vast central bank balance sheet expansion discussed above was the creation of boatloads of deposit money & currency. US TMS-2, Japan M1 and euro area M1 (inserted chart) have grown like weeds  – so someone does have all that money lying around somewhere. Alas, a reversal of QE will destroy it again. One guess as to what would happen to asset prices in that case – click to enlarge.

 

A lot of people have a spare trillion dollars lying around. They’ll consider it an honor to help the Fed down off the ledge and buy bonds just as the bond market turns south.

The hangover will be just as much fun as getting drunk. The divorce will be just as exhilarating as the affair that caused it. Getting hanged for murder will be just as satisfying as shooting the bastard.

Sure.

 

A quick visual comparison to help decide on relative fun coefficients – left: hanging like murderous Mary, the man-killing elephant, right: getting ready to shoot the bastard.

 

Charts by stockcharts, St. Louis Fed

 

Chart and image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 


 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

2 Responses to “Central Banks Have a $13 Trillion Problem”

  • Hans:

    What we have, Mr Bonner, for the past seven years is
    what I call a rolling soft recession.

    How to address this issue is none other than to reduce
    the spending of the federal governmental unit by 1/3.
    That right, reduce spending by about 1 trillion dollars.

    Furthermore, the saving should be use to bring the federal
    budget into equilibrium with the remainder of the surplus
    refunded to the tax slaves. NO MORE INCREASES IN OUR
    NATIONAL DEBT!!

    Any budget surplus, the following year, should be used solely
    to reduce the national debt.

    Under no circumstances should any of the surpluses be used
    to increase federal spending!! If the desired effects are not
    realized, more spending cuts should be in the offering.

    Productivity increases should also be a fundamental goal, in
    achieving the aforementioned objectives.

    American badly needs to invoke Sir Winston Churchill maximum,
    Blood, Sweat and Tears.

    America, the era of economic growth through debt expansion has
    come to end. Yes, it is true, work will not only set us free but
    shall make us great again.

  • Kafka:

    “125 million people in full-time jobs supporting the whole kit and caboodle of the U.S. economy”. And 50 million of those 125 million are Government employees/contractors paid for by the 75 million private sector workers, of whom many are minimum wage earners.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How to Survive the Winter
      A Flawless Flock of Scoundrels One of the fringe benefits of living in a country that’s in dire need of a political, financial, and cultural reset, is the twisted amusement that comes with bearing witness to its unraveling.  Day by day we’re greeted with escalating madness.  Indeed, the great fiasco must be taken lightly, so as not to be demoralized by its enormity.   Symphony grotesque in Washington [PT]   Of particular note is the present cast of characters. ...
  • Credit Spreads: The Coming Resurrection of Polly
      Suspicion isn't Merely Asleep – It is in a Coma (or Dead) There is an old Monty Python skit about a parrot whose lack of movement and refusal to respond to prodding leads to an intense debate over what state it is in. Is it just sleeping, as the proprietor of the shop that sold it insists? A very tired parrot taking a really deep rest? Or is it actually dead, as the customer who bought it asserts, offering the fact that it was nailed to its perch as prima facie evidence that what...
  • The Strange Behavior of Gold Investors from Monday to Thursday
      Known and Unknown Anomalies Readers are undoubtedly aware of one or another stock market anomaly, such as e.g. the frequently observed weakness in stock markets in the summer months, which the well-known saying “sell in May and go away” refers to. Apart from such widely known anomalies, there are many others though, which most investors have never heard of. These anomalies can be particularly interesting and profitable for investors – and there are several in the precious metals...
  • Business Cycles and Inflation – Part I
      Incrementum Advisory Board Meeting Q4 2017 -  Special Guest Ben Hunt, Author and Editor of Epsilon Theory The quarterly meeting of the Incrementum Fund's Advisory Board took place on October 10 and we had the great pleasure to be joined by special guest Ben Hunt this time, who is probably known to many of our readers as the main author and editor of Epsilon Theory. He is also chief risk officer at investment management firm Salient Partners. As always, a transcript of the discussion is...
  • What President Trump and the West Can Learn from China
      Expensive Politics Instead of a demonstration of its overwhelming military might intended to intimidate tiny North Korea and pressure China to lean on its defiant communist neighbor, President Trump and the West should try to learn a few things from China.   President Trump meets President Xi. The POTUS reportedly had a very good time in China. [PT] Photo credit: AP   The President’s trip to the Far East came on the heels of the completion of China’s...
  • Business Cycles and Inflation, Part II
      Early Warning Signals in a Fragile System [ed note: here is Part 1; if you have missed it, best go there and start reading from the beginning] We recently received the following charts via email with a query whether they should worry stock market investors. They show two short term interest rates, namely the 2-year t-note yield and 3 month t-bill discount rate. Evidently the moves in short term rates over the past ~18 - 24 months were quite large, even if their absolute levels remain...
  • Is Fed Chair Nominee Jay Powell, Count Dracula?
      A Date with Dracula The gray hue of dawn quickly slipped to a bright clear sky as we set out last Saturday morning.  The season’s autumn tinge abounded around us as the distant mountain peaks, and their mighty rifts, grew closer.  The nighttime chill stubbornly lingered in the crisp air.   “Who lives in yonder castle?” Harker asked. “Pardon, Sire?” Up front in the driver's seat it was evidently hard to understand what was said over the racket made by the team of...
  • A Different Powelling - Precious Metals Supply and Demand Report
      New Chief Monetary Bureaucrat Goes from Good to Bad for Silver The prices of the metals ended all but unchanged last week, though they hit spike highs on Thursday. Particularly silver his $17.24 before falling back 43 cents, to close at $16.82.   Never drop silver carelessly, since it might land on your toes. If you are at loggerheads with gravity for some reason, only try to handle smaller-sized bars than the ones depicted above. The snapshot to the right shows the governor...
  • Heat Death of the Economic Universe
      Big Crunch or Big Chill Physicists say that the universe is expanding. However, they hotly debate (OK, pun intended as a foreshadowing device) if the rate of expansion is sufficient to overcome gravity—called escape velocity. It may seem like an arcane topic, but the consequences are dire either way.   OT – a little cosmology excursion from your editor: Observations so far suggest that the expansion of the universe is indeed accelerating – the “big crunch”, in...
  • Claudio Grass Interviews Mark Thornton
      Introduction Mark Thornton of the Mises Institute and our good friend Claudio Grass recently discussed a number of key issues, sharing their perspectives on important economic and geopolitical developments that are currently on the minds of many US and European citizens. A video of the interview can be found at the end of this post. Claudio provided us with a written summary of the interview which we present below – we have added a few remarks in brackets (we strongly recommend...
  • Inflation and Gold - Precious Metals Supply and Demand
      Reasons to Buy Gold The price of gold went up $19, and the price of silver 42 cents. The price action occurred on Monday, Wednesday and Friday though so far, only the first two price jumps reversed. We promise to take a look at the intraday action on Friday.   File under “reasons to buy gold”: A famous photograph by Henri Cartier-Bresson of a rather unruly queue in front of a bank in Shanghai in 1949 in the final days of Kuomintang rule. When it dawned on people that the...
  • Precious Metals Supply and Demand
      A Different Vantage Point The prices of the metals were up slightly this week. But in between, there was some exciting price action. Monday morning (as reckoned in Arizona), the prices of the metals spiked up, taking silver from under $16.90 to over $17.25. Then, in a series of waves, the price came back down to within pennies of last Friday’s close. The biggest occurred on Friday.   Silver ended slightly up on the week after a somewhat bigger rally was rudely interrupted...

Support Acting Man

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com