Michael T. Snyder

25 Facts About The Fall Of Detroit That Will Leave You Shaking Your Head

Detroit - Photo by Bob JagendorfIt is so sad to watch one of America’s greatest cities die a horrible death.  Once upon a time, the city of Detroit was a teeming metropolis of 1.8 million people and it had the highest per capita income in the United States.  Now it is a rotting, decaying hellhole of about 700,000 people that the rest of the world makes jokes about.  On Thursday, we learned that the decision had been made for the city of Detroit to formally file for Chapter 9 bankruptcy.  It was going to be the largest municipal bankruptcy in the history of the United States by far, but on Friday it was stopped at least temporarily by an Ingham County judge.  She ruled that Detroit’s bankruptcy filing violates the Michigan Constitution because it would result in reduced pension payments for retired workers.  She also stated that Detroit’s bankruptcy filing was “also not honoring the (United States) president, who took (Detroit’s auto companies) out of bankruptcy“, and she ordered that a copy of her judgment be sent to Barack Obama.  How “honoring the president” has anything to do with the bankruptcy of Detroit is a bit of a mystery, but what that judge has done is ensured that there will be months of legal wrangling ahead over Detroit’s money woes.  It will be very interesting to see how all of this plays out.  But one thing is for sure – the city of Detroit is flat broke.  One of the greatest cities in the history of the world is just a shell of its former self.  The following are 25 facts about the fall of Detroit that will leave you shaking your head…

1) At this point, the city of Detroit owes money to more than 100,000 creditors.

2) Detroit is facing $20 billion in debt and unfunded liabilities.  That breaks down to more than $25,000 per resident.

3) Back in 1960, the city of Detroit actually had the highest per-capita income in the entire nation.

4) In 1950, there were about 296,000 manufacturing jobs in Detroit.  Today, there are less than 27,000.

5) Between December 2000 and December 2010, 48 percent of the manufacturing jobs in the state of Michigan were lost.

6) There are lots of houses available for sale in Detroit right now for $500 or less.

7) At this point, there are approximately 78,000 abandoned homes in the city.

8) About one-third of Detroit’s 140 square miles is either vacant or derelict.

9) An astounding 47 percent of the residents of the city of Detroit are functionally illiterate.

10) Less than half of the residents of Detroit over the age of 16 are working at this point.

11) If you can believe it, 60 percent of all children in the city of Detroit are living in poverty.

12) Detroit was once the fourth-largest city in the United States, but over the past 60 years the population of Detroit has fallen by 63 percent.

13) The city of Detroit is now very heavily dependent on the tax revenue it pulls in from the casinos in the city.  Right now, Detroit is bringing in about 11 million dollars a month in tax revenue from the casinos.

14) There are 70 “Superfund” hazardous waste sites in Detroit.

15) 40 percent of the street lights do not work.

16) Only about a third of the ambulances are running.

17) Some ambulances in the city of Detroit have been used for so long that they have more than 250,000 miles on them.

18) Two-thirds of the parks in the city of Detroit have been permanently closed down since 2008.

19) The size of the police force in Detroit has been cut by about 40 percent over the past decade.

20) When you call the police in Detroit, it takes them an average of 58 minutes to respond.

21) Due to budget cutbacks, most police stations in Detroit are now closed to the public for 16 hours a day.

22) The violent crime rate in Detroit is five times higher than the national average.

23) The murder rate in Detroit is 11 times higher than it is in New York City.

24) Today, police solve less than 10 percent of the crimes that are committed in Detroit.

25) Crime has gotten so bad in Detroit that even the police are telling people to “enter Detroit at your own risk“.

It is easy to point fingers and mock Detroit, but the truth is that the rest of America is going down the exact same path that Detroit has gone down.

Detroit just got there first.

All over this country, there are hundreds of state and local governments that are also on the verge of financial ruin…

“Everyone will say, ‘Oh well, it’s Detroit. I thought it was already in bankruptcy,’ ” said Michigan State University economist Eric Scorsone. “But Detroit is not unique. It’s the same in Chicago and New York and San Diego and San Jose. It’s a lot of major cities in this country. They may not be as extreme as Detroit, but a lot of them face the same problems.”

A while back, Meredith Whitney was highly criticized for predicting that there would be a huge wave of municipal defaults in this country.  When it didn’t happen, the critics let her have it mercilessly.

But Meredith Whitney was not wrong.

She was just early.

Detroit is only just the beginning.  When the next major financial crisis strikes, we are going to see a wave of municipal bankruptcies unlike anything we have ever seen before.

And of course the biggest debt problem of all in this country is the U.S. government.  We are going to pay a great price for piling up nearly 17 trillion dollars of debt and over 200 trillion dollars of unfunded liabilities.

All over the nation, our economic infrastructure is being gutted, debt levels are exploding and poverty is spreading.  We are consuming far more wealth than we are producing, and our share of global GDP has been declining dramatically.

We have been living way above our means for so long that we think it is “normal”, but an extremely painful “adjustment” is coming and most Americans are not going to know how to handle it.

So don’t laugh at Detroit.  The economic pain that Detroit is experiencing will be coming to your area of the country soon enough.

