Monday, September 9, 2013

The Real Economy

 The disturbing trend in the economy appears to be surfacing even by those loyal to the current Administration, today's Eagle-Tribune makes no exception:


The blogosphere is full of tales of woe by ordinary Americans looking for jobs, underemployed, or surviving on government benefits continue to grow. I'm only speculating here as a non-Economist, but The Middle East is a perfect diversionary tactic for continued secular change going on in our labor markets. In a word, it's simply disastrous. Sure there are exceptions in any given area at any given time, but I'd like to look at the bigger picture, and a trend that is clearly deteriorating. A condition of course that even policy wonks like Paul Krugman are reluctant to admit.

The first data point I'd like to hit on is the extraordinary amount of people "Not in the Labor Force".

That is 90 million Americans not working, nearing one-third of our population. There are of course demographics that attribute to this, especially retiring "Boomers", but I'll parse that shortly. Of that 90 million not in the labor force, we have over 6 million Americans not in the labor force, but would like a job today, as seen here:

That's over 1 million more than when the "official" recession started. So while it is currently trending better, the five-year trend clearly shows deterioration. As the E-T article correctly states, the "Labor Force Participation Rate" continues to decline. Mindful that this started long before the current administration, but made no better:

The above BLS data shows the participation rate is at 1978 levels, just as women were starting to enter the workforce. Translation: Now men and women are both out of jobs, which I think is safe to speculate this would include dual households. So where is this job creation that we always hear about? See here:

Closing in on 30 million Americans working part-time, accurately dubbed: "The New Normal". So maybe college kids and older retiring Boomers are skewing the statistics? Let's look:

As we can see, the demographics of 25-54 year old the secular change is happening with what we traditionally associate with working adults. What does this all mean? John Williams over at "Shadow Stats" uses an alternative formula for his unemployment numbers. He uses the pre-1994 methodology of long term discouraged workers, which the BLS did away with (read when numbers look bad, change the math of doing the calculation):

As you can see through this methodology, the real unemployment rate exceeds 20%, and has been high for over a decade. Of course no politician will ever claim responsibility as they prefer to use current BLS methods where they don't count all the true unemployed. There's another caveat not readily mentioned in Main Stream Media (MSM) adding to this disaster; disability claims:

We are approaching 30 million Americans claiming disability. Normally this would not catch any attention, but if you look closely, claims spiked just after 2010, when Emergency Unemployment Extended Benefits expired. That's tax free income...forever. Speaking of incomes and wages:

That is our wages in relation to GDP, simple and complete wage destruction. Chances are if you are working and not self-employed, you have heard of the "do more with less" mantra. Well this expresses that in terms of production and what you receive as a result of the fruits of your labor. An easier way to see how this effects all of us is a graph publish by Doug Short, courtesy of Sentier Research:

The above shows we have been losing the battle on wages for a very long time. This research includes inflation in their formula, which is why we would see a diversion using only nominal data. As far as wages are concerned, they're simply being destroyed. There are of course multiple reasons for this, and I'll cover the basics shortly, but one of my favorite charts is here:

In a $16-plus trillion dollar economy, my favorite unanswered question to politicians is this: Where is the tax revenue for $16 Trillion dollars? I have yet to receive an answer for this. Of course, I and many others continue to speculate on this, and I personally look in a couple areas:

What we see is a leveraged economy. Between The Federal Reserve's $3.3 trillion dollar balance sheet and consumer credit outstanding nearing $60 trillion. Of course in The Fed's case, another question I inquire with our Congress Members: How does that Fed balance sheet unwind? Along with a growing balance sheet, The Fed is diluting our currency at roughly 7% every year through Quantitative Easing (QE), Primary Open Market Operations, Zero Interest Rate Policy and debt monetization (buying our own debt/debt used as currency). The results have been horrific and cannot be defended by any measure, seen here:

Your money is buying less and less, while the costs thanks to QE keeps those costs rising. Will The Fed taper or not is yet another unknown question. Whether they do or not, does it matter to you as a "Main Street Citizen"? I think the damage is done, and irreversible, when you add in inflation, the picture is even bleaker:

"Shadowstats" use both theirs and the official Fed inflation rates. The official Consumer Price Index does not factor in fuel or food, but we don't need such trivial items do we? Meanwhile the real economy is being systematically dismantled for those of us on Main Street. Any question to that can be seen here with M2 Velocity:
What is M2 Velocity:

                              "The velocity of money is the frequency at which one unit of currency is used to purchase  domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy." 

We are slowly grinding to a halt.

When the war talk or action on Syria ends, it will be interesting if the economy is brought to the forefront. We'll see the antics with the debt ceiling, as it will be increased, but then what? Thanks to technology, aging demographics, and destructive monetary policy, we are what I believe seeing a shift in all things economic. Meanwhile, State and Federal officials will see to more taxation, debasement of currency and more Americans facing the pressures of all the aforementioned. For those out of work, or those that still have a job and/or career, I wish I had the answers. I wish our government wasn't so intent on theft of your earnings while the economy is in free fall. The status quo of long-time crony government is destroying this country, and it is not restricted to political Party. Good luck to us all, because if the trends continue to worsen, luck is all we'll have.

*Late edit as it is appropriate here, courtesy Twitter via The Limerick King:

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