The Next Great Depression

Has The Next Recession Already Begun For America’s Middle Class?

May 28, 2014 by Michael

Has the next major economic downturn already started? The way that you would answer that question would probably depend on where you live. If you live in New York City, or the suburbs of Washington D.C., or you work for one of the big tech firms in the San Francisco area, you would probably respond to such a question by saying of course not. In those areas, the economy is doing great and prices for high end homes are still booming. But in most of the rest of the nation, evidence continues to mount that the next recession has already begun for the poor and the middle class. As you will read about below, major retailers had an absolutely dreadful start to 2014 and home sales are declining just as they did back in 2007 before the last financial crisis. Meanwhile, the U.S. economy continues to lose more good jobs and 20 percent of all U.S. families do not have a single member that is employed at this point. 2014 is turning out to be eerily similar to 2007 in so many ways, but most people are not paying attention.

During the first quarter of 2014, earnings by major U.S. retailers missed estimates by the biggest margin in 13 years. The “retail apocalypse” continues to escalate, and the biggest reason for this is the fact that middle class consumers in the U.S. are tapped out. And this is not just happening to a few retailers – this is something that is happening across the board. The following is a summary of how major U.S. retailers performed in the first quarter of 2014 that was put together by Jim Quinn…

Wal-Mart Profit Plunges By $220 Million as US Store Traffic Declines by 1.4%

Target Profit Plunges by $80 Million, 16% Lower Than 2013, as Store Traffic Declines by 2.3%

Sears Loses $358 Million in First Quarter as Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%

JC Penney Thrilled With Loss of Only $358 Million For the Quarter

Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%

Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%

Staples Profit Plunges by 44% as Sales Collapse and Closing Hundreds of Stores

Gap Income Drops 22% as Same Store Sales Fall

American Eagle Profits Tumble 86%, Will Close 150 Stores

Aeropostale Losses $77 Million as Sales Collapse by 12%

Best Buy Sales Decline by $300 Million as Margins Decline and Comparable Store Sales Decline by 1.3%

Macy’s Profit Flat as Comparable Store Sales decline by 1.4%

Dollar General Profit Plummets by 40% as Comp Store Sales Decline by 3.8%

Urban Outfitters Earnings Collapse by 20% as Sales Stagnate

McDonalds Earnings Fall by $66 Million as US Comp Sales Fall by 1.7%

Darden Profit Collapses by 30% as Same Restaurant Sales Plunge by 5.6% and Company Selling Red Lobster

TJX Misses Earnings Expectations as Sales & Earnings Flat

Dick’s Misses Earnings Expectations as Golf Store Sales Plummet

Home Depot Misses Earnings Expectations as Customer Traffic Only Rises by 2.2%

Lowes Misses Earnings Expectations as Customer Traffic was Flat

That is quite a startling list.

But plummeting retail sales are not the only sign that the U.S. middle class is really struggling right now. Home sales have also been extremely disappointing for quite a few months. This is how Wolf Richter described what we have been witnessing…

This is precisely what shouldn’t have happened but was destined to happen: Sales of existing homes have gotten clobbered since last fall. At first, the Fiscal Cliff and the threat of a US government default – remember those zany times? – were blamed, then polar vortices were blamed even while home sales in California, where the weather had been gorgeous all winter, plunged more than elsewhere.

Then it spread to new-home sales: in April, they dropped 4.7% from a year ago, after March’s year-over-year decline of 4.9%, and February’s 2.8%. Not a good sign: the April hit was worse than February’s, when it was the weather’s fault. Yet April should be the busiest month of the year (excellent brief video by Lee Adler on this debacle).

We have already seen that in some markets, in California for example, sales have collapsed at the lower two-thirds of the price range, with the upper third thriving. People who earn median incomes are increasingly priced out of the market, and many potential first-time buyers have little chance of getting in. In San Diego, for example, sales of homes below $200,000 plunged 46% while the upper end is doing just fine.

As Richter noted, sales of upper end homes are still doing fine in many areas.

But how long will that be able to continue if things continue to get even worse for the poor and the middle class? Traditionally, the U.S. economy has greatly depended upon consumer spending by the middle class. If that continues to dry up, how long can we avoid falling into a recession? For even more numbers that seem to indicate economic trouble for the middle class, please see my previous article entitled “27 Huge Red Flags For The U.S. Economy“.

Other analysts are expressing similar concerns. For example, check out what John Williams of shadowstats.com had to say during one recent interview…

We’re turning down anew. The first quarter should revise into negative territory… and I believe the second quarter will report negative as well.

That will all happen by July 30 when you have the annual revisions to the GDP. In reality the economy is much weaker than that. Economic growth is overstated with the GDP because they understate inflation, which is used in deflating the number…

What we’re seeing now is just… we’ve been barely stagnant and bottomed out… but we’re turning down again.

The reason for this is that the consumer is strapped… doesn’t have the liquidity to fuel the growth in consumption.

Income… the median household income, net of inflation, is as low as it was in 1967. The average guy is not staying ahead of inflation…

This has been a problem now for decades… You were able to buy consumption from the future by borrowing more money, expanding your debt. Greenspan saw the problem was income, so he encouraged debt expansion.

That all blew apart in 2007/2008… the income problems have continued, but now you don’t have the ability to borrow money the way you used to. Without that and the income problems remaining, there’s no way that consumption can grow faster than inflation if income isn’t.

As a result – personal consumption is more than two thirds of the economy – there’s no way you can have positive sustainable growth in the U.S. economy without the consumer being healthy.

The key to the health of the middle class is having plenty of good jobs.

But the U.S. economy continues to lose more good paying jobs.

For example, Hewlett-Packard has just announced that it plans to eliminate 16,000 more jobs in addition to the 34,000 job cuts that have already been announced.

Today, there are 27 million more working age Americans that do not have a job than there were in 2000, and the quality of our jobs continues to decline.

This is absolutely destroying the middle class. Unless the employment situation in this country starts to turn around, there does not seem to be much hope that the middle class will recover any time soon.

