Thursday, March 20, 2014

Peak Real Disposable Personal Income

The following chart shows the natural log of real disposable personal income in the United States. I am using natural logs so that constant exponential growth will be shown as a straight line.

Click to enlarge.

As seen in the red trend line, the growth path we are on is most certainly not straight. It is following a parabola much like a baseball in flight would. Should the extremely highly correlated trend (r-squared = 0.996) in red continue, peak real disposable personal income will be achieved in 2052. For those keeping track at home, that's just 38 years from now and we're currently right on trend (as seen in the purple data point).

It gets worse. This is the total real disposable personal income for all of us. If our population continues to grow, then real disposable personal income per capita will peak sooner (as more of us attempt to share the pie).

I'm not done yet though. Should income inequality continue to rise, then real disposable personal income for the median American will peak sooner still (as income is siphoned off to the richest among us).

If I could point to just one chart that summed up my entire "Illusion of Prosperity" beliefs (as a saver by nature), then this would be the one. I doubt I shall ever find its long-term equal. Sigh.

This chart also explains why I am and have been so willing to lock in real yields on long-term TIPS and I-Bonds. As a retiree, I certainly do not expect my real disposable personal income to explode higher in the coming years (especially in the land of ZIRP). Let's just put it that way.

Keep in mind that disposable personal income includes dividends and government transfer payments. From my perspective, the mix might change over time but it is unlikely that the total will. There have been many ups and downs since the Great Depression (wars, baby booms, moon landings, oil crises, stagflation, the booming 80s and 90s, globalization, fully automated factories, student loans, dotcom bubble, housing bubble, Facebook, Twitter, Bitcoin, and so on, and so on). None of it has materially affected the trajectory of our long-term path though, and it very much looks to be peaking. Try telling that to an optimist though. 200 years of history, blah, blah, blah, blah, blah...

And on that note, the future's so dim I gotta draw the shades (and brace for impact again). Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart


Stagflationary Mark said...

This post needs a little optimism and levity to brighten the mood.

I guess I just prefer to see the dark side of things. The glass is always half-empty. And cracked. And I just cut my lip on it. And chipped a tooth. - Janeane Garofalo

The glass is only half-empty! See? It isn't all bad, lol. Sigh.

Gallows humor.

Stagflationary Mark said...

Okay, that's enough optimism.

Here's a darker thought.

I've posted quite a few parabolic trend failures on this blog.

The vast majority fail in the direction that they are already heading. It's like the bottom falls out.

If the trend in this chart fails at some point, the odds are high that it will fail to the downside.

Here's one reason why.

The slower real disposable personal income grows, the easier it is to slide into a recession.

Recessions aren't generally good for real disposable personal income.

Anonymous said...

Dear Mark,
Enjoy your take on all the loony propaganda we get exposed to. Here is a look at wealth inequality from the other side of the pond. Hope you find it interesting:

Kind regards

Nathan said...

I'm still flabbergasted that anyone seriously believes short-term rates will rise anytime soon.

Given how much idle cash is sitting out there happily earning ~0.0% today it seems ludicrous to expect the economy will start paying 0.5%, let alone 4%, for the same privilege.

It seems like if short rates did manage to rise to 0.25% or 0.5% the effect on long rates (assuming they maintained a constant spread) would be catastrophic to the mortgage market. If 4.35% is too high for first time buyers (@ current house prices) what will happen if rates get closer to 5% again?

AFAICT, the only reasonable explanation for all this is that
1) Yellen is obligated to talk up the economy
2) If the economy is as Yellen claims, rates would rise eventually
3) Yellen made a noob mistake by suggesting a particular timeframe

OTOH it seems entirely possible that what Yellen actually believes is that 1) is not true so 2) and 3) are void.

Stagflationary Mark said...


Thanks for sharing the link. It was well worth the read!

Stagflationary Mark said...


Just heard yet another bull say that we don't enter recessions unless there's an inverted yield curve.

Might just as well have said that recessions can't happen if our economy is too weak to exit ZIRP. I'll be sure to forward his opinion to the millions of Japanese investors and get their take on that before fully embracing "risk free" risk assets though, on the off chance he's missing the obvious, lol. Sigh.

Stagflationary Mark said...


From your link...

Should we be surprised that long bonds fell, and equities less so?

Should we be surprised that the legs of the wobbly chair are being kicked but the fat man seated in the chair is still stable?

Of course not! What's the worst that could possibly happen again? ;)

Put another way, the bond market props up the stock market. The stock market does not prop up the bond market.

As a long-term bond investor, rapidly falling stock prices are about as likely to hurt me as rapidly rising stock prices helped me. Not much.

The same cannot be said of stock market investors in reverse. As a long-term bond investor, if I am financially ruined then I will be taking stock market investors with me. Of that, I have no doubt.

Why can't more people see this?

Anonymous said...

Yikes - I have to have a drink or two before coming to this site.
Would it be possible to do this same graph per capita and median income as you mentioned. Also, I wondered what this graph would look like on a world-wide basis. Maybe the data is not there.
Personally, I expect this trend to break below the line as high oil prices exert an additional "tax" on everyone. Fred

Troy said...

