US Economy, the stock market , and other investment/savings strategies

[DougMacG]

Investors Business Daily says worst growth in 60 years!  Who predicted 0% growth?  Moving forward requires greater than 3% growth.  0.8% long term growth is more like a corpse lying in a morgue than a plowhorse working in a field.
--------------
Obama's first term, however, puts the paltry level of growth during Bush's second term in a newly favorable light. According to the BEA (Bureau of Economic Analysis), average annual real GDP growth during Obama's first term was a woeful 0.8%.

http://news.investors.com/ibd-editorials-viewpoint/021213-644194-obama-growth-record-is-worst-in-60-years.htm#ixzz2KuQGawCt
-------------
0.8% growth over his entire first term.  Worst in modern history.  Pathetic. 

Prospects for the future under current policies:  More of the same, best case.

[objectivist1]

The U.S. Economy is now Dangerously Detached from Reality

Brandon Smith - www.alt-market.com - February 8, 2013

Recently I was asked to give a presentation on the current state of the global economy to a local group of concerned citizens here in Northwest Montana.  I was happy to oblige but when composing my bullet points I realized that, in truth, there were no legitimate economic numbers to examine anymore.  You see, financial analysts have traditionally used multiple indicators of employment, profit, savings, credit, supply, and demand in their efforts to divine the often obscured facts of our financial system.  The problem is, nearly every index we used in the past, every measure of capital flow and industry, is absolutely useless today.  

We now live in an entirely fabricated fiscal environment.  Every aspect of it is filtered, muddled, molded, and manipulated before our eyes ever get to study the stats.  The metaphor may be overused, but our economic system has become an absolute “matrix”.  All that we see and hear has been homogenized and all truth has been sterilized away.  There is nothing to investigate anymore.  It is like awaking in the middle of a vast and hallucinatory live action theater production, complete with performers, props, and sound effects, all designed to confuse us and do us harm.  In the end, trying to make sense of the illusion is a waste of time.  All we can do is look for the exits…

There is some tangible reality out there, but it is difficult to find, and there are few if any mainstream numbers to verify.  One has to remember always that the fundamental world of money and trade revolves around real people and real circumstances.  No matter how corrupt our economic system is, as long as there are human beings, there will always be supply and demand that cannot be hidden.  We have to look past the “official numbers” and look at the roots of trade.  Where has demand fallen?  Where has supply diminished?  Where are the tangible goods and needs and how have they changed?

Let’s first start with the mainstream version of our system, looking at each aspect of the economy that no longer represents the truth of our situation…

Employment, Savings, And Debt

Much of this information is old news to those of us in the Liberty Movement, who tracked the progress of the global collapse long before the general public even knew of its existence.  However, it is useful to take a step back and look at the basic picture every once in a while.  

According to numbers issued by the Department of Labor, weekly unemployment reports have dropped to a five year low, and the overall unemployment rate is holding at 7.9%.  This would seem to be a vast improvement over the dreadful bloodletting in the system only a few years ago.  Has the private Federal Reserve and the Obama Administration really done it?  Have they turned back the tide on the greatest fiscal crisis the U.S. has seen since the Depression?

No.  They haven’t.  

They have only changed how the data is disseminated to the public. In order to understand how the employment statistics con is being engineered, it is important to understand the difference between “Adjusted” and “Unadjusted” numbers.

Labor Department data is “seasonally adjusted”, using a series of statistical assumptions including something called “Trend Cycle Analysis”.  Trend Cycle Analysis is, basically, a sham, but a sham put together in a very complex and confusing manner.  If you ask a mainstream economist what it is, you’ll likely get a three hour long dissertation filled with financial babble and very little concrete explanation.  So let me break it down as simply as I can…

Imagine that you are going to estimate how much profit you plan to make in a particular month, but you don’t just consider your current pay rate and pop it into a calculator; you also throw in the possibility of a few pay raises, an inheritance from a grandma who might kick the bucket, and, your exaggerated expectations of the entire year’s profit on top of that.  You may also take into account future bad weather, a mugging, a nuclear war….whatever.  All hypothetical situations not based in reality.  Basically, you decide that a particular trend in your income is inevitable, then, mold your statistical analysis around that assumption.      

When your real profit numbers come in (the unadjusted numbers) and they do not meet your expectations, you simply change them according to what you believe SHOULD have happened.  If you insist that your profits are going to go up for the year, and they go down for a couple months instead, you change the variables you use to calculate the statistical average so that the results match your expectations, assuming that it will all balance out in the end.

Now, this sounds utterly insane for the common person out there trying to make a living.  If you ran your household this way, without accepting the cold hard unadjusted numbers in front of you, you’d find yourself broke and on the street in no time.  Unfortunately this is EXACTLY how our government handles most financial data; by coming to a final conclusion before hand, and then forcing the numbers to fit that conclusion.

This is why in February of 2013, “adjusted” first week unemployment rate was reported at 366,000 – a 5000 person drop from the week before.  A seeming improvement in the trend.  But, unadjusted numbers came in at 386,176 – a 16,000 person spike from the week before.  When one examines real unemployment numbers, he finds that the divergence between the adjusted and unadjusted statistics is growing larger with each passing quarter.  That is to say, the contradiction is becoming so blatant between the hard numbers and the Labor Department’s fantasy numbers that one must question whether or not the government is lying to us outright about the state of the economy (hint – they are lying).  

These same methods are used by the government to calculate progress in the housing market, disposable income, etc.  

The claim of “recovery” in the jobs market simply doesn’t jive with other indicators, like 2012 Christmas retail, which had the worst showing since the crash in 2008 (and these are still mainstream numbers!):

http://www.foxnews.com/us/2012/12/26/us-holiday-retail-sales-growth-weakest-since-2008/

Average household savings continue to scrape the bottom of the barrel, indicating that the public is not spending or withholding cash.  They are simply broke:



And the overall GDP of the U.S. contracted in the fourth quarter of 2012 for the first time in three years (again, according to official numbers, meaning the reality is much worse):

http://money.cnn.com/2013/01/30/news/economy/gdp-report/index.html

The downturn in consumption and industry also seems to be supported by the Baltic Dry Index, a measure of global shipping and rates.  The BDI has fallen to near historic lows THREE TIMES in the past year, which to my knowledge, has never happened before.  In the past, the BDI has been a strong prophetic indicator of future market volatility.  Usually, around a year after a severe decline in the index, a dangerous economic event takes place.  The BDI made its first sharp drop to all time lows at the end of January 2012, exactly a year ago.  

U.S. household debt was recently reported to have fallen to a 29 year low, but the ratio used by the Federal Reserve applies a statistic for disposable income that is derived from the Trend Cycle boondoggle method.  While markets cheer, the truth is, the only reason household debt obligations have fallen at all is because bank lending and credit issuance remains frozen.  Consumer debt falls when there is no money to borrow.  In fact, the Federal Reserve actually pays large banks NOT to lend to the public; an activity which was exposed by Dennis Kucinich in 2009 on the House Committee on Oversight and Government Reform.  An activity that continued through 2012:

http://economix.blogs.nytimes.com/2012/07/31/the-fed-should-stop-paying-banks-not-to-lend/

Keep in mind, one of the primary arguments the Federal Reserve used when promoting the bailout concept was that it would “free up credit markets” so that lending could pick up again and fuel a recovery, and yet, at the same time, they were paying banks to NOT lend.

