Monday, March 20, 2017

Outsized Defense Budget Poised to Become Even More Bloated



Let me state this up front: I’m glad the U.S. has the biggest, baddest military in the world and I hope it always stays that way. I have no problem with the U.S. being the top dog and the top spender, militarily.

The U.S. spends more money on its military, by far, than any other nation in the world. We’ve been No. 1 since the end of World War II and, in my estimation, that’s a good thing. I think we should always strive to remain No. 1.

However, I’m also in favor of fiscal prudence and responsibility. That’s why I’m concerned about Donald Trump’s call for a $54 billion increase in military spending in his recent Congressional address. Trump's new federal budget proposal calls for defense spending to jump 10 percent above its already world-leading level.

This increase would "push the Pentagon spending, already well beyond the Cold War average used to keep the now-defunct Soviet Union at bay, even higher,” writes National Security Analyst Mark Thompson.

The U.S. spent $596 BILLION on its military in 2015, according to the Stockholm International Peace Research Institute.

That was more than the next seven countries (China, Saudi Arabia, Russia, United Kingdom, India, France and Japan) COMBINED.

Yet, in fiscal year 2017, US military spending is budgeted for an increase to $617.0 BILLION. Additionally, veterans' spending is budgeted at $180.8 billion and foreign policy / foreign aid spending is budgeted at $55.8 billion. All together, total U.S. government spending for defense is budgeted at $853.6 BILLION.

If that seems like a lot of money, it's because it is.

U.S. military spending in inflation-adjusted terms is higher than it has been since World War II, according to Miriam Pemberton, a research fellow and defense expert at the Institute for Policy Studies.

Here’s the rub: the national debt recently topped $20 TRILLION, and it is growing daily.

"The most significant threat to our national security is our debt," former Joint Chiefs of Staff Chairman Adm. Michael Mullen famously declared in 2010. When the nation’s top military man said this, the national debt was just over $13 trillion.

Yet, the federal budget deficit is projected to add nearly $10 trillion to the federal debt over the next 10 years, according to projections from the nonpartisan Congressional Budget Office.

Congressional Republicans, who have long sworn their allegiance to fiscal prudence and responsibility, will have to find a way to explain, endorse and rationalize a surge in military spending at the same time they are pledging large tax cuts for individuals and corporations, as well as huge cuts to much smaller budget programs.

Aside from the deficit, tepid economic growth is also a concern. Over the next 10 years, real economic output is projected to grow at an annual rate of 1.9 percent. No country can continually grow its debts faster than its economy, without leading to economic crisis.

The Defense Dept. knows that the military budget is bloated and wasteful. Everyone in Washington knows it.

The Pentagon commissioned a study, released in January 2015, which discovered $125 billion in bureaucratic waste.

However, the Pentagon quickly buried the study because it feared “Congress would use the findings as an excuse to slash the defense budget,” according to the Washington Post.

"Pentagon leaders had requested the study to help make their enormous back-office bureaucracy more efficient and reinvest any savings in combat power. But after the project documented far more wasteful spending than expected, senior defense officials moved swiftly to kill it by discrediting and suppressing the results.

"For the military, the major allure of the study was that it called for reallocating the $125 billion for troops and weapons. Among other options, the savings could have paid a large portion of the bill to rebuild the nation’s aging nuclear arsenal, or the operating expenses for 50 Army brigades.

"But some Pentagon leaders said they fretted that by spotlighting so much waste, the study would undermine their repeated public assertions that years of budget austerity had left the armed forces starved of funds. Instead of providing more money, they said, they worried Congress and the White House might decide to cut deeper.

"So, the plan was killed. The Pentagon imposed secrecy restrictions on the data making up the study, which ensured no one could replicate the findings. A 77-page summary report that had been made public was removed from a Pentagon website."

There are two primary excuses for more and more military spending. One of them is jobs.

Military contractors — such Raytheon, Lockheed Martin, Boeing and Northrop Gruman, for example — almost always build their hardware in multiple states. That way the jobs are spread over multiple congressional districts. Since no politician ever wants to vote to kill jobs, this is a very clever strategy. Creating jobs wins elections, while cutting them is always a losing proposition.

The other rationale/excuse is that, “The bad guys are going to get us.”

The Military-Industrial Complex and its political cronies have always created, and they always will seek to create, international bogeymen to advance their argument for new weapons, new wars and the continual flow of military contracts to weapons makers.

The justification is usually draped in the flag and sold as a matter of patriotism. According to this argument, if you support the military, you support more military spending. That makes you a patriot — a real American. If you don’t support more military spending, you are anti-American and a traitor.

It’s all so irrational, bogus and transparent, yet this argument is continually and reflexively made anyway. Many Americans still fall for it and even endorse it.

However, more spending doesn’t make the military stronger, better or more able.

“The only way to strengthen our national security is not to spend more money,” says Lt. Col. Daniel Davis, “but rather to reform the way the Department of Defense does business."

"It boggles the mind that the DoD cannot account for the hundreds of billions of dollars a year that it spends," says Davis. "A full twenty-six years after a federal law was passed requiring all parts of the federal government to provide Congress with an audit of its spending, there remains only a single government agency that has not complied: the Department of Defense. Even after being publicly rebuked by the Senate in 2013 for this failure—and wasting billions of dollars on failed auditing software—the Pentagon remains noncompliant.”

The U.S. already has the most powerful, most deadly, most advanced military in the history of humanity.

Given this reality, is it reasonable or rational for the US to spend even more money on its military?

I think the obvious answer is “no.”

Thursday, March 16, 2017

Fed Rate Hikes May Create Self-Fulfilling Prophecy



The Federal Reserve announced another quarter-point hike yesterday, following the same move in December. The increase brings the federal funds rate into a range of 0.75 percent to 1 percent.

The Fed said its decision was based on both realized and expected labor market conditions and inflation. Translation: the labor market has tightened to nearly full employment and inflation is finally starting to tick up after years of dormancy.

But beware: there have been 13 Fed rate-hike cycles in the post-WWII era, and 10 landed the economy in recession, according to David Rosenberg, Chief Economist & Strategist, Gluskin Sheff.

The current economic expansion, which began in June 2009, has now entered its 93rd month, surpassing the 92-month expansion of the 1980s. That makes this the third-longest in U.S. history. In records dating back to before the Civil War, only the expansions of the 1990s ('91-'01) and 1960s ('61-'69) were longer.

Throughout U.S. history, the gap between one recession’s end and the next one’s beginning has averaged just under five years. In other words, this expansion is getting really long in the tooth and that is a very uncomfortable reality.