Worldwide Unemployment Crisis: There Are 93 Million Unemployed Workers In G20 Nations

Earth At NightDid you know that the total number of unemployed workers in G20 counties is now up to 93 million and that it is increasing with each passing day?  You see, the truth is that the United States is not the only one dealing with a systemic unemployment crisis.  This is literally happening all over the planet.  So what is causing this crisis?  Is there any hope that it will be turned around?  Well, unfortunately there are several long-term trends that have been developing for decades that have played a major role in bringing us to this point.  First of all, the giant corporations that now totally dominate the global economy have figured out that they can make a lot more money by replacing expensive workers that live in major industrialized nations with workers that live in nations where it is legal to pay slave labor wages.  So it isn’t really a huge mystery why there is such a huge problem with unemployment in the western world.  If you were running a giant corporation, why would you want to hire workers that will cost you 10 to 20 times as much as other workers?  A worker is a worker, and over the past decade we have seen a massive movement of jobs to countries where labor is cheaper.  In addition, large corporations are also trying to completely eliminate as many jobs as they can by using technology.  If a corporation can get a computer or a machine or a robot to do a task more cheaply than a human worker can do it, then why would that corporation want to continue to rely on human labor?  And of course we have seen an overall weakening of the economies of the western world in recent years as well.  This has been particularly true in the United States.  As these long-term trends intensify, the worldwide unemployment crisis is going to get even worse.

In fact, the director general of the International Labor Organization is fully convinced that unemployment is going to continue to rise in G20 nations.  Just check out what he told CNBC on Friday…

Unemployment will likely soar further in the group of 20 major economic powers without immediate action, Guy Ryder, the director general of the International Labor Organization told CNBC on Friday, comparing the jobs crisis to the 2008-2009 financial crisis and warning it needs to be tackled urgently.

“We have gone backwards. It is quite alarming to see…that unemployment has not gone down, in fact it’s gone up,” Ryder told CNBC at the G20 finance ministers’ meeting in Moscow.

He said 93 million people were currently unemployed in the G20.

And when those living in G20 nations lose their jobs, they tend to stay out of work for a very long time.  In fact, 30 percent of unemployed workers in G20 countries have been out of work for one year or longer.

Major industrialized nations all over the planet are no longer able to produce enough jobs for their people.  In many “wealthy nations” the unemployment rate has already risen well up into double digits.  Just consider the following numbers…

-The unemployment rate is above 25 percent in South Africa.

-The unemployment rate in France recently hit a 15 year high.

-The unemployment rate in Italy is up to 12.2 percent, which is the highest in 35 years.

-The unemployment rate in the eurozone as a whole is up to an all-time high of 12.2 percent.

-The unemployment rate in Poland is 13.2 percent.

-The unemployment rate in Ireland is now 13.6 percent.

-The unemployment rate in Portugal has rocketed up to 17.7 percent.

-The unemployment rate in Greece is currently sitting at 26.9 percent and it is being projected that it will soon hit 30 percent.

-The unemployment rate in Spain is even worse than in Greece.  The unemployment rate in Spain is a staggering 27.2 percent.

Sadly, it looks like things are not going to be getting better any time soon.  In fact, global business confidence is now the lowest that it has been since the last recession.

So what about the United States?

Well, it is true that our official numbers do not look quite as bad as much of the rest of the world.  But the official unemployment rate in the U.S. has been at 7.5 percent or higher for 54 months in a row.  That is the longest stretch in U.S. history.

But at least it is not in double digits yet.

Things could be worse.

However, that does not mean that we are doing well either.

The mainstream media is attempting to convince us that everything is just fine because the unemployment rate has been “going down”, but when you take a deeper look at the numbers that is not exactly an accurate assessment of our situation.

As the New York Times recently pointed out, the decline in the unemployment rate can almost entirely be accounted for by a decline in the labor participation rate…

Let’s take a step back. Lots of people lost jobs during the Great Recession. In the aftermath, the great surprise has been how few are looking for new jobs. Labor force participation, the share of adults working or trying to find work, has stagnated at about 63.5 percent, almost three percentage points below the pre-recession level.

The unemployment rate has dropped almost entirely because of this decline in labor force participation. In other words, it has not fallen because people are finding jobs. It has fallen because fewer people are looking for jobs.

To get a more accurate picture of what is really happening with employment in America, you need to look at the employment-population ratio.  It is a measurement of the percentage of the working age population that is actually working.  As you can see, the percentage of working age Americans that actually have a job has been declining since the year 2000…

Employment-Population Ratio 2013

As you can see, there has been no employment recovery.

When the mainstream media tells you that the employment numbers for June were “great”, that is not being honest.  The truth is that the unemployment rate rose in 28 U.S. states and it only declined in 11 states during June, and as I mentioned yesterday, the U.S. economy actually lost 240,000 full-time jobs last month.

So no, things are not getting better, and the unemployment problems in the United States and in Europe are likely going to continue to get worse in the years ahead.

That is very bad news for most of us, because the only thing that most of us have to offer in the marketplace is our labor.  If the value that is placed on our labor is continually declining, then that puts us in a very difficult position.

It is almost as if we have all been drafted to play a very twisted game of musical chairs.  Each time the music stops, more chairs (jobs) are being pulled out of the game.

You might be doing okay for the moment, but what is going to happen when the music suddenly stops one day and your chair gets pulled out of the game?

That is something that you might want to start thinking about.

Everything Is Fine, But…

PovertyEverything is going to be just great.  Haven’t you heard?  The stock market is at an all-time high, Federal Reserve Chairman Ben Bernanke says that inflation is incredibly low, and the official unemployment rate has been steadily declining since early in Barack Obama’s first term.  Of course I am being facetious, but this is the kind of talk about the economy that you will hear if you tune in to the mainstream media.  They would have us believe that those running things know exactly what they are doing and that very bright days are ahead for America.  And it would be wonderful if that was actually true.  Unfortunately, as I made exceedingly clear yesterday, the U.S. economy has already been in continual decline for the past decade.  Any honest person that looks at those numbers has to admit that our economy is not even close to where it used to be.  But could it be possible that we are making a comeback?  Could it be possible that Obama and Bernanke really do know what they are doing and that their decisions have put us on the path to prosperity?  Could it be possible that everything is going to be just fine?

