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Hard Assets Alliance
December 6, 2019

 

Markets got their hopes up when rumors that a partial trade deal was imminent, and then once again those hopes were dashed.

 

President Trump said he hasn’t agreed to dial back tariffs on China after all. So the next round of tariffs will go into effect Dec. 15 in the absence of a breakthrough.  The trade war is definitely having an impact on growth.  The latest survey of manufacturers in the midwest gave its weakest reading in four years last month. It was also the second lowest in a decade. Overall, U.S. manufacturing contracted for the third consecutive month in October. 

What about the broader economy?

 The Devil Is in the Details

A couple weeks ago, two major economic figures were released for the U.S. One was third-quarter GDP, which came in at an increase of 1.9%. That figure actually beat expectations of 1.6%.  But the devil is always in the details.  That’s still less than the second-quarter growth of 2% and an indication of a slowing-down trend for U.S. economic growth. And once again, the business investment spending component declined over the quarter.

 

Meanwhile, the manufacturing industry is having its worst year since the financial crisis on the back of trade wars and a slowing global economy. So the economic data are still slowing down.  Plus, as I’ve been reminding my readers, it was the consumer spending component that beat expectations again and contributed to much of that growth.If the U.S. consumer gets tapped out, that key pillar of support for the economy would collapse. And that’s entirely possible.

 

Total outstanding consumer debt exceeded $4 trillion for the first time this year, and credit card rates are rising.Auto loan delinquencies are also increasing and student debt is a crisis in the making. Corporate debt is another crisis in the making, which I’ll get to in a minute. As you’ll see, that’s the likely cause of the next crisis.  So don’t be surprised if the consumer taps out before too long.  But I said there were two key economic figures recently released. The second was the October unemployment report. And they paint a somewhat brighter picture.

 

Jobs

 

U.S. payroll figures for October beat expectations, with 128,000 jobs being added after a consensus estimate of 75,000.  The unemployment rate did uptick by a tenth of a percent to 3.6%. That figure nonetheless remains close to a half-century low.  So the Fed can see a more or less healthy economy — if it wants to.  Unemployment is at a five-decade low, the economy has been growing (although slowing down) and the U.S. consumer is still active (although also slowing down).  Added together, all these factors were enough to substantiate the Fed’s indication that it will leave rates on hold for the rest of the year after its “insurance” rate cut at the end of October. It’s already lowered interest rates by 75 basis points this year.

 

But that is certainly no guarantee more rates aren’t coming.  If the U.S. or global economic growth picture deteriorates more quickly, that could easily press the Fed to cut rates further.  Meanwhile, the Fed is using its ability to inject liquidity into the money markets as a form of QE-lite to support the financial system.  That means more “dark money” is coming from the Fed. But the problem is that the Fed is now caught in a “Catch-22.”

 

The Corporate Debt Bomb

 

As one article put it, the Fed “is stuck between an apparently booming economy and a financial crisis that might be right around the corner.”  If the Fed keeps rates this low, it means more financial asset bubbles can inflate. But if the Fed doesn’t lower rates, the corporate sector is most at risk.  During the last crisis, too much housing debt that was repackaged in nefarious ways by Wall Street tanked the markets and the economy. Now the ticking time bomb is too much corporate debt, also being repackaged by Wall Street. Corporate debt is really what you need to watch.  Corporate debt is out of control, fueled as it’s been by all the cheap credit courtesy of the Fed.

 

U.S. nonfinancial corporate debt is now about $15 trillion dollars, or more than half of GDP. That’s an increase of more than 50% over its previous peak in 2008.  And it’s not like all this debt went to productive purposes like R&D or expanding business. It was mainly used to finance stock buybacks and acquisitions.  They may be good for shareholders (not to mention corporate executives who have gotten larger bonuses), but they don’t add to the economy.  All U.S. companies combined are burdened by a record $15.5 trillion of debt, or about two-thirds of GDP. If interest rates were to rise, that debt could default and lead to a repeat of 2008

 

And it’s not like all this debt went to productive purposes like R&D or expanding business. It was mainly used to finance stock buybacks and acquisitions.  They may be good for shareholders (not to mention corporate executives who have gotten larger bonuses), but they don’t add to the economy.  All U.S. companies combined are burdened by a record $15.5 trillion of debt, or about two-thirds of GDP. If interest rates were to rise, that debt could default and lead to a repeat of 2008.  Meanwhile, companies that fattened up on all this cheap debt over the past decade will be facing a major test as $4 trillion of bonds come due over the next five years, according to Oxford Economics.

