Small gain for the Dow yesterday. Small loss for gold.

Pity the class of ’14!

News comes that students are defaulting on their loans at an annual rate of 11%. We’re surprised it isn’t higher.

Fewer than half of Americans aged between 18 and 29 have jobs. Even among college grads, nearly half are jobless or underemployed. Hardly surprising, then, that as a share of national income, young people have less than ever.

Over the last 14 years, the number of Americans aged between 16 and 24 who have jobs has fallen by 18%.

For most people, the unemployment rate is back to acceptable levels. But only because so many people are no longer included in the labor force participation numbers.

Retiring baby boomers account for some of the drop off. But there are also millions of young people who never seem to get a shot at gainful employment. Never getting on the ladder, they have no way to climb higher.

Time Have Changed

Your Rogue Economist entered the labor force when he was 14.

Thereafter, he was either in school or at work. He worked as an usher, a dishwasher, a carpenter’s helper, a mason, a painter, a truck driver, a teacher. It never took more than a day or two to find a job.

Times have changed. Now, it’s much harder to get on the bottom rung.

And according to the Financial Times, things aren’t much better for those on the economic ladder. If they are lucky enough to get a foothold… and eventually climb their way into the middle class… they will earn, on average, about as much as a middle-class wage earner a half a century ago!

How’s that for something to look forward to?

Even the Fed Boom of the last six years has done nothing to help. The US median household is $4,000 poorer than it was in 2008. Hey, where did all those trillions of bailouts and interest-rate subsidies go? Not to the middle class, apparently.

Just take a look at the stores that are taking in revenue. Sales at LVMH, the luxury-goods conglomerate, rose 9% in the first quarter. Tiffany & Co. said its sales, too, were 9% ahead of those the year before.

But WalMart – where the middle class shops – saw its revenues drop 5%. Sears said its sales fell 6.8%.

When the economy is weak the middle class shifts its buying to the discount stores. Dollar Tree, for example, is America’s leading cut-price retailer. It saw a 7.2% increase in sales in the first quarter of this year.

The Bond Paradox

But what would you expect in an economy that’s shrinking? And look at the yield on 10-year Treasurys. Uncle Sam is paying 2.5% on 10-year money. We’ve seen a number of explanations for this apparent paradox.

As the Fed tapers QE, it buys fewer T-bonds; you’d expect yields to rise as prices fall. Instead, since the start of the year, yields have fallen about 50 basis points.

The most likely cause? The US economy is as weak as it appears. People are not borrowing, because they are fearful… and investors are putting their money in Treasurys because the alternatives seem too risky.

That doesn’t explain why stock prices are so high, of course. But we can’t explain everything in a single Rogue post. Our guess is that some investors are betting on higher stocks. Others are betting on the safety of bonds. Both will be proven wrong…

First, and most immediately, stocks will begin to stumble as the Fed cuts QE back to the bone. Second, Treasurys will prove unsafe. This will take time to show up, but it will probably happen before today’s 10-year note matures.

In the meantime, the poor Class of ’14 had better get used to disappointment.

Since the feds took gold out of the currency – in 1968 – the average American working stiff has lost about $3,000 of income every decade, when the numbers are adjusted for the “official” inflation rate. Adjust them to a more realistic measure of inflation, and the loss has been closer to $5,000 a decade.

In today’s numbers, a young man begins work earning about $20,000 a year. His income goes up as he matures, at a rate of about $750 a year (a little more than he loses to inflation), giving him about $40,000 a year when he is in his 50s.

So, young men, listen up. Get a job and get on the income ladder as soon as you can. Work hard. If all goes well, by the time you retire you’ll have those student loans paid off!



Further Reading: If you’re being screwed by America’s rigged system, you’ll find this special report on how Bill and his son Will sued the US government in a class-action case 28 years ago intriguing. They lost their legal battle. But they discovered a very interesting way of escaping the rigged system and building independent wealth. Find full details here.