Sadly, what we are experiencing right now is a “mini-hope bubble” that has been produced by an unprecedented debt binge by the federal government and by unprecedented money printing by the Federal Reserve.  Once this “sugar high” wears off, it will be glaringly apparent that by “kicking the can down the road” Bernanke and Obama have made our long-term problems even worse.

Unfortunately, most Americans don’t understand these things.

Most Americans just let their televisions do their thinking for them, and right now their televisions are telling them that everything is going to be fine.

But is that really the case?

Everything is fine, but the city of Detroit has just filed for Chapter 9 bankruptcy.  It will be the largest municipal bankruptcy in U.S. history…

Detroit filed for the largest municipal bankruptcy in U.S. history Thursday after steep population and tax base declines sent it tumbling toward insolvency.

The filing by a state-appointed emergency manager means that if the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.

Wait a minute, didn’t Barack Obama say that he “refused to let Detroit go bankrupt” less than a year ago?

Everything is fine, but continuing claims for unemployment benefits just spiked to the highest level since early 2009.

Everything is fine, but in the month of June spending at restaurants fell by the most that we have seen since February 2008.

Everything is fine, but Google’s earnings for the second quarter came in way below expectations.

Everything is fine, but Microsoft’s earnings for the second quarter came in way below expectations.

Everything is fine, but chip maker Intel has reported revenue declines for four quarters in a row.

Everything is fine, but the number of housing starts in June was the lowest that we have seen in almost a year.

Everything is fine, but the number of mortgage applications has dropped 45 percent since May.

Everything is fine, but the homeownership rate in America is now at its lowest level in nearly 18 years.

Everything is fine, but the United States is losing half a million jobs to China every single year.

Everything is fine, but the U.S. economy actually lost 240,000 full-time jobs last month.

Everything is fine, but the number of full-time workers in the United States is now nearly 6 million below the old record that was set back in 2007.

Everything is fine, but 40 percent of all U.S. workers make less than $20,000 a year at this point.

Everything is fine, but robots are starting to take over fast food jobs.  If working class Americans someday won’t even be able to work at McDonald’s, what will they do to earn money in the years ahead as the jobs disappear?

Everything is fine, but the average price of a gallon of regular gasoline has now reached $3.66.

Everything is fine, but the number of Americans on food stamps has increased by almost 50 percent while Obama has been in the White House.

Everything is fine, but the U.S. government is going to borrow about 4 trillion dollars in fiscal 2013.

Everything is fine, but worldwide business confidence has fallen to the lowest level since the last recession.

Everything is fine, but the Chairman of the Joint Chiefs of Staff just told Congress that Obama is considering using the U.S. military to intervene in the conflict in Syria.

Unfortunately, the cold, hard reality of the matter is that everything is not fine.

As a nation, we consume far more wealth that we produce.

As a nation, we buy far more stuff from the rest of the world than they buy from us.

As a nation, our debt is growing at a much faster pace than our economy is.

As a nation, our share of global GDP has been dropping like a rock over the past decade.

Our economic infrastructure is being systematically gutted, Wall Street has been transformed into a gigantic casino and poverty in the United States continues to explode even in the midst of this so-called “economic recovery”.

How in the world can the mainstream media get away with telling the American people that everything is just fine?

The economic fundamentals are absolutely screaming that massive trouble is on the horizon.  Hopefully people are getting ready, because a whole lot of pain is on the way for this country.

The U.S. Government Will Borrow Close To 4 Trillion Dollars This Year

DebtWhen you add maturing debt to the new debt that the federal government is accumulating, the total is quite eye catching.  You see, the truth is that the U.S. government must not only borrow enough money to fund government spending for this year, it must also “roll over” existing debt that has reached maturity.  Of course the government never actually pays any of that debt off.  Instead, it essentially takes out new debts to cover the old ones.  So the U.S. government is actually borrowing far more money each year than most Americans realize.  For fiscal year 2013, the U.S. budget deficit will be about $845 billion, but on top of that the government will also have to borrow about 3 trillion dollars to pay off old debt that is maturing.  Overall, the U.S. government will borrow close to 4 trillion dollars this year, and that number will likely be even higher next year.  That is not going to cause a crisis as long as interest rates stay super low, but if interest rates begin to rise substantially, the game will change dramatically.

When the government borrows money, it has to pay it back someday.  Back in the old days, the federal government used to issue lots of debt that would not mature for a very long time.  But in recent years things have been very different…

In order to fund the government, the Treasury Department periodically auctions Treasury securities with various maturities ranging from 30-day Treasury bills to 30-year Treasury bonds, with 2-3-5-7-year and 10-year Treasury notes in between. It used to be that the bulk of Treasury borrowing was done in the longer-term instruments with maturities of at least 10 years.

In more recent years, however, this trend has shifted more toward shorter-term Treasury securities. There are pros and cons to both strategies. Generally speaking, the shorter maturities are considered more risky since short-term interest rates can vary frequently. Shorter-term maturities obviously have to be rolled over much more often. That raises the risk that there might not be enough buyers when the government needs them.

At this point, the average maturity of outstanding government debt is only 65 months, and only about 10 percent of all Treasury debt matures outside of a decade.

So what does that mean?