Meanwhile, the supposed job recovery has produced an astonishing increase in welfare recipients in the U.S., including a record 46 million Americans on foodstamps (approximately 15% of our population):

http://www.nbcnews.com/business/report-15-americans-food-stamps-980690

If we are to apply any “trend” to our calculations on overall economic health, then we should include the extreme level of government handouts, and poverty levels which are now at all time highs.  The facts are undeniable; the number of people who have much less than they did in 2008 has grown.  How then could the U.S. be considered “in recovery”?

National Debt And The Fiat Lie

With the Dow Index hovering near highs of 14,000 our system truly looks to be on a rocket ship to pre-2008 money market bliss.  In a mere five years we have returned to equity spikes that stagger the mind and the wallet.  At least, that’s how it all appears…

What needs to be taken into account, though, is the amount of fiat money being created by the Federal Reserve, and how much of that printed pixie dust currency is fueling our magical flight to Neverland.  Since 2008, our official national debt has increased from $10 trillion to $16.4 trillion, and some estimate $17 trillion to $18 trillion by the end of 2013 (unless, of course, a collapse occurs).  Which means our national debt, which took decades to reach the $10 trillion mark, will have nearly doubled in only six years!  

So, what has a doubling of our national debt in such a short span of time bought us?  Well, credit markets remain frozen, property markets remain stagnant, poverty is at historic levels, welfare recipients are at epic highs, and consumer activity and GDP is back at 2008 lows.  Where did all that printed money go?  Where was it spent?  To answer that question, we only need to find what area of the economy has seen the most positive (or fantastical) activity.  What sector is seeing a massive boost while the rest tumbles?

I suggest that a large portion of QE1 through QE3 has gone to prop up the stock market, and nothing else.  I suggest that American taxpayers are fronting the bill for the equities bonanza we see today.  I suggest that the Dow is being used as a Red Herring to distract the populous for as long as possible while real assets are being snapped up and hoarded by international banks and foreign entities.  I suggest that we are being leached dry and that the parasites are almost ready to move on…

When will it all end?  Perhaps sooner than many people think.  The decision by D.C. to delay talks on the so-called “Fiscal Cliff” until March may not be coincidence.  Extensive cuts in federal spending are absolutely necessary and cannot be dismissed forever, but, because the last vestiges of our system that still operate do so through government money, such cuts will cause immediate damage to the economy, including possible default and dollar devaluation.  Refusal to make cuts will result in credit downgrades, currency inflation, and a loss of the greenback’s world reserve status.  There is no “right” way out of this quandary.  

When this collapse is initiated, it would certainly behoove all parties involved, including central banks, international banks, and criminal politicians, to have a scapegoat handy for the citizenry to direct their rage at.

Event Horizon Economics

An “Event Horizon” in physics is a moment or singularity in spacetime at which a gravitational pull becomes so great that there is no way to escape it.  It is a point of no return.  I believe America’s economy has reached its own Event Horizon.  Our system is now entirely fiat driven, with very little or no true economy left.  Without constant injections from the Fed, and perpetually low interest rates, the country would implode tomorrow.  This is not recovery.  Actually, I’m not sure what to call it.  

Today, independent economic analysts cannot look to the numbers to determine future trends.  Most are fake, and the rest are ugly, and I’m not sure much else can be said in their regard.  Instead, we must now look to events, rather than statistics, because our country has been maneuvered into a position of utmost frailty.  Like an avalanche shelf waiting for that perfectly timed disturbance to trigger its roaring collapse.  All that is needed is a macro-crisis, and it is no great feat for such a thing to be created in our tension filled global environment.

War in Syria and Iran leading to a tripling of energy prices.  Sanctions and strife with North Korea leading to Chinese economic retribution.  Conflict between China and Japan, again leading to Chinese economic warfare and perhaps real warfare.  An opportune “cyber attack” which could be used as an excuse for a market crash and even an internet shutdown.  A “political impasse” between Reps and Dems which leads to a default of U.S. credit.  Any one of these catastrophes could easily occur (with a little nudge from some well placed people) and feed a wider global tragedy.  The important thing to remember is that while this event will be blamed for the breakdown, it was international banks, the Federal Reserve, and elements of our own government that made the domino effect possible.  They put the pieces in place.  The act that knocks them over is secondary.

I have spent the past seven years writing about “potential” threats to our overall system, but these dangers were always just beyond our sight.  Just around the corner.  Today, it is as if the journey is over, and all those threats have materialized right before my eyes as real, and imminent.  I am watching that which I warned of come to fruition, and this is certainly not a pleasant thing.  What is valuable, though, is what we have all done in the Liberty Movement with the time that we had.  From when I began writing for the movement until now, I have seen an overwhelming increase in public awareness.  It may not be obvious to newer activists, but it is there all the same.  While we still face disparaging odds, and millions upon millions of oblivious bystanders, there is, amidst these darker moments, a steadfast community of free men and women forming.  I have full faith in the future.  Much more so than I ever did before.  Our economy may be detached from reality, but our endeavors as individuals will not be.  Our resolve will be the great game changer.  Not fiscal calamity.

 

 

You can contact Brandon Smith at:  brandon@alt-market.com

[Crafty_Dog]

________________________________________
Industrial production declined 0.1% in January To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 2/15/2013

Industrial production declined 0.1% in January, coming in below the consensus expected gain of 0.2%. Production is up 2.1% in the past year.
Manufacturing, which excludes mining/utilities, declined 0.4% in January. Auto production fell 3.2%, while non-auto manufacturing declined 0.1%. Auto production is up 7.5% versus a year ago while non-auto manufacturing is up 1.3%.
The production of high-tech equipment fell 0.1% in January, and is down 2.2% versus a year ago.
Overall capacity utilization slipped to 79.1% in January from 79.3% in December. Manufacturing capacity use fell to 77.6% in January from 78.0% in December.
Implications: Industrial production declined slightly in January with overall output down 0.1% and manufacturing falling 0.4%. But the “big story” in today’s report was the large upward revisions for November/December. Including revisions for prior months, both overall production and manufacturing were up 0.5%. In addition, the upward revisions to production pushed capacity utilization in December to the highest level since 2005. It was only from that near-term peak that capacity use ticked down in January. Two factors might explain the dip in production in January itself: first, normal month-to-month volatility; second, some privately-held firms pushing production out the door before year-end so they could book revenue before higher tax rates took effect on January 1. Even including the decline in January, production has accelerated considerably in the past three months, with overall production up at a 6.8% annual rate and manufacturing up at a 10.1% annual rate. In the past year auto production is up 7.5%, while manufacturing ex-autos is up a slower 1.3%. We expect the gap between those two growth rates to narrow considerably in 2013, with slower growth in autos and faster growth elsewhere in manufacturing. Capacity utilization fell to 79.1% in December, only slightly below the average of 79.2% in the past 20 years. Continued gains in production will push capacity use higher, which means companies will have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments. In other news today, the Empire State manufacturing index, a measure of factory sentiment in New York, increased to +10.0 in February from -7.8 in January. The index is now the highest since last May. In other recent news, new claims for unemployment insurance fell 27,000 last week to 341,000. Lately, claims have been bouncing wildly around a four-week moving average of 353,000. Continuing claims for regular state benefits fell 130,000 to 3.11 million. These figures are consistent with continued moderate payroll growth in February.

