We have six things that expose what the changes in the global economy really mean. From youth in Greece and Spain to the USA, real hardship is being felt. Household debt is rising, market valuations out of control, Unemployment hurts the world hard, big shortfalls in pensions and more.
For years now we've had to listen to the mainstream talking heads telling us about “green shoots” and “jobless recoveries,” half-heartedly warning about the “risk” of a “double-dip recession” while noting with relief that the stock markets are doing well. Readers of this publication know better. Behind the sunshine and smiles, we are entering an unprecedented phase of economic history as the largest bubble in the history of the world—the ticking derivatives time bomb—inches closer to a day of reckoning. Sometimes all it takes to put these things in perspective is to look behind the rhetoric at some of the numbers, so this week I present to you 6 statistics that should leave any thinking person concerned about the future...and more motivated than ever to prepare for the collapse of the current financial system.
#1 - Greek and Spanish youth unemployment broke the 50% mark in March
In March of this year, youth unemployment in both Greece and Spain broke the 50% barrier. Not coincidentally, these are two of the most perilously positioned Eurozone countries in the sovereign debt crisis and the two countries that have seen the most violent protests since the Eurozone crisis began.
It has become fashionable in recent months to downplay this figure by pointing out that the unemployment rate is determined by dividing the number of out-of-work workers in the pool (in this case under 25 year olds) by the total pool of workers. But since the total pool of under 25 year olds doesn't include those who are currently in education or training, that means the number of unemployed youth is being measured against a much smaller pool than the overall unemployment rate, which is measured against the pool of all workers. By calculating the unemployment “ratio” (the number of unemployed youth by the total pool of under 25s, whether looking for work or not) one arrives at much more “reasonable” numbers: 19% youth unemployment in Spain and 13% in Greece.
I wouldn't become too smug about these revised ratios, however. No matter how you break it down it means that less than half of the youth in Greece and Spain who are looking for a job can actually get one. I'll repeat that: less than half. That's the type of situation that starts revolutions, especially when it is effecting the youth who are already facing the prospect of a lifetime of debt servitude based on the sins of their political fathers (and mothers).
And it gets worse: Greece and Spain may just be the canaries in the coalmine. A report from the International Labor Organization earlier this year indicates that global youth unemployment has hit 75 million. Unemployment effects youth differently than adults. An adult who faces time out of work between jobs goes through all sorts of financial, personal and professional strains, but for a youth it is even more difficult. Losing out on experience and on-the-job training that generally occurs in the under-25 years make them less employable should the global situation actually improve. In other words, a workforce generation is growing up with a significant and potentially irreversible workforce handicap. It's almost enough to make you want to stay at home. Which brings us to...
#2: 29% of 25 to 34 year olds in America have moved back to their parents' home at some point
According to Pew Research, nearly three in ten Americans under 35 years old have moved back in with mom and dad at some point. While this is common in some parts of the globe, where children generally live with their families until they marry and start their own family (and even afterward), this is an unusual phenomenon in the US. Still, the new research shows that not only is this situation becoming more common as young workers struggle (and fail) to cope with the financial stress of living on their own, it's also becoming more normalized in the culture. Of those polled, only 25% of these returning children think of this situation as a bad thing for their relationship with their parents. It's even been given a name: the boomerang generation, because they return after leaving.
Every generation strives to provide a better life for their children, and for much of the 20th century Americans came to expect that quality of life for each subsequent generation would improve indefinitely. Things have been in decline for the average American family for decades now, however, as the old ideal of stable, lifetime employment, and raising a family on a single income has gradually been eroded. Single-income families are the exception these days, and even by those standards more and more families are finding it increasingly difficult to afford the luxuries they used to take for granted. Now, youth are finding it difficult to even find steady, gainful employment that will allow them to leave the home in the first place. And even when sharing the debt burden of the household, families are still managing to rack up their personal debt...
#3: Household debt is rising again
Either everyone has already forgotten the economic armageddon that has been kicked down the road by QE1, 2, 3... or people just can't survive within their means anymore, but either way the Fed's Z1 Flow Funds report from last month showed the first quarter of rising household debt since Q1 2008. Total household borrowing was up $157.3 billion in the second quarter of this year, the first rise in 16 quarters. That household debt has been contracting for four years only makes sense given the recession and deep global economic instability we've been experiencing. The first thing people do in times of crisis is cut discretionary spending, tighten the belt, and pay off credit card debt and other outstanding loans. Now, it seems, people have emerged from that tortoise shell to begin borrowing (and spending) again.
The economic talking heads will undoubtedly point to this as a sign of “green shoots” and that the economy is “back on track.” After all, this is surely a sign that consumer confidence is back and people have reached a level of stability in their job and income that they feel safe taking on more debt again.
Well, that's what they'd like you to believe, anyway. Another interpretation is that people have tightened the belt as far as it will go and they are now turning to debt to fund the purchases that they can't put off any longer. The other possibility is that people have begun to buy into the talking head talking points that the economy is recovering and are once again feeling that it's safe to live outside their means. After all, the stock markets are doing just fine...