It means that the federal government must constantly roll over massive amounts of debt.  Once again, this is not too much of a problem as long as interest rates stay super low, but as John Cochrane pointed out, if rates start rising back to “normal” levels things could get quite hairy very quickly…

Here’s the nightmare scenario: Suppose that four years from now, interest rates rise 5 percent, i.e. back to normal, and the US has $20 trillion outstanding. Interest costs alone will rise $1 trillion (5% of $20 trillion) – doubling already unsustainable deficits! This is what happened to Italy, Spain, and Portugal. Don’t think it can’t happen to us. It’s even more likely, because fear of inflation – which did not hit them, since they are on the Euro – can hit us.

Sadly, those running things appears to be quite clueless.  For example, retiring U.S. Representative Michele Bachmann recently asked Federal Reserve Chairman Ben Bernanke why the national debt has remained frozen in place for 56 straight days even though we have been borrowing lots of money.  Bernanke seemed to have no idea how to answer that question…

As Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee Wednesday, Bachmann asked how there could be no increase reported in the total debt when the government is racking up about $4 billion a day in new debt.

“After nearly 10 years as the head of the Federal Reserve, Chairman Bernanke could not answer my question today in Financial Services Committee,” Bachmann told WND.

She wondered if there’s a political motive.

“I asked whether the Treasury Department was cooking the federal government’s books as it was reported that the Feds debt balance sheet remained at $16,699,396,000,000 for 56 days straight, presumably so the Treasury Department wouldn’t officially register that once again the Congress had exceeded its legal borrowing limits.”

For the moment, the federal government is able to recklessly borrow and spend money and investors are rewarding this behavior with super low interest rates.

Unfortunately, this state of affairs is completely and totally unsustainable.  At some point global financial markets will begin to behave rationally, and when that happens it is going to mean a tremendous amount of pain for the United States.

Over the past decade, the U.S. government has added more than 11 trillion dollars to the national debt at a time when the U.S. economy has been steadily declining.  Anyone that thinks that we can continue to pile up more debt like this indefinitely does not know what they are talking about.

The following are some more statistics about the U.S. national debt for you to consider…

-Back in 1980, the U.S. national debt was less than one trillion dollars.  Today, it is rapidly approaching 17 trillion dollars.

–During Obama’s first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.

–The U.S. national debt is now more than 23 times larger than it was when Jimmy Carter became president.

–If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.

–If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

–If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

–Some suggest that “taxing the rich” is the answer.  Well, if Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

–If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.

–The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain does.

–At this point, the United States government is responsible for more than a third of all the government debt in the entire world.

–The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

–The U.S. national debt is now more than 37 times larger than it was when Richard Nixon took us off the gold standard.

–The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.

–Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay.  Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”.  His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.

For the moment everything is fine because interest rates are incredibly low and the mockers in the “deficits don’t matter” fan club are having a field day.

But what is going to happen when interest rates return to rational levels?

How will the U.S. government be able to borrow the trillions of dollars that it needs to borrow every single year?

That is why it is so important to watch interest rates.  When they start skyrocketing, big trouble is ahead.

40 Stats That Prove The U.S. Economy Has Already Been Collapsing Over The Past Decade

40The “coming economic collapse” has already been happening.  You see, the truth is that the economic collapse is not a single event.  It has already started, it is happening right now, and it will accelerate during the years ahead.  The statistics in this article show very clearly that the U.S. economy has fallen dramatically over the past ten years or so.  Unfortunately, there are lots of mockers out there that love to mock the idea of an economic collapse even though one is happening right in front of our eyes.  They love to say stuff like this (and I am paraphrasing): “An economic collapse is never going to happen.  We can consume far more wealth than we produce forever.  We can pile up gigantic mountains of debt forever.  There is no way that the party is over.  In fact, the party is just getting started.  Woo-hoo!”  That sounds absolutely ridiculous, but “economists” and “journalists” actually write things that reflect these kinds of sentiments every single day.  They do not seem alarmed about the fact that our national debt is nearly 17 times larger than it was 30 years ago.  They do not seem alarmed about the fact that the total amount of debt in our country is more than 28 times larger than it was 40 years ago.  They do not seem alarmed about the fact that our economic infrastructure is being absolutely gutted and we are steadily becoming poorer as a nation.  They just think that the magic formula of print, borrow, spend and consume can go on indefinitely.  Unfortunately, the truth is that a massive economic disaster has already started to unfold.  We inherited the greatest economic machine in the history of the world, but we totally wrecked it.  We have been able to live far, far beyond our means for the last couple of decades thanks to the greatest debt bubble in the history of the planet, but now that debt bubble is getting ready to burst.  Anyone with half a brain should be able to see what is coming.  Just open your eyes and look at the facts.  The following are 40 stats that prove the U.S. economy has already been collapsing over the past decade…

#1 According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001.  That number dropped to 21.6 percent in 2011.

#2 The United States was once ranked #1 in the world in GDP per capita.  Today we have slipped to #14.

#3 The United States has fallen in the global economic competitiveness rankings compiled by the World Economic Forum for four years in a row.

#4 Since the year 2000, the size of the U.S. national debt has grown by more than 11 trillion dollars.

#5 Back in the year 2000, our trade deficit with China was 83 billion dollars.  Last year, it was 315 billion dollars.

#6 In the year 2000, about 17 million Americans were employed in manufacturing.  Today, only about 12 million Americans are employed in manufacturing.

#7 The United States has lost more than 56,000 manufacturing facilities since 2001.

#8 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.

#9 Between December 2000 and December 2010, 38 percent of the manufacturing jobs in Ohio were lost, 42 percent of the manufacturing jobs in North Carolina were lost and 48 percent of the manufacturing jobs in Michigan were lost.

