This article was posted on Wednesday, May 01, 2013

As of the end of 2012, the United States has experienced the worst five-year period of economic growth since 1928-1932 and the start of the Great Depression. Following the global financial crisis and recession in 2008, and based on the historical pattern of American economic recovery since the Depression years, the United States should have been experiencing broad and significant economic and job growth by the third year of the recovery (2011) at the latest.

Place the blame where you wish, but not since 1928 through 1932 have the American people been more significantly worse off at the end of a five-year period than they were at the beginning. Here are the telling statistics:

  • Since January 2008 the employment age population has increased by 11.7 million, yet there are three million fewer Americans employed today – 146.3 million in January 2008 vs. 143.3 million in December 2012. Factoring in the population growth and the 2008 labor participation rate, the real unemployment rate for December 2012 would be 11.4% as compared to 4.9% in December of 2007.
  • At the end of 2007, the median household income was $54,489 (inflation adjusted). By January 2012, it had dropped to $50,054 – a decline of over 8% and the most precipitous plunge over a similar period since the Census Bureau started tracking that statistic. While American incomes were rapidly eroding, the cost of living continued to rise as the commodity price index (basket of food, fuel and other essential commodities) rose 20% from 2007 to 2012.
  •  The average net worth of all American households from 2007 through the beginning of 2011 took a nose-drive, dropping by nearly 40%, according to a study from the Federal Reserve that was released in June 2012. About three-fourths of the decline in family net worth was due to the devastating collapse in the value of their homes. Median home prices plunged from $248,000 in 2007 to $173,000 in 2012, a decline of 30%.
  • In December 2007, 26.5 million Americans were on food stamps at a cost of $30 billion annually. As of November 2012, the USDA reported that 47.7 million were accessing the food stamp program, an increase of 80%, at an annual cost in excess of $70 billion. Furthermore, the government calculated that 38.0 million Americans were living in poverty at the end of 2007, a poverty rate of 13.0%; however, by the beginning of 2012, 49.7 million were living in poverty and the rate had increased to 16.1%.
  • The nation’s growth in Gross Domestic Product over the past five years has also been the most anemic since the Depression years. The GDP (adjusted for inflation) in 2007 was $15.5 trillion; in 2012 it is estimated to be almost $16.0 trillion, a difference of just under $0.5 trillion ($500 billion). That comes to total growth of only 3% over five years, or an annual rate of a minuscule 0.6%.
  • While the nation’s growth rate has been stagnant, spending by governments at all levels (federal, state and local) has increased dramatically from $4.9 trillion in 2007 to $6.2 trillion in 2012, a jump of 26.5%. This increase is driven largely by the federal government as it has increased its spending by nearly 41% over this period. This has resulted in the total national debt rising from $9.2 trillion at the beginning of 2008 to $16.45 trillion as of today, a staggering 79% increase. That is over 100% of GDP!
  • There is one group that has fared well over the past five years: federal bureaucrats – this according to the US Office of Personnel Management. Since December of 2007, there has been an increase of 4% in the number of federal workers (not including the military) – 2.70 million vs. 2.82 million today – this despite the worst recession and financial crisis since the Great Depression.

 Further, the average total compensation for federal government employees increased nearly 9% to $126,200 from 2007 to 2011. Additionally, the number of government workers earning more than $150,000 has more than doubled over this same period. By comparison, the average total compensation for those in the private sector was $62,100 in 2011, only 49% of what the average federal employee realized that same year (US Bureau of Economic Analysis).

Since the Great Depression, recessions in Americahave lasted an average of 10 months, with the longest previously at 16 months. According to the National Bureau of Economic Research, the latest recession began in December 2007 and ended in June 2009, the longest since the Depression at 18 months. Yet here we are 62 months after the recession began and there is hardly any recovery at all.

As noted earlier, you can place the blame wherever you wish. President Obama places all of the blame on former President Bush. Apparently, the majority of American voters agree since they elected Obama to a second term by a comfortable margin last November.

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 Half of Americans on the Edge of Financial Ruin

In the past few years, Americans have certainly learned a thing or two about how quickly disaster can strike. With each new crisis – Hurricane Sandy, the housing bust, the credit crisis, stock market crashes, etc. – we’re faced with the harsh realization that many of us simply aren’t prepared for the worst.

A sobering new report by the Corporation for Enterprise Development shows that nearly half of UShouseholds – 132.1 million people – don’t have enough savings to weather emergencies or finance long-term needs like college tuition, health care, housing, etc.

