Monday, January 9, 2017

How America "Recovered" From the Great Recession of '08

I've read a lot recently about the economic recovery and superb jobs numbers.  Mystified best describes my general state as I read and here this.  So, I decided to throw out some fairly simple charts for discussions sake. 

The chart below highlights peaks in full time employment (grey columns) vs. the Federal Reserves deemed interest rate (FFR line) and publicly held federal debt (red line).  The Fed's interest rate policy and federal debt have gone spread eagle since '07 to recoup the jobs lost and add a measly 2.3 million net new full time jobs.

Below, the three variables in the above chart broken out by change per period.  Publicly held federal debt, full time job creation (net new), and the effective reduction in the Federal Reserves federal funds rate (change in the cost of money borrowed from the Fed).

(I added yellow arrows to point out what the Fed nor the federal government nor Wall Street seem capable of seeing).

What's the problem with more debt?

This course of massive debt spending is simply creating illusory wealth, illusory economic activity, but very real debt and very real overcapacity above and beyond what people can truly afford to consume.  The overcapacity is now epic and only via faster debt growth can more overcapacity be added and current overcapacity maintained.  Going forward, the idea of maintaining and further ramping this debt fueled growth to maintain the big lie is folly to the nth degree.

The chart below shows the 25-54yr/old US population (grey columns), FFR % (blue line), public debt (red line) and Wilshire 5000 (green line).  Debt and interest rate cuts have worked wonders for the Wilshire and most other financial assets.

However, it hasn't worked out too well for the basis of America's future, the 25-54yr/old population.  This groups population peaked in '08 and has flat-lined since...however, full time jobs among them are lower now (as of the most recent 2016 BLS data) than in 2000 and almost 2 million fewer than in '07.

Unfortunately, not only are there fewer of them employed, but they have seen the worst period of wage growth since WWII.  The chart below shows the year over year percentage growth in wages for the vast majority of US workers (production and nonsupervisory employees).

This core populations days of heady population and wage growth (the foundation of rising US consumer demand) are behind it.  The chart below shows the total 25-54yr/old US population (black line) and breaks out the change per 5yr periods (blue columns).  The chart also shows the UN medium 25-54yr/old estimate for population growth (including projected immigration).  This projection is pretty much a sure thing as all these people are already alive and will move from the 0-24yr/old population into adults over the next 25yrs (only variable is immigration).

How an economy can grow faster as it's adult consumer base (population growth) is decelerating in real terms and collapsing in % terms and full time jobs among them are falling...that would be a fascinating question for the Fed?  But alas, the Fed has no real solutions and only one trick up it's sleeve.  The Fed is like Lucy deceiving poor old Charlie Brown into thinking this time it's going to work...but it never does.

All the Fed has to offer is cheaper debt with the hope we'll be like Charlie Brown, fooled by Lucy again, and take up that debt under the belief happy days are here again.  We should all know what is coming next...the only questions are when and whose going to end up flat on their ass this time?