New From Sprott: "The Ongoing Rot In The U.S. Economy"

Fri, Jul 18, 2014 - 11:40am

Hot off the presses, the latest from Sprott Asset Management.

"The Ongoing Rot in The U.S. Economy"

by, Eric Sprott

While most have been conveniently blaming the tepid first quarter -2.9% GDP growth figure on the weather, we believe that it is just another symptom of a much deeper malaise. As we have argued many times before (see, for example, the March 2014 Markets at a Glance), the U.S. economy has been on life support, graciously provided by Central Planners. However hard they try, they will soon realize that no amount of money printing can cleanse the rot of the U.S. economy.

Most tellingly, in a recent interview with Reuters, Bill Simon, Wal-Mart’s Chief Executive Officer for the U.S., said that “We’ve reached a point where it’s not getting any better but it’s not getting any worse – at least for the middle (class) and down.”1

Indeed, if one looks past headline figures, things are not really getting better. As shown in Figure 1, real disposable income per capita in the U.S. has increased only modestly since the Great Recession. However, all of this increase is due to Government Transfers, not from an improvement in the real economy. If we exclude those transfers from the numbers, disposable income per capita is actually lower than it was at the end of 2005 and has been painfully flat since 2011. Also, those numbers assume that the headline Consumer Price Index (CPI) accurately represents people’s purchasing power.

In this Markets at a Glance, we investigate the U.S. consumer and show that for a large portion of the population, things are not anywhere close to being better, in fact they are worse than before the recession.

First of all, there is income inequality. Those in the top 20% have seen their incomes increase while those in the bottom 40% have stagnated or even decreased. Figure 2 shows the average after-tax income of U.S. households by quintiles, as measured by the Bureau of Labor Statistics’ Consumer Expenditure Survey, since 2005. It is hard to see from the chart, but in 2012 for the lowest 20% (Quintile 1) of U.S. households, the average annual after-tax income is $10,171 (up from $9,220 in 2005). Similarly, the next 20% is not much better off, with incomes averaging $27,743 (up from $25,200 in 2005). By contrast, during the same period, the average household income for the top earning quintile (Quintile 5) increased 14% to $158,024. From our calculations, the bottom 40% of the U.S. population receives approximately 12% of the nation’s after-tax income, while the highest 20% receives more than 50%. So, because of the wide disparity between U.S. households, it is grossly misleading to consider aggregate measures to assess the health of the U.S. consumer. (Note: For the rest of this analysis we combine the bottom two quintiles (bottom 40%) as they share common characteristics and it facilitates the discussion.)

In light of these disparities and to facilitate the analysis, we have combined the two bottom quintiles’ (bottom 40% of households) incomes and expenditures for 2005 (pre-crisis) and 2012 (most recent data from the Bureau of Labour Statistics). Data is presented in Figure 3.

The first panel of Figure 3 shows after tax income for the bottom 40% of households in 2005 and 2012, along with a breakdown of some of its components. All figures are in current dollars (i.e. not adjusted for inflation). Not too surprisingly, average after-tax annual household income increased by a meagre 8%, from $17,463 to $18,844. Wages and salaries, which represent about half of income, increased only 4%. Most of the increase has been in the form of government transfers; social security increased 14%, unemployment and veteran benefits 102% and other forms of public assistance 40%. In fact, of the $1,380 increase in average after-tax income, 93% comes from increases in government transfers.

The second and third panels of Figure 3 show average annual expenses in dollars as well as in percent of after tax income. We also show a breakdown of spending for categories that we consider “non-discretionary”, in the sense that they are unavoidable expenses such as food, shelter, utilities, health care and transportation. Perhaps the most striking (but not that surprising) finding from that table is the fact that 40% of U.S. households spend about 40% more than they make (138% and 145% in 2005 and 2012, respectively)! In case you wonder how a household can spend more than it earns, there are many ways such as: borrowing, selling assets, assistance from family, etc. While incomes increased only 8%, total expenses increased 14%, driven by very large increases in shelter (22%) and health care (18%) spending.

