Debt | timiacono.com - Part 5

The IMF’s latest report on slowing growth in the global economy makes it easy for a skeptical reader to connect a few dots regarding the latest round of central bank sponsored malinvestment in general (a word that clearly doesn’t exist in the modern economists’ lexicon) and the shale oil boom/bust cycle in particular.

From this Reuters story we get the following summary about what’s ailing the world::

“New factors supporting growth, lower oil prices, but also depreciation of euro and yen, are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries,” Olivier Blanchard, the IMF’s chief economist, said in a statement.

The IMF advised advanced economies to maintain accommodative monetary policies to avoid increasing real interest rates as cheaper oil heightens the risk of deflation.

If policy rates could not be reduced further, the IMF recommended pursuing an accommodative policy “through other means”.

Left unsaid was that cheap money gushing from the Federal Reserve in Washington and big banks on Wall Street was a major factor driving the shale oil boom that played a key role in recently plunging energy prices that, now, are raising the specter of world wide deflation that – you guessed it – should be countered by even more cheap money.

Vicious cycle anyone?

It seems former Bank of England governor Mervyn King is on to something in this report at the Telegraph when he notes the following:

We have had the biggest monetary stimulus that the world has ever seen … The idea that monetary stimulus after six years is the answer doesn’t seem (right) to me.

Why is it that central bankers suddenly seem to make much more sense when they are no longer central bankers? King joins suddenly lucid former Fed Chief Alan Greenspan who has recently been famously fond of a barbarous relic and makes you wonder where the heck central bankers still employed by central banks are steering the ship.

One-Third Supports Two-Thirds

From this item at My Budget 360 comes the graphic below depicting the lopsided nature of the U.S. workforce where private sector workers are far outnumbered by those who either don’t work at all or who work for the government, directly or indirectly.

Of course, to say that all those above the black line are supported by all those below the black line isn’t quite accurate. Many Americans who are not in the labor force support themselves and/or only get government benefits that they’ve already paid into (e.g., social security and Medicare), though they’re typically getting out much more than they put in.

Regardless of how the graphic is characterized, a system such as this looks quite unsustainable over the long-run … but let’s not worry about that right now.

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Seniors and Student Loans

The data in this new General Accounting Office report(.pdf) on seniors and student loans is both fascinating and disturbing, especially when viewed in relationship to the burgeoning for-profit college system (as detailed nicely by John Oliver the other day) and the dim prospects for anyone without a college degree in today’s U.S. economy.

There’s more in this WSJ story that details how a rapidly growing number of senior citizens are having their social security/disability checks garnished as a result.

About the only good news here is that at least college kids are getting better grades, as evidenced by the graphic below from this item at the Economist.

In the words of Walter White during another highly entertaining (and greatly appreciated) repeat of the Breaking Bad Binge on AMC, “So, there’s that”.

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After watching this segment on John Oliver’s Last Week Tonight, student loans are sounding more and more like 2005-era mortgage lending and we all know how that ended.

I started watching Last Week Tonight early on and didn’t know quite what to think of it at first, sometime not watching it for days later (it’s somewhat timely), but I’m quickly warming up to it and now get to it much sooner in the week.

Some have called it, basically, a Daily Show/Colbert Report that’s done only once a week, but as discussed by Oliver during a recent round of interviews, they always take on one topic that, on the surface, doesn’t sound like it’s going to be very funny and make it so, the above clip being a good example.

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Generation “X” = Generation “Debt”

You’ve got to study the methodology a bit and pay careful attention to the legend in the chart below from this study by the St. Louis Federal Reserve on household debt, but, after you do, you quickly realize that Generation “X” (those born between 1965 and 1980) is having an increasingly hard slog now that the best part of the U.S. credit expansion is decades behind us and about all the U.S. economy has left now is the hope for more asset bubbles that they might somehow get on the right side of.

It looks like the Baby Boomers (I’m very late in that generation) aren’t doing much better than the Gen Xers and there’s surprisingly high debt for previous generations as indicated by the open circle, open square, and open triangle symbols above. All in all, not good.

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