#4 AAPL closes at $666
Apple stock closed at $666 again this Thursday. Make of the numerological significance of that number what you will, but it also happens to be the precise stock price that Apple needed to hit in order to break the record for highest valuation ever. What a remarkable coincidence.
Even more telling than the numerology, however, is that Apple is the world's most valuable corporation. One might very well ask why this is, and one might very well receive a number of answers from the various defenders of Steve Jobs' legacy. But none of them would be logical. Apple had a remarkable run in the last decade, to be sure, coming back from the brink of obscurity to capture a larger percentage of the desktop and laptop computer market than it has ever enjoyed before and trailblazing new markets (iPod, iPad, iPhone, App Store) in the process. The synergistic rollout of these technologies was brilliant in itself, familiarizing even lifelong PC users with the Apple environment and convincing many to make the leap into other Apple products.
But there is almost nothing going in Apple's favour at this point. Whatever edge the company held by being quick out of the gates in the tablet and smartphone markets is being lost as the competition gains ground and picks up steam. This is not aided by lacklustre additions to existing product line-ups in recent years (iPad 3, iPhone 4s), and a product rollout that has been an unmitigated disaster (Apple Maps). Even the Mac's old selling point that it was virus-free has been dropped as OS viruses have begun popping up. Apple's entire brand image and selling point has been its drive to emphasize slick design and ease of use, but that has backflipped in recent years and it is now cool to deride the hordes lining up outside of the Apple store for each new product release as vapid trendies who are just acting “cool.”
Fitting, then, that this is the flagship corporation of the SS America at this particular time in history. Here we have an economy built on style over substance, sizzle over steak, outsourced Chinese slave labor over American manufacturing, fudged happy numbers over depressing real numbers. It's enough to make you believe that the modern American consumer will fall for anything...
#5 Unemployment just hit 7.8%
Whoopee! Celebration! QE3 is working! According to the latest figures, the U.S. unemployment rate just fell to 7.8%, down from 8.1% the month before. 118,000 jobs were added to the economy in September, beating out analysts' estimate by a full 4,000. This is already being hailed as a major victory for Obama and the Federal Reserve, a sure sign if any were needed that the economy is back on the right track after Bernanke's announcement of QE3 last month.
Unfortunately for those who are already planning their own ticker tape parade for Obama and his team, there's a depressing reason for the drop in the (already fudged) rate: the largest surge in part-timers employed for economic reasons since 2003. One of the many (many many many) problems with the government's fudged unemployment number is that it doesn't take into account the quality of the jobs that have been added to the economy. Sadly, part-time positions don't make for a sound economy, and the multi-generational degradation of the labor force from a full-time, lifelong employment model to a temporary or part-time, transient model of constantly changing jobs is a sign of the fundamental rot in the current economic paradigm. The number is not as significant as Team Obama wants you to believe, and coming as it does right before the next election, anyone who does not take the euphoria of the economic talking heads with a hefty pinch of salt is simply not thinking straight.
#6 – The projected shortfall in social security over the next 75 years is $134 trillion
Yes, you read that correctly. That's trillion with a “t.”
According to the Washington News Tribune:
The projected shortfall in 2033 is $623 billion, according to the trustees’ latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security’s number crunchers because it covers the retirement years of just about everyone working today.
Add up 75 years’ worth of shortfalls and you get an astonishing figure: $134 trillion. Adjusted for inflation, that’s $30.5 trillion in 2012 dollars, or eight times the size of this year’s entire federal budget.
In present value terms, the Social Security Administration says the shortfall is $8.6 trillion. That means the agency would need to invest $8.6 trillion today, and have it pay returns of 2.9 percent above inflation for the next 75 years, to produce enough money to cover the shortfall.
That’s the rate of return Social Security expects to get from its trust funds. The problem, of course, is that Social Security doesn’t have an extra $8.6 trillion to invest.
Well, duh. You can try to spin this positively: 'It's only $8.6 trillion of today's dollars if invested at 2.9 percent above inflation for 75 years!' But the system is already broke and the only way to get those 8.6 trillion would be to fire up the printing presses and cause the very inflation that one is hoping to out-invest. 'It's only $30.5 trillion in 2012 dollars.' This is the perfect illustration of the never-ending inflationary spiral that kills all long-term savings even in the rosiest government-approved inflation scenarios.
The sad truth is that the system is completely broke, and Romney and Obama arguing over cutting back the deficit by x percent or lowering taxes by y percent isn't going to make any difference at all in that assessment. Those who are in a position to do so are advised to avoid relying on a social security net that almost certainly won't exist in its current form for very much longer and to invest in building up your own inflation-proof supply of bullion and long-term storable foods to prepare for the economic collapse that is still taking place, no matter what spin they try to put on it.