The Fed is playing a very risky game by raising rates right now, with the belief that this expansion will go on indefinitely. It won’t. We are currently in the midst of concurrent stock, bond and housing bubbles, and all bubbles eventually burst. All of them.

The economy surely doesn’t look all that strong at present.

The Atlanta Fed just relowered its Q1 GDP estimate to 0.9 percent from 1.2 percent after seeing the BLS report Friday, as well as consumer spending and CPI data.

Real GDP increased 1.6 percent in 2016, compared with an increase of 2.6 percent in 2015. In other words, the Fed is tightening into an economic slowdown.

The strong dollar is constraining exports, which creates a drag on GDP. Last year the trade deficit once again eclipsed $500 billion, as it has for 12 consecutive years.

Federal Open Market Committee members say they expect to make two more hikes in 2017 and three in 2018.

However, continued rate increases during this time of economic weakness will likely be counterproductive. Don’t be surprised if/when the Fed is forced to reverse course and slash rates once again as the economy stalls or the next recession inevitably begins.

But in order to cut rates in the future, the Fed first had to raise the funds rate above zero, which it started to do in Dec. 2015. Now it at least has some breathing room when trouble eventually rears its ugly head once again.

That’s what this and the two previous rate hikes (in Dec. 2016 and Dec. 2016) were all about. However, they run the risk of creating a self-fulfilling prophecy.

In essence, these hikes could spur the very recession or economic crisis the Fed says it is guarding against. That would be the definition of irony.

Monday, February 06, 2017

Rising Interest Rates Matter to Everyone, Especially the Government



When will the Federal Reserve again raise interest rates? That is the question on the minds of lenders and borrower alike. In reality, the Fed will actually raise just a single interest rate, the federal funds rate, which affects all other short-term rates. Those, in turn, can affect long-term rates, such as mortgages.

The Fed raised the funds rate in Dec. 2016 to its current 0.75 percent, from 0.50 percent. It was just the second increase in a decade, following the one in Dec. 2015. The Fed has penciled in three more quarter-point rate increases this year. Meanwhile, traders expect slightly less than two increases in 2017.

The Fed typically raises or lowers the funds rate in quarter-point increments, meaning the increase from 0.50 to 0.75 percent was the smallest that might occur. However, it still represented an increase of 50 percent. That’s a relatively large climb. Imagine how the markets would tremble if the funds rate jumped from 3 percent to 4.5 percent, or even from 2 percent to 3 percent?

When rates are this low, even relatively small movements have large proportional effects.

Just to provide a little perspective on how historically low the federal funds rate remains — even after hikes in each of the past two Decembers — the rate has averaged 6 percent since 1971. In 2001, it was 6.5 percent. Again, it is presently 0.75 percent, so we are still a long way from normal.

The 10-year Treasury bond yield peaked at 15.84 percent in 1981. There are lots of Americans who have no memory of, and no experience with, such high borrowing costs.

Americans, and markets, have become accustomed to exceptionally low rates. What were once viewed as anomalies are now considered the norm. For example, the 10-year Treasury yield fell in July, 2016 to 1.367%, while the 30-year fell to 2.141%. Both were record lows. However, the pendulum now appears to be swinging the other way.

Though the Fed has announced plans for three more rate hikes this year, its concurrent aim to reduce its bond holdings will automatically put upward pressure on rates. In other words, the Fed may achieve its objective without having to raise the funds rate any further.

Through its quantitative easing program, which was designed to lower rates and increase lending, the Fed has amassed $4.45 trillion in bond assets, of which $1.75 trillion are in mortgaged-backed securities. When the Fed eventually (and inevitably) starts to unload some of these holdings, rather than reinvesting them, long-term rates will begin to rise. That discussion has now begun and many market watchers expect the slow process of unwinding to begin as soon as this year.

Increasing mortgage rates will likely slow the housing market, reducing demand and prices. The Fed is now the biggest source of demand for U.S. government-backed mortgage debt and owns a third of the market. So, if the Fed stops buying mortgage bonds, it will almost surely lead to further cost increases for home buyers.

Simply put, when the biggest buyer exits the market, demand for mortgage-backed securities will fall and borrowing costs will rise. Who remembers 6 percent 30-year mortgages? It wasn’t very long ago (2008 to be exact) that this was the norm. In 2000, the 30-year mortgage was over 8 percent. Such a reversion would crush the housing market.

The 10-year Treasury presently yields about 2.4 percent, while the 30-year yields about 3 percent; that’s not a big difference. Borrowing money for 30 years should cost a lot more than borrowing for 10 years, yet the costs are quite similar at present.

That could all change this year and next, pushing mortgage costs much higher. Markets are forward looking, anticipating future rate moves. As a result, mortgage rates are already on the rise.

The total value of the U.S. housing stock grew nearly 6 percent last year, according to Zillow. The housing market has finally regained all the value lost during the housing crisis, Zillow found.

Homeowners have once again become accustomed to the value of their homes appreciating considerably each year, but that upward trajectory could now be in jeopardy.

Of course there are two sides in any transaction. For buyers, a price halt, or even retrenchment, would be welcomed.

Lastly, and quite critically, higher borrowing costs will have a very negative effect on the federal government. The national debt has now reached $20 trillion and is steadily rising.

The federal budget deficit is projected to add nearly $10 trillion to the federal debt over the next 10 years, according to the latest projections from the nonpartisan Congressional Budget Office.

Meanwhile, the CBO projects that, under current law, net interest costs will more than double over the next 10 years, soaring from $270 billion in 2017 to $712 billion in 2026 and totaling $4.8 trillion over the period. Interest costs are expected to continue climbing beyond the next 10 years and are projected to be the third largest category in the federal budget by 2028 (after just Social Security and Medicare), the second largest category in 2046, and the single largest category in 2050.

That’s a recipe for disaster and a full-blown economic crisis. It illustrates why rising interest rates are so critical. Borrowing costs matter, not just to car buyers and home buyers, but also to our heavily indebted federal government, which is funded by the taxpayers — meaning you and me.

Saturday, January 21, 2017

The American Middle Class Is No Longer the Majority and That's Dangerous



If you’re still looking for the reason that Donald J. Trump is now the 45th President of the United States, look no further than the tattered remains of the once-proud American middle class. Pocket-book issues are typically the defining issues in most elections, and that was certainly the case in November.

For decades, politicians (mostly Democrats) have focused on the economic woes of America’s large cities. However, the majority of America’s poor no longer reside in inner-cities. They live in the suburbs and rural areas.

A report by the Brookings Institute found that:

"Between 2000 and 2011, the number of poor residents in the suburbs of the nation's largest metropolitan areas grew by 64 percent — more than twice the growth rate in cities. For the first time, suburbs became home to more poor residents than America's big cities. Today, one in three poor Americans — about 16.4 million people — lives in the suburbs."