[DougMacG]

"Industrial production declined 0.1%"
"Manufacturing, which excludes mining/utilities, declined 0.4% in January. Auto production fell 3.2%, while non-auto manufacturing declined 0.1%."
----------------
A Plowhorse can't pull a plow backwards.  The plowhorse analogy implies a very strong horse pulling a very heavy load at very slow, consistent pace.   But we aren't pulling a fixed load with a fixed force.  A good part of our load consists of people who could be helping us pull.

The wagon analogy reflects that.  The wagon has the productive people pulling it up a slight incline and it has the oldest, poorest and weakest among us riding if they are unable to help pull or even walk alongside without assistance.  The slight incline is the actual cost of governing, keeping the courts open, police, roads, etc.

The puller to rider ratio for the wagon shifts dramatically with every policy change.  When everyone who can pulls a little the wagon goes along quite easily and effortlessly.  But we take the strongest pullers and tie ropes at varying tensions around their arms and legs, and som duct to at least partially block their breathing.  We take the able bodied who aren't pulling much and tell them they are no help and can ride if they choose, a 34 million person shift in 4 years.  We take riders who are rested and ready to help pull, instead we pay them to keep riding.  At some point we wonder how the slight incline has become an unbearable slope.  We stall out and maybe slip backwards a little - until we recognize what is wrong and correct it.

[For_Crafty_Dog]

And by the way, the Fed has not been "creating money" in any more significant amounts than it has for the past 20 years. The Fed has essentially been swapping bank reserves for Treasuries and MBS. That's it. Bank reserves are not "money." This chart is proof that the amount of "money" in the economy has not expanded by any unusual amount. The recent increase in M2 has been driven almost exclusively by an increase in money demand that the Fed has simply accommodated. That is not inflationary

  —  Scott Grannis

[objectivist1]

The Fed has been "monetizing" the debt at a rapid pace.  While this graph shows the Federal Reserve's definition of money supply, it does not take this into account.  Which is like trying to calculate the trajectory of a rocket to the moon without taking into account the forces of gravity.  It's a joke.

[G M]

The Fed has been "monetizing" the debt at a rapid pace.  While this graph shows the Federal Reserve's definition of money supply, it does not take this into account.  Which is like trying to calculate the trajectory of a rocket to the moon without taking into account the forces of gravity.  It's a joke.

Aside from food, gas, and electricity, we've hardly seen inflation.   

[objectivist1]

G M - that is because this money is being held by banks.  When it enters circulation and the Fed stops keeping interest rates close to zero, watch out.
I think the smartest strategy right now is to stock up on essentials, and put most of your liquid assets into gold and silver bullion.  Call me crazy - but this insanity cannot continue indefinitely without causing a financial collapse.

[DougMacG]

Milton Friedman had a license plate that said: MV=PQ, contending that each of four very important but difficult to measure variables are all intrinsically tied to each other, either proportionally or inversely.  The money supply times the velocity of money equals the total value of all the goods and services in the economy.

We are getting information that the Fed is monetizing 3/4 of trillion dollars a year in 'debt' that is neither collected in tax revenues nor borrowed in a market by a willing participant.  That new money is entering the economy by way Treasury checks at a rate of  $24,000 per second?   What could possibly go wrong?

Money is up and velocity is down from where it could be or should be.  With flat demand and no growth, prices look relatively stable.  (Unless as G M says if you have been to a gas station or grocery store lately, or healthcare or education or property taxes or anything else we have to pay for.)

Inflation is the increase in dollars relative to output, clearly we are doing that.  Consumer price increases are not tied to money but money times velocity, if you buy Friedman's thinking.

Obj wrote: "that is because this money is being held by banks.  When it enters circulation and the Fed stops keeping interest rates close to zero, watch out."

A bank reserve is money sitting still whether you count it or not.  Yes, if it were to invested and moving full speed in a fractional reserve system, it would grow in multiples.  The key to preventing or at least postponing a price spiraling crisis is our commitment to no-growth, anti-investment/employment policies.  What a miserable web we wove.

[Crafty_Dog]

http://www.youngresearch.com/authors/ejsmith/this-stock-rally-is-a-dud/?awt_l=PWy8k&awt_m=3YU1fYPCXazlu1V

[ccp]

The article stops short of specifically suggesting the best way to invest assuming his thesis is correct that we are more of a stagflation period and not bull market.

[Crafty_Dog]

The ISM Non-Manufacturing Index Increased to 56.0 in February
       
       
               
                       
                               
                                        Data Watch
                                       
                                       
                                        The ISM Non-Manufacturing Index Increased to 56.0 in February                                       
                                        Brian S. Wesbury - Chief Economist 
                                        Bob Stein, CFA - Senior Economist
                                       
                                        Date: 3/5/2013
                                       

                   

                                       
The ISM non-manufacturing index increased to 56.0 in February, beating the consensus
expected dip to 55.0. (Levels above 50 signal expansion; levels below 50 signal
contraction.)

The direction of the key sub-indexes was mixed in February, but all remain above 50.
The new orders index rebounded to 58.2 from 54.4 and the business activity index
rose to 56.9 from 56.4. The employment index slipped to 57.2 in February from 57.5
while the supplier deliveries index declined to 51.5 from 52.5.

The prices paid index rose to 61.7 in February from 58.0 in January.

Implications: Today’s ISM Services report shows improving sentiment by
companies in that sector. This upside surprise, in combination with the positive
surprise with last week’s ISM Manufacturing report, severely undermines the
theory that fear about the federal spending sequester is hurting the economy. If
anything, fear-mongering should have more of an effect on surveys like these than on
actual economic activity. So if these surveys haven’t been beaten down,
it’s very unlikely the economy is slowing. The ISM Services index rose to 56.0
in February from 55.2 in January, hitting the highest level in a year and beating
consensus expectations that it would slip slightly to 55.0. The report is the 38th
consecutive reading above 50, signaling expansion. The business activity index,
– which has a stronger correlation with economic growth than the overall index
– rose to 56.9. On the inflation front, the prices paid index rose to 61.7,
the highest in five months. Given the loose stance of monetary policy, inflation
should continue to move higher over the coming years. Other recent economic news has
also been good. According to Autodata, cars and light trucks were sold at a 15.4
million annual rate in February, up 0.6% from January and 6.1% from a year ago. With
the exception of the temporary surge in sales in November after Superstorm Sandy
– the storm postponed some sales from October into November – this was
the fastest pace of auto sales since the end of 2007. Along with other data, these
figures suggest a growth rate of 2.0 – 2.5% in real personal consumption in
Q1. Meanwhile, we’re still forecasting 2.5% real GDP growth for Q1. Again,
still no sign of a weakening consumer or economy due to either the fiscal cliff deal
or supposed concerns about the federal spending sequester.

[Crafty_Dog]

second entry:

http://www.businessinsider.com/dow-jones-idiot-maker-rally-2013-3#

[objectivist1]

This guy Wesbury can throw out all the statistics he wants.  He is straining very hard to find a silver lining in my opinion.  Plenty of other economic indicators are extremely poor - for instance - the number of working-age males actually in the work force.  He also fails to address the staggering debt we continue to pile up, which in my opinion makes an economic collapse inevitable.  Wesbury's analysis defies gravity.  It is contrary to everything I see in my daily work with 100s of small businesses who buy accounting software.  The overwhelming majority of businesses with fewer than 100 employees are struggling to stay in business and cutting costs to the bone.  Obamacare will force them to lay off workers.  Not to mention what happens if the minimum wage in fact gets raised to $9.00/hour.  This economy is on the proverbial water slide to hell, and no amount of strained sugar-coating will convince me otherwise.

