Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – January 20, 2017
After opening higher ahead of the inauguration the major averages slipped late entering the final hour with small gains. Since Tuesday the Standard and Poors 500 index is essentially unchanged while the NASDAQ has lost 10 points or a fraction of a percent.
The parade of everything is great continues from the various pundits and members of the officialdom. Federal Reserve Chairwomen Janet Yellen recently stated that the economy is close to growing on its own, 2% target inflation has been realized and that full employment has essentially been achieved, presumably based on the sub 5% unemployment rate. A lay person could be forgiven for believing this overly simplistic narrative, but not Mrs. Yellen as she should and does know better. The reason the unemployment rate is below 5% is primarily due to the fact that a record 95 million Americans have dropped out of the labor force, aka the Labor Force Participation Rate, and are no longer counted as unemployed. Given a median income of just over $30,000 in 2015 based on Census data and the 95 million no longer employed folks represent 2.8 trillion in lost wages. This in turn means less tax receipts, reduced consumer spending and less economic activity and 85 million people that are no longer productive wage earners and tax payers but are now dependent on various social benefit programs like disability, student loans etc. It doesn’t take a PhD to look at the relevant data sets and connect the dots. If the total economy is about 18 trillion Dollars and you remove 2.8 trillion in earned income or about 15% is it really a surprise to learn that we struggle to maintain 2% economic growth? Or that the deficits have absolutely exploded, and yes there were extenuating circumstances, since the 2007-2009 financial crisis? Or that consumers are up to their eyeballs in debt? Notwithstanding the statistical sleight of hand total consumer debt is much lower game compliments of a sharply reduced homeownership rate brought on by 8 million plus foreclosures from the 2007-2009 financial crisis period. This is primarily why we just can’t quite seem to achieve escape velocity, the earned income isn’t there, yet we continue to substitute debt in its place while the pundits promise recovery is just around the corner.