The plight of millions upon millions of Americans can’t, and shouldn’t, be ignored. Perhaps the politicians are now listening, since the election of Trump has resounded like the shot heard ‘round America.

The suburbs used to be the land of the American middle class. Sadly, that is no longer the reality. In fact, our middle class has become a faded memory.

A Pew Research Center study on the decline of the middle class found that its members no longer make up a majority of Americans. An equal share of us are in the top and bottom tiers.

This has created an enormous drag on our economy. Wage and income stagnation is at the root of our economic problems because ours is a consumption-based system. If the majority has less to spend, there is less overall demand and consumption.

The good news is that nearly twice as many people rose up and out of the middle class as fell downward into the lower tier. Though the share of people in the middle-class group fell by 11 points, half the country is still in that group, while 29 percent are in the upper income tier and 21 percent in the bottom tier.

However, the middle class lost even more wealth than it lost members.

The share of Americans in the middle class dropped from 61 to 50 percent, but their share of wealth dropped more. In 1970, the middle class had 62 percent of income. That dropped to 43 percent in 2014, while the share going to the upper tier rose from 29 percent to 49 percent.

In short, the rich have gotten richer, while the middle class has gotten poorer… to the point that the middle class has shrunk considerably.

Researcher and demographer Harry Dent wrote the following about our predicament:

Our middle class has been shrinking substantially since the 1960s and ’70s. Today, their share of wealth is the lowest in the world, at a mere 19.6%!

Extreme political polarization and income inequality is at the root of this. We’re the highest on both. Today real incomes of the middle class are 5% lower than they were in 1970 and 12.4% lower than in 2000, when they peaked!

When we take the affluent 10% out of the picture, we see that the bottom 90% average only $32,352 in income per year. That top 10% skew the overall average dramatically, so the $55,132 [median household income] you hear about isn’t accurate.

In the meantime, the top 0.1% have seen their share of wealth go up four times since 1975! And, since 1970, the “super elite” 0.01% has seen their incomes grow a whopping 628%!

Income inequality is higher in the United States than any wealthy nation, and the gap between the top of the bottom is widening. This was a primary theme in Bernie Sanders’ long-shot run for the White House.

Though this problem has made headlines for several years now, inequality in America is steadily worsening.

The mega wealthy — the top 1 percent — now earn an average of $1.3 million a year. That’s more than three times as much as the 1980s, when the rich "only" made $428,000, on average, according to economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman.

Meanwhile, the bottom 50 percent of the American population earned an average of $16,000 in pre-tax income in 1980. Adjusted for inflation, it remains essentially the same more than three decades later.

The wealthy’s share the economic pie wasn’t always so large. In the 1970s, the top 1 percent of Americans earned just over 10 percent of all U.S. income. However, the top 1 percent now take home more than 20 percent of all income.

As you might expect, this corresponded with the rest of us taking home less income. The bottom 50 percent went from collecting over 20 percent of national income during much of the 1970s to about 12 percent today.

What’s perhaps most striking about this trend is that it occurred even as the nation’s economic pie was getting bigger. In other words, there should have been more than enough for everyone, not just the elite few.

As the New York Times wrote:

In 35 years, the U.S. economy has more than doubled, but new research shows close to zero growth for working-age adults in the bottom 50 percent of income.

This group — the approximately 117 million adults stuck on the lower half of the income ladder — “has been completely shut off from economic growth since the 1970s,” the team of economists found. “Even after taxes and transfers, there has been close to zero growth for working-age adults in the bottom 50 percent."

The glaring result is that America is no longer the land of opportunity it once was. If you're born rich, you're likely to stay that way. Sadly, the same is true if you are born poor.

The U.S. now has less economic mobility than Canada and much of Western Europe. In fact, when it comes to economic mobility (the ability to climb the economic ladder), “the United States is very immobile,” according to a report from the Pew Charitable Trusts.

Fewer Americans are earning more income than their parents, which was the norm for past generations. The "American Dream" is dying a long, slow death.

Those born in 1980, or today’s 30-somethings, have just a 50 percent chance of making more money than their parents, according to a research team led by Harvard and Stanford professors.

By contrast, a kid born in 1940 had a 92 percent chance of earning more than their parents at the same age. For kids born in 1950, the likelihood of achieving that version of the American Dream had fallen to 79 percent. By 1960, that figure had dropped further to 62 percent.

This is not an attempt to vilify the top 1 percent of earners. It should be noted that there is a huge difference between the top 1 percent and the top 1/10th of 1 percent.

For example, to be part of the top 1 percent, you’d need to earn at least $450,000 annually, according to Census Bureau data. That's a far cry from the select group of America’s mega wealthy.

The top 9,600, or so, US wage earners make over $10 million per year (2015 is the latest data available); 773 people earn between $20-$50 million annually and 202 Americans earn more than $50 million a year.

So, fewer than 10,000 Americas earn as much as $10 million annually. It's a small and privileged few in a nation of 324 million.

Many experts argue that policies could be enacted to ensure that income is more equitably distributed to all workers, and not continually siphoned off to those at the very top.

Don’t expect that under a Trump administration, which, aside from being headed by a billionaire, is staffed by a horde of millionaires and billionaires. Politico suggested the new president’s team could be worth $35 billion.

The Achilles heel of capitalism is greed. If those in power, and their ultra-wealthy cronies, ignore the needs of the masses for too long, this could all end in tears. It's is how revolutions are started.

As billionaire Nick Hanauer recently warned his fellow plutocrats: Beware, “The pitchforks are going to come for us.”

Sunday, January 08, 2017

What Will Trigger the Next Economic Crisis?



January is the time of year when all sorts of economic forecasts and predications are made for the upcoming year. However, the business of predicting and forecasting future events is notoriously challenging, suspect and, in retrospect, often wrong.

That said, an astute observer can often see trouble coming from a mile away.

Back in March, 2008, I wrote a story, titled “The Perfect Storm,” for Gather.com, for whom I was at the time a Money Correspondent. In the article, I highlighted the numerous problems plaguing the U.S. economy and how they were like spokes on a wheel, converging in a central hub. I could clearly see an economic disaster unfolding. Given that the financial crisis fully exploded just six months later, my concerns proved to be somewhat prescient.

I must admit that, at the time, I thought we were headed for a second Great Depression. While that outcome didn’t ultimately materialize, the fallout was brutal, with millions of Americans losing their jobs and homes.

More than 800,000 jobs were lost in November, 2008 and again in January, 2009. In total, nearly 9 million jobs were lost during the Great Recession, which lasted from December, 2007 to June, 2009.