[Crafty_Dog]

Again, I am not suggesting that his data that I am citing means that we are not in grave danger!

My point is this:

Many of us here, very much including me who has made this point with vigor many times, have suggested that when interest rates turn up that the cost of financing the debt and the deficit would increase so much so as to trigger the inflationary spiral we fear.  Here Wesbury makes an informed reasoned case to the contrary.

Also, many of us here, very much including me, have thought that Federal spending has continued in the neighborhood of 24-25% of GDP compared to the post WW2 average of about 20%.  I have used this datum in conversations with folks of other persuasions.  I need to know that this number is no longer accuarate. 

Fed spending as a % of GDP is one of the most fundamental indicators that there is and a decline of 2-3% in relatively short order is significant.  But for this Wesbury piece, I would not have known this.  Why is it that my readings, which are considerably more extensive than most, did not apprise me of this but for the Wesbury piece?

Similarly, in  conversation I have used the deficit as a % of GDP as a fundamental indicator.   I knew it peaked around 11% and until the Wesbury piece figured it to have declined to about 8-9%, only to learn that it is 5-6%-- a number which was also hit in the Reagan years IIRC.  Again, but for this Wesbury piece, I would not have known this.  Why is it that my readings, which are considerably more extensive than most, did not apprise me of this but for the Wesbury piece?

What happens if this trend continues for another two years or so and we are down to the promised land of fed spending 20% of GDP and the deficit and rather reasonable 3% and armageddon has not hit yet?   IMHO we need to reflect upon this.

[G M]

I don't think anyone is rooting for apocalypse. As far as those number Wesbury cites, what's the source? I can't imagine how they could be true with record levels of federal spending going on.

[DougMacG]

Crafty makes great points and poses tough questions.

For starters one might ask before getting irrationally exuberant, what part of GDP growth at 1%/yr is propped up by $4T? of dollar expansion that cannot continue indefinitely?

On allegedly absent inflation, I would warn there is an important distinction between inflation, the dilution of our dollar, and the price increases that tend to follow.  The delay of spiraling price increases is due in my view to the continuing weakness of demand, the sputtering velocity of money.  That continues to work only as long as policies and circumstances keep the economy relatively stagnant.  So far, so good.  (

GM wrote: "As far as those number Wesbury cites, what's the source? I can't imagine how they could be true with record levels of federal spending going on."

http://www.whitehouse.gov/omb/budget/Historicals
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/hist01z1.xls
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/hist01z2.xls

Look back to fiscal year 2007 when the budget was most recently closest to balanced (deficit=160B).  Spending was below 20% of GDP while tax receipts had just grown 44% in 4 years following the tax rate cuts being fully implemented in 2003.  Enter the election the Dem majorities of Pelosi-Reid-Obama-Biden-Hillary-Ellison et al promising to move us off that path.  Employment growth ended.   Investors and employers got scared.  Overpriced, overvalued homes started to become unaffordable.  Failingmortgages failing brought down financial markets.

Spending went from 2.7T in FY2007 to 3.8T in FY2012 and 2013, a 40% increase in 5 years.  

Now we have effectively a zero increase in spending, but only after making all that temporary-emergency spending permanent while retreating from two wars and having budget restraint fights every few months.  With spending at a plateau and perhaps 1% consistent real growth in GDP, spending as a % of GDP ticks down a point at a time to still above 22% of the economy just before the BIG new programs kick in.  

Crafty wrote:  "What happens if this trend continues for another two years or so and we are down to the promised land of fed spending 20% of GDP and the deficit and rather reasonable 3% and armageddon has not hit yet?   IMHO we need to reflect upon this."

How can this trend continue?  Repeal Obamacare or believe it won't cost much?  Expect GDP growth to shoot up in the face of new taxes and regulations?

Last time the budget was balanced, spending was at 18.2% of GDP, not 23.3% where we are right now (according to the tables) or the 20% historical average that includes all the big deficit years.  Revenues are still only coming in at 17.8%.   That tells me spending is still 30% higher we can afford just before the world's largest entitlement takes effect.  

These facts may make others optimistic, but not me.

[Crafty_Dog]

GM: Agree or disagree with Wesbury's conclusions, he has been around for quite some time and has a track record.   I believe the man to be honest and quite capable in his compilation of data.

Good contributions from Doug.  If we are not to be left answerless, as Hannity was the other night with Googlesby/Oglesby? we need to have our thinking in place , , , and if there are places we need to adjust our thinking, then we need to do so; after all, we search for Truth.

[objectivist1]

Crafty -

I don't disagree with your essential point about seeking Truth.  However, having a track record and being honest doesn't change the fact that, as Aristotle so aptly put it: "A is A."  Wesbury's analysis of this economy flies in the face of reason.  He may be honest, but if so, he is deluding himself.

[Crafty_Dog]

In this moment I was simply addressing GM's frontal assault on the credibility of his numbers.

[G M]

Wesbury is selling a product. In evaluating anything, it's crucial to look at the source documents.

[Crafty_Dog]

Fair enough GM, but given the overwhelming volumn of data with which we are deluged, I feel that at some level there comes a point at which one makes a decision that certain people are capable, credible, and honorable.

I have followed Wesbury for many years now and although many legitimate challenges can be made to his conclusions (e.g. as you have done) for me he is someone whom I respect.  Similarly Scott Grannis.

I would add that there are people with whom I often agree that I do NOT grant that they are capable, credible, and honorable e.g. Sean Hannity.  IMHO Hannity, though he often does good work, is often a bloviating windbag in love with the sound of his own voice and possessed of very poor listening skills.

[Crafty_Dog]

http://blogs.wsj.com/marketbeat/2013/03/06/the-pros-who-called-the-bottom/?mod=djemTMB_h

[G M]

http://blogs.wsj.com/marketbeat/2013/03/06/the-pros-who-called-the-bottom/?mod=djemTMB_h

The stock market couldn't possibly be distorted by QE-infinity, could it?

[Crafty_Dog]

Of course it can-- and has!

Still, the question presented is "Would you rather profit or be a prophet?" (David Gordon)

I would also proffer the notion that one of the key variables is fed spending as a % of GDP.  Its decline, of which we have become aware thanks to Wesbury, is a strong positive.

Also, when the bottom was hit, cap & trade was a real possibility, and as a forward looking mechanism the market reflected this.  Its political defeat was a genuine positive for the market.

In other words, the Fed has not been the only variable at play here.

[G M]

I still don't buy Wesbury's claim. With the massive increases in federal spending, GDP would have to have grown even more massively, right?

[Crafty_Dog]

A fair question. 

[DougMacG]

"GDP would have to have grown even more massively, right?"

Not so much.

"real median household incomes declined 1.5% in 2011"
http://www.guardian.co.uk/commentisfree/2013/mar/06/sequester-republicans-help-rich-hurt-poor

Here is Wesbury predicting 4% GDP growth in July 2009.  (I wonder what G M predicted...)

