Thursday, March 10, 2005
The Ongoing Economic Train Wreck Waiting To Happen
From yesterday's The Daily Reckoning, the latest on the ongoing economic train wreck waiting to happen:
"Everything is just peachy. We don't deny it. Spring is coming. The snow is melting in England and France.
"Stocks are up. Houses are up. Even employment is up.
"But what's this? What are these new jobs? And why aren't people earning more money from them? After a recession, typically employment rises and so do incomes. This 'recovery' is 39 months old. It hasn't produced as many jobs as we were expecting. And the latest numbers show that even those it has produced are not very good ones.
"The fastest growing categories are administration, health care, construction, real estate, and restaurants. Many of the new jobs, in other words, involve building houses for people and serving them dinner. Nearly all of them are related to consumption... and practically none of them help ease America's trade deficit. Nor do they help Americans out of their holes of debt. Just the contrary - it is as if Americans had been put to work digging themselves deeper!
"In January, consumer debt rose twice as fast as expected, up $11.5 billion to a total of $2.12 trillion. Households borrowed in order to keep up appearances, because their earnings did not keep up with their consuming ambitions. In 2004, despite what looked like decent job growth, wages were no higher than they were at the bottom of the recession in November of 2001.
"Meanwhile, costs are rising. Everything that can't be made in China, or done in India, seems to be going up in price. Anyone who earns his wages making gadgets and geegaws in America is unlikely to see much income growth over the next three or four decades; he's competing with 3 billion Asian workers. The Asians are driving prices down, not up. Even office workers are feeling the wage competition. More and more, Indians are processing America's tax forms, doing our architectural plans, handling insurance paperwork, and running customer service offices. Workers with white collars are not likely to see much wage growth either.
"Their incomes may be stagnant, but their costs of living are still moving up. Oil is at $54.59 per barrel. An Associated Press article estimates pump prices of about $2.15/gallon this summer. Gold is back at $441. Almost all commodities are soaring... with copper near 20-year highs.
"The dollar, not by coincidence, is sinking. A euro cost $1.33 this morning. A simple house in La Jolla, California cost a million of them.
"But the dirt flies... as millions of consumers continue to dig downward. And never has the ground yielded so readily. CNN Money reports that 42% of first time house buyers put zero down. Nearly 70% put down less than 10%. And the mortgage industry has come up with new, more efficient tools, such as the 'minimum payment' scheme, which is like an automatic 'ditch witch' for consumer. The borrower makes such a small payment on his loan each month it doesn't even cover the interest. His loan balance grows without doing a thing.
"Bring out the backhoes and excavators. Total consumer credit in America is at 305% of GDP. A bigger hole has never been dug. Still, it grows larger every day.
"Dandy. Just dandy."
"Everything is just peachy. We don't deny it. Spring is coming. The snow is melting in England and France.
"Stocks are up. Houses are up. Even employment is up.
"But what's this? What are these new jobs? And why aren't people earning more money from them? After a recession, typically employment rises and so do incomes. This 'recovery' is 39 months old. It hasn't produced as many jobs as we were expecting. And the latest numbers show that even those it has produced are not very good ones.
"The fastest growing categories are administration, health care, construction, real estate, and restaurants. Many of the new jobs, in other words, involve building houses for people and serving them dinner. Nearly all of them are related to consumption... and practically none of them help ease America's trade deficit. Nor do they help Americans out of their holes of debt. Just the contrary - it is as if Americans had been put to work digging themselves deeper!
"In January, consumer debt rose twice as fast as expected, up $11.5 billion to a total of $2.12 trillion. Households borrowed in order to keep up appearances, because their earnings did not keep up with their consuming ambitions. In 2004, despite what looked like decent job growth, wages were no higher than they were at the bottom of the recession in November of 2001.
"Meanwhile, costs are rising. Everything that can't be made in China, or done in India, seems to be going up in price. Anyone who earns his wages making gadgets and geegaws in America is unlikely to see much income growth over the next three or four decades; he's competing with 3 billion Asian workers. The Asians are driving prices down, not up. Even office workers are feeling the wage competition. More and more, Indians are processing America's tax forms, doing our architectural plans, handling insurance paperwork, and running customer service offices. Workers with white collars are not likely to see much wage growth either.
"Their incomes may be stagnant, but their costs of living are still moving up. Oil is at $54.59 per barrel. An Associated Press article estimates pump prices of about $2.15/gallon this summer. Gold is back at $441. Almost all commodities are soaring... with copper near 20-year highs.
"The dollar, not by coincidence, is sinking. A euro cost $1.33 this morning. A simple house in La Jolla, California cost a million of them.
"But the dirt flies... as millions of consumers continue to dig downward. And never has the ground yielded so readily. CNN Money reports that 42% of first time house buyers put zero down. Nearly 70% put down less than 10%. And the mortgage industry has come up with new, more efficient tools, such as the 'minimum payment' scheme, which is like an automatic 'ditch witch' for consumer. The borrower makes such a small payment on his loan each month it doesn't even cover the interest. His loan balance grows without doing a thing.
"Bring out the backhoes and excavators. Total consumer credit in America is at 305% of GDP. A bigger hole has never been dug. Still, it grows larger every day.
"Dandy. Just dandy."