Meanwhile, there are emerging signs of trouble for the wealthy as well.

For instance, just like we witnessed back in 2007, things are starting to look a bit shaky at the “too big to fail” banks. The following is an excerpt from a recent CNBC report…

Citigroup has joined the ranks of those with trading troubles, as a high-ranking official told the Deutsche Bank 2014 Global Financial Services Investor Conference Tuesday that adjusted trading revenue probably will decline 20 percent to 25 percent in the second quarter on an annualized basis.

“People are uncertain,” Chief Financial Officer John Gerspach said of investor behavior, according to an account from the Wall Street Journal. “There just isn’t a lot of movement.”

In recent weeks, officials at JPMorgan Chase and Barclays also both reported likely drops in trading revenue. JPMorgan said it expected a decline of 20 percent of the quarter, while Barclays anticipates a 41 percent drop, prompting it to announce mass layoffs that will pare 19,000 jobs by the end of 2016.

Remember, very few people expected a recession the last time around either. In fact, Federal Reserve Chairman Ben Bernanke repeatedly promised us that we would not have a recession and then we went on to experience the worst economic downturn since the Great Depression.

It will be the same this time as well. Just like in 2007, we will continue to get an endless supply of “hopetimism” from our politicians and the mainstream media, and they will continue to fill our heads with visions of rainbows, unicorns and economic prosperity for as far as the eyes can see.

But then the next recession will strike and most Americans will be completely blindsided by it.

27 Huge Red Flags For The U.S. Economy

May 20, 2014 by Michael

If you believe that the U.S. economy is heading in the right direction, you really need to read this article. As we look toward the second half of 2014, there are economic red flags all over the place. Industrial production is down. Home sales are way down. Retail stores are closing at the fastest pace since the collapse of Lehman Brothers. U.S. household debt is up substantially, and in 20 percent of all U.S. families everyone is unemployed. In so many ways, what we are witnessing right now is so similar to what we experienced during the build up to the last great financial crisis. We are making so many of the very same mistakes that we made the last time, and yet our “leaders” seem completely oblivious to what is happening. But the warning signs are very clear. All you have to do is open your eyes and look at them. The following are 27 huge red flags for the U.S. economy…

#1 Despite endless assurances from the Obama administration that we are in an “economic recovery”, the number one concern for U.S. voters is “Unemployment/Jobs” according to a recent Gallup survey.

#2 Historically, sales for construction equipment manufacturer Caterpillar have been a pretty good indicator of where the global economy is heading next. Unfortunately, sales were down 13 percent last month and have now experienced year over year declines for 17 months in a row.

#3 During the first quarter of 2014, profits at office supply giant Staples fell by 43.5 percent.

#4 Foot traffic at Wal-Mart stores fell by 1.4 percent during the first quarter of 2014. Analysts seem puzzled as to why Wal-Mart is “underperforming“. Perhaps it is because the U.S. middle class is being steadily destroyed and U.S. consumers are tapped out at this point.

#5 It is being projected that Sears will soon close hundreds more stores and will eventually go out of business altogether…

The company said this week that it may sell its 51% stake in Sears Canada, which operates nearly 20% of the company’s stores worldwide. It has quietly closed nearly 100 U.S. stores in the last year. Next week, it’s expected to announce dismal fiscal first quarter results and possibly yet more store closings.

“They have too many stores and they’re losing a lot of money, burning cash,” said John Kernan, an analyst with Cowen.
Kernan expects the company to close 500 of its 1,980 U.S. stores in a few years and, ultimately, to go out of business.

“The lights are going off at Sears and Kmart,” he said. “There are tumbleweeds blowing through the parking lots at Kmart. They’re basically completely irrelevant.”

The “retail apocalypse” just continues to roll on, but the mainstream media is treating this like it is not really a big deal.

#6 The labor force participation rate for Americans from the age of 25 to the age of 29 has fallen to an all-time record low.

#7 According to official government numbers, everyone is unemployed in 20 percent of all American families.

#8 As families struggle to pay their bills, many of them are increasingly turning to debt in order to make ends meet. Earlier this month we learned that total U.S. household debt has increased for three quarters in a row. And as I noted in one recent article, total consumer credit in the United States has increased by 22 percent over the past three years, and 56 percent of all Americans have “subprime credit” at this point.

#9 Interest rates on student loans are scheduled to increase substantially on July 1st…

As of July 1, federal student loan rates will edge up. Rates overall will be up 0.8% compared to current rates.

Federal Stafford Loans for undergraduate students will be 4.66% — up from 3.86%. Federal Stafford Loans for graduate students will be 6.21% — up from 5.41%.

Federal Grad PLUS and Federal Parent PLUS Loans will be at 7.21% — up from 6.41%.

This is going to put even more pressure on the growing student loan debt bubble.

#10 U.S. industrial production fell by 0.6 percent in April. This should not be happening if the economy truly was “recovering”.

#11 Manufacturing job openings in the United States have declined for four months in a row.

#12 Existing home sales have fallen for seven of the last eight months and seem to be repeating a pattern that we witnessed back in 2007 prior to the last financial crash.

#13 In the real estate bubble market of Phoenix, sales in April were down 12 percent year over year, and active inventory was up 49 percent year over year. In other words, there are tons of homes on the market, but sales are going down.

#14 The homeownership rate in the United States has dropped to the lowest level in 19 years.

#15 Trading revenue at big banks all over the western world is way down…

Late Friday, it was JPMorgan who said trading revenues will be down 20 percent this quarter. Now Barclays says trading revenues in the first three months were down 41 percent. The company cited “challenging trading conditions resulting in subdued client activity.” Like JPMorgan, Barclays also warned they were seeing no improvement in trading in the second quarter.