16 Jul 2009 09:10 AM
Investors can expect to see a 4 percent growth in gross domestic product, say Brian Wesbury and Robert Stein."When we tell people this forecast, we often get looks as if we are out of our minds, and those are just the polite responses," they told Forbes Magazine...  "Adding up all these factors leaves us with an average expected real GDP growth rate of 4.2 percent. We get there with what we think are very conservative estimates on consumption and business investment,’’ they say.
http://www.moneynews.com/StreetTalk/gross-domestic-product/2009/07/16/id/331605#ixzz2MuaFfSbI

Here is Investor's Business Daily reporting actual growth for that period, 4 years later, at 0.8%:

"0.8% growth over his entire first term."  "Worst in modern history."  "It was barely a quarter of the tally achieved under President Carter."
http://news.investors.com/ibd-editorials-viewpoint/021213-644194-obama-growth-record-is-worst-in-60-years.htm#ixzz2KuQGawCt

The equities market went up because:
1) QE dollar injection
2) Zero interest rates due to Fed interventions and injections removed all other investment choices, savings, bonds, etc.
3) economic growth elsewhere
4) and yes, the US economy trudged forward, did not collapse

What would 'the market' be at today had the Fed not bought 70% of our debt, had interest rates been at market levels, rising until enough capital went to buy Treasury bonds to pay for our massively deficit spending?

Wesbury was called out by PP for some housing numbers but generally he is as accurate a source as is available for these commonly quoted measures.  The measures themselves have many inaccuracies but that is another matter.

Actual numbers, best that I can find:

Federal Spending in Trillions
 2.7         3.0       3.5        3.5       3.6       3.5
FY2007 FY2008  FY2009  FY2010  FY2011  FY 2012

GDP in Trillions:
14.0       14.3      14.0      14.5      15.1      15.7

Spending % of GDP:
19.3%   21.0%   25.0%   24.1%   23.8%   22.3%

The big jump in spending was at the end of 2008, mostly in fiscal year 2009, partly under Bush in the transition and partly under Obama, all under a Dem congress. The big growth of spending from the Pelosi-Reid congress beyond the alleged stimuli was mostly Obamacare beginning in 2014, not shown in these numbers. Spending growth stopped in the Boehner-McConnell budget fights with Obama.  (Did Crafty know that? ) The growth in GDP is at slow plowhorse speed, artificially propped up by QE at the Fed, authorized by the 'dual mission' legislation of Humphrey-Hawkins of 1978.

The real point I see in these numbers is this - do we realize how quickly we could have grown out of this mess with pro-growth policies?  As Wesbury recognized in 2009 real growth in GDP of 4% was certainly possible.  Run these percentages with those GDP growth numbers!

It is a strange political irony that pro-growth Republican policies will finance far more goodies and freebies for the dependent class constituencies than the economically stagnant, class warfare policies of the Dems.
---
Numbers above from different sources below.  Fiscal years and calendar years don't match up.  Use with caution.
http://www.bea.gov/national/index.htm#gdp
http://www.usgovernmentspending.com/federal_budget_estimate_vs_actual_2012
http://www.ftportfolios.com/retail/blogs/economics/index.aspx

[G M]

You don't need to be a meteorologist to tell when someone is pissing on your leg as they tell you it's raining.

[objectivist1]

EXACTLY, GM.  Obviously these people trying to put a smiley face on this economy HAVE a job, and are either completely out-of-touch with what is going on around them, completely ignorant with regard to Obama's intentions, or have some incentive to try to "talk up" the economy.  I've said it before - but it is blindingly obvious to me - in my conversations with small business owners across this country every day as part of my job - that things are NOT getting better, and they are NOT GOING to get better until this administration is gone.

[G M]

Inspired by Doug


http://money.cnn.com/2009/12/28/news/economy/wesbury_q_and_a/index.htm

Mr. Sunshine's happy economic outlook
By Chris Isidore, CNNMoney.com senior writerDecember 28, 2009: 10:12 AM ET


NEW YORK (CNNMoney.com) -- Economics is known as the dismal science, but not every economist is a pessimist.

Brian Wesbury might be one of the more optimistic forecasters out there. He's proud of being dubbed "Mr. Sunshine" by well-known short-seller Doug Kass. The chief economist at First Trust Advisors, a Chicago asset manager, Wesbury has one of the most bullish assessments on the economy. His new book trumpets that optimism in its title: "It's Not As Bad As You Think."



 
Economist Brian Wesbury, aka Mr. Sunshine
Wesbury predicts economic growth of 5% or more in the last three months of this year, nearly twice the average forecast, followed by at least 4.5% growth in 2010.

He sees job growth returning as soon as December of this year. Unemployment, now at 10%, will fall to about 8.5% by the end of 2010, he believes. That's about a percentage point better than most economists' estimates. In 2011, he says, the rate will drop to about 7%.

He's bullish on housing, too: He says things are improving so fast in real estate that by the third quarter of 2010, there could be a seller's market for new homes.

Wesbury maintains this rosy view even though he believes government action to rescue the economy hurt more than it helped.

He blames the financial meltdown not on lack of government oversight, but on mark-to-market accounting, which required banks and Wall Street firms to value the assets on their balance sheet at current market prices. Those rules, which caused massive losses when the housing bubble burst, were significantly loosened earlier this year. That easing, he argues, was the key to reopening the flow of credit and reviving the economy.

Despite his policy worries, he believes the economy can overcome the headwinds caused by government intervention to post solid growth. Here now is a question-and-answer session with Mr. Sunshine, Brian Wesbury.

How quickly do you think we'll start to see substantial job growth of 200,000 or more needed to help lead to a sustained decline in unemployment?

Typically when you are in a V-shape kind of recovery, that happens pretty quickly. I expect by very early spring or late winter we'll be seeing significant job growth. Retail sales are up at an annualized rate of 7% in the last six months. Manufacturing output is up 8%. Inventories are very low. What that means is I think we've fallen behind, companies have waited almost too long to try to catch up, so we'll see this thing accelerate pretty quickly.

What are the primary drivers you see behind that kind of growth?

Easy money by the Fed, pent-up demand, that's two of the factors. Mostly, we're rebounding from a panic. But look at the pent-up demand for cars, for houses. We're only starting 550,000 houses at an annualized rate. Just population growth alone says you need about 1.5 million a year. We're down to about a seven months' supply. That means if builders don't start right now, by the third quarter of next year there will be shortages of housing.

Do you believe that TARP and stimulus and the other money that the government has pumped into the economy has hurt the recovery?

It made people believe that we have to have government save the economy. I don't believe that. The Fed created the bubble. There's no doubt about it. Then the question is how do you deal with those problems, do you let the market deal with them or the government deal with them? We let the government deal with them. But nothing turned the economy and market around until we changed mark-to-market rules. That's when banks were able to start raising money, that's when stocks started to go up.

Is it difficult to be an optimistic supply-side economist at a time that even Arthur Laffer, the dean of supply-side economists, is writing a book called "The End of Prosperity"?

I'm not having any difficulty. What I find interesting is how negative many conservatives are. I'm a short-term bull on the economy. I'm a long-term worrier. You can worry about the policies, you fight against them, but you should be long stocks at the same time, because they're undervalued, and the economy is going to come back strong.

If we get strong growth in 2010, are you worried that it will be taken as an affirmation of the kind of government intervention in the economy that you decry?