Additionally, an ever increasing proportion of people’s after tax income goes towards what we call “non-discretionary spending”. As shown at the bottom of Figure 3, in 2005 those households used to spend 97% of their income for basic necessities, while in 2012 this has increased to 104%.

Five years into this so-called economic recovery, on average 40% of the poorest U.S. households still spend more than they earn (including government transfers) for basic necessities!

We believe that there are two main reasons for this. The first one has to do with income inequality; as we have shown, incomes have been almost constant since 2005, with most of the increase driven by unsustainable governmental assistance. Furthermore, prices for basic necessities, which constitute the entirety of these households’ budgets, have been increasing at a steady pace. Figure 4 shows the reported price over the past 7 years for energy, food commodities and rents against the “Official” Headline Consumer Price Index (CPI).

Over that period, overall price levels, as measured by the CPI, went up 22% (versus 8% for after tax incomes). However, for the same period, rent, energy and food prices increased 26%, 54% and 115%, respectively. No wonder those same households spend 33% of their income on shelter, 21% on food and 14% on utilities and fuels!

How can we have an economic recovery when there is barely any discretionary disposable income for 40% of the population? As we have shown above, those that have seen their incomes grow and not the ones most likely to spend, while the bottom 40% of households still rely heavily on government assistance, have had stagnant incomes and have been faced with increasing inflation for “non-discretionary” goods that constitute a very large share of their incomes.

There is clearly no recovery…


About the Author

turd [at] tfmetalsreport [dot] com ()


thurd aye · Jul 18, 2014 - 11:51am

falseflag/black swan

sod first,

it aint no fun when they murder people like this.Ukies ,no,assist USG yes?russkies,no. discuss. 

Louie · Jul 18, 2014 - 12:12pm

#2, #2, #2!!!!!!

I will refrain from making my normal Turd joke when claiming the #2 spot today. 

In my own observations, the economy is really starting to slow down, and people are starting to change their buying habits because they have fewer resources on hand.

I do a lot in the tourism industry. A couple of years ago, several suppliers would not even talk to us, because hey were completely booked up. This year, those same suppliers are running deep discounts and aggressive marketing campaigns attempting to scoop up customers. I just finished a trip looking at about a dozen hotels. None were operating at full capacity, and this should be their peak season. Never seen this before. In my opinion, I am seeing an economic slow down unlike any I have ever seen.

Happy weekend everyone

question · Jul 18, 2014 - 12:22pm

I Guess Turdville

still exists somewhere behind the Great Wall of Pay where the 20% dwell?

As above, so below.

Pleases ignore whining.

waxybilldupp · Jul 18, 2014 - 12:52pm

As George Bush might say ...

"I'm not much of an expert in this economical stuff, but I think I'd use today to buy a bunch of stocks and get rid of any precious metaloids that I might have. Nice summerish weekend comin' up. What could go wrong?"

wax off

question · Jul 18, 2014 - 1:05pm

I'm sorry that it has to be this way

But for Turdville to exist at all, it must. 

These public forums still exist for those unwilling to shed the whopping 33¢/day. There is no reason why there can't still be a vibrant exchange of ideas on these pages.

SS121 · Jul 18, 2014 - 1:09pm

New King, New Kingdom, Monetary Transition

Right now the USD is the King and the World Fiat Currency System is the kingdom over which it rules.

Silver (and Gold) will be the next King, and their Kingdom will be a free market.

The systemites who work in the shadows of the WFCS are trying to set up their systemite king (SDR?) but they just don't, and won't, have the Monetary horsepower to make it happen.


The media's (apparently very effective) Theater of Distraction and Misinformation is currently running Airplane II.

Don't be distracted or sucked in to their BRICS/SDR/Death of Money/Big Reset misinformation narrative that would have you believe the USD is going to be replaced by the systemite king, and that the WFCS is going to continue on in perpetuity. This effort is already failing... 

