4 in 10 Don’t Have $400, and That’s Good News…

Four in 10 Americans don’t have $400 to cover an emergency.

That is, according to the Federal Reserve Board’s report on the Economic Well-Being of US Households in 2017.

Those who don’t have the money for a small expense — like a car repair — said they would either have to sell something or borrow the amount to cover it.

And that, believe it or not, is good news…

Why?

Because back in 2013, the number was higher. That is, five in 10 didn’t have $400 to cover small expenses. As you can see in the graph below, things have gotten better in the last four years.

World's top tourism spenders 2017


Source: Federal Reserve Board
[Click to enlarge]

The US economy seems to be doing well and recovering since the 2008 crisis.

Unemployment has decreased from 9.9% in 2009 and is at a record low of 3.9%.

And while, according to the report, the higher level of employment means that 74% of Americans say they are doing ok, (10% more than in 2013), it is still worrying that so many Americans are struggling to cover small expenses.

The thing is, while there is more work, salaries are not growing. In fact, as you can see in the graph below, median household income has only increased by 5.3% in the last 10 years and we have seen an increase in low wage jobs.

World's top tourism spenders 2017


Source: WSJ
[Click to enlarge]

As the Wall Street Journal reports, while employment has increased, almost one in four US jobs are in professions where the median income is below the federal poverty line.

And while the salaries have largely stayed the same, costs of living have increased.

In the US, according to Statista, median rental rises increased from US$1,095 in 2008, to US$1,492 per month. That’s more than a 36% increase.

With salaries growing slowly and costs of living rising higher, having a job doesn’t mean that you could make ends meet.

And you wonder why people are a bit p***** off? 

There is also more inequality since 2008

As you can see in the graph below, which shows the distribution of wealth by wealth percentile, inequality has grown. The top 10% have added over 6% to their wealth at the expense of the bottom 90%.

Distribution of wealth 25-05-2018


Source: WSJ
[Click to enlarge]

While people at the bottom 90% suffered the effects of the subprime crisis, with many losing their homes, the top 10% has seen asset values rise helped by low interest rates.

We have clearly seen this in Australia. While Australia avoided the 2008 crisis, property prices mainly in Sydney and Melbourne have ballooned in the last years.

According to the 2018 World Inequality Report, inequality has been a growing trend around the world since the 1980s. As they noted:

‘[T]he top 1% richest individuals in the world captured twice as much growth as the bottom 50% individuals since 1980. Income growth has been sluggish or even zero for individuals with incomes between the global bottom 50% and top 1% groups. This includes all North American and European lower- and middle-income groups.

It is not surprising to see then that with salaries staying put and costs of living increasing that debt is ballooning. Total US household debt has increased to an all-time high of US$13.5 trillion in the last quarter of 2017. It’s higher than in 2007, as you can see in the graph below.

World's top tourism spenders 2017


Source: New York Federal Reserve
[Click to enlarge]

In fact, we have a lot more debt around now than in 2008.

US public debt has also tripled since March 2007, as you can see in the graph below.

World's top tourism spenders 2017


Source: WSJ
[Click to enlarge]

This has been debt mostly to spur the economy.

And world debt has increased from US$142 trillion to US$233 trillion in the last 10 years. That is, the world has added US$91 trillion or 64% more debt.

And while we have created massive amounts of debt, we haven’t gotten much growth for it.

After years stuck at lows, now interest rates are going up…which will make all that debt more expensive.

The recovery from the 2008 crisis has included higher employment but not higher salaries. Higher debt but not higher growth.

US households are indebted and are struggling to make ends meet.

And, costs of living are already going higher. Mortgage rates are going up…oil prices are on the rise.

That’s why, in my opinion, the next one will be a big one…much worse than 2008…

Best,

Selva Freigedo,
Editor, Markets & Money

PS: Author and economist Harry Dent thinks the next economic upheaval is at our doorstep…and has a chilling warning for Australia. Harry is the editor of Harry Dent Daily, and has been recently touring around Australia.

Stay tuned for more on Harry Dent and his worrying forecasts for Australia, next week.

 


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


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