#10 Back in 1998, the United States had 25 percent of the world’s high-tech export market and China had just 10 percent. Today, China’s high-tech exports are more than twice the size of U.S. high-tech exports.

#11 In 2002, the United States had a trade deficit in “advanced technology products” of $16 billion with the rest of the world.  In 2010, that number skyrocketed to $82 billion.

#12 The United States has lost more than a quarter of all of its high-tech manufacturing jobs since the year 2000.

#13 The number of full-time workers in the United States is nearly 6 million below the old record that was set back in 2007.

#14 The average duration of unemployment in the United States is nearly three times as long as it was back in the year 2000.

#15 Throughout the year 2000, more than 64 percent of all working age Americans had a job.  Today, only 58.7 percent of all working age Americans have a job.

#16 The official unemployment rate has been at 7.5 percent or higher for 54 months in a row.  That is the longest stretch in U.S. history.

#17 The U.S. government says that the number of Americans “not in the labor force” rose by 17.9 million between 2000 and 2011.  During the entire decade of the 1980s, the number of Americans “not in the labor force” rose by only 1.7 million.

#18 The average number of hours worked per employed person per year has fallen by about 100 since the year 2000.

#19 The U.S. economy continues to trade good paying jobs for low paying jobs.  60 percent of the jobs lost during the last recession were mid-wage jobs, but 58 percent of the jobs created since then have been low wage jobs.

#20 The U.S. economy lost more than 220,000 small businesses during the recent recession.

#21 The percentage of Americans that are self-employed has steadily declined over the past decade and is now at an all-time low.

#22 According to economist Tim Kane, the following is how the number of startup jobs per 1000 Americans breaks down by presidential administration…

Bush Sr.: 11.3

Clinton: 11.2

Bush Jr.: 10.8

Obama: 7.8

#23 In the year 2000, there were only 17 million Americans on food stamps.  Today, there are more than 47 million Americans on food stamps.

#24 In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent.  Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.

#25 Since Barack Obama entered the White House, the average price of a gallon of gasoline in the United States has risen from $1.85 to $3.64.

#26 More than twice as many new homes were sold in the United States in 2005 as will be sold in 2013.

#27 Right now there are 20.2 million Americans that spend more than half of their incomes on housing.  That represents a 46 percent increase from 2001.

#28 The price of ground beef increased by 61 percent between 2002 and 2012.

#29 According to USA Today, water bills have actually tripled over the past 12 years in some areas of the country.

#30 In 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  Today, only 55.1 percent are covered by employment-based health insurance.

#31 Median household income in the United States has fallen for four years in a row.

#32 As I mentioned recently, the homeownership rate in America is now at its lowest level in nearly 18 years.

#33 Back in the year 2000, the mortgage delinquency rate was about 2 percent.  Today, it is nearly 10 percent.

#34 Median household income for families with children dropped by a whopping $6,300 between 2001 and 2011.

#35 Back in 2007, about 28 percent of all working families were considered to be among “the working poor”.  Today, that number is up to 32 percent even though our politicians tell us that the economy is supposedly recovering.

#36 According to the Federal Reserve, the median net worth of families in the United States declined “from $126,400 in 2007 to $77,300 in 2010“.

#37 According to the New York Times, the average debt burden for U.S. households that earn $20,000 a year or less “more than doubled to $26,000 between 2001 and 2010“.

#38 Medicare spending increased by 138 percent between 1999 and 2010.

#39 During Obama’s first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.

#40 Today, more than a million public school students in the United States are homeless.  This is the first time that has ever happened in our history.  That number has risen by 57 percent since the 2006-2007 school year.

Are there any other items that you would add to this list?  Please feel free to join the discussion by posting a comment below…

Crushed Car By UCFFool

The “McDonald’s Budget”: Laughably Unrealistic But Also Deeply Tragic

The McDonald's BudgetCan you support a family on $2,000 a month?  Recently, McDonald’s and Visa teamed up to launch a website that is intended to help employees of McDonald’s manage their money.  The aspect of the website that is getting a tremendous amount of national attention is the “McDonald’s Budget” which is a sample monthly budget which is designed to help workers plan their spending.  You can see a copy of it for yourself right here.  This budget is laughably unrealistic, but it is also deeply tragic, because there are tens of millions of American workers that are actually trying to raise families on this kind of an income.

The first thing that you will notice about the McDonald’s Budget is that it expects workers to have two jobs.  It is an open admission that working at McDonald’s is not enough to survive.  So this budget assumes that the worker will take on a second job which will pay nearly as much as the first one does.  Assuming that both jobs pay about the minimum wage, the budget will require about 70 to 80 hours of work every week.

People can put in those kind of hours for a time, but after a while your body starts to break down.  I have been there, and I have known many others that have been there.

But let’s assume that the hypothetical worker that this budget is for can work that many hours indefinitely.  The budget assumes a yearly income of about $24,000 after taxes, and that would make it a fairly typical budget for a typical working class American.

In the United States today, 47 percent of all U.S. workers make less than $25,000 a year before taxes.  So millions upon millions of U.S. workers are trying to make ends meet each month on very limited incomes.

Does the “McDonald’s Budget” provide any solutions for those workers?

Well, this budget allocates $0 for food, so if you plan on following this budget you might want to anticipate fasting a lot each month.

This budget also allocates $0 for gasoline.  So either you will have to ride a bicycle or walk everywhere you go.

This budget does not allocate any money for clothing either.  If you really need something to wear, perhaps you can take some cash from the “monthly spending money” category and go down to the local thrift store and get something.