The system is already dying as every day more and more people are "THINKING" for themselves and questioning the fundamental legitimacy of all the reports and especially charts that seem to have no connection to reality, or even each other.

...and Silver and Gold are already returning to their Monetary role in the hearts and minds of the people of the world as every day more and more and more people disconnect from the system and turn towards Silver and Gold.

As tipping points are reached, and systemite efforts fail, the world will be making these transitions that most people reading this have already had the good fortune of making.

Only Silver and Gold are Money

buzlightening · Jul 18, 2014 - 1:24pm

Yup and fails to deliver as liquidity gets stuffed,

when all the dollars printed head for USBonzi's. The bonzi's are guaranteed to return principle and you can see from the break below the 2.5 yield on 10's, the recovery meme is blown out of the water, as all will risk principle for a guarantee to get their dollars back. dead head feds of last resort already have stated 29 trillion in buying up global stock markets. It's only 50% of the total the liars state. Get out of your paper asset bubbles folks. If you think you're smarter the the skilled criminals you're kidding yourselves. When the financial iron curtain slams shut, what you have in your 100% possession is it. 

US Treasury Admits Collateral Problem In Bond Market; Considers Issuing Ultra Long-Dated Bonds

Submitted by Tyler Durden on 07/18/2014 - 12:18

We noted yesterday once again that The Fed was out en masse demanding investors sell their bonds because "bonds are in a bubble" but not stocks. The reason - as we have explained in great detail - is the repo market is broken due to massive collateral shortages (thanks to the Fed). Today, the Fed admitted it has a problem...


The bottom line is - The Treasury wants to know why all the dealers are so short bonds (even as it urges 'investors' to sell). Furthermore, it is surveying dealers over the need to issue bonds of greater maturity than 30 years in order to fulfill collateral needs.


Century worthless bonzi's to stuff 401K's; pensions. You do remember 100 year maturity century bonds discussed some years back. Coming to a 401K; pension near you or yours.

ancientmoney · Jul 18, 2014 - 2:29pm

A slow day (again) in PMs . . .

So, lets look again at 9/11, "a burning of the trolls":

"Backing them up, sources at the highest levels of the Russian government acknowledge having a copy of this highly classified report and have supplied key sections that outline an astounding plot involving Israel and rogue American officials at the highest levels of the Bush administration, a report they may well have gotten from Edward Snowden; a report which many very powerful and very very frightened individuals are trying to suppress.

The report tells of the theft of nuclear weapons from American stockpiles, they named names and gave every detail, their story told of rebuilding those weapons, details of design, hard science, hard facts, proven and supported.The story is now clear – stolen American nuclear weapons, reworked in Israel were used to attack the USA on 9/11.

In a series of articles published by Press TV and New Eastern Outlook in Russia, along with Veterans Today, important questions have been answered such as the exacting details of the plot and details of the science.These are some of the biggest intelligence leaks in history, right there in the open for the public to see.

The response in some circles has been tremendous; military, diplomatic and intelligence groups are asking for more and more details and responding to new and more frightening security threats which these leaks have revealed. Other however, particularly the mainstream media, have been boycotting these stories which have been front page in Europe, Russia and the Middle East. Others, let’s call them “bloggers” or “trolls,” have attacked."

ancientmoney · Jul 18, 2014 - 2:38pm

And more from VT on 9/11 . . .

"Chemical analysis done by DOE Sandi was able to identify the chemical/radiation footprint or fingerprint of the warheads based on samples taken after 911 of the fallout at ground zero. (Editor’s note: Nuclear weapon use at ground zero is confirmed from multiple sources)

All plutonium based warheads have a chemical fingerprint that can identify the type of design and where the PU was made and how old it is. This was the 911 blackmail on Bush 1 and 2, the illegal transfer of surplus US nuclear weapons to the Israelis and why the continued cover up, along with the stolen gold and stock fraud that was going on Wall Street etc. According to file ENW57.pdf on page 66. (Editor’s note: Document received and confirmed)

Only a 2 kiloton device was needed to drop the buildings. A 2 kiloton device will produce a fireball of apx 150 to 200 feet in diameter at over 4000 degrees Centigrade. Just large enough to melt the I beams of the central core of the building and drop them in place. The light flash would last less than 1 second and primarily be in the UV light range. Overpressure would only be at 60PSI max and directed upwards with the blast. See underground effect.