 

The New Subprime Mortgages

 

Compounding the problem is that $660 billion of leveraged debt is in the form of collateralized loan obligations (CLOs) that have been sold to investors and financial institutions. CLOs are used to package lots of high-risk debt to be sold to investors eager for yield in this yield-starved environment.  If that reminds you of the collateralized debt obligations (CDOs) that were behind the subprime housing crisis, you’re right. Only in this case they’re packing not mortgage debt, but corporate loans.  A meaningful rise in defaults would produce severe losses. And we could be seeing a massive wave of defaults, which could spread like wildfire and produce a crisis. It’s a dark money Catch-22 of the Fed’s own making, and it’s basically been going on for more than a decade now.

 

The Fed is aware of all this. A debt crisis is its major concern and it will behave accordingly. As always, watch what it does, not just what it says.  The ongoing bailout of the repo market shows us that the Fed will keep dark money going for as long as possible and in whatever amounts are needed. But it’s only deepening the Catch-22.

 

By Nomi Prins

Nomi Prins is a renowned journalist, author and speaker. Her latest book, Collusion: How Central Banks Rigged the World is an expose into the 2007-2008 financial crisis and how the influence of central bankers triggered a massive shift in the world order.

Hard Assets Alliance was created as a cooperative of investment professionals who believe there's a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.

 

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How Much
December 2, 2019

Over the past 40 years, the average individual income in the U.S. has grown by 65%. However, not everyone has reaped the benefits of higher wages. Income inequality is at an all-time high, and the combined wealth of the top 1% of earners is almost as much as the combined wealth of middle-class Americans. Interestingly, some metro areas of the U.S. have experienced severe income disparity more than others, as shown in our new visualization.

  • Nationwide, the average individual income is $58,379.45 in 2019. The 25th income percentile is $22,000 and the 90th income percentile is $116,260.
  • There are 54,659,267 Americans who are not classified in a metropolitan area. The average individual income for this group is $45,946, with a $20,000 income at the 25th percentile and $89,000 at the 90th percentile.
  • The U.S. Census Bureau, one of the sources for this data, notes that “[geographic] estimates for the smaller metropolitan areas (those with populations under 500,000) should be used with caution because of the relatively large sampling variability associated with these estimates.“ 

We based this visualization on the DQYDJ Income Percentile by City Calculator in 2019, which takes income data from the IPUMS-CPS (Integrated Public Use Microdata Series - Current Population Survey) released by U.S. Census Bureau and the Bureau of Labor Statistics. We used the IPUMS definition of a metropolitan area for our visualization. Similarly, income in this visualization is defined as “total personal income” and includes all the types of income sources listed here

The visualization is a map of the U.S., with 262 of the country’s major metropolitan areas color-coded in different shades of pink. The darker shades of pink indicate that there is a higher disparity between the 25th and 90th income percentiles, while the lighter shades of pink show lower income disparities between the 25th and 90th income percentiles. In addition, the circles on the map list the income for the 25th and 90th percentiles in the 10 most equal metro areas and the 10 most unequal metro areas. Light gray circles are for the 25th percentile and dark gray circles are for the 90th percentile. The circles also correspond to the size of individual income, with larger circles representing higher incomes. At a glance, the most unequal metro areas will show a lot of dark gray and only a little light gray.

Top 5 Most Equal Metro Areas in the U.S. by Income

1. Jacksonville, NC: $42,002 difference between 25th and 90th percentile
2. Cleveland, TN: $42,173 difference between 25th and 90th percentile
3. Goldsboro, NC: $42,830 difference between 25th and 90th percentile
4. Ocala, FL: $43,626 difference between 25th and 90th percentile
5. Florence-Muscle Shoals, AL: $48,602 difference between 25th and 90th percentile

Top 5 Most Unequal Metro Areas in the U.S. by Income

1. Erie, PA: $215,559 difference between 25th and 90th percentile
2. Hilton Head Island-Bluffton-Beaufort, SC: $206,871 difference between 25th and 90th percentile
3. Santa Rosa, CA: $157,050 difference between 25th and 90th percentile
4. San Francisco-Oakland-Hayward, CA: $152,000 difference between 25th and 90th percentile
5. Bloomington, IN: $151,340 difference between 25th and 90th percentile

In general, metro areas in the South and the Great Plains region tend to have less income inequality when comparing the differences between the 25th and 90th income percentiles. By contrast, metro areas in the Northeast, Great Lakes, and California areas have greater income inequality. But it’s not only the U.S. that suffers from income inequality. It’s also a pressing issue on the international stage. We’ve talked before about great disparities in average individual wealth in different countries, as well as the percentage of the world population that lives in extreme poverty. On the other end of the spectrum, roughly 1% of the world’s adults are millionaires. The U.S. alone has 18.6 million millionaires, more than any other country in the world. As the gap between rich and poor continues to grow--both in the U.S. and worldwide--political leaders will face increased pressure to facilitate a more even distribution of wealth.

Why do you think income inequality varies so much across different parts of the U.S.? Let us know in the comments.