In addition, this budget has no money for water, no money for child care and you might as well forget about saving for retirement.  But if you work yourself 70 to 80 hours a week, you probably won’t even make it to retirement age anyway.

So what are some of the things that actually are in the budget?

Well, it allocates $20 a month for health insurance.

Wow – where can I sign up for that health insurance plan?

As the Washington Post noted, nobody is going to be able to get health insurance that cheaply…

Low-income individuals receive assistance from Medicaid, but an after-tax income of $24,720 would put Medicaid out of reach in most states. The same point will likely apply to the subsidies offered by Obamacare: An individual with an income of $17,000 in California will be able to get a basic health insurance plan at no cost, but an individual making $28,000 will have to pay at least $137 per month.

So even a young, healthy person will have to pay $100 or more for an individual health insurance policy in most circumstances. Perhaps McDonalds is tacitly admitting that many low-income workers, including McDonalds employees, can’t afford health insurance and simply make do without it.

The original version of the budget also assumed that the worker would spend zero dollars a month on “heating”.

Perhaps McDonald’s just expects their workers to freeze all winter.

The new version of the budget now allocates $50 a month for heating.  Perhaps that may work for the state of Florida, but anyone that lives in a northern state knows that it takes a whole lot more than that just to heat up your home to a level that is barely livable during the winter.

This budget is absolutely crazy.  But perhaps even more patronizing then the budget itself is the following statement that is made on the website: “You can have almost anything you want as long as you plan ahead and save for it.”

Oh really?

Do they expect anyone to actually fall for that line?

Don’t get me wrong.  Working at McDonald’s is great for some people.  I worked there myself when I was in high school.  But the vast majority of adult Americans need jobs that will enable them to take care of their families.  And those kinds of jobs are rapidly disappearing.

Last month, the U.S. economy lost 240,000 full-time jobs.  We are about 6 million full-time jobs below the all-time record that was set back in 2007.  For much more on this, please see my previous article entitled: “The Decline Of Breadwinner Jobs Has Resulted In The Longest Bread Lines In American History“.

Today, one out of every four American workers has a job that pays $10 an hour or less.  A lot of very talented people are cutting hair, flipping burgers or working for temp agencies.  Those people should be doing something that takes advantage of their skills and abilities, but the U.S. economy is not producing enough of those kinds of jobs anymore.

Unfortunately, this is only just the beginning.  The next major wave of the economic collapse is rapidly approaching, and when it strikes unemployment in this country is going to get much worse.

So don’t put all of your faith in the system, because the system is failing.  Even if you do have a good job right now, you could lose it at any moment.

Whatever you can do to become more independent of the system is a good thing.  For example, starting up a side business is a wonderful thing.  It takes a tremendous amount of effort, but nobody can fire you if you are the boss.

So what do you think of the “McDonald’s Budget”?  Please feel free to share your opinion by posting a comment below…

McDonald's

A Nightmare Scenario

NightmareMost people have no idea that the U.S. financial system is on the brink of utter disaster.  If interest rates continue to rise rapidly, the U.S. economy is going to be facing an economic crisis far greater than the one that erupted back in 2008.  At this point, the economic paradigm that the Federal Reserve has constructed only works if interest rates remain super low.  If they rise, everything falls apart.  Much higher interest rates would mean crippling interest payments on the national debt, much higher borrowing costs for state and local governments, trillions of dollars of losses for bond investors, another devastating real estate crash and the possibility of a multi-trillion dollar derivatives meltdown.  Everything depends on interest rates staying low.  Unfortunately for the Fed, it only has a certain amount of control over long-term interest rates, and that control appears to be slipping.  The yield on 10 year U.S. Treasuries has soared in recent weeks.  So have mortgage rates.  Fortunately, rates have leveled off for the moment, but if they resume their upward march we could be dealing with a nightmare scenario very, very quickly.

In particular, the yield on 10 year U.S. Treasuries is a very important number to watch.  So much else in our financial system depends on that number as CNN recently explained…

Indeed, since May, just before Bernanke announced a probable end to QE3, the yield on 10-year Treasuries has jumped around almost one percentage point, to 2.6%, wiping out more than two years of interest payments. The markets clearly fear that far higher long-term rates are lurking in the absence of exceptional policies to rein them in.

That’s a crucial issue, because those rates are highly influential in determining the future performance of stocks, bonds, and real estate. Investors grant equities higher multiples when long-term rates are lower; both longer-maturity Treasuries and corporate bonds jump when rates decline; and developers pocket more cash flow from their projects when they borrow cheaply, raising the values of office and apartment buildings. When rates reverse course, so do all of those prices the Fed has been endeavoring to swell as a tonic for the economy.

Even though the yield on 10 year U.S. Treasuries has risen substantially, it is still very low.  It has a lot more room to go up.  In fact, as the chart posted below demonstrates, the yield on 10 year U.S. Treasuries was above 6 percent back in the year 2000…

10 Year Treasury Yield

And the yield on 10 year U.S. Treasuries should rise substantially.  It simply is not rational to lend the U.S. government money at less than 3 percent when the real rate of inflation is about 8 percent, the Federal Reserve is rapidly debasing the currency by wildly printing money and the federal government has been piling up debt as if there is no tomorrow…

National Debt

Anyone that lends the U.S. government money at current rates is being very foolish.  You will end up getting back money that has much less purchasing power than you originally invested.

Why would anyone do that?

But if interest rates rise, the U.S. government could be looking at some very hairy interest payments very rapidly.  For example, if the average rate of interest on U.S. government debt just gets back to 6 percent (and it has been far higher than that in the past), the federal government will be shelling out a trillion dollars a year just in interest on the national debt.

