A Quarter Of All Household Income In The US Now Comes From The Government

By Tyler Durden

Following today’s release of the latest Personal Income and Spending data, Wall Street was predictably focused on the changes in these two key series, which showed a modest slowdown in personal spending (to be expected one month after the savings rate in the US hit a record), coupled with a modest decline in personal income (as government benefits and stimulus checks slowed substantially).

But while the change in the headline data was indeed notable, what was far more remarkable was less followed data showing just how reliant on the US government the population has become.

We are referring, of course, to Personal Current Transfer payments which are essentially government sourced income such as unemployment benefits, welfare checks, and so on. In May, this number was $4.9 trillion annualized, and while it is down from the record $6.6 trillion hit in April when the US government activated the money helicopters to avoid a total collapse of the US economy, it was nearly $2 trillion above the pre-Covid trend where transfer receipts were approximately $3.2 trillion.

Even more striking, is that as of June when total Personal Income was just below $20 trillion annualized, the government remains responsible for over a quarter of all income.

Putting that number in perspective, in the 1950s and 1960s, transfer payment were around 7%. This number rose in the low teens starting in the mid-1970s (right after the Nixon Shock ended Bretton-Woods and closed the gold window). The number then jumped again after the financial crisis, spiking to the high teens.

And now, the coronavirus has officially sent this number into the mid-20% range, after hitting a record high 31% in April.

And that’s how creeping banana republic socialism comes at you: first slowly, then fast.

So for all those who claim that the Fed is now (and has been for the past decade) subsidizing the 1%, that’s true, but with every passing month, the government is also funding the daily life of an ever greater portion of America’s poorest social segments.

Who ends up paying for both?

Why the middle class of course, where the dollar debasement on one side, and the insane debt accumulation on the other, mean that millions of Americans content to work 9-5, pay their taxes, and generally keep their mouth shut as others are burning everything down and tearing down statues, are now doomed.

To read the complete article, with charts and graphs, click here…

Harvard Study: “Gender Wage Gap” Explained Entirely by Work Choices of Men and Women

What do you think of when you hear the phrase “gender pay gap”? Perhaps you think of a man and woman who work exactly the same job at exactly the same place, but he gets paid more than she does. This sort of discrimination has been illegal in the United States since the passage of the Equal Pay Act in 1963.

Read more here:

https://fee.org/articles/harvard-study-gender-pay-gap-explained-entirely-by-work-choices-of-men-and-women/

Wealth and Taxes

I thought that “wealth and taxes” would be a short blog post. It turned in to a 5 part series. Here’s an overview, or table of contents in case the whole thing looks a bit indimidating. The most important one, really I think is Part V, “it’s all political.” The others build bit by bit, well, this can’t be the answer and that can’t be the answer, so what is the answer, and Part V finds it.

Read More: https://johnhcochrane.blogspot.com/2020/01/wealth-and-taxes-overview.html

70% of Americans have Less than $1000 in Savings

Yes, you read that correctly. Well, let’s be more precise: Per the survey done by GObanking Rates, 69% of Americans have less than $1,000 in savings. Erratum: My title has 70%, so I’m sure that 1% makes a huge statistical difference for some. This survey has been done each by this organization since 2014, and for the 2019 survey, it contains 846 respondents.

An argument can be made that they only polled 846 individuals. Fair point. But, I would not be surprised if more respondents were polled, the percentage would not change. There is a myriad of reasons why, but I will mention some here.

50 Percent of Americans Earn $33,000 per year or Less

I recently reported that 50% of Americans earn $33,000 per year or less. This analysis was provided by the United States Social Security Administration. Yep, that is correct: $2,750 per month. This amount is before taxes. Consider housing, food, transportation, child care, and etc, as the expenditures eat into the gross/net income. Since this is the case, it makes it difficult to save money due to the next point…

Rising Cost of Living aka Inflation

The issue of the rising cost of living, specifically for those earning less than $33,000 per year, makes it increasingly difficult to develop any sort of savings. The core issue of the increased cost of living is due to inflationary measures. If you have read the articles on this page, the issues surrounding inflation are constantly addressed. Inflation is not the rise in prices, although the economic actor will see prices rise. When The Federal Reserve continues with loose monetary policy, the winners are the large financial institutions, the cost of inflation is paid by those who earn less than $33,000 per year.

As the dollar is devalued based upon the implementation of loose monetary policy by The Fed, it takes more dollars to buy the goods these people want and need— giving the illusion that prices are actually rising. Due to this economic phenomenon, people in this economic income segment have almost no savings to cover for emergencies. When those emergencies come, these individuals must lean on credit to cover these unforeseen expenses. Once the crisis has ended, the user is stuck with a credit card balance, as this adds to their monthly expenses—these expenditures are currently very close to their income. At this point, many can not continue to pay the regular expenses, and the mounting credit card debt. What happens next? The credit card is defaulted.

Credit Card Default Rates Rising

Due to the lack of income, coupled with the lack of savings, it is no shocker that credit card default rates are on the rise. To be specific, the credit card default rates are on the rise for sub prime borrowers. This trend isn’t exclusive to just credit cards, it is also expanded to other sub prime lending sources such as pay day loans, auto loans, and the like. As previously mentioned, these types of credit are used to help cover the income gap in expenses or cover emergencies. Another source will be for medical expenses as well, due to the rising prices of health care.

Conclusion

At the time of this writing, political pundits will remark how fine the economic metrics look, namely how unemployment is so low. Kudos. Yet, there signs of things that could lead to a market correction, namely in the capital markets. Some of the prime reasons, in my opinion, is based upon Americans not having enough in savings, and the central banks pumping more currency into the banking system. However, since we are living in a consumption based economy(meaning consumption now versus later), there is very little incentive to save..thanks to inflation.

Excursus

Survey 69% of Americans have less than $1,000 in savings: https://www.gobankingrates.com/saving-money/savings-advice/americans-have-less-than-1000-in-savings/

Fifty Percent of Americans Earn Up to $33,000 per Year

In this “booming” economy, we are told that jobs are being created, and unemployment is at its lowest levels in decades. Prime facie, this seems true. Consider this: Most Americans earn less than equal to $33,000 per year. This statistic comes directly from the Social Security Administration. Excerpt from the report:

“The “raw” average wage, computed as net compensation divided by the number of wage earners, is $8,383,540,628,515.51 divided by 167,669,326, or $50,000.44. Based on data in the table below, about 67.4 percent of wage earners had net compensation less than or equal to the $50,000.44 raw average wage. By definition, 50 percent of wage earners had net compensation less than or equal to the medianwage, which is estimated to be $32,838.05 for 2018. “raw” average wage, computed as net compensation divided by the number of wage earners, is $8,383,540,628,515.51 divided by 167,669,326, or $50,000.44. Based on data in the table below, about 67.4 percent of wage earners had net compensation less than or equal to the $50,000.44 raw average wage. By definition, 50 percent of wage earners had net compensation less than or equal to the median wage, which is estimated to be $32,838.05 for 2018.”

All that means is this: 50 % of United States citizens earn up $634.62 per week, or less, before taxes. It makes sense why people are extending themselves on credit; the subprime auto lending is expanding, while loan defaults are on the rise. With all the macroeconomic issues, e.g. The Fed printing more money and The Government spending spiraling up to new heights, I wish you good luck saving for retirement.