Fallout would be minimal and located to within ground zero range only. Radiation would drop to acceptable levels within 72 hrs. after the blast. Most fall out was trapped in the cement dust thus causing all of the recent cancer deaths that we are now seeing in NYC amongst first responders. "

SilverSurfers · Jul 18, 2014 - 3:09pm


9th, for a top tenner.

A break above trend, usually has a retest back down to trend, the support and launch pad on the retouch, for trend reversal. LOOKING GOOD!!!

sp-ROT-t calls it ROT

sierra skier · Jul 18, 2014 - 6:36pm

There is no recovery.

Until we have well paying full time jobs created to replace those being lost there will be no recovery. Consumer spending and real estate are the two basic drivers of our economy. Nobody with part time jobs can afford to buy homes let alone 'consumer spend'.

No good jobs= no home sales/consumer spending = no recovery.

Gold Dog · Jul 18, 2014 - 7:21pm

I am in no position

to really comment on this but will anyway.

It occurs to me that when I was a child there wasn't much in the way of extra money falling off the trees. Steak was a BIG treat, getting a TV was a major event, what was considered a big house then is a starter-plus house now.

We have spent 17 Trillion dollars of borrowed money to, as a society live beyond our means. I have been lucky enough to enjoy all of the extra goodies along the way being at the end of the Baby Boom generation but now it's getting close to the time when the piper must be paid and things may very well return to a time when steak is a BIG treat.

One man's opinion.

Your friend,


Mantis · Jul 18, 2014 - 7:33pm

and in other news if Scotland

and in other news if Scotland becomes independent, the scottish government will ditch the pound, avoid the euro and go on a gold standard! Freedom!!!!

Or in the real world, keep the pound and stay subservient to the same money masters as always. Wtf is the vote actually for ????

Plane shot down in Ukraine, gold shoots up, then retraces back down, same old. sorry tired and probably not coherent, jhust having a rant. cant believe all this stuff happens with the sheep so uncaring and unaware. Ignorance is bliss

Spartacus Rex · Jul 18, 2014 - 7:38pm

@ AU "Galt" Dog

Re: "the piper must be paid"

R U thinking the piper is China, or someone/something else?

And what do you imagine the "payment" will take the form of?

Cheers, S. Rex

Gold Dog · Jul 18, 2014 - 7:53pm

Hi Rex

I will have to respond tomorrow, Mrs Dog says we are late.



Gold Dog · Jul 18, 2014 - 7:54pm


I may treat you to some scotch fueled wisdom in 4 or 5 hours!

Spartacus Rex · Jul 18, 2014 - 7:57pm

AUggie Doggie


BTW What do you have against drinking some good Cognac?


Cheers, S. Rex

Undecided · Jul 18, 2014 - 8:34pm

Same as it ever was.

I have never struggled to make a living. That is easy. (Not an insult to those that can't) It is a funnel. Many people struggle, their struggles are the same but appear to be different. A first grader stuggles to write the letter Aa twenty times and a 12th grader struggles with Calculus. The method of discovery is the same and yet everybody seems to make their struggle the only struggle. It is all about mechanics. The will and the wiln'ts (red neck humour) if you will. Nothing has changed and nothing will change. You could have all the gold and silver in the world but if you don't have (ideas) a clue then you will eventually run out of gold and silver. Money has never been the problem and never will be. Ideas are the currency and if you don't have them you are dead already!