State and local governments all over the nation could also very rapidly be facing a nightmare scenario.

Detroit is already on the verge of formally declaring the largest municipal bankruptcy in the history of the United States, and there are many other state and local governments from coast to coast that are rapidly heading toward financial disaster even though borrowing costs are super low right now.

If interest rates start rising dramatically, it would cause a huge wave of municipal financial disasters, and municipal bond investors would lose massive amounts of money…

“Muni bond investors are in for the shock of their lives,” said financial advisor Ric Edelman. “For the past 30 years there hasn’t been interest rate risk.”

That risk can be extreme. A one-point rise in the interest rate could cut 10 percent of the value of a municipal bond with a longer duration, he said.

Many retail buyers, though, are not ready for the change and “when it starts, it will be too late for them to react,” he said, adding that he was encouraging investors to look at their portfolio allocation and make changes to protect themselves from interest rate risks now.

In fact, bond investors of all types could be facing monstrous losses if interest rates go up dramatically.

It is being projected that if U.S. Treasury yields rise by an average of 3 percentage points, it will cause bond investors to lose a trillion dollars.

And already we have started to see a race for the exits in the bond market.  A total of 80 billion dollars was pulled out of bond funds during the month of June alone.  If you want a visual of the flow of money out of the bond market, just check out the chart in this article.

We are witnessing things happen in the financial markets that have not happened in a very, very long time.

And junk bonds will be hit particularly hard.  About a decade ago, the average yield on junk bonds was about twice what it is right now.  When the junk bond crash comes, there is going to be mass carnage on Wall Street.

But of much greater importance to most Americans is what is happening to mortgage rates.  As mortgage rates rise, it becomes much more difficult to sell a house and much more expensive to buy a house.

According to CNBC, there is an increasing amount of concern that the rise in mortgage rates that we are witnessing could throw the real estate market into absolute turmoil…

The housing recovery is in for a major pause due to higher mortgage rates. It is not in the numbers now, and it won’t be for a few months, but it is coming, according to one noted analyst. The market has seen rising rates before, but never so far so fast; there is no precedent for a 45 percent spike in just six weeks. The spike is causing a sense of urgency now, a rush to buy before rates go higher, but that will be short term. Home sales and home prices will both come down if rates don’t return to their lows, and the expectation is that they will not.

We have seen the number of mortgage applications fall for four weeks in a row, and at this point mortgage applications have declined by 28 percent over the past month.

That is an absolutely stunning decline, but it just shows the power of interest rates.

Let’s try to put this into real world terms.

A year ago, the 30 year rate was sitting at 3.66 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate would be $1374.07.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage at that rate would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn’t.  8 percent was considered to be normal back in the year 2000…

30 Year Mortgage Rate

This is what we are talking about when we talk about the “bubbles” that the Federal Reserve has created.  The housing market is now completely and totally dependent on these artificially low mortgage rates.  If rates go back to “normal”, the results would be absolutely devastating.

But of course the biggest problem with rapidly rising interest rates is the potential for a derivatives crisis.

There are several major U.S. banks that have tens of trillions of dollars of exposure to derivatives.  The following is from one of my previous articles entitled “The Coming Derivatives Panic That Will Destroy Global Financial Markets“…

JPMorgan Chase

Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)

Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)

Citibank

Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)

Bank Of America

Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)

Goldman Sachs

Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.

The largest chunk of those derivatives contracts is made up of interest rate derivatives.

I have mentioned this so many times before, but it bears repeating that there are approximately 441 trillion dollars worth of interest rate derivatives sitting out there.

If rapidly rising interest rates suddenly cause trillions of dollars of those bets to start going bad, we could potentially see several of the “too big to fail” banks collapse at the same time.

So what would happen then?

Would the federal government and the Federal Reserve somehow come up with trillions of dollars (or potentially even tens of trillions of dollars) to bail them out?

The Federal Reserve has created a giant mess, and when this current low interest rate bubble ends our financial system is going to slam very violently into a very solid brick wall.

As Graham Summers recently pointed out, entrusting Federal Reserve Chairman Ben Bernanke with control of our financial system is like putting a madman behind the wheel of a speeding vehicle…

Imagine if you were in the car with a driver who was going 85 MPH down a road with a speed limit of 35 MPH (this isn’t a bad metaphor as there is absolutely no evidence that QE creates jobs or GDP growth so there is no reason for the Fed to be doing it in the first place).

The guy is obviously out of control. The dangers of driving this fast are myriad (crashing, running someone over, etc.) while the benefits (you might get where you want to go a little faster assuming you don’t crash) are minimal.

Now imagine that the driver turned to you and said, “I’m thinking about slowing down.” Seems like a great idea doesn’t it? But then a mere two minutes later he says “ we need to continue at 85 MPH for the foreseeable future.”

At this point any sane person would scream, “STOP.” The driver is clearly a madman and shouldn’t be let anywhere near the driver’s seat. Moreover, he’s totally lost all credibility and isn’t to be trusted.

That’s our Fed Chairman.

Sadly, most Americans do not understand any of this.

Most Americans have no idea about the immense economic pain that is going to hit us when interest rates go back to normal levels.

All of this could have been avoided, but instead the American people let the central planners over at the Federal Reserve run wild.

When the bubble finally bursts, the official unemployment rate is going to rocket well up into the double digits, millions of families will lose their homes and America will find itself in the middle of the worst economic crisis in modern U.S. history.

Please share this article with as many people as you can.  We need to help people understand what is coming so that they will not be blindsided by it.