#16 Jan Loeys, JPMorgan’s head of global asset allocation, is warning that the Federal Reserve is creating a huge financial bubble which could “push us into a credit crisis“…

Where do we go from here? To this analyst, still very subdued economic growth, both at the US and global level, implies continued easy monetary policy. The risk is that bond yields rise no faster than the forwards. Financial overheating (asset inflation) proceeds much faster than economic overheating (CPI inflation). Before CPI inflation has a chance to emerge, and before monetary policy is truly above neutral, a financial bubble will have popped up somewhere and will have corrected, pushing the economy down. That is what has happened in the past 25 years. The behavior of central banks gives us no confidence that this time will be different: Central banks talk about financial instability, but appear to define this mostly in term of bank leverage. Each successive boom and bust is always in another place. A bubble can emerge without leverage. It is not possible to project exactly where this boom and bust cycle will take place as knowing where it will be would induce evasive actions that should prevent it from occurring. One possible ending, among many, is that ultra-easy rates having induced credit markets to grow much faster than equity markets, combines with reduced market making by banks (many of whom have become like brokers) to create a liquidity crisis when the Fed starts the first set of rate hikes. This could then be bad enough to close primary markets, and thus push us into a credit crisis.

#17 Peter Boockvar, the chief market analyst at the Lindsey Group, is warning that the U.S. stock market could experience a 20 percent decline once quantitative easing completely ends.

#18 A lot of other big names are telling CNBC that they expect a significant stock market “correction” very soon as well…

A bevy of high-profile names have warned lately that the market is on the doorstep of a major move lower. From long-term market bulls such as Piper Jaffray to short-term traders such as Dennis Gartman, expectations are high that the major averages are poised for a big dip, with calls varying from 10 percent or so all the way up to 25 percent.

#19 The number of Americans enrolled in the Social Security disability program exceeds the entire population of the nation of Greece and has just hit another brand new record high.

#20 Poverty continues to grow all over the country, and right now there are 49 million Americans that are dealing with food insecurity.

#21 According to Pew Charitable Trusts, tax revenue in 26 U.S. states is still lower than it was back in 2008 even though tax rates have gone up in many areas since then.

#22 Barack Obama is doing his best to keep his promise to destroy the U.S. coal industry…

The EPA is about to impose a new regulation that will reduce carbon emissions from existing power plants starting June 2 and will become permanent in 2015. The new regulation, according to Politico, is the “most dramatic anti-pollution regulation in a generation.” Because the new regulation will further cripple the coal industry, as coal-burning plants will be severely affected, American power will become more dependent on natural gas, solar and wind.

#23 Climatologists are now saying that the state of Texas is going through the worst period of drought that it has experienced in 500 years.

#24 It is being reported that “dozens of Texas communities” are less than 90 days away from being completely out of water.

#25 It is being projected that the drought in California will cost the agricultural industry 1.7 billion dollars and that approximately 14,500 agricultural workers will lose their jobs.

#26 Due in part to the drought, the price of meat rose at the fastest pace in more than 10 years last month.

#27 According to recent surveys, only about a quarter of all Americans believe that the country is heading in the right direction.

If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States

May 12, 2014May 12, 2014 by Michael

Does the economy move in predictable waves, cycles or patterns? There are many economists that believe that it does, and if their projections are correct, the rest of this decade is going to be pure hell for the United States. Many mainstream economists want nothing to do with economic cycle theorists, but it should be noted that economic cycle theories have enabled some analysts to correctly predict the timing of recessions, stock market peaks and stock market crashes over the past couple of decades. Of course none of the theories discussed below is perfect, but it is very interesting to note that all of them seem to indicate that the U.S. economy is about to enter a major downturn. So will the period of 2015 to 2020 turn out to be pure hell for the United States? We will just have to wait and see.

One of the most prominent economic cycle theories is known as “the Kondratieff wave”. It was developed by a Russian economist named Nikolai Kondratiev, and as Wikipedia has noted, his economic theories got him into so much trouble with the Russian government that he was eventually executed because of them…

The Soviet economist Nikolai Kondratiev (also written Kondratieff) was the first to bring these observations to international attention in his book The Major Economic Cycles (1925) alongside other works written in the same decade. Two Dutch economists, Jacob van Gelderen and Samuel de Wolff, had previously argued for the existence of 50 to 60 year cycles in 1913. However, the work of de Wolff and van Gelderen has only recently been translated from Dutch to reach a wider audience.

Kondratiev’s ideas were not supported by the Soviet government. Subsequently he was sent to the gulag and was executed in 1938.

In 1939, Joseph Schumpeter suggested naming the cycles “Kondratieff waves” in his honor.

In recent years, there has been a resurgence of interest in the Kondratieff wave. The following is an excerpt from an article by Christopher Quigley that discussed how this theory works…

Kondratiev’s analysis described how international capitalism had gone through many such “great depressions” and as such were a normal part of the international mercantile credit system. The long term business cycles that he identified through meticulous research are now called “Kondratieff” cycles or “K” waves.

The K wave is a 60 year cycle (+/- a year or so) with internal phases that are sometimes characterized as seasons: spring, summer, autumn and winter:

Spring phase: a new factor of production, good economic times, rising inflation

Summer: hubristic ‘peak’ war followed by societal doubts and double digit inflation

Autumn: the financial fix of inflation leads to a credit boom which creates a false plateau of prosperity that ends in a speculative bubble

Winter: excess capacity worked off by massive debt repudiation, commodity deflation & economic depression. A ‘trough’ war breaks psychology of doom.

Increasingly economic academia has come to realize the brilliant insight of Nikolai Kondratiev and accordingly there have been many reports, articles, theses and books written on the subject of this “cyclical” phenomenon. An influential essay, written by Professor W. Thompson of Indiana University, has indicated that K waves have influenced world technological development since the 900’s. His thesis states that “modern” economic development commenced in 930AD in the Sung province of China and he propounds that since this date there have been 18 K waves lasting on average 60 years.

So what does the Kondratieff wave theory suggest is coming next for us?

Well, according to work done by Professor W. Thompson of Indiana University, we are heading into an economic depression that should last until about the year 2020…

Based on Professor Thompson’s analysis long K cycles have nearly a thousand years of supporting evidence. If we accept the fact that most winters in K cycles last 20 years (as outlined in the chart above) this would indicate that we are about halfway through the Kondratieff winter that commenced in the year 2000. Thus in all probability we will be moving from a “recession” to a “depression” phase in the cycle about the year 2013 and it should last until approximately 2017-2020.

