I want to give you 5 indisputable facts that you can use to get the Kool Aid drinkers to stop talking and start thinking. It works, I’ve actually tried them out. Further, I’ve laid out discussion about each in some detail below. This is a rebuttal to the facts and figures that we hear everyday being thrown around by those who want us to believe the government and its agencies have done a very good job for all of us rather than just making those at the very top extraordinary amounts of money over the past 15 years. The truth amongst the madness is that our economy is in tatters.
1. Total household debt has increased by more than 150% since 2000 (despite having decline since 2008, which is all we hear).
2. Median household incomes have declined by almost 10% since 2000.
3. Total incomes have increased by 37% since 2000 but the bottom 50% of earners have not received any of that additional income.
4. The Fed’s commonly used unemployment figure is still higher than almost anytime between 2000 and 2008 (despite having declined since 2009, which is all we hear). The much more accurate U6 unemployment is actually still 12.5% and higher than anytime between 2000 and 2008 meaning our employment situation remains awful. Not only are incomes for those working lower than before but we still have a lot less people actually working.
5. Real sales for corporations have declined since 2008. Despite having zero percent interest rates to drive spending (leading to a doubling of the nation’s total debt) and despite corporations reducing the amount of shares outstanding, real sales per share have actually declined by 4.75% since 2008. Meaning profit increases have come by way of cutting employees and reinvestment into capital required for future production. The fact that total income is up yet sales are down is symptomatic of an economy that has too narrow an income distribution. Meaning income is being distributed amongst too small a group of consumers to create economic growth.
So the other day I heard Cramer from CNBC call that the economy is now officially healed. He feels the economy is now back to 100% and that there are no reasons left for any bearish undertones to the market. Well I’m going to show (and certainly I won’t be the first) that Cramer is not only an annoying son of bitch to listen to but that he’s also a blatant moron and should be considered too dangerous for television.
Let me start by showing you a chart that many of the bull eurphorians like to talk about when it comes to consumers. That is that total consumer debt has actually declined. I hear this all the time. So let’s see what they’re pointing to.
And well geez I see what all the fuss is about. That is quite a significant drop in total household debt, about a trillion dollars in fact. So does this substantiate their claim that households are in relatively very strong shape? Well funny thing about stats…. If we take this chart back to let’s say 2000 it may tell a different story. Let’s have a look.
So what we see is that actually in 2000 household debt was less than half of what it is today. So relatively household debt today is much higher than it was even during the boom years of the mid 2000’s. But this is not terribly meaningful. Debt might be higher but perhaps real income’s are also higher today. Let’s have a look.
So what we see is that compared to 2000, household income today has declined about 10% while household debt has increased by about 150%. So we have to be very careful about verifying the facts we hear to make the case that benefits those running the show. They are always going to present you with statistics that appear on the surface to prove they have successfully engineered the nation back to prosperity.
Thing is when we look around it is abundantly obvious that things are very different today than they were 10 or 15 years ago and so when things smell a bit funny you must follow your instinct. What you will likely find is what we just saw above. These elite’s and their minions on television expect that you won’t go verify what they tell you. They expect you will accept whatever figures they throw out. And their figures, in this case anyway, are not false they just aren’t telling the real story. But let’s carry on because I want to know that by the time you have finished reading this article that you will be 100% convinced the powers that be have done nothing remotely close to engineering our economy back to health. We are still very sick and admitting that is the first and necessary step to truly healing our economy which will come by way of a very different set of strategies.
Another statistic I often hear is that total real personal income is up in the US. So this means everyone has more money. Well again, this is partially true but as we saw above real median incomes have declined. And so how can this be? Well look at the following chart that explains how this can happen. Most of the increased gains in total income are going to the very top of the economic food chain. So the elites are not lying when they say real total personal income is up but they fail to disclose that only the very top have benefitted from that additional income creation.
Personal disposable incomes increased significantly since 2000, however, the bottom 50% make up about 13% of total income. But because we know that median household income declined we know that the bottom 50% have taken essentially none of the increases of the income since 2000 or 2008.
Next is the classic unemployment rate. Yes I love this one because the talking heads on TV still throw this one out there despite the overwhelming evidence that this measure of unemployment is completely unreliable (the Fed itself abandoned this as a reliable measure earlier this year). There are various definitions of unemployment. The definition the government releases is called the U3 (Civilian) unemployment figure. This figure lumps all jobs as equivalent. So if a highly paid engineer loses his job and then replaces it with a part time job flipping burgers the U3 figure will show this as a job having been replaced. Now there is another unemployment figure called the U6 unemployment. This definition accounts for differences in jobs. That is it accounts for those who have simply given up looking for a job and those that are working part time because they cannot find full time work. Let’s have a look at the differences between these over time and see if the talking heads claiming the economy is back on track based on ‘unemployment’ being under 6% is accurate.
You can see that the U3 (Civilian) unemployment figure above has declined since 2009 but that it is still higher than at almost any time between 2000 and 2008. But let’s take a look at U6 to see how a more accurate definition of unemployment has moved during the same time period.
And wow we clearly see that the U6 unemployment, although having declined from 2008, is still higher than at anytime between 2000 and 2008. So the real unemployment rate is around 12.5%. This is about twice as high as it was in 2000.
I can hear the pundits getting frustrated with this presentation now. I can tell they are going to say ok ok so the consumer may not be in great shape relative to the past 15 years but corporations are doing very well. Profits are at all time highs. And well again, they are not lying. Again though they are being deceitful. We would all agree that corporations profiting is a good thing if it comes by way of operational expansion. That is, if companies are doing well because they are selling more stuff then great. That would be really great for everyone. However, profits can go up by either selling more stuff or by cutting costs. And well I’m afraid that corporate profits, although at all time highs, have come only by way of cost cutting and by borrowing money to buy shares back which increases earnings per share. Anytime we lower the denominator the overall ratio gets bigger (given the numerator stays the same). So let’s look at real sales over time to see if companies are indeed selling more and thus profiting that way.
The above chart depicts real sales per share. And what we see is a bit shocking for a couple reasons. First is that we can see that since 2008 real sales have declined about 4.75%. But real sales per share have declined despite the total amount of shares outstanding having been reduced which should have increased the ratio. That tells us that real sales declined by so much that they offset the reduction in shares. Also the population has increased by 5% since 2008. So again the total real sales should have increased just because there are 5% more people consuming. But despite more people consuming and less shares outstanding the real sales per share actually declined by almost 5% since 2008. This tells us that the increase in profits certainly did not come by way of operational expansion. And so it then it means it came by way of cost cutting. Another way to say cost cutting is job losses and less reinvestment into plants, property and equipment or essentially by reducing the things required for future production.