More than 9.3 million homeowners went through a foreclosure, surrendered their home to a lender or sold their home via a distress sale between 2006 and 2014, the Wall Street Journal reported.

What we all discovered, after the fact, was that we were officially in recession (which is defined as two consecutive quarters of economic contraction) for nine months before the financial crisis ignited. Though the recession wasn’t officially recognized for much of 2008, millions of Americans intuitively knew that things were not all right. I was one of them.

While I was wrong about a new depression unfolding, there was plenty of panic around the country, even in Washington, DC, where insiders knew just how awful the rapidly unfolding situation was.

In October, 2008, Congressman Brad Sherman of California said that some members of the House were told that martial law would begin within a week if they did not immediately pass the TARP bailout bill:

"The only way they can pass this bill is by creating and sustaining a panic atmosphere. ... Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day and a couple of thousand on the second day, and a few members were even told that there would be martial law in America if we voted no.”

So, my concerns at the time were not unfounded. I was not alone in expecting the worst.

Henry Paulson, Treasury Secretary at the time, subsequently wrote the following about the crisis:

"That was just a terrible moment for me. Everyone was waiting for Tim [Geithner} and me to come down and report to them, and I wasn’t quite sure what to say. I was gripped with fear. I called [my wife] and said, “Wendy, you know, I feel that the burden of the world is on me and that I failed and it’s going to be very bad, and I don’t know what to do, and I don’t know what to say. Please pray for me.”

“It seemed like there was a good chance Morgan Stanley could go down, and if it did that could take Goldman down. If that had happened, it would have been all she wrote for the American economy."

Yeah, for those who didn’t know it at the time, it was that bad.

Yet, many of the problems that led to the Great Recession have not gone away; in some cases they have festered and worsened. I am still highly concerned.

While I steer clear of outright predictions, especially when it comes to timelines, I won’t be at all surprised when the next crisis rears its head — even if it occurs this year. Recessions are inevitable and the Federal Reserve is often to blame for creating the business cycles that invariably lead to recessions.

Regardless of what triggers the next recession and/or financial crisis (one will likely lead to the other), there are more than enough combustibles at present to spark and then feed the fire.

As Paulson also said:

"I get asked all the time, “What’s the likelihood of another financial crisis?” And I begin by saying it’s a certainty. As long as we have markets, as long as we have banks, no matter what the regulatory system is, there will be flawed government policies. Those policies will create bubbles. They will manifest themselves in a financial system no matter how it’s structured and how it’s regulated.”

With that in mind, I will attempt to briefly outline below what I see as the most likely potential triggers of the next crisis:

High debt levels of all kinds (government, business, household)

The following chart comes from Hoisington Investment Management:



From 1980 to 2013, total credit/debt grew by 8 percent per year, compounded. This is remarkable because anything growing by 8 percent per year will double every 9 years.

As a result, total Credit Market Debt, which measures all forms of debt in the U.S. — including corporate, state, federal, and household borrowing — now stands at a whopping $64 trillion!

Staggering levels of debt prevent investment and consumption. This chokes off future economic growth, which is one reason our economy has endured such struggles over the past decade. Simply put, annual economic growth below 3 percent cannot support annual debt growth of 8 percent.

Hoisington Investment Management wrote the following in its November, 2016 newsletter:

"In the latest statistical year, debt of the four main domestic non-financial sectors increased by $2.2 trillion while GDP gained only $450 billion. Debt of these four sectors (household, business, Federal and state/local) surged to a new high relative to GDP. This will serve as a restraint on growth for years to come.”

Slow growth makes it harder for a nation to pay off its debts. As it stands, debt service is already the fifth largest piece of the federal budget, following Social Security, Medicare, Medicaid and military spending.

Last year the federal government spent $432.6 billion servicing the debt, according to the Treasury Dept. That’s more than was spent on education, science and medical research, transportation, infrastructure, NASA and food and drug safety — combined!

Huge amounts of debt needed to achieve economic growth

Since about 1980, debt has been growing much faster than GDP. In fact, the public debt has grown at 2.6 times GDP since 2008. But it is not possible to perpetually grow debts faster than income.

Total Credit Market Debt rose to a new record high of $64.1 trillion in the first quarter of 2016, according to the Federal Reserve. This was an increase of $645 billion from the previous quarter. It means that in the first quarter, it “cost” $10 in new debt to generate just $1 in new economic growth!

Our entire economic system is predicated on debt to achieve growth. That is hugely problematic… and suicidal.

Persistently slow economic growth

This is a theme I’ve covered many, many times through the years. Despite the huge debt loads incurred annually, growth is becoming ever harder to come by. Debt is choking off growth, as stated above.

Historically, from 1947 through 2016, the annual GDP growth rate in the US has averaged 3.23 percent.

However, since 2001, GDP has reached at least 3 percent in just two years: 2004 (3.8 percent) and 2005 (3.4 percent). In every other year, through 2015, GDP failed to crack 3 percent, a number that was once considered customary.

There are many reason for this, not the least of which is that $64 trillion in total Credit Market Debt discussed above, which is acting as a ball and chain on our economy.

But there's also the matter of stagnant incomes. Though median household income finally rose in 2015, it is still 1.6 percent lower than in 2007, before the Great Recession. It also remains 2.4 percent lower than the peak reached in 1999.

Yet, Americans pay more today for needs like health care and higher education than they did in 1999.

Rents, health insurance, prescription drug costs and tuition have all risen — and are still rising — much faster than the general rate of inflation and, more importantly, much faster than median family income.

Even worse, median earnings for men working full-time are still lower than they were in the 1970s, according to Sheldon Danziger, president of the Russell Sage Foundation, a research group focusing on social issues.

Then, of course, there’s also the fading financial strength of the Baby Boomers, who have passed their peak spending years and are in, or preparing for, retirement. Meanwhile, the Millennials do not have the financial strength (due to low-paying jobs and huge student debts) to fill the void created by the Boomers.

Nearly 40 percent of 18- to 34-year-olds are now living with their parents — the highest percentage since 1940, the end of the Great Depression. That really says it all.

Little productivity growth, despite the technology boom

The working age population in the US (and across the world) is in decline and the number of people past retirement age continues to grow. This is a major headwind and it is already hurting productivity growth, as well as economic growth. Older people aren’t more productive; they’re less productive.

Bureau of Labor Statistics data indicates that U.S. productivity growth from 2010-15 averaged just 0.4 percent per year, down from 1.9 percent during the 1990-2010 period and way down from 2.6 percent during the 1950-1970 period. Historically, productivity gains have been an important engine for wage increases as well as GDP growth.