But of course the Kondratieff wave is far from the only economic cycle theory that indicates that we are heading for an economic depression.

The economic cycle theories of author Harry Dent also predict that we are on the verge of massive economic problems. He mainly focuses on demographics, and the fact that our population is rapidly getting older is a major issue for him. The following is an excerpt from a Business Insider article that summarizes the major points that Dent makes in his new book…

Young people cause inflation because they “cost everything and produce nothing.” But young people eventually “begin to pay off when they enter the workforce and become productive new workers (supply) and higher-spending consumers (demand).”
Unfortunately, the U.S. reached its demographic “peak spending” from 2003-2007 and is headed for the “demographic cliff.” Germany, England, Switzerland are all headed there too. Then China will be the first emerging market to fall off the cliff, albeit in a few decades. The world is getting older.
The U.S. stock market will crash. “Our best long-term and intermediate cycles suggest another slowdown and stock crash accelerating between very early 2014 and early 2015, and possibly lasting well into 2015 or even 2016. The worst economic trends due to demographics will hit between 2014 and 2019. The U.S. economy is likely to suffer a minor or major crash by early 2015 and another between late 2017 and late 2019 or early 2020 at the latest.”
“The everyday consumer never came out of the last recession.” The rich are the ones feeling great and spending money, as asset prices (not wages) are aided by monetary stimulus.
The U.S. and Europe are headed in the same direction as Japan, a country still in a “coma economy precisely because it never let its debt bubble deleverage,” Dent argues. “The only way we will not follow in Japan’s footsteps is if the Federal Reserve stops printing new money.”
“The reality is stark, when dyers start to outweigh buyers, the market changes.” It all comes down to an aging population, Dent writes. “Fewer spenders, borrowers, and investors will be around to participate in the next boom.”
The U.S. has a crazy amount of debt and “economists and politicians have acted like we can just wave a magic wand of endless monetary injections and bailouts and get over what they see as a short-term crisis.” But the problem, Dent says, is long-term and structural — demographics.
Businesses can “dominate the years to come” by focusing on cash and cash flow, being “lean and mean,” deferring major capital expenditures, selling nonstrategic real estate, and firing weak employees now.
The big four challenges in the years ahead will be 1) private and public debt 2) health care and retirement entitlements 3) authoritarian governance around the globe and 4) environmental pollution that threatens the global economy.

According to Dent, “You need to prepare for that crisis, which will occur between 2014 and 2023, with the worst likely starting in 2014 and continuing off and on into late 2019.”

So just like the Kondratieff wave, Dent’s work indicates that we are going to experience a major economic crisis by the end of this decade.

Another economic cycle theory that people are paying more attention to these days is the relationship between sun spot cycles and the stock market. It turns out that market peaks often line up very closely with peaks in sun spot activity. This is a theory that was first popularized by an English economist named William Stanley Jevons.

Sun spot activity appears to have peaked in early 2014 and is projected to decline for the rest of the decade. If historical trends hold up, that is a very troubling sign for the stock market.

And of course there are many, many other economic cycle theories that seem to indicate that trouble is ahead for the United States as well. The following is a summary of some of them from an article by GE Christenson and Taki Tsaklanos…

Charles Nenner Research (source)
Stocks should peak in mid-2013 and fall until about 2020. Similarly, bonds should peak in the summer of 2013 and fall thereafter for 20 years. He bases his conclusions entirely on cycle research. He expects the Dow to fall to around 5,000 by 2018 – 2020.

Kress Cycles (Clif Droke) (source)
The major 120 year cycle plus all minor cycles trend down into late 2014. The stock market should decline hard into late 2014.

Elliott Wave (Robert Prechter) (source)
He believes that the stock market has peaked and has entered a generational bear-market. He anticipates a crash low in the market around 2016 – 2017.

Market Energy Waves (source)
He sees a 36 year cycle in stock markets that is peaking in mid-2013 and will cycle down for 2013 – 2016. “… the controlling energy wave is scheduled to flip back to negative on July 19 of this year.” Equity markets should drop 25 – 50%.

Armstrong Economics (source)
His economic confidence model projects a peak in confidence in August 2013, a bottom in September 2014, and another peak in October 2015. The decline into January 2020 should be severe. He expects a world-wide crash and contraction in economies from 2015 – 2020.

Cycles per Charles Hugh Smith (source)
He discusses four long-term cycles that bottom in the 2010 – 2020 period. They are: Credit expansion/contraction cycle, Price inflation/wage cycle, Generational cycle, and Peak oil extraction cycle.

So does history repeat itself?

Well, it should be disconcerting to a lot of people that 2014 is turning out to be eerily similar to 2007. But we never learned the lessons that we should have learned from the last major economic crisis, and most Americans are way too apathetic to notice that we are making many of the very same mistakes all over again.

And in recent months there have been a whole host of indications that the next major economic downturn is just around the corner. For example, just this week we learned that manufacturing job openings have declined for four months in a row. For many more indicators like this, please see my previous article entitled “17 Facts To Show To Anyone That Believes That The U.S. Economy Is Just Fine“.

Let’s hope that all of the economic cycle theories discussed above are wrong this time, but we would be quite foolish to ignore their warnings.

Everything indicates that a great economic storm is rapidly approaching, and we should use this time of relative calm to get prepared while we still can.

The “Economic Recovery” Continues: Businesses Are Being Destroyed Faster Than They Are Being Created

May 6, 2014May 6, 2014 by Michael

What would you say about an economy where businesses are shutting down faster than they are opening? Well, a shocking new study released by the Brookings Institution indicates that this is exactly what is happening in the United States. We are absolutely killing small businesses and the entrepreneurial spirit in this country, and as you will see below, the number of self-employed Americans has been on a downward trend for a decade even though our population has been steadily growing. Traditionally, small businesses have been the primary engine of job growth in this nation, so the fact that study after study has found that small business creation is being crippled in the United States is a really bad sign for our economic future.