Yes. I want to always see the economy do well. What I don't want is people to take the wrong lessons from this. That's why I think conservatives are making a huge mistake right now arguing that just Obama breathing every day will cause the stock market to go down and you should buy gold and head to the hills. The economy is bouncing back, it's going to be stronger than people think. That's only going to make it easier for (conservatives') political opponents to argue that they saved the day by spending lots of money.

In your book you try to strike down a number of generally accepted economic problems that you argue are overstated. Do you think that reports about continued tight credit for both consumers and small businesses are overstated? How can the economy see the kind of growth you're expecting if credit is so tight?

It's absolutely true that credit is tighter than it was, but it's not the sort of thing that will stop the economy. Money is like a flood. You can try to stop the water, but it is always going to find its own level somewhere. When the Fed prints this much money, it's going to find its way into the system. We're seeing the same kind of reduction of credit we've seen in other recessions in the past, and none of those stopped the recovery.

Isn't it tough to argue that you're not a starry-eyed optimist since you go to almost every Northwestern University football game and you're counting on your Chicago Cubs to end a century-long drought and win the championship this year?

Every year I predict they're going to the World Series. That way I know I'm going to be wrong about one thing. We hope that the long history is eventually broken. So this is my counter-cyclical nature. I'm an optimist on the economy and the long history of the economy shows I'm usually right. But I guess the Northwestern Wildcats and the Cubs usually don't fulfill my dreams.

Interview has been condensed and edited.

[Crafty_Dog]

BTW, GM we see in another thread a post today of a chart of a dramatic drop in military spending.  Could that explain the data from Wesbury that you find difficult to credit?

[DougMacG]

What part of the DOW's rise is just the dollar devaluing, all of it and then some?   Wesbury at First Trust and other securities companies like to look back at rising periods of the DOW.  Let's look back further and compare blue chip stocks with gold and silver instead of money:

The Dow on Gold's terms:    (http://www.marketoracle.co.uk/Article39400.html)

    During January 2000 gold traded at an average price of $284.32
    January 2000 the Dow was 10,900
    10,900/$284.32 per ounce = 38.33 gold ounces to buy the Dow

Today [Mar 09, 2013] gold is trading at $1570.90 while the Dow Jones (DJIA) continues to break records, up another 30 points as I write to 14,284.

14,284/1570.90 = 9.09 ozs of gold to buy the Dow today.

38.33/9.09 = 4.2
-----
(Doug) If you bought gold instead of Dow Jones stocks at the start of year 2000, you could keep 3/4 of your gold and buy the same quantity of the same stocks today with just 1/4 of your gold.
-----
The Dow on Silver's terms:

    During January 2000 silver averaged $4.95 oz
    January 2000 the Dow was 10,900
    10,900/$4.95 per ounce = 2202 silver ounces to buy the Dow

Today silver is trading at $28.62, the Dow is 14,284.

14,284/28.62 = 499 ozs silver to buy the Dow.

2202/499 = 4.4
-----
(Doug) If you bought silver instead of the Dow at the start of year 2000, you could keep 3/4 of your silver and buy the same stocks today with just 1/4 of your silver.

One moral of the story is that hindsight conclusions are highly dependent on the timeframe and measuring stick selected.

[DougMacG]

This recovery compares poorly with all previous ones since 1948.  Why?



http://www.npr.org/blogs/money/2013/02/15/172116698/the-scariest-job-chart-ever-isnt-scary-enough

More detailed graph with lines labeled:

http://media.npr.org/assets/img/2013/03/08/employrecfeb2013_custom-0b0541f7aa3b6c2d0eca91666dd078aa4cbfe1e6-s40.jpg

[DougMacG]

Investors Business Daily / Bureau of Labor Statistics:



http://news.investors.com/ibd-editorials/030813-647381-job-growth-outpaced-by-growth-in-nonworkers.htm

More Are Quitting the Workforce Than Getting Jobs

While the country gained 236,000 jobs, the ranks of those not in the labor force — people who don't have a job and stopped looking — swelled by 296,000.

Looked at another way, just 58.6% of Americans work today, down from 60.6% when Obama took office. The average over the previous two decades was 63%.

[Crafty_Dog]

Nice work Doug.

[Crafty_Dog]

OTOH, there's this:

. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 3/11/2013

In October 2012, we raised our recession odds from 10% to 25%. We saw an increase in uncertainty and fear over the election and the fiscal cliff as having the potential to cause a drop in velocity. Panics (falling velocity) are rare. As a result, our base case (75% odds) was for a 2.5% to 3% increase in real GDP for 2013. Real GDP increased just 0.1% in Q4, but now it appears the Plow Horse is starting to trot a little.
The ISM Manufacturing index jumped to 54.2 and the ISM Services index hit 56.0 for February. These indexes often pick up sentiment, so, it would not have been surprising if fears about the spending sequester had caused them to temporarily underestimate growth.
In addition, with the exception of the one-month surge after Superstorm Sandy, sales of autos and light trucks are the fastest since 2007. And now the latest employment report shows a very solid increase of 236,000 in nonfarm payrolls, a longer workweek, and the jobless rate slipping to 7.7%.
With February data so strong, forecasters have increased expectations for 2013. Bill Gross, at PIMCO, who was forecasting around 1.5% real GDP growth as recently as December, has now joined the club at 3%.
This optimism is not lost on the equity market. Stocks have surged with the S&P 500 hitting our year-end 2012 forecast of 1475 just two weeks behind schedule, in mid-January.
Today, the Dow is just 7.5% from 15,500 and the S&P 500 is just 9.5% from 1700 – our year-end 2013 targets. We won’t rule out a correction, but don’t know how to trade it and think investing is a game of patience, not trading.
One thing we have noticed is that the better things get, the more the economic naysayers have to twist and spin to make good news actually look bad and generate a negative spin. The latest obsession is that the number of people “not in the labor force” (NLF) is at a record high. This is true, but we don’t think it means much at all. What the naysayers don’t mention (or, maybe don’t even know) is that the NLF number is usually at a record high.
Given the general upward trend in the population, anytime the labor force participation rate is either unchanged or falling, NLF must go up. In fact, with enough population growth, NLF can go up even when the participation rate goes up slightly! NLF was at a record high in the year 2000 when the jobless rate was below 4%; it was at a record high in 2007 when the jobless rate was 4.5%. But now the record high in people not in the labor force is supposed to signal an economy teetering on the brink of catastrophe. Give us a break!
All this really means is that the labor force participation rate is falling. But, as we’ve pointed out before, most of the decline is consistent with the aging of the population.
Monetary policy is loose, corporate profits and cash are at record highs, and the housing market is in a full blown recovery. New advances in technology (fracking, the cloud, 3D printing) continue to boost wealth and our recession odds are back down to 10%. We look for continued growth and higher stocks in 2013. The Plow Horse is trotting for the time being.

[DougMacG]

My stellar opinion of Wesbury keeps slipping:  "Real GDP increased just 0.1% in Q4 2012".   - A steady trot?  Not really.

"jobless rate slipping to 7.7%":    - More people left the workforce than found jobs.

The labor force participation decline is largely demographic?  Okay, then what positive force offsets that?