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How Much
November 28, 2019

Do you make enough money to enjoy a comfortable life? Or are you just scraping by? If it feels like you can’t ever truly get ahead, then you aren’t alone according to our latest map on the cost of living across the U.S.

  • Hawaii is the single most difficult state for workers to get ahead, requiging $96.1K to enjoy a comfortable life and 91-hour workweeks to get there.
  • The states where a comfortable life is within reach stretch across the South. Mississippi is the most affordable at $40.4K. Making that much money would require average workers to clock 53 hours.
  • Kansas stands out as a reasonably affordable place to enjoy the good life ($41.7K) without spending too much time on the job (46 hours).
  • There isn’t a single state in the country where an average worker can enjoy a comfortable living on 40 hours or less of work per week. North Dakota has the shortest required minimum hours at 45.

We combined a few different datasets to create our visualization. First, we figured out the median wage for workers in 2018 in each state from the Bureau of Labor Statistics. We also used numbers from the BLS to calculate average annual consumer expenditures, adding a nice 20% bump to each state’s average to represent comfortable living. Then, we divided that figure by the number of earners the average household has to obtain the annual expenditure per earner. That amount was adjusted to each state’s cost of living using MERIC’s data, giving us the number of hours needed to make that wage. States with darker shades of purple require a higher wage to live comfortably, and larger green circles indicate longer workweeks.

Top 10 States Where it is Cheapest to Enjoy a Comfortable Living

1. Mississippi: $40,349 (53 hours)
2. Oklahoma: $41,113 (48 hours)
3. Arkansas: $41,495 (52 hours)
4. Kansas: $41,733 (46 hours)
5. Tennessee: $41,877 (48 hours)
6. New Mexico: $42,354 (50 hours)
7. Alabama: $42,497 (50 hours)
8. Missouri: $42,545 (47 hours)
9. Michigan: $42,832 (46 hours)
10. Georgia: $43,023 (48 hours)

Top 10 States Where it Costs the Most to Enjoy a Comfortable Living

1. Hawaii: $96,120 (91 hours)
2. Washington, D.C.: $78,310 (44 hours)
3. California: $66,754 (63 hours)
4. Oregon: $65,417 (66 hours)
5. New York: $64,462 (57 hours)
6. Massachusetts: $62,218 (51 hours)
7. Maryland: $61,836 (55 hours)
8. Alaska: $60,881 (51 hours)
9. Connecticut: $59,783 (51 hours)
10. New Jersey: $59,401 (54 hours)

The best states based on our number-crunching are shaded light purple and have small green circles. In other words, it’s comparably much easier to enjoy a comfortable living across the South and Midwest than it is on either the West or the East coasts. The absolute worst state for the Average Joe is Hawaii, where he would need to put in almost 91 hours each week just to make enough money ($96.1K) to have a comfortable life. That would mean working almost 13 hour days, every day, without ever getting a break.

The most interesting thing our map demonstrates, however, is the widespread unattainability of comfortable living across America. There isn’t a single state in the country where the average worker can put in 40 hours and enjoy a comfortable standard of living. Even in North Dakota, workers still need to clock 45 hours. Kansas is probably the best state when accounting for a low cost ($41.7K) combined with a shorter number of hours required (46).

Clearly, the vast majority of wage earners are just getting by, and there’s a lot of ink spilled on addressing these issues. Lots of people need personal loans to plug a financial gap. Some states are trying to legislate higher pay for overtime. Cities are passing minimum wage laws, like Chicago and Denver. Some people like Andrew Yang think every American should have a universal basic income of $1,000 a month.

Do you think any of these efforts will ultimately be successful? What are the biggest reasons why workers can’t enjoy a comfortable standard of living where you live? Let us know in the comments.

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How Much
November 28, 2019

Michael Bloomberg just announced he’s running for President by spending over $31M in TV ads in a single week. That tops the previous record set by President Obama in 2012. Bloomberg already made headlines spending $100M on an anti-Trump ad campaign, making it seem like 2020 is poised to shatter previous campaign finance records. But just how much money does it take to win the White House?

  • U.S. presidential campaign spending exploded with Obama in 2008 ($1.3B Democratic total overall). No other campaign has come close to Obama’s first White House run.
  • Republicans and Democrats raised similar amounts of money until 2008, when Democrats started to pull far ahead of the GOP. Clinton raised almost twice as much as Trump in 2016 and still lost ($621M vs. $364M).
  • Spending more money than the other party doesn’t always guarantee victory. The biggest spenders lost in 1984, 1996 and 2016.
  • Michael Bloomberg has already spent $100M on anti-Trump ads, making 2020 another banner election year for campaign expenditures.

