Friday, November 08, 2013

Economic Update

It shouldn't come as any surprise that we're still heading towards a fiscal cliff, and although I don't use any economic fundamentals in my forecasting method, I'd like to show a couple of charts here just to keep readers thinking about what to expect outside the stock market.

Since late 2008/early 2009, the Labor Force Participation Rate (the fraction of adults employed or looking for work) has been in a dramatic free-fall.  Last month (October 2013), the rate fell below 63% for the first time since 1978.
Labor Force Participation Rate from 1978 to 2013

Meanwhile, the national debt has been accelerating upwards as usual. Today the federal debt is over $17 Trillion, and more importantly the national debt as a faction of Gross Domestic Product (GDP) has passed 100% and is nearing the all-time-high of 120% that was reached at the end of World War II.
Total public debt as a fraction of GDP

Recall that the debt/GDP ratio plummeted after WWII for the simple reason that we stopped borrowing money to build tanks, bombers, aircraft carriers, and supplies for millions of troops.  In 1946 the government stopped issuing new war bonds and began to gradually pay off the war debt.  Today we face the opposite future, with promises of ever more money to growing numbers of receivers of Medicaid, Medicare, Social Security, welfare, unemployment insurance, food stamps, and soon the socialized follow-on to Obamacare.  A shrinking workforce cannot support a growing number of non-working dependents without further increasing the debt, and the debt cannot grow faster than GDP indefinitely.

Look out below.

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