Personally, I write about our long-term economic decline nearly every day, but even I had no idea that businesses were being destroyed faster than they were being created. According to the Brookings Institution, this first started happening in 2009…

The American economy is less entrepreneurial now than at any point in the last three decades. That’s the conclusion of a new study out from the Brookings Institution, which looks at the rates of new business creation and destruction since 1978.

Not only that, but during the most recent three years of the study — 2009, 2010 and 2011 — businesses were collapsing faster than they were being formed, a first.

And this mirrors an earlier study conducted by economist Tim Kane. According to his analysis of U.S. Department of Labor data, the following is how the decline in the number of new business jobs per one thousand Americans breaks down by presidential administration…

Bush Sr.: 11.3

Clinton: 11.2

Bush Jr.: 10.8

Obama: 7.8

As you can see, this is a problem that has been building for decades and that has accelerated under the Obama administration.

We are strangling small business creation to death, and as a result the number of Americans that are self-employed just keeps going down. Just check out this chart…

And keep in mind that throughout this entire time the U.S. population has been growing. So the numbers in the chart above should be going up steadily as the population grows. But instead they have just kept going down.

Meanwhile, the “economic recovery” is continuing in the corporate world as well.

On Tuesday, we learned that Office Depot is going to be closing 400 stores.

Why would that happen if the economy was actually getting better?

When this was announced, shares of Office Depot rose about 20 percent.

I can never understand why that happens. You would think that when a business makes an announcement that essentially says “our business is failing” that it would cause people to dump the stock.

In any event, this comes on the heels of an announcement by Staples back in March that it was going to shut down 225 stores in the United States and Canada.

So where will we buy our pens and paper from now on?

If the economy really was “recovering”, you would think that demand for office supplies would actually be on the rise.

But the only places where the economy is “recovering” is in places such as Washington D.C., New York City and San Francisco.

Those at the top of the pyramid are doing well, but almost everyone else in the country is really suffering right now.

When you kill off small businesses and the entrepreneurial spirit, it tends to increasingly funnel money to the very top of the food chain. And this is precisely what is happening in America at this point. In a recent article, Charles Hugh Smith included a chart that shows how average household net worth in the U.S. breaks down by quartile…

Bottom 25%: $4,600
From 25% to 50%: $21,700
From 50% to 75%: $78,900
From 75% to 90%: $242,800
Top 10%: $1,606,600

As you can see, the bottom 50 percent are really not that much above zero at all. In the old days, it seemed like almost everyone was “middle class” in America, but now that is rapidly changing.

We can see this increasing divide in the real estate market as well. According to Bloomberg, sales of million dollar homes are booming, but sales of homes at the low end are plunging…

“Million-dollar homes in the U.S. are selling at double their historical average while middle-class property demand stumbles, showing that the housing recovery is mirroring America’s wealth divide.

Purchases costing $1 million or more rose 7.8 percent in March from a year earlier, according to data released last week by the National Association of Realtors. Transactions for $250,000 or less, which represent almost two-thirds of the market, plunged 12 percent in the period”

So this explains why it is almost impossible to find an affordable home in San Francisco, but the overall homeownership rate in the United States has dropped to the lowest level in 19 years.

But even in our wealthy enclaves there are signs of deep economic trouble. For example, in New York City the number of homeless children has soared to a new all-time high…

They’re just like other kids except they have a secret. They are homeless. Children are living hidden lives in plain sight. They are part a growing number of low income families who find themselves with no way out but they are working hard to find a solution.

It’s a big issue. And it’s growing. More than 23,000 children sleep in homeless shelters every night, an all-time high, according to the Coalition for the Homeless.

The only “recovery” being experienced in America is the one that is happening on Wall Street, in boardrooms in Silicon Valley and in the halls of power in Washington.

In the rest of the country, retail stores are closing at the fastest pace that we have seen since the collapse of Lehman Brothers, 20 percent of all families do not have a single member that is employed and 49 million Americans are dealing with food insecurity.

There is no way that we are ever going to have a broad-based economic recovery in this nation if we continue to destroy small businesses. They are the lifeblood of any economy and they are the primary engine of job creation.

Sadly, our politicians seem completely clueless about all of this. So they will continue to do the same things that they have always been doing and then wonder why the economy never seems to turn around.

17 Facts To Show To Anyone That Believes That The U.S. Economy Is Just Fine

April 29, 2014 by Michael

No, the economy is most definitely not “recovering”. Despite what you may hear from the politicians and from the mainstream media, the truth is that the U.S. economy is in far worse shape than it was prior to the last recession. In fact, we are still pretty much where we were at when the last recession finally ended. When the financial crisis of 2008 struck, it took us down to a much lower level economically. Thankfully, things have at least stabilized at this much lower level. For example, the percentage of working age Americans that are employed has stayed remarkably flat for the past four years. We should be grateful that things have not continued to get even worse. It is almost as if someone has hit the “pause button” on the U.S. economy. But things are definitely not getting better, and there are a whole host of signs that this bubble of false stability will soon come to an end and that our economic decline will accelerate once again. The following are 17 facts to show to anyone that believes that the U.S. economy is just fine…

#1 The homeownership rate in the United States has dropped to the lowest level in 19 years.

#2 Consumer spending for durable goods has dropped by 3.23 percent since November. This is a clear sign that an economic slowdown is ahead.

#3 Major retailers are closing stores at the fastest pace that we have seen since the collapse of Lehman Brothers.

#4 According to the Bureau of Labor Statistics, 20 percent of all families in the United States do not have a single member that is employed. That means that one out of every five families in the entire country is completely unemployed.

#5 There are 1.3 million fewer jobs in the U.S. economy than when the last recession began in December 2007. Meanwhile, our population has continued to grow steadily since that time.

#6 According to a new report from the National Employment Law Project, the quality of the jobs that have been “created” since the end of the last recession does not match the quality of the jobs lost during the last recession…

Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth.
Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth.
Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth.

#7 After adjusting for inflation, men who work full-time in America today make less money than men who worked full-time in America 40 years ago.