We crunched the numbers for each presidential election going back to 1980 for Republicans (red) and Democrats (blue). The inner circle represents how much money the biggest spender in a given party spent to win the primary and general election. The outside circle represents the candidate’s and party’s total outlay for the entire election. We adjusted the numbers for inflation to represent 2019 dollars, making a true apples-to-apples comparison.

Top 5 Most Expensive Presidential Campaigns of All Time

1. Democrats in 2008: $1.3B (won)
2. Democrats in 2016: $884M (lost)
3. Democrats in 2012: $858M (won)
4. Republicans in 2008: $739M (lost)
5. Republicans in 2016: $708M (won)

Top 5 Candidates Who’ve Spent the Most

1. Obama (2008): $898M (won)
2. Obama (2012): $839M (won)
3. Clinton (2016): $621M (lost)
4. Romney (2012): $536M (lost)
5. Bush (2004): $493M (won)

There are a couple caveats to keep in mind when thinking about the underlying numbers behind our visual. For starters, it’s very difficult to track campaign expenditures across time. Changes in the numbers might actually be due to different campaign finance disclosure requirements. For example, thanks to the Citizens United decision in 2010, politicians can rely on outside groups called Super PACs to run advertisements, even if they technically aren’t supposed to “coordinate” with each other. Campaign operations have also changed significantly over the last few decades, evolving from a focus exclusively on TV and radio to robust online advertisements.

That being said, campaigns are definitely becoming more expensive. No political party surpassed $400B before the 2000 campaign. Nowadays, campaigns from both parties spend roughly 5 times as much money running presidential campaigns than they did in the 1980s. No single race tops 2008, however, where the Democrats shattered all previous campaign finance records and dropped $1.3B.

Another interesting fact about our visual is how spending lots of money isn’t necessarily correlated with ultimately winning. Democrats spent more money than Republicans but lost in 1984 and 2016. Republicans spent more than Democrats and lost in 1996. Even still, Democratic presidential fundraising numbers pulled ahead of Republicans starting with Obama’s 2008 campaign, a trend which will hold steady if current trends continue in 2020. The visualization also demonstrates how when a U.S. President runs for reelection, almost all his party’s money goes towards his campaign. It’s rare to contest a primary for a sitting President. Just ask Mark Sanford.

It’s worth wondering if these numbers are actually anything to worry about. Is a billion dollars really that much money when it comes to deciding who should be President? To keep things in perspective, Americans spent over $1.8B on peanut butter in 2017 alone. Picking a President seems much more serious and rather inexpensive by comparison, even if Trump decides to advertise during the Super Bowl.

Back to Mike Bloomberg. With a net worth of more than $53B, he’s significantly richer than President Trump. Provided that Trump survives impeachment and Bloomberg secures the Democratic nomination, prepare for another record-shattering election season.

Do you think money is bad for politics? How high can campaign expenditures go before they start to become a problem? Let us know in the comments.

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How Much
November 26, 2019

Winter is the season for sleigh rides, chestnuts roasting on an open fire--and lots of holiday shopping. Holiday spending in November and December has seen a dramatic upswing since the 2008 recession. But how does spending for the winter holidays like Christmas stack up against spending for other holidays and events throughout the year? That’s the subject of our latest visualization.

  • The winter holidays are the most expensive time of the year and  63% of Americans feel the pressure to overspend. 
  • In 2018, Americans collectively spent $6.2 billion on Black Friday and $7.9 billion on Cyber Monday alone. 
  • Retail sales in November and December are projected to increase between 3.8 percent and 4.2 percent in 2019, reaching between $727.9 billion and $730.7 billion.
  • Compared to 2018, most major holidays throughout the year saw an increase in spending per consumer in 2019. The exceptions were Halloween (decrease from $86.79 to $86.27) and Independence Day (decrease from $75.35 to $73.33).

The data for this visualization came from the National Retail Federation’s report on retail holiday and seasonal trends, which compiles information about consumer spending for major American holidays and events. Our visualization maps out these holidays on an annual timeline (from January through December), with large pink circles floating above the timeline to represent each holiday. To show consumer spending at the individual level, in each holiday’s circle we included the American consumer’s average planned spending (2019). The size of the circle also correlates to the comparative amount of consumer spending, with larger circles indicating higher average expenditures. To show consumer spending at the aggregate level, each circle is also color-coded with a different shade of pink; the darker the shade, the more consumer spending on the national scale.

Top 10 Events by Average Planned Spending 

1. Winter Holidays: $1,048
2. Back to College: $977
3. Back to School: $697
4. Mother's Day: $196 
5. Valentine's Day: $162
6. Easter: $151
7. Father's Day: $139
8. Graduation: $107
9. Halloween: $86
10. Super Bowl: $81

In general, the winter holidays and back-to-school days see the most consumer spending at both the individual and national levels. Notably, the winter holidays also span the longest time frame, from November 1st to December 31st, while most of the other events and holidays on the timeline last for only one day and tend to have shorter seasons for sales.  