Regulation and obedience to it, is the problem. Thank God for stop signs! I am too stupid to think for myself therefore some f'wad has a job to see to it that it is a bright red octagon that is no more or no less than some footage from the center of the road, and his labored mind has to hire some f'wad from shop class to install it because he is so wore out from all the research from all the f'wads at so government funded intstitution did a study and determined that the average idiot can't stop at an intersection..... (Sorry rant)

There are a million F'wads that think this way. Yours and my rights end at the end of our noses if you want more than that join the land of the dead. There are no guarantees and you are a fool if you think you can insure yourself.

Let your yes be a yes and your no be a no. God help us.

Spartacus Rex · Jul 18, 2014 - 8:43pm

@ Undecided


Cheers, S. Rex

Undecided · Jul 18, 2014 - 8:54pm

Really Spartacus

I feel bad.

Spartacus Rex · Jul 18, 2014 - 9:13pm

@ Undecided

Illegitimi non carborundum (Don't let the bastards grind you down)

Laugh it off and have some fun starving the beast

You will not believe what I purchased with merely one of these today:


What's the Sales Tax on a dime's purchase? LOL

Keep the Faith so the LORD can spot you miles away.smiley

Cheers & Semper Fi, S. Rex

Spartacus Rex · Jul 18, 2014 - 9:26pm

Alasdair Macleod: Monetary discord

By Alasdair Macleod

Posted 18 July 2014

Last Monday’s Daily Telegraph carried an interview with Jaime Caruana, the General Manager of the Bank for International Settlements (the BIS). As General Manger, Caruana is CEO of the central banks’ central bank. In international monetary affairs the heads of all central banks, with the possible exception of Janet Yellen at the Fed, defer to him. And if any one central bank feels the need to obtain the support of all the others, Caruana is the link-man.

His opinion matters and it differs sharply from the line being pushed by the Fed, ECB, BoJ and BoE. But then he is not in the firing line, with an expectant public wanting to live beyond its means and a government addicted to monetary inflation. However, he points out that debt has continued to increase in the developed nations since the Lehman crisis as well as in most emerging economies. Meanwhile the growing sensitivity of all this debt to rises in interest rates is ignored by financial markets, where risk premiums should be rising, but are falling instead.

From someone in his position this is a stark warning. That he would prefer a return to sound money is revealed in his remark about the IMF’s hint that a few years of inflation would reduce the debt burden: “It must be clearly resisted.”

There is no Plan B offered, only recognition that Plan A has failed and that it should be scrapped. Some think this is already being done in the US, with tapering of QE3. But tapering is having little monetary effect, being replaced by the expansion of the Fed’s reverse repo programme. In a reverse repo the Fed gives the banks short-term US Government debt, paid for by drawing down their excess reserves. The USG paper is used as collateral to back credit creation, while the excess reserves are not in public circulation anyway. Therefore money is created out of thin air by the banks, replacing money created out of thin air by the Fed.

Interestingly Caruana dismisses deflation scares by saying that gently falling prices are benign, which places him firmly in the sound money camp. But he doesn’t actually “come out” and admit to being Austrian in his economics, more an acolyte of Knut Wicksell, the Swedish economist, upon whose work on interest rates much of Austrian business cycle theory is based. This is why Caruana’s approach towards credit booms is being increasingly referred to in some circles as the Mises-Hayek-BIS view.

With the knowledge that the BIS is not in thrall to Keynes and the monetarists, we can logically expect that Caruana and his colleagues at the BIS will be placing a greater emphasis on the future role of gold in the monetary system. Given the other as yet unstated conclusion of the Mises-Hayek-BIS view, that paper currencies are in a doom-loop that ends with their own destruction, the BIS is on a course to break from the long-standing policy of preserving the dollar’s credibility by supressing gold.

Caruana is not alone in these thoughts. Even though central bankers in the political firing line only know expansionary monetary policies, it is clear that influential opinion in many quarters is building against them. It is too early to talk of a new monetary regime, but not too early to talk of the current one’s demise.