#8 It is hard to believe, but 62 percent of all Americans make $20 or less an hour at this point.

#9 Nine of the top ten occupations in the U.S. pay an average wage of less than $35,000 a year.

#10 The middle class in Canada now makes more money than the middle class in the United States does.

#11 According to one recent study, 40 percent of all Americans could not come up with $2000 right now even if there was a major emergency.

#12 Less than one out of every four Americans has enough money put away to cover six months of expenses if there was a job loss or major emergency.

#13 An astounding 56 percent of all Americans have subprime credit in 2014.

#14 As I wrote about the other day, there are now 49 million Americans that are dealing with food insecurity.

#15 Ten years ago, the number of women in the U.S. that had jobs outnumbered the number of women in the U.S. on food stamps by more than a 2 to 1 margin. But now the number of women in the U.S. on food stamps actually exceeds the number of women that have jobs.

#16 69 percent of the federal budget is spent either on entitlements or on welfare programs.

#17 The number of Americans receiving benefits from the federal government each month exceeds the number of full-time workers in the private sector by more than 60 million.

Taken individually, those numbers are quite remarkable.

Taken collectively, they are absolutely breathtaking.

Yes, things have been improving for the wealthy for the last several years. The stock market has soared to new record highs and real estate prices in the Hamptons have skyrocketed to unprecedented heights.

But that is not the real economy. In the real economy, the middle class is being squeezed out of existence. The quality of our jobs is declining and prices just keep rising. This reality was reflected quite well in a comment that one of my readers left on one of my recent articles…

It is getting worse each passing month. The food bank I help out, has barely squeaked by the last 3 months. Donors are having to pull back, to take care of their own families. Wages down, prices up, simple math tells you we can not hold out much longer. Things are going up so fast, you have to adopt a new way of thinking. Example I just had to put new tires on my truck. Normally I would have tried to get by to next winter. But with the way prices are moving, I decide to get them while I could still afford them. It is the same way with food. I see nothing that will stop the upward trend for quite a while. So if you have a little money, and the space, buy it while you can afford it. And never forget, there will be some people worse off than you. Help them if you can.

And the false stock bubble that the wealthy are enjoying right now will not last that much longer. It is an artificial bubble that has been pumped up by unprecedented money printing by the Federal Reserve, and like all bubbles that the Fed creates, it will eventually burst.

None of the long-term trends that are systematically destroying our economy have been addressed, and none of our major economic problems have been fixed. In fact, as I showed in this recent article, we are actually in far worse shape than we were just prior to the last major financial crisis.

Let us hope that this current bubble of false stability lasts for as long as possible.

That is what I am hoping for.

But let us not be deceived into thinking that it is permanent.

It will soon burst, and then the real pain will begin.

The Middle Class In Canada Is Now Doing Better Than The Middle Class In America

April 22, 2014April 22, 2014 by Michael

For most of Canada’s existence, it has been regarded as the weak neighbor to the north by most Americans. Well, that has changed dramatically over the past decade or so. Back in the year 2000, middle class Canadians were earning much less than middle class Americans, but since then there has been a dramatic shift. At this point, middle class Canadians are actually earning more than middle class Americans are. The Canadian economy has been booming thanks to a rapidly growing oil industry, and meanwhile the U.S. middle class has been steadily shrinking. If current trends continue, a whole bunch of other countries are going to start passing us too. The era of the “great U.S. middle class” is rapidly coming to a bitter end.

In recent years, I have been up to Canada frequently, and I am always amazed at how much nicer things are up there. The stores and streets are cleaner, the people are more polite and it seems like almost everyone that wants to work has a job.

But despite knowing all this, I was still surprised when the New York Times reported this week that middle class incomes in Canada have now surpassed middle class incomes in the United States…

After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.

And things are particularly dire for those in the U.S. on the low end of the scale…

The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less money than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.

Even while our politicians and the media continue to proclaim that everything is “just fine”, the U.S. middle class continues to slide toward oblivion.

The biggest reason for this is the lack of middle class jobs. Millions of good jobs have been shipped overseas, and millions of other good jobs have been replaced by technology.

The value of our labor is declining with each passing day, and this has forced millions upon millions of very qualified Americans to take whatever they can get. As NBC News recently noted, this is a big reason why the temp industry has been booming…

For Americans who can’t find jobs, the booming demand for temp workers has been a path out of unemployment, but now many fear it’s a dead-end route.

With full-time work hard to find, these workers have built temping into a de facto career, minus vacation, sick days or insurance. The assignments might be temporary — a few months here, a year there — but labor economists warn that companies’ growing hunger for a workforce they can switch on and off could do permanent damage to these workers’ career trajectories and retirement plans.

“It seems to be the new norm in the working world,” said Kelly Sibla, 54. The computer systems engineer has been looking for a full-time job for four years now, but the Amherst, Ohio, resident said she has to take whatever she can find.

It has been estimated that one out of every ten jobs is now filled by a temp agency. I have worked for temp agencies myself in the past. Big companies like the idea of having “disposable workers”, and this is a trend that is likely to only grow in the years ahead.

But temp jobs and part-time jobs don’t pay as well as normal jobs. And those kinds of jobs generally cannot support middle class families.

At this point, nine out of the top ten occupations in the United States pay an average wage of less than $35,000 a year.

That is absolutely stunning.

These days most families are barely scraping by, and they don’t have much extra money to go shopping with.

This is a big reason for the “retail apocalypse” that we are now witnessing. This week we learned that retail stores in the United States are closing at the fastest pace that we have seen since the collapse of Lehman Brothers. But you won’t hear much about that on the mainstream news.

You can find lots of “space available” signs and empty buildings in formerly middle class neighborhoods all over the country. For example, one of my readers recently shot the following YouTube video in Scottsdale, Arizona. As you can see, empty commercial buildings are all over the place…

As the middle class shrinks, more families are being forced to take in family members that can’t find decent work. I have written previously about the huge rise in the number of young adults that are moving back in with their parents. But this is not just happening to young people. As the Los Angeles Times recently detailed, the number of Americans 50 and older that are moving in with their parents has absolutely soared in recent years…

For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents’ homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.

