Three Snapshots of the U.S. Economy (December 17, 2005)
The cliche is that a blind person's idea of an elephant depends on which part they happen to touch. The same is true for the U.S. economy, on which the entire world depends. A week or so ago my Mom dragged me to Union Square, the premiere shopping district in San Francisco. (Funny how that phrase works just as well at 52 years of age as it did at 14.) Yes, the lights on the tree (photo at right courtesy of Kayo Takano) set a very pretty scene, and the hordes of shoppers jamming the sidewalks created many opportunities for speculation.
For instance--where are all these people getting all this money to blow? As noted here before, personal savings rates have been negative for six months, meaning people are spending more than they earn, month after month. The Pollyannas in the crowd say this is no big deal because it doesn't take into consideration all the cash people are stowing in their 401K retirement accounts, which is a form of savings--but retirement funds are not the same as savings.
You don't cash in your retirement to pay for your kids' college, or to pay for a vacation or Heaven forbid, for some medical expenses not covered by your insurance. That's what savings are for, and Americans aren't saving diddly. If you look at this graph which depicts the housing bubble that realtors claim doesn't exist (gosh, that wouldn't be self-serving, would it?). Do you reckon people are counting on their house always climbing in value, as it's done the past 5 years, to pay for everything their little hearts desire, for ever and ever?
So the crowds of people squeezing through the aisles at Macy's suggests the elephant is roaring and strong; but touch another part--foreigners buying our debt--and the beast seems starved. The Foreign Security Purchases (NFSP) data from October showed that foreigners bought $106.8 Billion that month in dollar-denominated securities-- in other words, debt like bonds and Treasuries. At this clip, foreigners (at least those we can track) are snapping up $1.2 trillion in new debt every year. That's a lot of dough, and it suggests two things: 1) we're borrowing immense amounts of money from foreigners to sustain our Macy's easy-credit lifestyle, and 2) we are totally dependent on foreigners to keep buying all our debt because we save nothing ourselves.
If you think this means the big, lumbering animal is healthy, well, then reach out and touch what this graph depicts. What this chart is saying is that the Pentagon is paying signing bonuses of $20,000 or more in order to get soldiers, Marines and sailors to re-upp (re-enlist). Allow me to say what's too polite to say in public: guys are signing up again, even though they may be killed or maimed, because they can't make this kind of money in today's glorious economy. Yes, it's glorious if you're already rich, or you own property on the Left or Right Coast; but if you're an average American living in places without big-bucks opportunities, then $2,700 a month in pay, full medical and housing benefits and over $500 in combat pay plus a 20 grand signing bonus start looking pretty unbeatable.
What does this say about our economy in terms of the average wage earner and family? That the real economy, not the credit-card one or the housing-bubble-refi one, is sick.
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copyright © 2005 Charles Hugh Smith. All rights reserved in all media.
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