In his book “An Extraordinary Time," economist and journalist Marc Levinson says the good times are over for good, or at least for the foreseeable future. The economic boom from 1948 to 1973 was extraordinary. What we have now, he asserts, is “the return of the ordinary economy.”

Inventions since 1970, including the internet, don’t live up to the innovations that powered growth from 1870 to 1970, such as refrigerators, cars, telephones, and aircraft. Levinson quotes productivity expert John Fernald of the Federal Reserve Bank of San Francisco, who says, “It is the exceptional growth,” not the slowdown since, “that appears unusual.”

Slow population growth

One of the keys to economic growth is population growth.

However, the population growth rate in the United States has sunk to 0.6 percent, a historic low. According to a December 23 Brookings Institution survey, the rate is at its lowest point since 1936, during the Great Depression.

William H. Frey, a fellow with Brookings wrote:

"It is likely that some of the reduced fertility in recent years is attributable to recession-related delays in family formation among young adult millennials; this trend could reverse in the near future as the economy continues to grow. But higher death rates are likely to continue due to the long-term aging of the population, a phenomenon contributing to projected declines in U.S. growth rates, which could drop as low as 0.5 percent in 2040.”

Huge, persistent trade deficits

The U.S. has run an annual trade deficit every year since 1976 — yes, for four decades.

Half-a-trillion dollar annual trade deficits have been the norm for many years and we surely reached that figure once again in 2016.

As I noted in 2013:

The U.S. has consistently run a gaping trade deficit for decades because we import more than we export. In fact, the U.S. has led the world in imports for decades and is also the world's biggest debtor nation.

Countries with big, persistent trade deficits have to continually borrow to fund themselves. The problem for the U.S. is that we don't export nearly enough to continue paying for all those cheap foreign goods that we've grown so accustomed to.

Year after year, the trade deficit sucks hundreds of billions of dollars, and millions of jobs, out of the U.S. as we continually buy products from overseas that could instead be made here at home.

No nation can continually buy more from abroad than it sells. It's simple arithmetic. Where will the money for all these purchases come from?

It’s a very basic logic: You can't indefinitely buy more than you sell.

New housing bubble

The median price of an existing home reached $234,900 in November, while the median price of a new home rose to $305,400. Remember that median household income remains 2.4 percent lower than the peak reached during 1999. How the hell are people paying higher home prices if incomes remain stuck at 1999 levels?

Back in 1999, the median price of an exiting home was $133,300, while median price of a new home was $164,800 that December.

So, the median price of an existing home has risen by about $100,000 since 1999 and the median new home price has increased by $138,000. Meanwhile, median income remains the same. This simply doesn’t add up. People are being financially squeezed into submission.

National home prices in 2016 finally crossed the previous peak set in 2006. Prices rose every month last year (through October), with a 5.61% increase nationally. Remember, unsustainably high home prices and the associated debt sparked the last housing crisis, which in turn created the broader financial crisis. Yet, prices have now surpassed the 2006 highs. This is reason for genuine concern.

Meanwhile, worker pay had an annual gain of just 2.9% in 2016, which was the fastest increase since the recovery began in mid-2009.

This is further evidence that home-price increases and pay increases are mismatched and have created an uneasy disequilibrium. Homes simply are not affordable for most people and that will likely get many of them in trouble sooner or later. That will create huge problems for all taxpayers, even renters.

Today about 90 percent of all new mortgages are insured by the government through Fannie Mae or Freddie Mac. The taxpayers are backstopping all of these mortgages.

A report by the Social Security Administration had some rather stunning findings.

In 2014, 38% of all American workers made less than $20,000; 51% made less than $30,000; 63% made less than $40,000; and 72% made less than $50,000.

This is likely why there are fewer homeowners now than at any time in the last two decades.

The US homeownership rate fell to 63.5 percent in the third quarter of 2016, the lowest level since early 1995.

Stock market bubble

This is the third-longest bull market in 80 years. There is bound to be a significant correction. As the Romans once implored, “caveat emptor." Or, in today’s parlance, “Buyer Beware."

Equities are very expensive right now. Near-zero interest rates for the past eight years have driven many investors out of bonds, CDs and savings accounts into higher-yielding stocks. But equities are called "risk assets" for a reason. Trillions of dollars are now at stake.

The stock market’s wild advance over the past seven years has been nothing less than a fraud.

A 2016 HSBC research report revealed that virtually all of Wall Street’s gains since 2009 are the result of corporate buybacks. S&P 500 companies have bought a staggering $2.1 trillion worth of their own stock since 2010.

So, individual investors and pension funds haven’t contributed anything to the market’s surge in that span. Almost all of the market’s increases are due simply to corporate buybacks!

Remarkably, this is legal, even though it is outright market manipulation.

Stock buybacks aren't a good use of capital. In fact, they're wasteful. That money would be better allocated to R&D, equipment or other capital improvements. Buybacks don't increase revenues or profits, or even improve future growth. They are a gimmick used to increase earnings per share, but not actual earnings. Buybacks are a fraud.

Buybacks allow companies to spike their earnings per share because they reduce the number of outstanding shares. It’s phony earnings growth. It has nothing to do with demand for a company’s product or services. And buybacks do nothing to promote innovation. It’s all just financial engineering.

Too big too fail banks are now even bigger and more concentrated

The financial crisis only served to make the Big Banks even bigger.

The five largest U.S. banks – JP Morgan Chase Bank, Bank of America, Citibank, Wells Fargo Bank, and US Bank – control nearly half of all assets in the U.S. banking sector.

These five banks collectively held $6.9 trillion in assets as of the third quarter, 2015.

Since 1992, the total assets held by the five largest U.S. banks has increased by nearly fifteen times! Back then, the five largest banks held just 10 percent of the banking industry total.

The mergers and acquisitions that occurred during the financial crisis only exacerbated the problem. The assets held by the five largest banks totaled $4.6 trillion in 2007, meaning they increased by more than 150 percent in just eight years.

This has created even greater systemic risk to the financial sector and the nation as a whole. Such concentration of banking assets is dangerous for our economy and raises the systemic threat to the entire banking sector during the next, inevitable crisis.

Taxpayers are always on the hook for the failures of private banks. Profits are privatized, while losses are socialized

Conclusion

There are more than enough reasons that the U.S. could/will experience another economic or financial crisis. I’ve listed nine of them above, and some of them are inter-related. That makes these predicaments even more pernicious and potentially systemic. I’m sure that some of you reading this may conjure other critical problems as well.

These quandaries are quite easy to see; our elected “leaders” and government officials are fully aware of them, yet nothing is done to address these critical matters. There is no course correcting; there is only finger crossing and keeping their heads firmly planted in the sand… or their asses.