"Stocks have surged with the S&P 500 hitting our year-end 2012 forecast of 1475 just two weeks behind schedule, in mid-January."     - From this thread: If you bought gold instead of Dow Jones stocks at the start of year 2000, you could keep 3/4 of your gold and buy the same quantity of the same stocks today with just 1/4 of your gold.  Stocks have surged is a rear view mirror indicator.

He mixes his lipstick-on-a-pig view of the US economy with optimism for the index of global companies.  Hard to draw conclusions from that.  We must admit that if this market held up through the Obama reelection, the fiscal cliff, at least two tax increases on the people own the most stocks, and 0.1% quarterly growth, then it should handle spending restraint and a country coming into spring and summer - until some external shock hits and selling panic ensues.

The market I believe will continue to go up or hold fairly constant - right up until it starts to go down again.   

[G M]

He's predicted 15 of the last 0 recoveries.

Plow horse? His analysis smells more like a feedlot.

[Crafty_Dog]

"then it should handle spending restraint"

Umm , , , in that we are not Keynesians here, may I suggest that the budget cuts are a contributory cause to the market going up?

[G M]

"then it should handle spending restraint"

Umm , , , in that we are not Keynesians here, may I suggest that the budget cuts are a contributory cause to the market going up?

If this slightly more than 2% cut in the rate of growth of federal spending caused this, then an actual 5% cut should have the market at 28000, yes?

Or, it could be all the QE-Infinity funny money distorting things.....

[G M]

http://blogs.telegraph.co.uk/finance/thomaspascoe/100023182/the-gap-between-rich-and-poor-will-continue-to-grow-until-we-give-up-on-qe/

The gap between rich and poor will continue to grow until we give up on QE
By Thomas Pascoe Economics Last updated: March 5th, 2013



Monopoly money means that it's more of a rich man's world than ever.
The world's rich are getting richer. The Forbes billionaire list was published this morning (there are now 1,426 of them globally in dollar terms, with 210 new entrants in the last year), and collectively they are $800bn richer than they were a year ago. Each billionaire is, on average, $100m richer than in 2011, with an average wealth of $3.7bn.

It can hardly be a surprise. Across the world, stock markets are booming (Dow futures indicate it will open today around the 14,170 mark, a new record). Bond prices are also strong in developed markets despite those same sovereigns usually being mired in a debt crisis. At the same, no major currency has collapsed, thanks to the cancellation effect of simultaneous Western devaluation, and commodities (WTI crude is perhaps the exception), have looked fairly stable, even though the bull run has stopped. In short, if you have any asset base at all, you had to be quite special to have lost money in the last year.

Strong stocks and strong bonds are an unusual mix. Theoretically and historically, money has washed from one to the other causing rises and falls along the way. What is unusual about the present climate is that so much money has been created by central banks that there is sufficient available to create a bubble in, well, everything.

This has a lot to do with how QE operates. Unlike straight money printing, it is designed to transfer money to banks, not to the consumer or to the government. The banks swap their existing government bonds for newly printed money. In theory, the banks now lend this cash on the high street to consumers and businesses. In reality, that has been a problem. Burnt by the financial crisis, banks have imposed tougher lending criteria at a time when creditworthiness is impaired. As such, they cannot lend. Instead the money ends up in the trading account. It gets spent on financial instruments in proportion to the greed (equities) or fear (bonds) of the institution in question. The main reason that QE has not been catastrophically inflationary is that so little of it has filtered down to the high street. For the most part, it has simply pushed up values across the board in the financial markets.

In short, if you came into this last year owning assets, you will have done well. Of course, whether protecting asset prices come what may is a good or useful thing for a central bank to be doing is another thing altogether.

While those at the top have done well from the magic money mountain that was summoned into being by QE, those who have done badly are those with relatively fixed wages and no assets. As the nominal price of assets increases, and wage growth lags inflation, the distance between the renting class and the owning classes grows greater still.

Even if living standards do level out eventually, or even match the OBR's three year projection (4pc wage growth, 2pc inflation) it is worth remembering that inflation is a net cost (we pay it on our salaries after tax), while wage rises are gross benefits (we lost a large part of the gain to tax before it hits our account). Any wage rise will need to be well above inflation to sustain living standards.

For the asset wealthy, however, this is less of a problem. The same money printing which causes inflation in the real economy also props up asset prices. Inflation of 3pc per year is less onerous when the FTSE is making 6pc a year, as it was last year.

Despite uprating in line with CPI inflation, those hit hardest of all are likely to be those who rely on state benefits – from pensions downwards. For all sorts of reasons, CPI is acutely useless at capturing true inflation (the substitution effect and qualitative dilutions see to that). Tullet Prebon have put actual inflation at 7.8pc in 2011, and 3.7pc in 2012, as against 2.8pc CPI and 1.7pc wage growth in each. Given that since 2007, British wages are up 10pc, but food is up 29.8pc, power is up 46.3pc and petrol is up 56.5pc, this seems an understatement. If you have both a fixed income and increases are strictly tied to CPI then you have experienced a very significant fall in living standards since the crisis began.

None of this is written in the socialist perspective, implying that the problems of the poor can only be solved by confiscation from the rich, or that any advantage gained by one section of society is a cost to another. Nor is it written in the point of view, prevalent on the internet, which insists that such machinations constitute a deliberate robbery of the poor by shadowy figures hell bent on a new feudalism. It is simply the case that in financial policy, particularly, we seldom think through the consequences of our actions. Very clever men have a capacity for very great mistakes which often elude simpler souls. Western money printing is slowly burning the bridges between rich and poor. Whatever the economic benefit (and I am dubious there), it is worth considering that there is a significant social cost.

[G M]

Why America's middle class is losing ground
By Tami Luhby @CNNMoney March 5, 2013: 11:51 AM ET
NEW YORK (CNNMoney)

When Debbie Bruister buys a gallon of milk at her local Kroger supermarket, she pays $3.69, up 70 cents from what she paid last year.
Getting to the store costs more, too. Gas in Corinth, Miss., her hometown, costs $3.51 a gallon now, compared to less than three bucks in 2012. That really hurts, considering her husband's 112-mile daily round-trip commute to his job as a pharmacist.

Bruister, a mother of four, received a $1,160 raise this school year at her job as an eighth-grade computer teacher. The extra cash -- about $97 a month, before taxes and other deductions -- isn't enough for her and her husband to keep up with their rising costs, especially after the elimination of the payroll tax break. Its loss shrunk their paychecks by more than $270 a month.

"If you look at how much prices are going up, you get in the hole really quick," Bruister said. "It's a constant squeeze."

In the wake of the Great Recession, millions of middle-class people are being pinched by stagnating incomes and the increased cost of living. America's median household income has dropped by more than $4,000 since 2000, after adjusting for inflation, and the typical trappings of middle-class life are slipping out of financial reach for many families.

Families with young kids are struggling to afford childcare and save for the ever-climbing costs of college. Those nearing retirement are scrambling to sock away funds so they don't have to work forever. A weak labor market means that employed Americans aren't getting the pay raises they need to keep up -- especially with big-ticket items such as health care eating away at their paychecks.

Economists say it boils down to two core problems: jobs and wages. The traditional "middle-class job" is disappearing.
Mid-wage occupations such as office managers and truck drivers accounted for 60% of the job losses during the recession, but only 22% of the gains during the recovery, according to a National Employment Law Project analysis of Labor Department data. Low-wage positions, on the other hand, soared 58%.

