& Market Trends
Jul 9, 2009
Our measure of how bad it
is in this economy for a broad swath of Americans can
be analyzed by asking three basic questions: Are people working,
are they making any money, and do they have any money in reserves?
To answer these questions and more, below are some shocking facts!
First, are people actually employed? The glum employment
situation continues to unravel and on the summer jobs front,
16-19 year olds are facing the worst environment since 1954,
before their parents were even born. In 2007, 51 percent of graduating
college students had jobs lined up before graduation. This year,
less than 20 percent had jobs. Because they can't find work,
the youth of America are staying at home with their parents (maybe
forever) and parents can be categorized as "payrents."
The number of unemployed workers
reported in the "headline" unemployment rate of 9.5
percent is now 15 million, but only seven million are eligible
and collecting unemployment insurance benefits. Each week, when
initial unemployment claims of over 600,000 are announced, it's
a virtual certainty that a million people have actually lost
their jobs, considering 400,000 workers are out of the work force
and not eligible to file. When a million jobs a week are lost,
there is no way our current economy can replace them!
In America, only about 60
percent of workers are eligible to file for unemployment benefits.
The rest are part-time, contract workers, and those that worked
only a short time and don't qualify to receive benefits.
An alternative measure of unemployment
reported by the Bureau of Labor Statistics ("BLS")
shows a 16.5 percent unemployment rate. This measure, called
the U-6, includes workers who would like a job but have stopped
looking, and part-timers who want full-time work (there are approximately
nine million part-timers seeking full-time employment). Unemployment
and underemployment are massive.
Second, is anyone making any money? With 28 million
people working part-time and 10 million self-employed (this includes
dog walkers, yoga instructors and independent contractors, such
as real estate sales agents), 38 million Americans in the work
force are working but not making that much. Many firms and state
and local governments have also begun to cut payroll hours and
eliminate overtime altogether. The weekly hours worked were at
their lowest level ever recorded in the BLS survey - if you don't
work, you don't get paid! But the survey is very likely still
overestimating personal income (hourly wages are multiplied by
hours worked to give a good indication of income), so another
way to measure income is to examine tax collections. If you are
working part-time or are self-employed you're counted as working
in the survey, but if you're not paying taxes, it's because you
didn't make any money! State income tax receipts from January
2008 - April 2009 were down 26 percent from the year before,
and money wired back to homes in Mexico from America is down
Small businesses are also failing
at a catastrophic rate. These businesses used to be a major source
of job growth and income, but not anymore! Mom and Pop businesses
have been gutted and many used personal credit cards to fund
their operations, resulting in a default rate that has grown
to 12 percent on small business credit cards.
Third, does anyone have any financial resources? The
government recently reported the savings rate had increased to
7 percent, but with personal income so grossly overestimated,
it's likely the numbers are way off. There's a big difference
between paying down your credit card debt (as your credit limit
is cut), and stashing real cash in the bank. Cash in the bank
is real savings, paying down credit card debt is not. But since
the Fed cut interest rates to zero, many older Americans, who
relied on the interest to help pay the bills, are scrambling
and uncertain about the future.
In addition, 51 million Americans
are collecting Social Security benefits. Nobody would consider
this demographic rich or well to do. Indeed, given the high cost
of living, you don't live on Social Security, you simply subsist.
Another 12 million people are collecting Social Security Disability
("SSI"). (If you're 55 and used to work at an auto
plant and have exhausted your unemployment benefits, SSI is likely
where you will find your friends until you turn 62 and start
collecting Social Security.) And still another 34 million
people are collecting food stamps, and the total is rising at
the rate of 4 million a year. (To be eligible for food stamps
you need to have less than $2,000 in resources such as a bank
RECAP: Seven million people are collecting unemployment
benefits, and another eight million are unemployed and collecting
nothing! There are 38 million part-time or self employed workers,
and 2.4 million people in jail (1 in 100 adults). 51 million
are collecting Social Security benefits, 12 million are on Social
Security Disability, and 34 million are on food stamps. What
financial resources can this huge segment of the population have?
I bet no one under the age
of 70 can remember an economy this bad. Tens of millions of Americans
subsisting on government handouts are one paycheck away from
homelessness and hunger. The hard times we are experiencing today,
due to the misalignment of over-consumption financed by debt,
are severe. It will take at least a few more years to work down
the debt, build real savings and put the economy on a sound footing.
If the American press focused on the economic statistics that
reflect the seriousness of the economic catastrophe, the officials
in Washington will surely panic. Americans could step
up to the plate and ask for some of that bailout money that Wall
Street received. It's time to get grumpy and politically active!
You have to wonder what the
government will do to try and jumpstart the dying economy. We
expect three major policies by the end of the year:
First, there will be another massive stimulus for
will be another round of quantitative easing from the Federal
Reserve to finance the job creation stimulus; and
a major devaluation of the dollar to encourage exports and discourage
God help the Federal Deficit
and the saver because printing money like crazy, and devaluing
the dollar, will only get inflation started...
...Whoever said that Hard Times
Jul 9, 2009
Finance Group, LLC
2505 S. Ocean Boulevard
- Suite 212
Palm Beach, Florida 33480
Richard Benson, SFGroup, is a widely-published
author on securitization and specialty finance, and a sought after
speaker at financing conferences on raising equity for mid-market
Prior to founding
the Specialty Finance Group in 1989, Mr. Benson acted as a trading
desk economist for Chase Manhattan Bank in the early 1980's and
started in the securitization business in 1983 at Bear Stearns,
and helped build the early securitization businesses at Citibank
and E.F. Hutton.
Mr. Benson graduated
from the University of Wisconsin in 1970 in the Honors Program
in Math, and did his doctoral work in Economics at Harvard University.
Mr. Benson is a member of the Harvard Club of New York and Palm
Finance Group, LLC is a Florida Limited Liability Company and
is registered with FINRA/SIPC as a Broker/Dealer.