One of the more troubling aspects of life in 21st-century America is the disconnect between the narratives presented by Washington’s economic agencies and the realities faced daily by citizens. In essence, the figures simply do not align. Moreover, the prevailing propaganda often feels not just inaccurate but also frankly derogatory.
The Bureau of Labor Statistics (BLS) claims an unemployment rate of just 3.7 percent. Additionally, it presents a price inflation rate, as indicated by the consumer price index (CPI), of 1.8 percent. Yet, one can hardly miss the sight of city streets dotted with tents, where panhandlers often respond to a dollar with a dismissive “that’s all?”
Simultaneously, many individuals with sound ethics and good intentions are accumulating debt at an unprecedented rate. Recent figures show mortgage debt has skyrocketed to over $9.4 trillion, surpassing the previous high of $9.3 trillion recorded at the onset of the 2008 financial crisis.
Overall, American household debt, which encompasses mortgages and student loans, stands at around $14 trillion, exceeding 2008 levels by about $1 trillion. Credit card debt has also climbed above $1 trillion, indicating that these debt figures are not signs of economic vitality, but rather harbingers of potential crises. They exemplify a troubling trend where American workers are receiving a raw deal.
How is it that while the economy has experienced a decade of growth, the average worker has seen no significant increase in their income? Have workers genuinely been stuck in a perpetual cycle of stagnation? How did this perplexing dilemma arise?
A Disturbing Reality
These glaring discrepancies and looming threats can be ignored no more than one can overlook a gathering of arsonists in an alleyway. While their antics may initially lead to small disturbances, a more significant catastrophe could unfold when their restraints dissipate.
On the surface, it seems almost pathological for U.S. consumers, corporations, and federal entities to immerse themselves in debt at current levels. Only individuals with skewed perceptions—be they misled economists or overly optimistic ideologues—could justify this behavior. Yet, these escalating debts are simply symptoms of a compulsive attempt to cling to a fleeting economic golden age.
Indeed, the era of American prosperity—from the end of World War II through the 1970s—was remarkable. It saw a collective rise in wealth that benefited many. Since that time, however, this appearance of prosperity has been propped up by significant debt accumulation, facilitated by the Federal Reserve’s artificial manipulation of money and interest rates.
Regrettably, as debt levels soar, bankruptcy becomes more common. In New York State, for instance, bankruptcy filings have risen consistently over the past three years, increasing from 30,112 in 2016 to 34,711 in 2018. When debt reaches such staggering levels, and financial pressure becomes unmanageable, bankruptcy often emerges as the only viable escape.
Naturally, American consumers mirror Congress’s lack of fiscal discipline. The U.S. deficit for the first 10 months of fiscal year 2019 already surpasses last year’s numbers. In July alone, the Treasury added $119.7 billion in new debt.
The Impending Consequence
Over the past four decades, growth has increasingly been extracted from future potential due to significant infusions of corporate, consumer, and governmental debt. Consequently, future productivity will largely be dedicated to servicing this enormous debt, leading to stagnation rather than growth. This stagnation was evident during the past decade of meager economic advancement.
Tragically, now, just as the U.S. economy is poised for a downturn, the illusory wealth of the stock market is beginning to erode. Confidence in the Federal Reserve’s capacity to uphold stock values has been fractured, and Fed Chair Powell appears to be losing control.
After hitting 3,027 on July 26, the S&P 500 has since plummeted by 6 percent. While a decline of this magnitude might seem minimal, a 20 percent decrease is necessary to truly enter bear market territory. Given the historic length and deception of this bull market, declines of 50 percent or more could be possible.
To exacerbate matters, indicators show that a recession is on the horizon. Even the Treasury market reflects this sentiment; notably, the yield on the 10-year Treasury has dipped below that of the 2-year Treasury.
The last time this inversion occurred was in 2007, just before the financial crisis. While a recession may not follow immediately, the warnings are becoming increasingly clear. This could be deemed an early warning—an omen—or even spiritual graffiti that forewarns of impending challenges.
Ignoring these signs could lead to dire consequences.
Sincerely,
MN Gordon
for Economic Prism