Another major factor contributing to the high amount of spending during the winter holidays is the popularity of Black Friday and Cyber Monday. Contrary to popular belief, Black Friday is bad for business. Profits tend to be fairly low for companies on Black Friday since prices drop significantly, while operating costs (employee pay, etc) increase. In addition, Black Friday is more likely to attract “low-value” customers who only shop at the retailer due to the sale, rather than become a repeat, “high-value” customer. Since Thanksgiving is happening so late this year and the shopping period between Thanksgiving and Christmas will be shorter, it will be interesting to see if sales numbers change from the NRF’s 2019 projections.

Do you notice your spending habits change during the holidays? What’s on your wish list this holiday season? Please let us know in the comments.

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How Much
November 22, 2019

The U.S. has both the highest incarceration rate in the world and more people are in U.S. prisons than any other country. That means that Americans spend a lot of money caring for and maintaining prisoners, but just how much depends on where you live.

  • Louisiana puts more people behind bars on a per capita basis (942 per 100K) than any other state.
  • Alaska spends the most on prisons on a per capita basis ($436).
  • The Northeast has relatively low imprisonment rates. Massachusetts throws the fewest people in jail per capita (150 per 100K).
  • States across the South put people in prison at the highest rates in the country while also spending the least amount of money. Alabama is perhaps the worst in this respect, imprisoning 812 individuals per 100K people but spending only $150 per capita on their maintenance.

We compiled the data behind our map from a few different sources. First, we gathered population estimates from the U.S. Census for 2017. We combined this information with a separate report on the cost of imprisonment and an analysis on the imprisonment rate from the U.S. Justice Department. This let us create a visual showing which states put the most people in prison (the size of the red circles) and how much they spend on prisoners (the shade of blue).

Top 10 States with the Highest Imprisonment Rate (per 100K People)

1. Louisiana: 942
2. Oklahoma: 931
3. Mississippi: 812
4. Arkansas: 781
5. Texas: 746
6. Arizona: 740
7. Missouri: 687
8. Kentucky: 682
9. Georgia: 666
10.Alabama: 626

Top 10 States Spending the Most on Corrections per Capita

1. Alaska: $436
2. California: $370
3. New Mexico: $346
4. Delaware: $337
5. New York: $335
6. Wyoming: $318
7. Maryland: $317
8. Oregon: $316
9. Virginia: $310
10. North Dakota: $300

It’s not surprising that Alaska stands out as the leader in per capita corrections expenses ($436). After all, there’s a baseline amount of money needed to build and maintain prisons, and not very many people live in Alaska to pay the bill. However, California ($370) is by far the most populous state in the country with over 39.5M people calling it home. That means Californians spend a lot of money, substantially more than any other state, on corrections.

There is a clear group of states across the South that spend relatively little on prisons but which imprison a lot of people per capita. These are states colored light blue with large red circles. In short, relatively more people are going to jail in these places than elsewhere, and policymakers spend less money taking care of them. In fact, Lousianna throws more people in jail per capita than anywhere else (942). The top ten states with the highest per capita rate of imprisonment are all in the South. Many of these same states are also among the bottom ten in correction expenses per capita.

There are a lot of consequences to having so many prisoners but spending so little money on their maintenance. Jails become overcrowded and understaffed. A recent civil rights investigation from the U.S. Justice Department found severe problems and gross human rights abuses, and our map no doubt points to part of the problem.

Gallup recently found that most Americans believe crime is a serious problem, despite how both the imprisonment and crime rates are dropping. Is it worth it to spend so much money on prisoners? How can we avoid human rights abuses without raising taxes to pay for prisoners? Let us know your thoughts in the comments.

How Much
November 20, 2019

Income inequality in the U.S. is the highest it has been in decades. Not only has the gap between the richest and poorest Americans grown over the past few years, but recent IRS data shows that the new threshold for reaching the top 1% of earners in the U.S. has grown to more than half a million dollars. To further illustrate the wide disparity in income levels, our new visualization charts the minimum income needed for each income percentile, from the top 50% to the top 0.001%.

  • Currently, the combined wealth of the 1% almost surpasses that of the combined wealth of middle-class Americans.
  • Even after accounting for inflation, the income needed to reach the top 1% of earners increased 7.2% between 2016 and 2017.
  • At the same time, the wealthy have the greatest tax burden. An analysis from Bloomberg shows that the top 1% earned 21% of the country’s income and paid 38.5% of federal income taxes. By contrast, the bottom 90% of earners paid 29.9% of federal income taxes.

