Before you buy another ticket for the Bull market bandwagon of "don't fight the Fed," perhaps you should take a look at the quality of the debt the Fed has enabled and the diminishing returns on all that debt.
The mainstream media is delighted to highlight positive economic data, but nobody ever asks about the quality of the borrowers who are behind the rosy numbers. Behind the rosy numbers, sales and profits are increasingly dependent on marginal buyers and borrowers: those buying on credit who would not qualify to borrow money in a system ruled by prudent risk-management.
These marginal borrower/buyers are last on, first off: they qualify for loans at the end of a credit expansion, when lenders throw caution to the winds to reap the profits from issuing new mortgages, auto loans, student loans, credit cards, etc. to marginal borrowers.
These marginal borrowers are the first to default, because they have insufficient income and collateral to support their loans.
This rising dependence on marginal borrowers/buyers leads to an economy of diminishing returns: ever-rising rates of debt expansion are required to generate ever-declining rates of expansion of sales, profits, GDP, etc.
The waterfall decline of the quality of debt-based sales is masked by the rosy headline numbers. Auto sales are soaring; nice, but does anyone ask how many of those vehicles were sold to marginal buyers, the kind of borrowers who are one paycheck away from insolvency and default?
How many issuers of junk bonds are one recession away from insolvency and default?
Let's look at a few examples of diminishing returns/dependence on rising debt for marginal returns. Once again, we must keep in mind the quality of the debt and the borrowers is not revealed in rosy headline numbers.
Anecdotally, I see plenty of people who defaulted/declared bankruptcy in previous downturns who are once again in hock to the hilt, and they know the drill: borrow and spend as much as you can, because all you have to do is stop paying.
Yes, your credit score will be lousy for a few years, but lenders and retailers are so desperate for sales that you won't have to wait long to start getting a flood of credit card offers in your mailbox. After all, anyone with a pulse can buy a car now.
Here's total credit and GDP: this screams "diminishing returns":
The Fed's "free-money for financiers" balance sheet and the S&P 500: once again, this screams "diminishing returns:"
Money velocity: diminishing returns:
Small biz: fading at the margins:
Federal student loans: this fairly screams, "go ahead and default, there is literally no risk management here":
The return on a college degree? Diminishing faster than you can say "default":
Labor participation and real median income: diminishing returns on all the outlandish money pumping and Federal deficit spending:
Fulltime employment: going nowhere after 5+ years of unprecedented expansion of central bank "free money for financiers" and Federal debt:
Real household income: declining for all but the top 5%:
Household income has declined significantly in real terms: Five Decades of Middle Class Wages (Doug Short).
Federal Reserve "free money for financiers" has greatly expanded wealth inequality:
So before you buy another ticket for the Bull market bandwagon of "don't fight the Fed," perhaps you should take a look at the quality of the debt the Fed has enabled and the diminishing returns on all that debt.
Get a Job, Build a Real Career and Defy a Bewildering Economy(Kindle, $9.95)(print, $20)
Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.
And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.
You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.
Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.
So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.
It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.
I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.
Test drive the first section and see for yourself. Kindle, $9.95 print, $20
"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."
Gordon Long and I discuss The New Nature of Work: Jobs, Occupations & Careers (25 minutes, YouTube)
|Thank you, Transformation Institute ($10), for your most generous contribution to this site -- I am greatly honored by your support and readership.||Thank you, Karen H. ($25), for your much-appreciated generous contribution to this site -- I am greatly honored by your support and readership.|