The U.S. economy appears to be on the rebound. Many TV talk-show hosts believe so. The U.S. actually added 120,000 jobs in November to bring the unemployment rate down from 8.6%. Retail sales increased by more than expected over Thanksgiving weekend, and U.S. manufacturing has been improving. These numbers have created a sugar high in the economy that indicates all is well.
Sorry to sound like a naysayer but a little drilling down exposes the fragile underbelly of our economy. The most important variable in the economic equation is jobs. However, unemployment claims remain high at 402,000 (in the last week of November). Most of the recent job gains have been in lower-paying services. Because average incomes are stagnant or worse, higher retail sales cannot be sustained.
It is amazing to me that some commentators can claim with complete honesty that Americans are working hard to lower their debt levels. While household debt fell by 0.6% in the third quarter of 2018, it was also true that more homeowners defaulted on their mortgages. From initial delinquency to foreclosure, the average foreclosure takes 631 days. This means that homeowners can live rent-free and mortgage-free for almost two years. The higher retail sales resulted in part from that savings. We are still not at the end of the real estate crisis, with six million homes in foreclosure.
The economy is built on soft soil, and increased debt disguises itself as growth. Despite being bankrupt, the government continues to spend huge amounts of money it doesn’t have. According to the press, the Fed made $7.7 trillion in loans and guarantees to banks in the initial stages of the financial crisis. The Fed has agreed to basically backstop all bank loans around the world with money it doesn’t own.
The December month will see Congress vote on major budget items such as the extension of the payroll-tax break and whether to extend unemployment benefits. They also have to vote whether to adjust Medicare payments to doctors. And whether to raise the debt limit. It is certain that most of these items will be passed, but it may resort to accounting fiction in order to pay for others. Washington D.C. is clearly lacking adult supervision, just like it is in many state capitals.
It amazes me, as a note buyer mortgages, that no one seems to be pointing out the facts. This is a business that could not be run by a note buyer, or any other person in the real world.
The crisis will eventually reach a point where the politicians will have to cut expenses (not reduce growth), but they will still go down kicking & screaming. I believe that the economic shocks this country is experiencing are just beginning.