The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.

“The numbers are pretty amazing,” Wallace said. “It’s an age group that you normally think of as pretty financially stable. They’re mid-career. They may be thinking ahead toward retirement. They’ve got a nest egg going. And then all of a sudden you see this huge push back into their parents’ homes.”

The U.S. economy is slowly but steadily falling apart, and more people fall out of the middle class every single day.

A recent Gallup survey found that 14 percent of all Americans would experience “significant financial hardship” within one week of a job loss.

An additional 29 percent of all Americans would experience “significant financial hardship” within one month of a job loss.

That means that 43 percent of the entire country is living right on the edge.

It is no wonder why only about 30 percent of all Americans believe that we are moving in the right direction as a nation.

Most people know deep down that something is seriously wrong. But most people can’t explain exactly what that is or how to fix it.

Meanwhile, the politicians and the media keep telling us that if we just keep doing the same old things that everything will work out okay somehow. The blind are leading the blind, and we are rapidly marching toward disaster.

Are You Ready For The Price Of Food To More Than Double By The End Of This Decade?

April 17, 2014April 18, 2014 by Michael

Do you think that the price of food is high now? Just wait. If current trends continue, many of the most common food items that Americans buy will cost more than twice as much by the end of this decade. Global demand for food continues to rise steadily as crippling droughts ravage key agricultural regions all over the planet. You see, it isn’t just the multi-year California drought that is affecting food prices. Down in Brazil (one of the leading exporters of food in the world), the drought has gotten so bad that 142 cities were rationing water at one point earlier this year. And outbreaks of disease are also having a significant impact on our food supply. A devastating pig virus that has never been seen in the U.S. before has already killed up to 6 million pigs. Even if nothing else bad happens (and that is a very questionable assumption to make), our food prices are going to be moving aggressively upward for the foreseeable future. But what if something does happen? In recent years, global food reserves have dipped to extremely low levels, and a single major global event (war, pandemic, terror attack, planetary natural disaster, etc.) could create an unprecedented global food crisis very rapidly.

A professor at the W. P. Carey School of Business at Arizona State University named Timothy Richards has calculated what the drought in California is going to do to produce prices at our supermarkets in the near future. His projections are quite sobering…

Avocados likely to go up 17 to 35 cents to as much as $1.60 each.
Berries likely to rise 21 to 43 cents to as much as $3.46 per clamshell container.
Broccoli likely to go up 20 to 40 cents to a possible $2.18 per pound.
Grapes likely to rise 26 to 50 cents to a possible $2.93 per pound.
Lettuce likely to rise 31 to 62 cents to as much as $2.44 per head.
Packaged salad likely to go up 17 to 34 cents to a possible $3.03 per bag.
Peppers likely to go up 18 to 35 cents to a possible $2.48 per pound.
Tomatoes likely to rise 22 to 45 cents to a possible $2.84 per pound.

So what happens if the drought does not end any time soon?

Scientist Lynn Ingram, who has studied the climate history of the state of California extensively, told CBS News that we could potentially be facing “a century-long megadrought” in California. If that does indeed turn out to be the case, we could be facing huge price increases for produce year after year.

And it isn’t just crops that are grown in the United States that we need to be concerned about. As NBC News recently reported, the price of cocoa is absolutely soaring and that is going to mean much higher prices for chocolate…

As cocoa prices surge to near-record highs on demand for emerging markets, chocoholics brace for a hike in price – and maybe even a different taste, as chocolate makers hunt out cheaper ingredients.

Cocoa futures are up 10 percent so far this year, hitting almost £1,900 on ($3,195) a ton in March. Last year prices rose 20 percent.

In fact, experts are now warning that chocolate may soon become a “high-end luxury item” because it is becoming so expensive.

Meat prices are also starting to spiral out of control.

A virus known as porcine epidemic diarrhea has pushed pork prices up to new all-time record highs. It has already spread to 27 states, and as I mentioned above, it has already killed up to 6 million pigs. It is being projected that U.S. pork production will decline by about 7 percent this year as a result, and Americans could end up paying up to 20 percent more for pork by the end of the year.

The price of beef has also soared to a brand new all-time record high. Due to the drought that never seems to let up in the western half of the country, the total size of the U.S. cattle herd has been declining for seven years in a row, and it is now the smallest that is has been since 1951.

If the overall price of food in this country increases by just an average of a little more than 12 percent a year, it will double by the end of this decade.

What would you do if you suddenly walked into the grocery store and everything was twice as much?

That is a frightening thing to think about.

Meanwhile, all of our other bills just keep going up as well. For example, we just learned that the price of electricity hit a brand new all-time record high for the month of March.

If our incomes were keeping up with all of these price increases, that would be one thing. Unfortunately, that is not the case. As I wrote about earlier this week, the quality of our jobs continues to go down and more Americans fall out of the middle class every single day.

According to CNBC, there are hundreds of thousands of Americans with college degrees that are working for minimum wage right now…

While a college degree might help get a job, it doesn’t necessarily mean a good salary. According to a report released last month by the Bureau of Labor Statistics, some 260,000 workers with bachelor’s degrees and 200,000 workers with associate’s degrees are making the minimum wage.

The federal minimum wage is $7.25 an hour, and the minimum wage for tipped workers is $2.13 an hour. Some cities and states have recently raised their minimum wage, but the BLS report defines only those making $7.25 an hour or less as “minimum wage workers.”

And according to the U.S. Census Bureau, median household income in the United States has dropped for five years in a row.

This is why so many families are financially stressed these days. The cost of living is going up at a steady pace, but for the most part our paychecks are not keeping up. Average Americans are having to stretch their money farther than ever, and many families have reached the breaking point.