"Reserve Army of the Underemployed"

12M people in that gap between the full employment of the late 1990s and whatever this economy is.

Recovery's getting long in the tooth. too.

blue is retail jobs, blue is mfg/cons/info jobs

mab said...

Why can't more people see this?

Clearly you don't watch CNBC!

Stagflationary Mark said...

Fred (Anonymous),

Maybe the data is not there.

That does seem to be the problem. We'll just have to imagine that it looks uglier.

It shouldn't take much imagination. It's kind of like being deep underground in an abandoned mine shaft with no food, water, or source of light, closing one's eyes, and trying to imagine being even deeper underground, lol. Sigh.

Gallows humor.

Stagflationary Mark said...


"Reserve Army of the Underemployed"

12M people in that gap between the full employment of the late 1990s and whatever this economy is.

Your chart and commentary belongs in a horror movie starring Bruce Campbell, lol. Sigh.

More gallows humor.

Stagflationary Mark said...


Clearly you don't watch CNBC!

I like to think of CNBC as a cross between information and commercials.

Ba-dum ching.

theyenguy said...

The bond market props up the stock market; this is seen in the chart of Stocks, VT, relative to Credit, VT:AGG. A see saw destruction of credit investments and stock investments commenced in March 2014, as the Interest Rate on the US 10 Year Note, rose to 2.75%. The 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, will continue steepening, seen in the Steepner ETF, STPP, steepening.

ZIRP be dead. Long term bond investors, will be taking taking stock investors down with them as on October 23, 2013,as is seen in Revelation 6:1-2, Jesus Christ opened the first seal of the Scroll of End Time Events, releasing the Rider on the White Horse, who has a bow without any arrows, that is the Bow of Economic Sovereignty, to effect global economic coup d’etat to transfer sovereignty from democratic nation state to sovereign regional leaders and sovereign regional bodies, such as the ECB, by enabling the bond vigilantes to start calling the Interest Rate on the US Ten Year Note, ^TNX, higher from 2.48%.

At the end of the week, on Friday March 21, 2013, Sectors Biotechnology, IBB, led by stocks BIIB, REGN, ILMN, GILD, CELG, and AMGN, Solar Energy, TAN, and Pharmaceuticals, PJP and Yield Bearing Sector Leveraged Buyouts, PSP, traded lower and Nations, Greece, GREK, and the National Bank of Greece, NBG, traded lower, commencing the Great Bear Market Selloff which has commenced Great Depression II on the exhaustion of the world central banks’ monetary authority.

Economic destructionism got fully underway in March 2014 as the world central bank’s monetary policies have crossed the rubicon of sound monetary policy and have made money good investments bad. Inflationism is no longer the prevailing economic dynamic.

As a result, the world has pivoted from the paradigm and age of liberalism, where the capstone of economic activity has been the investor, into that of authoritarianism, where the debt serf is centerpiece of economic activity.

The speculative leveraged investment community developed peak prosperity, that is peak real disposable income, and peak moral hazard in March 2014. The new normal is austerity and debt servitude.

Under liberalism the three dynamos of creditism, corporatism, and globalism, supported multiple economic systems, such as crony capitalism, European Socialism, Greek Socialism, and clientelism, But under authoritarianism, the singular dynamo of regionalism supports only regional economic fascism.

The day of the fixed income investor has peaked as is seen in the charts of Dividends Excluding Financials, DTN, and Short Term Bonds, FLOT, topping out in value.

Out of soon coming economic chaos stemming from derisking out of currency carry trade investments, such as the EUR/JPY, and the GBP/JPY, as well as out of deleveraging out of debt trades, short term interests rates will be rising, causing money market funds to break the buck, that is the traditional constant $1 Dollar Value, with the result that capital controls will be implemented and banks everywhere will be integrated into the Government, and be known as Government Banks, and in the US the bank’s Excess Reserves will be captured, so as to speak, by the US Fed.

With a trade lower in the price of Gold, $GOLD, from $1380, one should start to dollar cost average, an investment in the physical possession of Gold Bullion, as in the age of destructionism, diktat and gold will be the only two forms of sustainable resource and wealth.

Stagflationary Mark said...

I will offer you the same response I offered you elsewhere.

ZIRP be dead. Long term bond investors, will be taking taking stock investors down with them...

It took World War 2 to kill ZIRP in the aftermath of the Great Depression (and even then it was well after the war ended). You may wish to rethink your timing.

Banks are sitting on massive deposits and can't find enough qualified borrowers. If you think banks will be raising interest rates on CDs any time soon, I believe that you are mistaken. And if CD tates aren't going to rise, then the very popular "rising interest rate" theory continually pumped on CNBC and the financial media is nothing but smoke and mirrors.

If/when people begin to realize that the economy is not as strong as advertised (as seen in falling retail sales growth rates over the past 2 years), then we'll see what happens to interest rates.

And lastly, I owned gold and silver from 2004 to 2006. I wouldn't buy either commodity at these prices though (for a similar reason that I wouldn't dream of shorting the 10-year treasury at this level). No asset is good at any price, especially in a world in which the Fed loves blowing bubbles (and misguided hyperinflation theories run rampant).

Just opinions (but supported by facts).