Uncertainty and insecurity are weighing down the middle class, even those who haven't had a break in employment. More than 40% of those surveyed in a recent Rutgers University study said they were "very concerned" about job security.

They're also not very optimistic about the near future. Fewer than one-third believe that economic conditions will improve next year, and an equal number think they will get worse, according to the Rutgers survey, conducted by the university's Heldrich Center for Workforce Development. Only 19% believe that job, career and employment opportunities will be better for the next generation.

The survey's title sums it up: "Diminished Lives and Futures: A Portrait of America in the Great-Recession Era."

Dan Heiden of Eagan, Minn., embodies that life. Before 2007, the union supermarket worker owned an apartment and socked away funds in the bank and in a retirement account.

Then the store cut his hours.

"The economy tanked," said Heiden, who now works no more than 30 hours a week. "They aren't hiring full-time any more because they can pay less."

The 37-year-old had to sell his apartment and move into his parents' basement. He has also curtailed his social life, eating out less and hanging out with friends at their homes instead of going to bars. He's depending more on credit cards and is no longer able to save much for retirement.

"Luckily, I don't have a family, because then it would be a tighter squeeze," Heiden said. "I just pray and hope the economy turns around."

Related: Calculate your cost of living in another city

Full-time employment is one casualty of the recession. The number of people working part-time for economic reasons -- meaning that they would like longer hours but can't find work -- has soared to nearly 8 million, up from 4.8 million five years ago.

Those with full-time jobs are also feeling the pressure.

Take Lois Karhinen, 55, who has been working since she was a teen. A state employee in New York, she's worried she and her husband won't have enough money saved by the time she wants to retire in 11 years.

Her husband is a government contract worker, and they fear his job could disappear any day. Their income has taken a hit because she has been furloughed several days since 2011. At the same time, her health insurance payments, union dues and other expenses have gone up.

The couple is no longer able to cover all of their monthly expenses -- including the mortgage, car loans, home repair loans and student debt -- with their paychecks alone.

"I watch every month our savings deplete," said Karhinen, who lives in Queensbury, N.Y. "I'm realizing we're not young enough to save a lot."

The downturn in the housing market also hurts. The couple bought their house in 2006, hoping it would serve as an investment and help support their retirement. But now, they would only break even if they sold it, she says -- if they were lucky.

The mortgage crisis "hollowed out" the middle class, said Tamara Draut, vice president of policy and research at Demos, a public policy research organization. Much of their wealth is tied into home values, but national home prices are still 29% below their mid-2006 high, according to S&P Case-Shiller.

That means some folks have lost all their home equity and may never get it back. Others can't take out loans to finance repairs, college for the kids and other expenses.

There's one more big squeeze hitting households: health care. Since 2002, insurance premiums have increased 97%, rising three times as fast as wages, according to Kaiser Family Foundation/Health Research & Educational Trust.

In Mississippi, Bruister now has an $1,800 deductible, compared to $500 a few years ago. When she goes to the doctor, the bill typically tops $100 -- so she tries to avoid going.

"Health care for me has turned into more of a luxury item," said Bruister, 52. "I go every year for the checkups my insurance pays, but after that you just tough out the other illnesses."

Economists say they don't expect much improvement for the middle class any time soon. The recession is officially over, but the recovery is fragile, and its gains aren't evenly spread. Between 1993 and 2011, the top 1% of America's earners saw their income soar by 58%, while everyone else only got a 6% bump.

That's making it even harder for most households to get ahead.

"The middle class was always synonymous with economic security and stability," Draut said. "Now it's synonymous with economic anxiety." 

[Crafty_Dog]

On the whole, fair points gents AND Wesbury has whipped our collective ass on market projections.

[G M]

It's kind of like a guy that jumps from the Empire State Building. Halfway down and everything seems to be going fine....

[Crafty_Dog]

Well, I'd be damn near 100% ahead of where I am now if I hadn't listened to me , , ,

[DougMacG]

"then it should handle spending restraint"
Umm , , , in that we are not Keynesians here, may I suggest that the budget cuts are a contributory cause to the market going up?

Poorly expressed in my post, but I strongly agree.  If the market survived the bad things that happened, it can handle the good like a surprising dose of govt spending restraint.

[DougMacG]

Well, I'd be damn near 100% ahead of where I am now if I hadn't listened to me , , ,

Hindsight not being 20/20...

If you knew in advance 4 years ago that the growth rate coming out of the worst economy in memory would be 0.8% dropping to 0.1% in the last quarter, if you knew Europe would be in near collapse, if you knew we would leave two wars without real victory, that we would be under heavy cyber-attacks from China who is still supporting North Korea while they go nuclear and threaten to hit America, if you knew Russia would return to a Soviet-like stance, with Putin stronger than Brezhnev and Obama more eager than Carter to give away American defense, if you knew of the unrest in nuclear armed Pakistan and that Iran was a minute away from going nuclear too, the Muslim Brotherhood running Egypt, civil war in Syria, if you knew we would get hit with another deadly embassy attack this time in Libya, if you knew the trillion dollar deficits would go on for 4 years and counting, that we wouldn't even sell bonds to cover our debt, workers leaving the labor force exceed all new jobs coming back and that the Fed would be diluting our dollar by trillions, that U6 unemployment figured at the old labor participation rate would be 20%, that Obama would be reelected and taxes would be raised on the rich and the poor...

If you knew all that, except for the rise in the Dow, perfectly in hindsight, would you have gone all-in to the stock market?  

If you add to the above that the Dow has already gone up for all this time yet we still have all this hanging over us plus Obamacare kicking in, steep tax hikes in largest state, amnesty next, and the lowest business startup rate in our history, would you go all in now?

Or would a rational person be a little bit skeptical?

[Crafty_Dog]

First I must say that I may have overstated things a bit in a moment of emotion; more like 50%, but still the point remains.  Wesbury has called quite a bit better than we have on the market-- which is one of the key themes of this thread.

That said, the questions you ask are excellent, yet the specifics you cite can be turned around to make Wesbury's predictions in the face of our bearish broodings here and elsewhere all the more impressive.

Frankly, at this point I utterly lack confidence in my opinions about the market.  Is it that I have been and am wrong?  Or is it,as the old sayng goes, that the market can stay wrong longer than I can stay solvent?

Also, and here I drift from the them of this thread to address a few of the specifics you cite, it is not yet clear how things will play out.  Read my post of Stratfor today in the Iraq thread; are there not hints of some balances of powers therein?  Is there not huge progress from what Iraq was under Saddam Hussein?  As we return to a multi-polar world after our unilateral moment, can we really say that our efforts in Iraq were a waste in comparison to what would be in the absence of our having taken action?

Given the utter incoherence of the Bush strategy in Afpakia, can we really say that our bluster-covered from Afpakiaa is an error?  Though Baraq's promises and decisions were incoherent as well, who amongst us here advocated the dedication necessary to bring Afghanistan into the modern world?  Would you want your son going to fight that war?

Any answers to these rhetorical questions should be made on the relevant threads, not here please 

[DougMacG]

Good points.  Just saying that in total there is plenty of trouble brewing out there.  We lived through a pretty big crash or two.  Hard to carry that experience and face the current scenario with no fear or doubt.

Everyone leaves money on the table when we measure exact trough to peak.  That is not a fair measurement.  Anyone all-in since the summer of 2009 was probably in for the losses of 2008 as well.