Wednesday, April 11, 2012

Chartfest: US Debt, Employment, Stocks, & Politics

With the world continuing to understand that there are major problems brewing in Europe, the spotlight in the mainstream media today has temporarily moved back to Italy as their 1 year bond auction this morning saw prices rise from 1.405% (previous auction in March) to 2.84% today.

This is the equivalent of putting your home up for auction in March and receiving a high bid for $300,000. Then your neighbor puts their home up for auction in April and receives a high bid of $150,000. It creates a worrisome sign for the trend in the neighborhood.

But enough of Europe's debt, let's have some fun today. Chartfest!

To begin we have a fun chart that shows the size of US debt against all of Europe and the UK combined.

Next up we have both spending and tax receipts in America as a percentage of GDP. Mind the gap located beyond 2008.

For those that have read or watched Chris Martensen's "Crash Course," you understand the importance of a parabolic curve. We now have a new one, along with money supply and population growth: the US federal deficit. Just wait until interest rates rise and the "magic" of compounding interest is applied to this equation.

The following graph shows unemployment vs. labor rate. You can spot the divergence in 2009 when employees began "giving up" looking for jobs creating the artificially low unemployment rate sitting at 8.2% today. The real number should be at least 2% higher (above 10%) and even higher from there when counting those taking temporary part time jobs that do not cover monthly expenses.

Next up we have the number of people turning 65 per year in America. You can see the jump up beginning in 2010 and the steady rise from there. For the impact this will have on the real estate market see 2012 Real Estate Outlook: Demand - Willingness. This will also impact the stock market as those that have steadily contributed to a 401k over the past 40 years will now be steadily withdrawing (selling stocks). Remember that 401k's "force" a percentage of assets to be sold every year once baby boomers hit a specific age.

The following shows the growth in food stamp usage since the depression began in 2007. The monthly allowance every month has begun to fall as the cost of food continues to rise. Look for those two trends to diverge in a violent setting in the months and years ahead.

Another quick look at stocks and earnings which we discussed yesterday, with the graph below shows the S&P performance against the expected S&P 500 earnings growth rate for quarter 1. Real earnings have continued to fall as stock prices continued their rise.

The next two incredible charts come from David Rosenberg. The first shows the money savers have lost due to the Fed's low interest rate policy since 2008, meaning the interest they would have collected if Bernanke had not artificially pushed rates lower. It equals $400 billion per year and over $1 trillion total since 2008. Imagine how Americans would feel with an extra $1 trillion in cash in their pocket (and most likely a much lower cost of living as the value of the currency would have reflected higher rates).

Then you have where investors have been forced to put their money instead. With no rate of return possible through savings the money has been forced back into the casino of the stock market with the allure of dividend returns (even at only 2% or less). The problem with this? See the fall of 2008.

A quick look at the political world in the graph below shows voter turnout in the United States compared with the rest of the world. Less than 50% of eligible citizens actually show up at the ballots.

Why so low? Here is where Americans rank members of Congress in terms of honesty & ethics. Perhaps more and more people are coming to the conclusion that Obama and Romney, Democrats and Rebublicans, are one in the same.

The following chart is stunning. It shows the total global debt to GDP around the world. Total debt has risen from $80 trillion in 2002 to just under $200 trillion in 2010. Debt to GDP ratios have risen from 285% to 335%, which shows you how dependent the global economy has become on credit growth. Somehow this debt must either be defaulted on or inflated away in order to get back to sustainable levels based on current global income (how debt payments are serviced).

Lastly, I will leave you with Alan Greenspan's famous "Irrational Exuberance."