So what is going on in your neck of the woods? Are you starting to see prices rise at the grocery stores where you live? Please feel free to join the discussion by leaving a comment below…

Two More Victims Of The Retail Apocalypse: Family Dollar And Coldwater Creek

April 17, 2014 by Michael

Did you know that Family Dollar is closing 370 stores? When I learned of this, I was quite stunned. I knew that retailers that serve the middle class were really struggling right now, but I had no idea that things had gotten so bad for low end stores like Family Dollar. In the post-2008 era, dollar stores had generally been one of the few bright spots in the retail industry. As millions of Americans fell out of the middle class, they were looking to stretch their family budgets as far as possible, and dollar stores helped them do that. It would be great if we could say that the reason why Family Dollar is doing so poorly is because average Americans have more money now and have resumed shopping at retailers that target the middle class, but that is not happening. Rather, as you will see later in this article, things just continue to get even worse for Americans at the low end of the income scale.

I was also surprised to learn that Coldwater Creek is closing all of their stores…

Women’s clothing retailer Coldwater Creek Inc. on Friday filed for Chapter 11 bankruptcy after failing to find a buyer said it plans to close its stores by early summer.

Coldwater Creek joins other retailers to seek protection from creditors in recent months as consumers keep a lid on spending.

The company said it plans to wind down its operations over the coming months and begin going-out-of-business sales in early May, before the traditionally busy Mother’s Day weekend.

Coldwater Creek, which has 365 stores and employs about 6,000 people, has five stores in Maryland.

I remember browsing through a Coldwater Creek with my wife and mother-in-law just last year. At the time, my mother-in-law was excited about getting one of their catalogs. But now Coldwater Creek is going out of business, and all that will be left of that store is a big, ugly, empty space.

Of course the fact that a couple of major retailers are closing stores is nothing new. This kind of thing happens year after year.

But what we are witnessing right now is really quite startling. So many retailers are closing so many stores that it is being called a “retail apocalypse”. In a previous article entitled “This Is What Employment In America Really Looks Like…“, I detailed how major U.S. retailers have already announced the closing of thousands of stores so far this year. If the economy really was “getting better”, this should not be happening.

So why are so many stores closing?

Well, the truth is that it is because the middle class is dying. With each passing day, more Americans lose their place in the middle class and fall into poverty. The following is an excerpt from the story of one man that this has happened to. His recent piece in the Huffington Post was entitled “Next Friday, I’ll Be Living In My Car“…

For the past 13 years, I’ve mostly been doing facility management in several locations across the state. After the position turned into more of a sales role, they laid me off. Since then, I’ve been looking to find any type of work. I’ve applied for food stamps, and I’m waiting for that. I’m mostly eating soup from a food pantry.

I’ve been on several interviews — second, third, fourth interviews — and just haven’t been able to land a job for whatever reason. I definitely have the qualifications and the experience. Last week, I had a job offer that I thought was secure, and we were talking my work schedule. They decided to call me back and go with an assistant rather than a manager.

For a number of applications, I’ve dumbed down my resume. I don’t even go with a resume sometimes, just because I don’t want them to know that I’m educated and have a master’s degree. It shoots me in the foot. They don’t want me because they don’t think I’m going to stay. I don’t blame them. I was making six figures at $60-70 an hour. Now, I’m looking for a $10 an hour job.

There are millions upon millions of Americans that can identify with what that man is going through.

Once upon a time, they were living comfortable middle class lifestyles, but now they will take any jobs that they can get.

Just today I came across a statistic that shows the massive shift that is happening in this country. A decade ago, the number of women working outnumbered the number of women on food stamps by more than a 2 to 1 margin. But now the number of women on food stamps actually exceeds the number of women that have jobs.

Wow.

How could things have changed so rapidly over the course of just one decade?

And sadly, things continue to go downhill. Every day in America, more good jobs are being sent out of the country or are being replaced by technology. I really like how James Altucher described this trend the other day…

Technology, outsourcing, a growing temp staffing industry, productivity efficiencies, have all replaced the middle class.

The working class. Most jobs that existed 20 years ago aren’t needed now. Maybe they never were needed. The entire first decade of this century was spent with CEOs in their Park Avenue clubs crying through their cigars, “how are we going to fire all this dead weight?”. 2008 finally gave them the chance. “It was the economy!” they said. The country has been out of a recession since 2009. Four years now. But the jobs have not come back. I asked many of these CEOs: did you just use that as an excuse to fire people, and they would wink and say, “let’s just leave it at that.”

I’m on the board of directors of a temp staffing company with one billion dollars in revenues. I can see it happening across every sector of the economy. Everyone is getting fired. Everyone is toilet paper now.

Flush.

There is so little loyalty in corporate America these days. If you work for a major corporation, you could literally lose your job at any moment. And you can be sure that there is someone above you that is trying to figure out a way to accomplish the tasks that you currently perform much more cheaply and much more efficiently.

Most big corporations don’t care if you are personally successful or if you are able to take care of your family. What they want is to get as much out of you as possible for as little money as possible.

This is a big reason why 62 percent of all Americans make $20 or less an hour at this point.

The quality of our jobs is going down, but the cost of living just keeps going up. Just look at what is happening to food prices. For a detailed examination of this, please see my previous article entitled “Why Meat Prices Are Going To Continue Soaring For The Foreseeable Future“.

As the middle class slowly dies, less people are able to afford to buy homes. Mortgage originations at major U.S. banks have fallen to a record low, and the percentage of Americans that live in “high-poverty neighborhoods” is rising rapidly…

An estimated 12.4 million Americans live in economically devastated neighborhoods, according to American Community Survey data collected from 2008 to 2012. That’s an 11 percent jump from the previous survey, conducted from 2007 to 2011. Even more startling, it’s a 72 percent increase in the population of high-poverty neighborhoods since the 2000 Census.

If nothing is done about the long-term trends that are slowly strangling the middle class to death, all of this will just be the beginning.

We will see millions more Americans lose their jobs, millions more Americans lose their homes and millions more Americans living in poverty.

The United States is being fundamentally transformed, and very few people are doing much of anything to stand in the way of this transformation. Decades of incredibly foolish decisions are starting to catch up with us, and unless something dramatic is done right away, all of these problems will soon get much, much worse.

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