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Our Current Illusion of Prosperity

April 2, 2015

Our Current Illusion of Prosperity

President Obama and Fed Chair Janet Yellen have been crowing about improving economic conditions in the US. Unemployment is down to 5.5 percent and growth in 2014 hit 2.2 percent.

Journalists and economists point to this improvement as proof that quantitative easing was effective.

Pile on More Debt

Unfortunately, this latest boom is artificial and has been built by adding debt on top of debt. Total household debt increased 2.5 percent in 2014 — the highest level since 2010. Mortgage loans increased 1.5 percent, student loans 6.6 percent while auto loans increased a hefty 9.6 percent. The improving auto sales are built mostly on a bubble of sub-prime borrowers. Auto sales have been brisk because of a surge in loans to individuals with credit scores below 620. Since 2010, such loans have increased over 100 percent and havegone from 20 percent of originations in 2009 to 27 percent in 2013. Yet, auto loans to individuals with strong credit scores, above 760, have barely budged over the last year.

Subprime consumer borrowing climbed $189 billion in the first eleven months of 2014. Excluding home mortgages, this accounted for 41 percent of total consumer lending. This is exactly the kind of lending that got us into trouble less than a decade ago, and for many consumers, this will only end in tears.

But we need to ask ourselves: is the current boom built on sound foundations? In other words, do we have sharp increases in productivity or real wage growth?

Productivity increased less than 1 percent on average in the last three years and real wages have flat lined or declined for decades. From mid-2007 to mid-2014, real wages declined 4.9 percent for workers with a high school degree, dropped 2.5 percent for workers with a college degree and rose just 0.2 percent for workers with an advanced degree.

 

…click on the above link to read the rest of the article…

Jim Grant Sums It All Up In 2 Stunning Paragraphs | Zero Hedge

December 7, 2014

Jim Grant Sums It All Up In 2 Stunning Paragraphs | Zero Hedge.

What will futurity make of the [so-called] Ph.D. standard [that runs our world]?

Likely it will be even more baffled than we are. Imagine trying to explain the present-day arrangements to your 20-something grandchild a couple of decades hence – after the crash of, say, 2016, that wiped out the youngster’s inheritance and provoked a cenral bank response so heavy-handed as to shatter the confidence even of Wall Street in the Federal reserve’s methods…

I expect you’ll wind up saying something like this:

“My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates.

We put the cart of asset prices before the horse of enterprise.

We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.

We actually worked to foster inflation, which we called ‘price stability’ (this was on the eve of the hyperinflation of 2017).

We seem to have miscalculated.”

*  *  *

Source: Jim Grant’s November 2014 speech at the Cato Institute

Full keynote address below: (Grant begins at 10:00)

oftwominds-Charles Hugh Smith: Prosperity Amidst the Ruins

November 26, 2014

oftwominds-Charles Hugh Smith: Prosperity Amidst the Ruins.

The fundamental problem facing the global economy is not slow economic growth but political inequality.


It’s striking: as economies stagnate, the top tier is living even larger while the low-income masses sink further into marginalized poverty. I call this widening divide between the vested interests/wealthy and the rest of society prosperity amidst the ruins.

How can the top slice prosper while the rest of the populace suffers from higher taxes, stagnant wages and a collapse of employment/enterprise opportunities?
Just as Greece led the way in the sovereign debt crisis a few years ago, it is also leading the way in showing how oligarchies can expand their wealth and power even as their populace slides deeper into poverty. A recent article, Misrule of the Few: How the Oligarchs Ruined Greece, lays out the key dynamics.
It is self-evident that these same dynamics are playing out in the rest of Europe, the U.S., Japan, China and most if not all of the developing world.

Writer Pavlos Eleftheriadis pulls no punches:
…click on the above link to read the rest of the article…

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