The Mother of All Bubbles?

By Michael Lombardi

The Mother of All Bubbles? image 051213 PC lombardi

As I often harp on about in these pages; economic growth occurs when the general standard of living in a country gets better. You can’t say an economy is improving when a significant portion of the population is suffering. You can’t claim there’s economic growth when the poverty rate is increasing. You can’t say the economy is improving when personal incomes and savings are declining.

Looking at this a little closer…

Food stamps usage in the U.S. economy has increased 68% since 2008, with 47.66 million people, or more than 15% of the entire U.S. population, now using food stamps. Going back to 2008, there were 28.22 million Americans using some form of food stamps then. (Source: United States Department of Agriculture, November 8, 2013.)

From 2000 to 2012, the poverty rate in the U.S. economy increased from 12.2% to 15.9%—a hike in the poverty rate of more than 30% in just 12 years. In 2000, there were 33.3 million Americans living in poverty; this number grew to 48.8 million people in 2012. (Source: United States Census Bureau, September 2013.)

In 2008, the median household income in the U.S. economy was $53,644. In 2012, it was almost five percent lower at $51,017. (Source: Federal Reserve Bank of St. Louis web site, last accessed December 2, 2013.)

And because incomes have fallen and prices have risen, people have no choice but to save less.

Back in November of 2008, Americans saved an average of 6.1% of their disposable income, meaning they saved $6.10 for every $100.00 they earned after taxes. In August of this year, personal savings as a percentage of disposable income stood at only 4.7%—a decline of 23% in the average savings rate of Americans in less than five years. (Source: Ibid.)

What’s next?

In 2008, after the fall of Lehman Brothers, the real face of the U.S. economy started to emerge and the bubble that formed in the key stock indices and real estate market burst. We saw massive losses; stock prices collapsed, retirement accounts were badly damaged, and investors ran through the exit door. As we know, the markets found a bottom in 2009.

Aided by a government bent on getting the U.S. economy going (and borrowing trillions of dollars to make it happen) and a Federal Reserve that printed trillions of dollars in new money, the stock market came back as corporate earnings improved.

Now, more than 50 months into the so-called economic “recovery,” one would expect all those trillions of dollars thrown at the U.S. economy to effect robust growth. But as you can surmise by the startling statistics I just covered above, there has been very little improvement in the U.S. economy. However, the stock market has roared like never before, with the Dow Jones Industrial Average up 140% since March of 2009.

The easy money policies of our central bank have been a boon to big banks and Wall Street more than anything else. The disparity between the U.S. economy and the stock market has never been so great.

Today, easy money is still on the table and optimism towards the stock market is near a record high. Dear reader, another great bubble has been created. Yes, the stock market, it’s become a huge bubble. And when this one bursts, it won’t be pretty.

Source: http://feedproxy.google.com/~r/B2CMarketingInsider/~3/BgLR1c0QefU/mother-bubbles-0707169