This data comes from the Individual Statistical Tables by Tax Rate and Income Percentile released by the IRS. Notably, this data comes from 2017, before the tax overhaul went into effect. The visualization shows a few different metrics that illustrate income inequality in the U.S. Each bar in the graph shows an income percentile, ranging from the bottom 50% to the top 0.001%. The x-axis of the bar graph shows the percentage of the country’s total adjusted gross income that each percentile represents, while the y-axis shows the number of tax returns associated with each income percentile. To show the minimum amount of income required for each percentile, we included these dollar amounts in green circles next to each gray bar in the graph. The circles also grow progressively larger in size to show increasing levels of income.

How Much You Need to Earn For the Top Income Percentiles

1. Top 0.001%: $63,430,119
2. Top 0.01%: $12,899,070
3. Top 0.1%: $2,374,937
4. Top 1%: $515,371
5. Top 5%: $208,053
6. Top 10%: $145,135
7. Top 20%: $97,870
8. Top 30%: $72,268
9. Top 40%: $54,672
10. Top 50%: $41,740

Percent of Total Income Earned by Top Income Percentiles

1. Top 0.001%: 2.34% of total income 
2. Top 0.01%: 5.17% of total income
3. Top 0.1%: 10.52% of total income
4. Top 1%: 21.04% of total income
5. Top 5%: 36.53% of total income
6. Top 10%: 47.74% of total income
7. Top 20%: 63.21% of total income
8. Top 30%: 74.23% of total income
9. Top 40%: 82.47% of total income
10. Top 50%: 88.75% of total income

Some experts say that inflation has been pressing more and more individuals into the lowest end of the income distribution. This is the current breakdown of four-member households that are considered to live in poverty, based on factors such as age, race, location, and educational attainment.

Over the past few years, this rising inequality has spurred the growth of social protests such as Occupy Wall Street, as well as a backlash against the ultra-wealthy. Some politicians have responded to rising income inequality by suggesting new legislation to redistribute wealth. Not surprisingly, these proposals have not been warmly received by the richest individuals. For example, after her proposed wealth tax, Elizabeth Warren faced opposition from many billionaires. Similarly, France tried to implement an ultra-wealthy tax, but it didn’t work out as expected due to billionaires leaving the country and the additional tax revenue being fairly small. Since there is less than a year left until the U.S. presidential election, income inequality will continue to be a hot-button issue.

Did any of these income thresholds surprise you? Are they higher or lower than you expected? Please let us know in the comments.

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How Much
November 18, 2019

How much money is in circulation around the world at any given time? And how would the money supply of each country compare against each other? Our latest map reveals the answers.

  • China has the most money in circulation ($25T), beating out the U.S. ($14T).
  • There are 327M Americans and 1.39B Chinese people. That means the U.S. actually has more money in circulation compared to China on a per capita basis.
  • The European Union collectively has $8.1T in circulation, making it the fourth largest in the world, behind Japan ($8.9T).
  • Countries in South America and Africa have very low supplies of money. Egypt has the most in circulation in all of Africa with only $197B.

Broad money refers to the amount of currency in circulation in a given economy. It includes paper money, funds in a bank account and basically any other financial instrument that you can use to make payments. We plotted the most recent estimates from the CIA’s World Factbook on a map, where one dot equals $10B of broad money. For the sake of simplicity, we grouped every country with less than $100B in a gray category for “other.” This lets you quickly and easily see which ones have the most loot in circulation.

Top 10 Countries With the Most Stock of Broad Money 

1. China: $25T
2. U.S.: $14T
3. Japan: $8.9T
4. Germany: $3.3T
5. U.K.: $3.1T
6. South Korea: $2.2T 
7. India: $2.1T
8. Hong Kong: $1.8T
9. Brazil: $1.8T
10. Italy: $1.7T

There are a few notable takeaways from our visualization. For starters, China has the most money in circulation ($25T), nearly double the amount of the U.S. ($14T). This is notable only for the fact that the U.S. has by far the largest economy in the world with a GDP of $20.5T compared to $13.6T in China, according to the World Bank. Of course, China is home to roughly 1.39B people, whereas the U.S. has a population of 327M, also per World Bank figures. That means there are more than 4 times as many Chinese people as there are Americans, but the country only has twice as much currency floating around.

Europe stands out because there are several nations with over $1T in circulation, including Germany ($3.3T), the U.K. ($3.1T) and Italy ($1.7T). In fact, the European Union boasts $8.1T in total stock of board money, making the EU the fourth largest in the world behind Japan ($8.9T). Of course, that figure includes the U.K., whose EU membership is still undetermined.

Note how Africa is almost entirely missing from our map. Egypt has the largest supply of money in Africa at only $197B. Brazil is the only country in South America topping $1T. We grouped any country with less than $100B in supply together in the “other” category in the top right, leaving lots of the Southern Hemisphere blank.

