Musings Report #34 8-24-13 The (Social) Recession Is Real
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Thank you for your encouragement
Many of you wrote me emails of encouragement last week, and I want to thank you for the kind words and thoughts. Each note of support helped restore my sense of purpose.
The (Social) Recession Is Real
Is something that isn't measured (for whatever reason) still real? In economic terms, if it isn't measured, it doesn't exist. That explains why the nation can be mired in a 5-year social recession that goes unrecognized and unexamined.
If we base our either/or assessment of whether the U.S. economy is in recession on statistics such as the gross domestic product (GDP), we conclude the economy is "growing" tepidly and therefore cannot be in recession.
But suppose this "growth" is concentrated in the top 5% of the populace, the thin slice whose incomes are still rising while the household incomes of the 95% are continuing to decline (down 7% since 2009 when adjusted for inflation). If the top 5% are earning and spending more, that could push aggregate "growth" into the positive even as the financial situation of the lower 95% continues to decline.
That's only one facet of statistical legerdemain: "median" or "average" doesn't tell us much about how the bottom 95% are doing if income/wealth inequality is extreme.
Even more intriguing is to ask, "what statistics are not even collected?" For example, what percentage of student loans are used as a substitute for income, i.e. used to pay basic living expenses? Anecdotally, there is plentiful evidence that a great many people are signing up for one class at the local community college in order to get a student loan that they will use not for education but to live on.
This could part of the reason why student loan defaults are soaring.
Is an economy of people obtaining student loans they have no way to service as the only available means to get enough money to keep themselves off the street a healthy economy? What yardsticks would we use to measure a social recession, i.e. a recession in opportunity, income and lifestyle?
Correspondent B.C. recently sent some statistics on housing and the Millennial Generation's jobs/work/earnings prospects.
Age 20-34:
Headship rate: 36% (percentage who are heads of households)
Full-time employment: 44%
Unemployment: 8-13%
Persons per household: 2.72
Participation rate: 76% (the number of people who are counted as participating in the economy)
How many people 34 and under qualify for a non-subsidized home mortgage? That is, how many qualify under traditional rules (income = 3 to 4 X mortgage payments, 20% down payment in cash, etc.) Is an economy in which people in their 30s cannot afford to buy a house a healthy economy, a non-recessionary economy?
Clearly, using broad (and easily gamed) yardsticks of "growth" do not measure social recession or the health of the economy in terms of affordability, income, opportunity, economic mobility, etc. for the lower 95%.
Just as clearly, the U.S. has been in a social recession since 2008, if not earlier. Creating "growth" by boosting income/wealth inequality via speculative credit bubbles is not widespread or healthy growth. It is merely statistical legerdemain.
Three books speak to the financial rot at the heart of the current "growth" and the decline of opportunity and upward mobility for the 95%:
Market Musings
The stock market continues its charmed life, ignoring rising interest rates and oil prices, currency crises (the rupee in freefall) and higher global risks.
If we look at a very basic chart of the S&P 500 (SPX), what's striking is the shallowness of the recent decline and the similarity to the 7-month topping process of 2011: the recent decline bounced off the 20-week moving average and could be moving up to form the right shoulder of a long-term head and shoulders pattern, similar to 2011.
MACD is not showing much weakness, though various other indicators (new highs and lows for example) are reflecting underlying weakness.
Here's the key question: could the market decline sharply like it did in 2011? Stocks are out of sync with bond yields, and a number of other indicators suggest weakening beneath the surface. Perhaps the current bounce is classic short-covering, as Bears are burned once again. If we combine yet another short-covering rally with deteriorating indicators, that does set up the potential for a waterfall crash, as there may be too few shorts left to spawn a buy-the-dip reaction to any serious decline.
The global economy is certainly at risk of a "credit event" that could spark a conflagration in global stock markets, but at this juncture there is little evidence that a crisis is brewing. Perhaps the more likely trigger this time around will be a currency/liquidity crisis.
The stock market might drift higher to new highs or correct after filling the gap at SPX 1685. We won't know until the gap gets filled.
The best thing that happened to me this week
About a month ago I did some routine medical lab tests and found my total cholesterol had crept up to 210 and my "bad cholesterol" (LDL) was 139 (triglycerides were 96). (My weight was 176-77, BMI 22.7) Recommended numbers are cholesterol under 200 and "bad cholesterol" LDL under 129.
I responded by trimming how much I ate (especially non-whole grain carbs, cheese, red meats and high-calorie sweets), alcohol (only one beer or 4-oz glass of wine per day) and ramping up my fitness regime. I re-did the tests yesterday (34 days after the first tests) and was gratified that losing 5 pounds of extra weight and a tightened-up (but by no means restrictive) diet and fitness regime led to a major improvements: total cholesterol dropped 20 points to 190, triglycerides declined from 96 to 57, LDL fell from 139 to 125 and HDL (good cholesterol) rose from 52 to 54. (weight 172-72, BMI 22.1)
Relatively mild but sustained lifestyle changes can make big differences in our health. We know this, but these tests provide quantitative evidence.
From Left Field
Tomorrow's cities: Do you want to live in a smart city? (via Peak Prosperity) --IBM and Big Data providers think "smart city" data crunching is useful; others think the key is crowdsourced data-sharing
RIP, Elmore Leonard: The Beloved Author’s 10 Rules of Writing (it's cute to say "leave out the parts that readers tend to skip", but that is the hard part... not to mention that wipes out Henry James and Faulkner....)
Five Things You NEED to Know Before Buying a House (vai Maoxian) Slamming the American Dream with harsh reality. Owning is costly and a financial anchor unless you buy when there's blood in the streets....
War on the U.S./Mexico Border (via Joel M.) "As our country’s foreign wars have begun to wind down, defense contractors look here, on the southern border, to make money."
"If liberty means anything at all, it means the right to tell people what they do not want to hear." George Orwell
Thanks for reading--
charles