These troubles are not secrets and there should be no surprise when all of this eventually, and inevitably, blows up quite spectacularly. The only question is whether it happens in 2017, or later.

Thursday, December 29, 2016

THE PERFECT STORM



Back on March 14, 2008, I wrote the article below for Gather.com, for whom I was a Money Correspondent. Given that the financial crisis began in September, 2008, just six months later, this proved to be somewhat prescient.

I highlighted the numerous problems plaguing the U.S. economy and how they were like spokes on a wheel, converging in a central hub. I could clearly see a crisis unfolding. Many of these problems have not gone away; in some cases they have worsened. Since many of these same concerns still exist today, I thought I would look back and republish this article, along with its longer companion piece, which was originally published just two days later.



Right now, it appears as if the U.S. is in the middle of an economic "perfect storm." The nation is grappling with an eroding dollar, high budget and trade deficits, a mortgage crunch that is resulting in a spreading credit crisis, record oil prices, a weak job market and the continued, massive costs of two simultaneous wars.

It appears that we may be in big trouble.

The U.S. currency is in a free fall and people who survey such things say there is no end in sight. Many believe it will take years for the greenback to recover its former value and prestige.

The dollar fell to a 12-year low against the Japanese yen on Thursday, dropping below 100 yen for the first time since November 1995. Meanwhile, the euro rose to all time high and is currently trading above $1.55.

The dollar has steadily eroded in value against the euro and other currencies since 2002 as U.S. budget and trade deficits have ballooned. But fears of an American recession and credit crisis have sent the dollar to stunning lows amid predictions that the slump will continue for quite some time.

While the dollar has fluctuated for many years, what's different this time is the existence of the Euro. While foreign funds and governments used to buy up U.S. Treasury notes, bonds, and other securities — which had the effect of propping up the dollar — the Euro and other currencies are now seen as safe alternatives and they are paying higher yields.

Simply put, this means better returns on investments can be found elsewhere.

"You have the U.S. still holding this trade deficit, but now you have the possibility of a U.S.-led recession, and you have a weakening currency. So it's a very dark outlook for the dollar," said Gareth Sylvester, senior currency strategist with the British firm HIFX Inc.

"People just don't want to be holding U.S. dollars and U.S.-based equities," he added. "If you are an investor with a million dollars to invest, you look for the highest yield — you're looking at South Africa, Australia, New Zealand."

Meanwhile, oil prices set a new record high on Thursday at $111 per barrel. In fact, crude has set records in 12 of the last 13 trading sessions. Analysts blame the spike on weakness in the dollar. Interest rate cuts further weaken the dollar and have helped fuel oil's rise. Another rate reduction is expected next Tuesday at the Federal Reserve's regularly scheduled monetary policy meeting.

"This cocktail's been whipped up by the Federal Reserve," said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm.

Analysts expect the price of oil to maintain its upward track. "There's really no end in sight to this," added Cordier.

Gas prices are following crude, reaching a record national average of $3.27 a gallon. And gas prices are expected to rise much higher this spring; estimates range from about $3.50 a gallon in the Energy Department's latest forecast to $3.75 or even $4.00 a gallon according to some analysts.

Higher pump prices result in higher costs for food and other consumer goods.

Despite the weak dollar, the U.S. trade deficit still increased 0.6 percent in January, reaching $58.2 billion. Though exports increased 1.6 percent to the highest level ever, the U.S. still buys more from other nations than it sells abroad.

So much for the supposed benefit of a weak dollar.

Perhaps the most troubling news is that the wars in Iraq and Afghanistan are now costing U.S. taxpayers $12 billion per month, according to the nonpartisan Congressional Research Service.

A Nobel Economist just issued a report indicating that the total cost of the war could exceed $2 trillion. That figure is more than four times what the war was expected to cost through 2006, according to congressional budget data. The White House predicted in 2002 that the war would cost between $100 billion and $200 billion.

Add all of these factors together and it's a frightening mix -- a witches brew of economic trouble that may haunt the U.S. for years to come. These imperfect realities are coalescing into what seems to be a "perfect storm."

THE PERFECT STORM, PT. 2



Originally published by Gather.com on March 16, 2008
By Sean Kennedy

Earlier this week, in an article titled "The Perfect Storm," I noted how a confluence of factors could portend serious consequences for the American Economy. I focused primarily on the tumbling U.S. dollar and the spiking cost of oil and gasoline.

In this installment, I'll try to outline, in further detail, the numerous other red flags that are threatening our economic well being and way of life.

The harsh reality is that our economy has been a sort of house of cards for quite some time; it has been built on a bad foundation and a lot of delusion.

Incredibly, 72 percent of the U.S. economy is based on consumer spending. This has numerous associated problems.

The kind of spending that Americans have been engaging in for decades has come to its inevitable conclusion. That's because most of us were spending money we didn't have and burdening ourselves with ever-greater debt. Americans don't save money anymore; instead we spend it all. In fact, our national savings rate has been negative for the past couple of years.

The spending frenzy of this decade was based largely on the premise that home values would continue to increase indefinitely. Many Americans seemed to believe that double-digit annual appreciation was a norm that would go on forever. False.

By now, we all know the resulting story; people bought homes they couldn't afford based on this mistaken notion, with the belief they could then flip these homes for a handsome profit or use the appreciation and resulting equity to refinance. Millions were using their homes like ATMs to fuel their obsessive spending. Then it all fell apart.

Now millions of people have lost, or are about to lose, their homes, while banks and other mortgage lenders have been caught holding the bag. This has led to a credit crisis in which banks are hesitant to lend, or in some cases don't even have the means to lend.

Bear Stearns, the nation's fifth largest investment bank, just collapsed under the weight of bad mortgages — or mortgage securities — and was bought out in a fire sale by rival JP Morgan Chase. The venerable financial institution was acquired for less than 7 percent of what its market value had been just two days earlier.

Bear is not alone in its troubles. Other financial institutions – Lehman Brothers, Citigroup, Merrill Lynch, Morgan Stanley – have had to write off billions in losses and seek billions more from foreign investors.

The fear is that the implosion of this financial giant could create a domino effect and set off a tidal wave of defaults in the banking industry. The Fed would be significantly challenged in any effort to avert this, though it would surely try. Who wants to jump on a sinking ship?

Quite naturally, all of this has made businesses very leery and they have recently stopped hiring. Though the unemployment rate of 4.8 percent is still historically low, there is plenty of reason for concern. The economy unexpectedly lost 63,000 jobs in February — the most in five years — after declining by 22,000 in January. These job losses could further weaken consumer spending.

Moreover, the number of jobs being created is not keeping up with population growth. Economists say the U.S. needs to add about 250,000 jobs per month to keep pace. That's not even close to happening right now. Another concern is that, according to the Department of Labor, the jobs that have been created in recent years pay, on average, $9,000 less per year than the jobs that have been lost.

One of the fundamental problems with our runaway spending habits is that we buy almost everything from overseas. Relatively speaking, we don't make much here in America anymore. This creates a significant challenge for exports and makes our massive $705 billion annual trade deficit essentially inevitable. If we don't sell much abroad, where will we continue to get the money to buy all this stuff? In fact, U.S. exporters account for only 12 percent of the economy and the Business Roundtable reports that just 10% of all U.S. jobs currently depend on exports.

Despite Asia's red-hot growth, consumers in China and India accounted for only $1.6 billion of the world's spending in 2007, a tiny fraction of the $9.5 trillion spent by Americans.

Just 7 percent of the world's oil is produced in the U.S., yet crude is traded in U.S. dollars. Other oil producing nations are paid in dollars, which are now worth less and less each week. As a result, these nations make less per barrel as the dollar drops — unless they raise prices. Though the market — not individual countries — sets the price of oil, controlling production does affect price. That's the sort of power that OPEC wields.

Since oil prices affect the truckers who transport our goods, the heating that warms factories, businesses and homes, as well as product packaging, even those who don't own or drive a car are indirectly affected.

Since raising interest rates makes borrowing money more difficult for businesses and individuals, it therefore slows inflation. That's how the Fed controls the economy. But raising interest rates also serves to push the dollar down even further because the return on the dollar declines. Why invest in dollars if you can get a better return elsewhere? If you still think the dollar is worth investing in simply for patriotic reasons, try telling that to foreign governments and investment funds.

In the previous installment, I noted the absolutely massive costs of two simultaneous wars; $12 billion per month, according to the nonpartisan Congressional Research Service.

And the total cost of these wars is now expected to exceed $2 trillion, according to Joseph Stiglitz, a professor of economics at Columbia and his associate, Linda Bilmes, a Harvard professor. If credentials are important here, Stiglitz is a Nobel Prize winner and the former chief economist of the World Bank, while Bilmes has a PhD in economics. In short, these people know what they're talking about and we ought to listen and be concerned.

According to the pair, the costs of our engagements in Iraq and Afghanistan will exceed the costs of both World War II and the Vietnam conflict. That's rather stunning. What this means for the U.S. economy in the long-term is quite sobering, if not downright frightening.

As it stands, the U.S. already has a staggering $9.4 trillion debt, which amounts to $31,000 for every single man, woman and child in this country. Since Americans no longer save money, or have any significant means to invest, our government is reliant on foreign governments – such as China, Japan, and Saudi Arabia – to buy Treasuries in order to finance our massive and out-of-control spending. These are simply IOUs that eventually need to be repaid.

Before these wars even started, our government didn't have the means to pay for its future obligations, according to David Walker, the nation's top accountant. Walker, who just resigned his position as the Comptroller General of the United States, says the Medicare program is on course to possibly bankrupt the U.S. treasury.

The problem is that people keep living longer, and medical costs keep rising at twice the rate of inflation. The U.S. spends 50 percent more of its economy on health care than any nation on earth, says Walker.

As he sees it, the survival of the republic is at stake.

"I would argue that the most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan but our own fiscal irresponsibility," he told 60 Minutes.

Walker isn't just some hysterical, partisan government bureaucrat. The Government Accountability Office website says he "has earned a reputation for professional, objective, fact-based, and nonpartisan reviews of government issues and operations."

And this expert says the US. cannot afford the massive entitlement programs promised to 78 million Baby Boomers who, over the next 20 years, will become dependents of U.S. taxpayers.

At present, the government is already borrowing money to pay for the healthcare of its senior citizens. According to Walker, the system is unsustainable. The only way out, he says, is through additional taxes, restructuring the entitlement programs or by cutting other spending.

That last suggestion would be rather difficult. Right now, 80 percent of the federal budget is allocated to just five areas; Social Security, Medicare, Medicaid, the military and interest on the national debt.

What gives credibility to Walker's projections and analysis is that virtually everyone on the left and the right agrees with him. Federal Reserve Chairman Ben Bernanke and ranking Republicans and Democrats on the Senate Budget Committee back his assessments. Everyone knows he's right; they're just afraid to admit it publicly.

But even with Walker's testimony and warnings, and a fiscal problem that everyone in Washington acknowledges, Congress still behaves like a drunken sailor on shore leave. It just keeps raising the federal debt limit so that it can continue spending money it doesn't have, which only serves to drive us continually further into debt. Each year since 1969, Congress has spent more money than it has taken in.

These costs are already being repaid to the governments who've lent us many billions and the interest payments on that debt account for the fifth biggest piece of the federal budget. Call it money for nothing.

In Fiscal-Year 2007, the U. S. Government spent $430 Billion of our tax dollars on interest payments to the holders of the National Debt. Again, most of them are foreign governments. Compare that to the budgets of NASA – $15 Billion; the Department of Transportation – $56 Billion; and the Department of Education- $61 Billion.

So what does this all mean? Well, I hate to sound alarmist, but it doesn't look good. This is a very ugly picture and we have a government that has ignored these manifold problems for many years.

Politicians are afraid of giving voters bad news for fear of getting voted out of office. Who's ever won an election by telling people he or she plans to raise taxes or cut entitlement benefits?

Our reliance on foreign oil is a very old problem that has been ignored for decades. We have an insane energy policy that was essentially written by Big Oil and Big Energy. This doesn't serve the public good. How about a focus on clean, renewable energy and energy independence?

The massive size of our national debt and our continuous federal deficits have been ignored for decades. This is a form of national suicide. And our massive trade deficit has also been ignored for many years.

Meanwhile our leaders have asked us to soothe ourselves by buying as much as we possibly can, amassing ever-greater personal debt along the way.

This mortgage meltdown, which has turned into a full-fledged institutional crisis, was entirely avoidable. No-money-down loans? Stated-income loans? Interest-only loans? How was this stuff ever allowed?

It's because some in government think that any regulation is a bad thing and that we're all better off without it. But capitalism without regulation just leads some to some sort of Darwinian nightmare, in which only the strongest – or the richest, or the most cunning – survive.

What can we do about our do-nothing Congress?

Well, Democracy is participatory sport, not a spectator sport. It's time for everyone on the sidelines to get in the game.

Call your Senators and Representatives. Write them letters and let them know that you are aware of our bewildering array of economic problems and that you expect them to take action. If you don't know who your representatives are, find out!

Write a letter to the editor of your local paper.

Join a citizens group that is dedicated to progress and to making our politicians accountable to the people. It's time we hold their feet to the fire. In order to be considered leaders, our elected representatives must actually lead.

Get out and vote. Hold your government accountable! Ultimately, we end up with the government we deserve.

Let's just hope, for the sake of all Americans, that it's not too late to right the ship. We've taken our greatness, and our place in the world, for granted for far too long. It's not a right or a guarantee. It has to be earned and maintained.

None of the fixes will be easy, but we can't hide our heads in the sand any longer. Our government must know that we are aware and that they can't try to hide these problems from us, or ignore them, any longer. Then we have to be ready for some rather bitter medicine.

The taste will be harsh, but it will save us in the end.

Monday, December 19, 2016

Millennials Can't Make Up for Cresting Wave of Baby Boomers



Donald Trump has pledged to grow the American economy by 4 percent annually. That’s a lot easier said than done. The average growth rate in the U.S. has been below 2 percent for the last decade. In fact, since 2001, annual GDP growth has averaged just 1.85 percent.

Since 2001, GDP has reached at least 3 percent in just two years: 2004 (3.8 percent) and 2005 (3.4 percent). In every other year, through 2015, GDP failed to crack 3 percent, a number that was once considered customary.

Historically, from 1947 through 2016, the annual GDP growth rate in the US has averaged 3.23 percent.

Aging economies simply do not grow as fast as younger, emerging economies. All of the low-hanging fruit has already been picked in the U.S. and all the available juice has been extracted.

This failure to grow the economy at its historical average is not because presidents Bush and Obama didn’t want more growth, or because the two parties in Congress thought the status quo was good enough. They are simply confronting forces largely beyond their control.

If it were as easy as simply "deciding" to grow the economy by 4 percent or more each year, then all presidents would do it. However, it doesn't work that way.

The Baby Boomers were once the economic engine that drove the U.S. economy. However, those days are now over.

Defined as the generation born between 1946 and 1964, the Boomers comprise nearly a quarter of the US population — or more than 75 million people. They were the largest generation in American history, which made them an unprecedented economic force. However, they are now largely retirees… and dying.

Demographic research shows that people overwhelmingly begin to spend more in their 30s through their 40s. They are typically well established in their careers by that point and are in the midst of buying homes and furnishing them. They are also creating families, which also incurs deeper spending. As people progress in their careers, their pay typically rises, which increases spending power.

According to the work of demographic trend expert and economic researcher Harry Dent, individuals typically hit their peak spending between the ages of 46 to 50. However, once a person reaches the age of 50, spending begins to fall. After the age of 60, the decline in spending is significant, falling below that of even young people in the 18-22 demographic.

Since the last of the Boomers were born in 1960, the final wave of them won’t retire until 2027 — a decade from now. Yet, their absence from the workforce is already being widely felt across the economy.

The labor force participation rate, which indicates the share of the working-age people in the labor force, stood at 62.7 percent in November, according to the Bureau of Labor Statistics (BLS). The figure has been stuck below 63 percent since the start of 2014. When the Great Recession officially began in December 2007, the proportion of adults who either had a job or were looking for one stood at 66 percent.

What all of this means is that a whopping 95 million Americans were not in the labor force as of November, which is a new record. The number of people in the labor force (which the BLS classifies as employed or unemployed, but actively looking for a job) was roughly 159 million.

To put this in simple terms, there are 159 million U.S. workers and 95 million non-working adults. In essence, there are just 1.67 workers for every non-worker.

The number of Americans in the labor force has continued to fall partly because of retiring Baby Boomers and also because fewer workers are entering the workforce.

The Congressional Budget Office says about half the decline is due to the aging population. Roughly 10,000 Baby Boomers turn 65 every day, and many of them retire.

Millennials surpassed Baby Boomers this year as the nation’s largest living generation, according to population estimates released by the U.S. Census Bureau. This makes sense; given their age, the Baby Boomers are a shrinking generation.

Millennials, defined as those born between 1981 and 2002, now number 75.4 million, surpassing the 75 million Baby Boomers (Generation X, those born from 1965 to 1980, totals just 65 million).

However, the Millennials are not the same economic force as their parents and grandparents. They are hindered by large student debts and low-paying jobs, even among those with college degrees. Think about how many young college grads are working as baristas, bartenders, servers or nannies, for example. These are the types of jobs that don’t set them up for a successful career, financially at least.

Low earnings at the start of a career typically hamper earnings throughout one’s career. Salary is often dictated by history, as well as experience. In many cases, Millennials don’t have much of either.

The U.S. has experienced an explosion of college loan debt, with more than 43 million Americans holding roughly $1.2 trillion in student debt obligations, which has more than doubled in just the last eight years.

Given their high debts and low-paying jobs, these young people cannot come up with the downpayment for a home, and many don’t feel they have enough income to get married and start a family. The delay in starting families will likely lead to smaller families, which will slow population growth and, ultimately, economic growth.

Consequently, just 36 percent of Americans under the age of 35 own a home, according to the Census Bureau. That's down from 42 percent in 2007 and it's the lowest level since 1982, when the agency began tracking homeownership by age.

So, demand is falling due to the aging Boomers and the Millennials are not in a position to pick up the slack. Additionally, older people aren’t more productive; they’re less productive.

Bureau of Labor Statistics data indicates that U.S. productivity growth from 2010-15 averaged just 0.4 percent per year, down from 1.9 percent during the 1990-2010 period and way down from 2.6 percent during the 1950-1970 period. Historically, productivity gains have been an important engine for wage increases as well as GDP growth.

Economists argue about why exactly productivity has declined, but many assert that game-changing new technologies — such as electricity, cars or personal computers — have run their course. The IT boom of the late ‘90s and early 2000s has also lost some steam as that technology has been widely adopted. Another problem is the lack of education and training for the jobs of the 21st Century.

This slump in productivity, which measures hourly output per worker, is a big deal for the economy and for workers. As Fed Chair Janet Yellen has said, “Productivity growth is the key determinant of improvements in living standards.”

With all of the above in mind, there's not a snowball’s chance in hell that the U.S. economy will grow at 4 percent per year under Trump, much less the 5-6 percent growth he assured voters during the October presidential debate.

The decline in demand and spending by the Baby Boomers should not be under-appreciated or under-stated. That, in combination with the financial struggles of the Millennials, are at the heart of our slow economic growth and there are no indications that will change in the coming years.

Then there’s the matter of our enormous debt, which is also hindering economic growth. But I’ve covered that many times in the past (such as here, here, here and here) and it will have to be a topic for a future story.

Suffice to say, debt growth is exceeding GDP growth, and that is highly problematic.