Regardless of how much money any individual country has in circulation, the U.S. dollar remains the reserve currency of choice around the world. This gives the U.S. a lot of advantages on the global stage. For example, the price of oil is priced in USD. The $14T in U.S. money supply therefore only represents one small part of how critically important the U.S. economy is to the rest of the world.

What do you think is the most important takeaway from our map? Let us know in the comments.

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How Much
November 11, 2019

The United States federal progressive income tax dates back over 100 years, to the Revenue Act of 1913. Back then, the U.S. received most of its tax revenues from tariffs. Many states have followed the federal government’s lead in collecting a progressive state tax income. Today, income tax is one of the many ways that states collect tax revenue, but some wonder whether today’s variety is actually regressive.

  • States collected just over $1 trillion in tax revenues in 2018.
  • The federal debt has grown to $23 trillion, from $13 trillion in 2010.
  • The Treasury is on pace to borrow more than $1 trillion during the current fiscal year. 
  • Democratic presidential candidate Elizabeth Warren has proposed 2% annual tax on wealth over $50 million and a 6% tax on wealth over $1 billion. 
  • Warren claims the wealth tax would raise $3.75 trillion over the next decade, but critics point to economic and constitutional challenges.

Our data is 2018 state tax revenues for all 50 states by category as reported by the United States Census Bureau’s Annual Survey of State Government Tax Collections. Each category and its sub-categories are color-coded and plotted to scale on the viz. 

Top 5 Tax Revenue Sources for State Governments

1. Income taxes: $440.3M (42.7% of total tax revenues)
2. General sales taxes: $317.4M (30.8% of total tax revenues)
3. Selective sales taxes: $165M (16% of total tax revenues)
4. License taxes: $57.4M (5.6% of total tax revenues)
5. Property taxes: $20.1M (1.95% of total tax revenues)

The single largest category of revenue is individual income, followed by general sales. Income taxes paid by corporations fall at a distant fourth. With wages and purchasing power barely budging in years, and a federal debt that has risen to $23 trillion, from $13 trillion in 2010, many are calling for a reconsideration of how the government collects revenue. The Treasury is on pace to borrow more than $1 trillion during the current fiscal year — what sources are available to close the gap?  

A particularly aggressive strategy to drive revenues from the wealthiest individual comes from Democratic presidential candidate Elizabeth Warren, whose proposed wealth tax would set a 2% annual tax on wealth over $50 million and a 6% tax on wealth over $1 billion.

However, even with a Democratic-controlled presidency and Congress, the wealth tax faces a bevy of technical and constitutional challenges, as it’s unclear exactly how total wealth would be measured. Warren claims that her wealth tax can successfully fund providing Medicare for all citizens without raising taxes on the middle class, but billionaire investor Ray Dalio foresees taxes increasing regardless, as mounting debts and liabilities must ultimately be paid

Recently, Microsoft co-founder Bill Gates has voiced concerns about that Warren’s wealth tax would stifle entrepreneurial risk-taking: “You really want the incentive system to be there, and you can go a long way without threatening that,” Gates said. However, Warren has stood her ground on the tax, even offering Gates via Twitter to personally meet and explain how the tax would affect him.

Other potential sources of additional federal tax revenue suggested by presidential candidates include a gas tax and a value added tax.

Do you support the Warren wealth tax plan? Why or why not? What other ways could the federal government close the spending gap? Let's us know in the comments and share with your friends.

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Hard Assets Alliance
November 7, 2019

 

By Brian Maher

 

Hard Assets Alliance was created as a cooperative of investment professionals who believe there's a better way to invest in precious metals. This is a guest perspective on the markets from one of these partners; we hope you enjoy it.

 

Dear Reader,

 

As a bad penny returns to its sender, or a dog returns to its vomit… investors are returning to the stock market.

 

“All in” these gentlemen and ladies are going (or at least the computer algorithms that set market pace).

 

Lance Roberts of Real Investment Advice:

 

With cash levels at the lowest level since 1997 and equity allocations near the highest levels since 1999 and 2007, it suggests investors are now functionally “all in.”

 

You may recall sharply unpleasant events subsequent to 1999 and 2007 — after investors had become “all in.”

 

Now that they are once again marshalling their poker chips… and shoving them out onto table’s center.

 

Will Mr. Market break them once more — or do they possibly play a lucky hand this time?

 

First this question:

 

Why are these gamesters going “all in” now?

 

We believe we have the answer, revealed anon.

 

We first note the stock market has once again scaled the impossible heights…

 

Is a “Melt-up” Back in Play?

 

All three major indexes have recently established fresh records. And so the market has scaled its cliff face of worry.

 

Trade war, impeachment inquiry, a fading global economy, Brexit, the devil and any number of impediments... it has clawed above them all.

 

Affirms analyst Andrew Brenner of National Alliance:

 

Brexit, impeachment, budget deficit, lack of a budget — none of those things are affecting the market at this point.