According to the Assets & Opportunity Scorecard, these people wouldn’t last three months if their income suddenly stopped. More than 30% don’t even have a savings account, and another 8% don’t bank at all.

We’re not just talking about people who live at or below the poverty line, either. Plenty of middle class folks have joined the ranks of the “working poor,” struggling right alongside families scraping by on food stamps and other forms of public assistance.

More than one-quarter of households earning $55,465 to $90,000 annually have less than three months of savings. And another quarter of households are considered “net worth asset poor,” meaning that the few assets they have, such as a savings account or durable assets like a home, business or car, are overwhelmed by debts, the study says.

One of the prolonged reasons consumers have consistently struggled to make ends meet has more to do with larger economic issues than whether or not they can balance a checkbook. As noted above, the average net worth of all American households from 2007 through the beginning of 2011 took a nose-drive, dropping by nearly 40%, according to a study from the Federal Reserve that was released in June 2012. During the same time, the cost of basic necessities like housing, food, and education have soared.

And wherever consumers can’t cope with costs, they continue to rely on plastic. The average borrower carries more than $10,700 in credit card debt. One in five households still rely on high-risk financial services that target low-income consumers.

 “Fiscal Cliff II” – Sequestration: Here We Go Again

The White House and GOP lawmakers are getting ready, once again, to not work together on taxes and spending cuts. As the March 1 sequestration deadline loomed for the start of $85.3 billion in automatic budget cuts, the old brinksmanship is back.

Democrats will press for additional tax hikes on wealthier Americans, even though Republicans declared that this option is now off the table, after agreeing to roughly $700 billion in new revenues (ie – higher taxes on wealthy Americans) over the next 10 years as part of the New Year’s Day fiscal cliff deal. President Obama had leverage then, and the Republicans basically had to cave in.

But this time, President Obama lacks a critical piece of leverage. The GOP joined with Democrats on the recent tax increase only to protect middle-class Americans from tax rates that were set to surge for everyone. Their bargain prevented higher taxes on families with incomes below $450,000.

Still, the president and Senate Majority Leader Harry Reid are undeterred. Both announced over the weekend that any part of a plan to reduce the deficit must include new revenues (i.e. – higher taxes), such as eliminating the “carried interest” tax rate for investment managers and other lucrative loopholes and deductions.

In an interview with CBS News before the Super Bowl, President Obama declared: “There is no doubt we need additional revenue [taxes], coupled with smart spending reductions in order to bring down our deficit, and we can do it in a gradual way so that it doesn’t have a huge impact.” He knows that’s not true.
Also, Obama didn’t spell out how he plans to sway the GOP to his way of thinking. After the fiscal cliff tax deal, Senate Minority Leader Mitch McConnell said, “The tax issue is finished, over, completed.” What the Republicans can’t seem to get through their heads is the fact that the ‘tax issue’ will never be finished with President Obama and most Democrats. 

The stalemate could have serious real world consequences in a matter of weeks. As noted above, more than $85 billion of across-the-board spending cuts – half in defense and half in domestic programs – were set to kick in automatically beginning March 1 unless Congress and the administration took action. Here we go again.

Are We Nearing the Tipping Point on US Debt?

My contention in my August Special Report was that the day is coming when investors will demand higher rates to loan the government 30-year money. The fact that yields have jumped 32% in the last six months – for no obvious reason – suggests that we are coming closer to the tipping point when interest rates rise significantly higher.

There are plenty of liberal arguments that there is virtually no limit on how much debt theUS can rack-up without a bond market revolt. These arguments are always weak in that they assume there will never be a day when investors begin to worry that they may not be repaid all of their money that they loan to the government.

To them, a government debt default is not possible, at least not in theUS. I am not arguing that theUSgovernment will default on its debt. What I am arguing is that we have reached the point where investors will demand higher returns on the money they loan to Uncle Sam. How else can you explain why T-bond yields have jumped so much, especially since the election?

Our national debt has ballooned from $10 trillion when Obama took office to over $16 trillion in four years. It could approach $20 trillion by the time he leaves office. This debt will never be fully paid off. I get criticized every time I say this, but that’s what I believe. I challenge anyone to give me a realistic scenario showing how this debt is ever repaid!

Investors continue to buy US Treasury debt because they are confident the USwill never default. And maybe the USwill never default. But the other option is to inflate and further debase the US dollar. Either course is bearish for bonds!

 Gary D. Halbert is the president and chairman of Profutures, Inc.  Subscription rates for Forecasts & Trends is $197 for 12 issues and may be obtained by visiting his website at



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