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Spartacus Rex · Jul 18, 2014 - 9:41pm

Anyone Else Catch Gene's Disaggregated COT Report Today?


Silver, daily

Isn’t outperformance by silver considered very bullish by itself? 

Vik small

“Heck! Less than a 38.2% retrace is a TELL, isn’t it?”

The 30-Minute tick chart gives an idea of the sell volume below. To give a sense of how much horsepower was being thrust at the COMEX market, 30,000 contracts for SI silver futures (the largest 30-minute spike in volume showing on Tuesday - apparently an attempt to annihilate those long silver) ... is equivalent to 150 million ounces, or about $3.1 billion USD.

When silver is being sold by someone at $104.5 million dollars per minute for thirty minutes, and it fetches up at known upper support (the bottom of the green box, actually slightly above it), not even making it to a 38.2% retrace, it's time to raise an eyebrow isn't it? 

20140718 SILVER 30 Min Tick

Our view on silver, for what it's worth, has not changed based on these data. Silver traded this week as strong as an acre of wild garlic.

"Short silver at one's peril." 

Posted by Gene Arensberg tiphatsmiley.gif

Spartacus Rex · Jul 18, 2014 - 10:10pm

Citigroup’s Settlement, Pro and Con 

Wow, it is amazing how Banksters can escape incarceration for Fraud, as long as they have one of these:

Spartacus Rex · Jul 18, 2014 - 10:22pm
Spartacus Rex · Jul 19, 2014 - 12:44am

Mike Maloney: Your Currency Is Stolen Property

Your Currency Is Stolen Property - Mike Maloney
Hammer · Jul 19, 2014 - 9:08pm

Wrong thread

Wrong thread

Hammer · Jul 20, 2014 - 3:06am

Well done kid. I hope it

Well done kid. I hope it makes you money......

With US politics swimming in so much corporate money that it's pretty much an oligarchy, it can be hard to keep track of which particular set of lobbyists is trying to milk more cash out of health care, fossil fuels, and other very important issues from one week to the next.

But thanks to 16-year-old Nick Rubin, keeping track of just how much politicians have sold out has become a lot easier. He created Greenhouse, a new browser plug-in that operates under the motto "Some are red. Some are blue. All are green." The plugin aims "to shine light on a social and industrial disease of today: the undue influence of money in our Congress." It sounds like a bit of a lofty aim for an app, but it's actually pretty simple and effective—it provides a breakdown of a politician’s campaign contributions when that politician's name comes up in an article. It is currently available for Chrome, Firefox, and Safari and is completely free. As you can imagine, reading about how your member of Congress voted in a recent health bill becomes all the more enlightening if you know how much money the health industry showered him in at the last election.

I spoke to Nick Rubin about the plugin, politics, and what he calls the "money stories" behind what you read in the news.

RockerBoxer · Jul 20, 2014 - 3:33am

Yeah okay Sprott, How about

Yeah okay Sprott,

How about the rot in the cariboo gold economy?

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Key Economic Events week of 12/10

12/11 8:30 ET Producer Price Index
12/12 8:30 ET Consumer Price Index
12/13 8:30 ET Import Price Index
12/14 8:30 ET Retail Sales
12/14 9:15 ET Industrial Prod. and Cap. Utilization
12/14 10:00 ET Business Inventories

Key Economic Events week of 11/26

11/27 9:00 ET Case-Schiller home prices
11/27 10:00 ET Consumer Confidence
11/28 8:30 ET Q3 GDP 2nd guess
11/28 10:00 ET New home sales
11/29 8:30 ET Personal Income and Spending
11/29 10:00 ET Pending home sales
11/29 2:00 ET November FOMC minutes

Key Economic Events week of 11/19

11/20 8:30 ET Housing Starts
11/21 8:30 ET Durable Goods
11/21 10:00 ET UMich Sentiment
11/21 10:00 ET LEIII
11/21 10:00 ET Existing Home Sales

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