Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

The Unsustainable Distortion That is America

Politics / US Debt Apr 06, 2014 - 04:51 PM GMT

By: Gordon_T_Long

Politics

The Peril of a Two Class Society

Since the end of WWII the US might be considered as being divided into two eras. The first from after the war untill 1979 and the second from 1979 until today. The era's are determined by the growth of family income.

As dramatically different as these two eras are, they are even worse when we consider the structural change, where the US family income shifted from a single to a two family income, which closely mirrors these two eras.


The good news, at least on the surface, is that while topping $81 Trillion, the US Household Sector Net Worth is now at a historic high after recovering dramatically from the 2008 financial crisis. It is up over $25T from the post-crisis low and 17% above its pre-crisis peak.

According to global macro strategist Richard Duncan at Market Watch, this is actually a major concern! Why? Because though the Federal Reserve has engineered a "required" Wealth Effect recover since the dotcom bubble implosion, the Household sector net worth is moving up geometrically, while US Disposable Personal Income is only marginally rising on a linear basis.

Mathmatically, something has to give because they are connected.

When we consider that Household Net worth is rising primarily due to housing price increases and financial market performance, it becomes apparent that real disposable income will at some point no longer be able to sustain nor afford elevated asset price levels. History has show us that this is a pattern to be most concerned about.

Richard Duncan demonstrates this trigger point (below) by comparing Household Net Worth as a percentage of Disposable Personal Income. The average from 1952 to today has been 525%. With a high during the 2000 Dotcom bubble of 615% and a Housing Bubble high in 2007 of 660%, we now find ourselves at 639%.

The chart is flashing an ominous Head & Shoulders pattern.

Conclusions

A 70% Consumption based economy such as the US cannot support an elevated Household Wealth Effect without Real Disposable Income increasing at a sufficient rate to support elevated asset prices.

When we additionally consider the degree to which margin is presently being used (once again) in the equity markets, we see not only the excess, but that investors have never been poorer while falsely believing themselves to be rich!

How long can this be sustained? Not that much longer because new credit is steadily generating less GDP growth from which to support an ever increasing debt burden.

For more detail on how this distortion is being orchestrated and sustained, signup for your FREE copy of the GordonTLong.com THESIS PAPER: FINANCIAL REPRESSION

Signup for notification of the next MACRO INSIGHTS

Request your FREE TWO MONTH TRIAL subscription of the Market Analytics and Technical Analysis (MATA) Report. No Obligations. No Credit Card.

Gordon T Long     Publisher & Editor general@GordonTLong.com     

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that you are encouraged to confirm the facts on your own before making important investment commitments. © Copyright 2013 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or suggestions you receive from him.

Gordon T Long Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules