Click to enlarge.
Other than being near the very top of an exponential trend channel that cannot mathematically even exist long-term, what could possibly go wrong? And for those who think the exponential trend channel is sustainable, I would ask how corporate profits can someday exceed wages?
In my opinion, this is simply an accident waiting to happen. I expect a return to the blue trend line at some point in my lifetime, perhaps even many points.
In related news, I was driving back from 4th of July activities. Complacency struck me at a rest stop. I expected rest. What I got was a somewhat different outcome. I exited my vehicle and walked about 10'. My foot slid off the curb to the right and my body fell to the left. I sprained my ankle to the point I required a trip to the emergency room once I got home (250 miles away). I am now on crutches, much like this supposedly strong and resilient economy of ours. Sigh.
The good news is that unlike our economy over the last decade or so, I did not actually break anything.
Source Data:
St. Louis Fed: Custom Chart
One of my neighbors said that at least I didn't sprain my driving foot. I pointed out that my right foot is my driving foot. ;)
ReplyDeleteWhat a ride it was coming home. I stopped at every rest stop just so I could walk around a bit to loosen up the ankle. I don't know if it was a good plan or not, but I can say that 20 minutes of ice and an elevated foot once I got home sealed the emergency room deal. At the end of that process, my ankle was pretty much useless. Perhaps my shoe and sock were acting a bit like a compression bandage. Once they were gone, oh oh.
Other than the cost of emergency care that will soon be seen in my incoming mail, I think the worst thing is that it forces me to break my exercise routine of climbing 20 flights of extra stairs each day. That 2 year streak has ended and a new one will start up once my ankle recovers.
I'm also a bit bummed because I was really looking forward to hiking season. Not going to happen any time soon.
Sorry about your ankle - it's a real problem to get enough aerobic workout with your legs not functional.
ReplyDeleteRe: the chart. If I buy a rough cut diamond for $1,000, pay my worker $1,000 to polish it and sell it for $3,000, then my profit equals wages. Why can't increasing productivity keep the profit/wage trend increasing indefinitely, especially now that we seem to be in some new paradigm with the workers get less or no return on their productivity. I must be missing something.
By the way, I really appreciate your charts and the effort that goes into making them.
Fred
new paradigm with the workers get less or no return on their productivity. I must be missing something
ReplyDeleteIf the workers aren't making discretionary income, who's got $3000 to buy the diamond ? ? ?
AFAICT that's the problem with the top 5% clearing 33% of the AGI in this country, they're pulling money out of the paycheck economy without putting it back (as wages).
Still, we *do* have a $18,000 per capita gov't spending distribution to counter-act that wealth concentration:
http://research.stlouisfed.org/fred2/graph/?g=kpB
to get money back into the paycheck economy.
Problem is a lot of that is being funded by money that should have been taxed or tariffed, and not borrowed.
We basically need to double taxes in this country . . . which would not be inflationary at all.
, I would ask how corporate profits can someday exceed wages?
ReplyDeleteThe magic of "accounting". There are also 2,238 federal subsidy programs in effect. Profits without wages or expenses!
Is there a limit to federal reserve credit or treasury debt to spend infinite dollars? It appears there is no limit for now, but I'm not convinced.
Trend failure FTW.
Fred,
ReplyDeleteTroy's got your answer.
While it is true that some companies can generate profits that exceed wages, the average company cannot. This puts the stock market indices (averages) at risk long-term.
Troy,
ReplyDeleteProblem is a lot of that is being funded by money that should have been taxed or tariffed, and not borrowed.
Yeah. Can't borrow faster than the economy grows forever.
Mr Slippery,
ReplyDeleteIt appears there is no limit for now, but I'm not convinced.
Even the rational fear that there is a limit might lead to increasing austerity pressures over time. I'm certainly austere with my spending habits! I better not infect anyone with my "spending within my long-term means" disease!
In my experience a nice letter to the hospital billing dept explaining your financial position is good for at least 50% off. Perhaps concentrate on being uninsurable due to a minor pre-existing condition and living on a fixed income. Make it sound like you were ready to take financial responsibility such as you save for a certain amount of healthcare expenses, an emergency room visit is outside of what you can completely accrue for.
ReplyDeleteGood luck.
AllanF,
ReplyDeleteThanks for the input.
I actually asked if there was a discount for paying cash before any services were offered. In theory, I'll be getting 30% off. :)
The last time I asked that same provider they also gave me 30% off. I went in to the ER for scheduled pulminary function testing (I passed). I paid in full (less the 30% discount) and was never even billed.
This time I was only able to make a $250 deposit on my credit card though. They could not tell me a total to pay (the bill was no doubt more complicated due to needing a wider variety of services and goods). They did assure me that I'd get the discount though. I'm anxiously awaiting the bill.
I've had nothing but good experiences with the staff at that hospital in the past, so I'm fairly optimistic that they will honor the deal. If not initially, at least eventually. Time will tell.
Never hurts to ask for a discount! :)
Sorry about that sprain.. IIUC, it can be worse than a break.
ReplyDeleteThis puts the stock market indices (averages) at risk long-term.
I had the same thought. The ratio of the SP500 to your function was super-exponential until 2000. Since then it's a roller-coaster ride down.
JzB
Sorry about the ankle, Mark. In the last three weeks, I strained first my left knee, and then as soon as that healed, my right knee. Still recovering from that one ...
ReplyDeleteJazzbumpa,
ReplyDeleteThey told me that a break might heal faster, but I think it may be because a rigid cast makes a patient behave.
It's been 3 days. I can understand the temptation to walk on it more than I have.
That said, I'm very thankful it did not fracture. A break has the potential to be much worse, especially if it isn't set correctly.
My mom broke her foot many years ago. It seemed fine for many years. In more recent years however, they've been "practicing" medicine on it repeatedly. Sigh.
Who Struck John,
ReplyDeleteSorry to hear about your knees! Here's hoping I don't repeat your pattern.
My girlfriend managed to break both her ankles one year (before we met). I asked how she got around. She claims crawling was easiest! D'oh!
Bonus Thought
ReplyDelete1. Rich corporate profits invite increasing competition. For example, if a restaurant appears and makes serious profits, then we would expect to see competing restaurants pop up next to it. That's how capitalism is supposed to work.
2. Increasing competition forces corporate profits to fall. For example, picture how Sony has done lately. Microsoft's XBox has made a dent in Sony's Playstation profits and so has the plethora of competing TVs, computers, and other electronics from other manufacturers. Sony was on top of the world 20 years ago. Now they are hurting.
This is yet another reason why I am concerned about the future of average corporate profit growth. Profits are mighty rich right now, perhaps like a stretched spring that may soon recoil (yet again). For what it is worth, I'm not at all willing to take that risk. I don't think many understand that the risk even exists.
Sorry about the foot. You're going to be a bit sedentary for a while, so its nice that you've exercised and gotten into pretty good shape. Healthy people heal faster too :) Just respect the injury, and it will heal more fully.
ReplyDeleteOn to the stock market, nothing you say is wrong, but I'm afraid that data like this has scared many people away from stocks completely.
Nothing is cheap right now, but on a relative basis stocks are cheaper than any other asset class other than possibly real estate.
Here's how I see it:
Stocks = a bit expensive
Gov't Bonds = crazy expensive, maybe even bubble level
Investment Grade Corp Bonds = crazy expensive for investors, a great deal for companies
Junk Bonds = expensive, but a better value than most things on this list
Residential Real Estate = cheap to fair, especially nice if financed through borrowing
Commercial Real Estate = no firm opinion, but I'm really sketchy on this one
Cash = a terrible, terrible asset. Has option value for those who think they can time the market.
Aside from my house, which I bought with cash a couple of years ago and also generates rental income (its like a bond I can live in) most of my money is in stocks.
I invest in all kinds of companies (large, small, special situations), but for people who don't want to invest as a hobby, there are plenty of big stable global companies that yield 3-5% (when you include dividends and buybacks) and still have some cash left over to invest in slowly growing the business (ie, a bit faster than inflation).
The foundational reality as I see it is that we're still living in a fiscal la-la land.
ReplyDeleteCBO's projections still say we're going to have a $20T real economy (2012 dollars) in 2020 and all their spending/debt-to-gdp figures are predicated on that continued output expansion this decade.
CBO doesn't have the b*lls to create a graph of what this coming expansion is going to look like this decade, so allow me:
http://i.imgur.com/qltmKO9.png
Unpacking their numbers, they're also forecasting the national debt to grow another $5.6T in the next 10 years.
So if we don't get a repeat of the 1990s expansion this decade, the fiscal situation of 2020s is going to be pretty parlous.
And that's when the baby boom is retiring en-masse.
This is going to help some things in that there will be a lot of new demand from retiring boomers, and they have all the money now, so there will be a mass transfer of wealth starting RSN, and economies thrive on wealth transfers.
This economy has been surviving on fairy farts and whistling past the graveyard since 2010. Employment has only recovered to the bottom of the dot com recession, and many of the jobs they do count as recovery are paying less than what we had going during the housing bubble machine days.
But this is less an economic problem than a political problem. Congress has immense powers to intervene in how our world is structured, yet they haven't done much at all since 2011, other than institute spending curbs that are beginning to bite now.
I can't see where we're going to be in 2020 without knowing how the electorate breaks in 2014 and 2016.
I'm pretty sure -- rhetoric aside -- the Republicans would love to roll out the spending barrel like they did in the 1980s and 2000s, but not if a Democratic administration -- Obama, Hillary -- gains tactical political benefit from that extra spending.
I think I like Japan's numbers much more than our own, I think a trade deficit is a very bad thing, even if we have reserve currency status to mitigate the outflow.
Japan's Current-Account Surplus Widened in May
Parker Bohn,
ReplyDeleteOn to the stock market, nothing you say is wrong, but I'm afraid that data like this has scared many people away from stocks completely.
For what it is worth, I permanently exited the stock market in 2004. I doubt I shall ever return. It's been 9 years so far and I have no regrets. I'd definitely exit today if I owned any stocks at all, which I do not.
We'll have to agree to disagree on government bonds being crazy expensive, especially TIPS now earning 1% over inflation over the long-term. I wouldn't expect the rate to be much different than the real growth in this country. It is my continuing opinion that the long-term growth party ended in 2000.
This isn't 2000 any longer (when the illusion of prosperity was at its peak). 3.5% real yields aren't coming back, not without a currency crisis anyway. This economy cannot support high real yields.
And lastly, if this is the best growth we can expect in an economic expansion, we should all be very concerned about what growth will look like during the next contraction. The Fed has not permanently put a stop to recessions. It's been over 5 years since the last one began. We've had 19 of them in the past 100 years. Just something to think about. I am definitely not optimistic about the future.
Troy,
ReplyDeleteSo if we don't get a repeat of the 1990s expansion this decade, the fiscal situation of 2020s is going to be pretty parlous.
I just don't see how we can get a repeat of the 1990s expansion. Sigh.
This is going to help some things in that there will be a lot of new demand from retiring boomers...
This retiring boomer is the economy's worst nightmare. I'm not visiting malls any longer. I'm not buying new cars (my car is 17 years old and has less than 90k miles on it). I'm not buying suits. I'm not even eating at restaurants much. My personal demand fell dramatically once I retired (and that was even before I thought the economy would implode).
Let's hope I'm the exception. Free time is what I value most. Free time sure doesn't add much to GDP though.
I suppose I could injure myself each week. That would sure add to GDP as I continually visit the emergency room. Heck, maybe all we need is a few more hurricanes each year to speed up the return to prosperity process!
Broken window fallacy
If there was more profit to be made by destroying buildings, windows or leveling an entire community due to a natural disaster than pursuing other courses of action then participants in the market would pro-actively and voluntarily destroy property.
Got hammer? ;)
Gallows humor. Sigh.
Troy,
ReplyDeleteThis economy has been surviving on fairy farts and whistling past the graveyard since 2010.
I would argue the same starting since 2000. We started with the dotcom fairy fart. Next came the housing fairy fart. Now we're trying more of the same.
One might even argue that it started before 2000. There would no doubt be a Ross Perot quote to go with that argument. Sigh.
This retiring boomer is the economy's worst nightmare.
ReplyDeletewell, you did leave a programming job for the Gen Yer who's got your desk (wherever THAT is) now . . .
There's the broken window parable, and there's also the fact that wealth is what makes us well, and retirees have a different set of needs that will get filled.
But one thing I wanted to get into in my long above is that in a rational world, taxes are going to have to go up a helluva lot.
We were supposed to have the debt decks clear so we could start paying the taxes necessary to pay off the ~$2.7T in the SSTF starting around now.
If we liquidate that fund over 20 years, that's a $135B/yr tax burden the economy has to carry.
The good thing though is that pensioners don't have to save any more, theoretically. At any rate that money is going to be spent right back into the economy at least.
But, clearly, we don't live in a rational world. So much is going to depend on the 2016 election. It's going to break in one of 3 ways I guess: a) continuation of divided government, b)/c) one of the parties takes the whole enchilada.
a) would be insanity, but it does look like the beatings will continue . . .
Troy,
ReplyDeletewell, you did leave a programming job for the Gen Yer who's got your desk (wherever THAT is) now . . .
Not exactly. I left that job like a rat leaving a sinking ship. Since my departure, that ship did indeed sink.
I often wonder what my former coworkers are doing now. Sigh.
Troy,
ReplyDeletewould be insanity, but it does look like the beatings will continue . . .
In my opinion, there is pent-up demand for investment return beatings. I find it highly unlikely that many pension funds will hit their 8% long-term targets.
In the meantime though, let's party like it's 1999/2006! What could possibly go wrong again? ;)