Goodbye Full-Time Jobs, Hello Part-Time Jobs, R.I.P. Middle Class

GraveyardA fundamental shift is taking place in the U.S. economy.  In fact, this transition is rapidly picking up momentum and is in danger of becoming an avalanche.  The percentage of full-time jobs in our economy is steadily declining and the percentage of part-time jobs is steadily increasing.  This is not a recent phenomenon, but now there are several factors which are accelerating this trend.  One of them is Obamacare.  The truth is that Obamacare actually gives business owners incentive to cut hours and turn full-time workers into part-time workers, and according to the Wall Street Journal and other prominent publications this is already happening all over the United States.  Perhaps this is part of the reasons why the U.S. economy actually lost 240,000 full-time jobs last month.

In a recent article entitled “Restaurant Shift: Sorry, Just Part-Time“, the Wall Street Journal explained the choices that employers are faced with thanks to Obamacare…

The Affordable Care Act requires employers with 50 or more full-time equivalent workers to offer affordable insurance to employees working 30 or more hours a week or face fines. Some companies have said the requirement could increase their costs significantly, although others have played down the potential hit.

The cost for small firms to comply with the health law will depend largely on the number of additional full-time employees that sign up for employer-sponsored coverage. Average annual premiums for employer-sponsored health insurance in 2012 were $5,615 for single coverage and $15,745 for family coverage, according to the Kaiser Family Foundation. That is up from $3,083 and $8,003, respectively, in 2002.

Thankfully the implementation of this aspect of Obamacare was recently delayed, but a lot of employers are saying that it won’t make a difference.  They know that it is coming at some point, and so they are already making the changes that they feel they will need to make in order to comply with the law…

Restaurant owners who have already begun shifting to part-time workers say they will continue that pattern.

“Does the delay change anything for us? Absolutely not,” Mr. Adams of Subway said, explaining that whether his health-care costs go up next year or in 2015, he will have to comply with the law. “We won’t start hiring full-time people.”

This is very sad, because we have already been witnessing a steady erosion of “breadwinner jobs” in this country.

It is very, very difficult to support a family if you just have a part-time job or a temp job.  But those are the jobs that our economy is producing these days.

In fact, if you can believe it, the second largest employer in the United States is now a temp agency.  Kelly Services is actually the second largest employer in the country after Wal-Mart.

Isn’t that crazy?

And full-time employment continues to lag far, far behind part-time employment.  The number of part-time workers in the United States recently hit a brand new all-time record high, but the number of full-time workers remains nearly 6 million below the old record that was set back in 2007.

For much more on this, please see my previous article entitled “15 Signs That The Quality Of Jobs In America Is Going Downhill Really Fast“.

At this point, employees are increasingly considered to be expendable “liabilities” that can be dumped the moment that their usefulness is over.

For example, employees at one restaurant down in Florida were recently fired by text message…

It’s bad enough losing your job, but more than a dozen angry employees say they were fired from a central Florida restaurant via text message.

Employees at Barducci’s Italian Bistro said they lost their jobs without notice after the restaurant suddenly closed and are still waiting for their paychecks.

This shift that we are witnessing is fundamentally changing the relationship between employers and employees in the United States.  The balance of power has moved very much toward the employers.

Most employers realize that there is intense competition for most jobs these days.  If you get tired of your job, your employer can easily go out and find a whole bunch of other people who would be thrilled to fill it.

So why has the balance of power shifted so dramatically?

Well, for one thing we have allowed millions upon millions of good paying jobs to be shipped out of the country.  Now American workers literally have to compete for jobs with workers on the other side of the planet that live in nations where it is legal to pay slave labor wages.

This should have never happened, but voters in both major political parties kept voting for politicians that were doing this to us.

Now we all pay the price.

Another factor is the rapid advancement of technology.

These days, businesses are trying use machines, computers and robots to automate just about everything that they can.  The following example comes from a recent Business Insider article…

On a windy morning in California’s Salinas Valley, a tractor pulled a wheeled, metal contraption over rows of budding iceberg lettuce plants. Engineers from Silicon Valley tinkered with the software on a laptop to ensure the machine was eliminating the right leafy buds.

The engineers were testing the Lettuce Bot, a machine that can “thin” a field of lettuce in the time it takes about 20 workers to do the job by hand.

The thinner is part of a new generation of machines that target the last frontier of agricultural mechanization — fruits and vegetables destined for the fresh market, not processing, which have thus far resisted mechanization because they’re sensitive to bruising.

So what happens when the big corporations that dominate our economy are able to automate everything?

What will the rest of us do?

How will the middle class survive if they don’t need us to work for them?

Over the past couple of centuries, we have witnessed several fundamental shifts in our economy.

Once upon a time, a very high percentage of Americans worked for themselves.  There were millions of farmers, ranchers, small store owners, etc.

But then the industrial revolution kicked in to high gear and big corporations started to gain more power.  Millions of Americans went to work for these big corporations, but it was okay because they paid us good wages to work in their factories and the middle class thrived.

Unfortunately, the big corporations have realized that things have changed and that they don’t really need us anymore.  They can replace us with technology or with super cheap labor overseas.

So that leaves the rest of us in quite a quandry.  Very few of us own our own businesses.  In fact, the percentage of self-employed workers in the United States is at an all-time record low.  And the number of us that are needed by the monolithic corporations that dominate our system is dropping by the day.

All of this is very bad news for the middle class.  The only thing that most of us have to offer is our labor, and the value of our labor is continually declining.

Unless something dramatic happens, the future of the middle class looks very bleak.

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