 

It is — in the parlance of the trade — “risk on.”

 

Our spies even report fresh speculation about a possible “melt-up.”

 

A melt-up is the glorious terminal phase of a bull market, when stocks reach fever heat — before melting down.

 

Melt-ups have preceded some of history's greatest collapses.

 

In the 18 months prior to the Crash of ’29, for example, the stock market nearly doubled.

 

And the Nasdaq rocketed 200% in the 18 months before the dot-com mania peaked in 2000.

 

Why are investors rushing back in now?

 

4 Possible Reasons Stocks Are Rising

 

Several reasons suggest themselves…

 

Reasons 1: The Federal Reserve sliced interest rates last week — the third occasion this year — and for a total of 75 basis points. And as explains Raymond James:

 

Over the last 30 years, when the Fed has implemented an “insurance” rate cut policy of 75 basis points, the equity market has been “lights out” as the S&P 500 has posted a 12-month forward return of about 23%, on average.

 

Reasons 2: Markets are again hopeful the United States and China will come to terms on trade.

 

Commerce Secretary Wilbur Ross announced yesterday the combatants were making excellent progress toward a “phase one” trade accord.

 

A successful resolution would lift tariffs on some $156 billion of Chinese exports, presently scheduled to enter force Dec. 15.

 

Reasons 3: Corporate stock buybacks this year — despite recent slackening — should nonetheless turn in their second-largest year on record.

 

Reasons 4: Stocks as a whole are surpassing earnings estimates.

 

These reasons and more we can cite.

 

But do they haul the full cargo of explanation?

 

We are unconvinced.

 

Look to the Federal Reserve

 

Is the primary reason the stock market once again scales record heights… and that poker chips are piling up on the table’s center…

 

Because the Federal Reserve has been slyly hosing in floods of liquidity?

 

The short-term lending market nearly seized in September as liquidity ran dry.

 

The Federal Reserve’s New York command center therefore grabbed the hoses… and gave the “repo” market a good soaking.

 

A temporary expedient, they labeled it

 

But long experience teaches that nothing can be so permanent as a temporary expedient.

 

Our agents inform us the New York Federal Reserve has emptied in some $250 billion since September.

 

We hazard a healthful portion of that $250 billion has gone to funding speculative activity on Wall Street.

 

And the hoses pump yet.

 

Furthermore, this we have on the Federal Reserve’s own word: these same hoses will pump “at least” through next year’s second quarter.

 

Jerome Powell insists these “open market operations” are not quantitative easing.

 

Apologists claim they are merely plugging a leak within the financial plumbing. And in detail, they may well be correct.

 

But these operations have expanded the Federal Reserve’s balance sheet... precisely as if they were quantitative easing.

 

QE4?

 

The balance sheet expanded over $50 billion last week alone and exceeds $4 trillion.

 

“The Fed can deny that they’re doing quantitative easing,” argues permanent bear Peter Schiff — who styles current operations QE4.

 

He adds: “But they can’t hide the numbers. They can’t hide their balance sheet.”

 

Is QE4, as you style it, even larger than QE3, Mr. Schiff?

 

The Fed is expanding its balance sheet right now at about twice the pace that it was expanding its balance sheet when it was doing QE3. So QE4, whether they admit it or not, is much, much bigger than QE3, and it’s going to continue, and it is going to accelerate.

 

And is QE4 responsible for the latest stock market spree?

 

And that is what is driving the stock market… They’re doing quantitative easing, and they’re going to print as much money as they have to keep the markets going up and to keep the economy propped up.

 

Just so.

 

But stocks are vastly expensive by history’s standards. By some measures today’s valuations rise even above 1929’s and 2008’s.

 

Will today’s lemmings make much money in this stock market — as they go hoofing for the cliff?

 

The odds strike us as… slim.

 

That is because the higher things rise, the further they fall.

 

A Losing Bet

 

Assume today’s obscene valuations. From these heights, history argues the Dow Jones may plunge some 35% next time.

 

Meantime, we understand that options traders are lowering their guard of late.

 

These fine folks take out “call” options in anticipation market gains. They conversely take out “put” options to insure against losses.

 

When the number of calls runs too far ahead of puts, it is evidence the guard is down. And a lowered guard invites a blow.

 

That presently appears to be the case.

 

The last occasion the ratio of calls to puts attained current highs was on Jan. 23, 2018 — immediately prior to a market thumping.

 

We must assume investors presently streaming into the stock market will come ultimately to grief… as they did in 2001… and 2008.

 

When precisely, we do not know.

 

But “experience keeps a dear school,” as Benjamin Franklin affirmed two centuries ago — and “fools will learn in no other.”

 

Regards,

 

Brian Maher

 

Managing editor, The Daily Reckoning

We hope you have enjoyed this article by our guest writer.

 

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