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For some reason the USDA was a little over a week late reporting the August food stamp data (Released this past Friday night). The most current food stamp measurements do not paint a pretty picture. The August numbers show food stamp usage at a record high of 47,102,780. Of this record-setting number, 420,947 participants were added between July and August. This month-to-month increase was the largest jump seen within one year.
In terms of economic indicators, a lot of attention is paid to changes in the unemployment rate . Between assumptions added into the unemployment calculation, such as seasonal adjustments and the fact that those who quit looking for work fall off the count of the unemployed, the unemployment rate is a murky statistic at best. The number of people receiving food stamps is a pretty straight forward measurement.
What is the rate of people on food stamps telling us? It’s demonstrating that an increasing number of people in the U.S. are claiming they are financially unable to provide a basic standard of living. Should you bet on a vibrant economic recovery knowing such information?
The U.S. currently has a population of 314 million people. Of the 314 million, roughly 239 million are adults (approx 76% of the population is over 18). If we divide the number of people on food stamps by the approximate adult population, we get that nearly 20% of the adult U.S. population is receiving food stamps.
As an indicator of future economic health, the count of those receiving food stamps does have some weakness. The number that should have been released at the very end of October or the first of November provided a measurement for August. That means not only is the information historical, it’s 2 months old. In terms of investing, it’s best to have information that is as fresh as possible and forward-looking.
In a sense, the increase/decrease of those receiving food stamps between months does provide a forward-looking gauge. You would expect that those signing up for food stamps would be in a situation where they’re experiencing a personal economic contraction. Assuming a miraculous financial turnaround does not happen in the person’s life, the contraction probably will last a number of months. Therefore, it is reasonable to extrapolate that increases in food stamp rolls will lead to an economic contraction in spending.
Consumer spending accounts for about 70% of U.S. GDP. If the number of people receiving food stamps continues to increase, we will continue to find ourselves in a cycle where a smaller portion of our population has the financial means to aid in the growth of consumer spending. At the same time, the federal government will be increasingly burdened with the need to allocate more funds to support food stamp recipients. More tax dollars will ultimately be needed to support the additional recipients, which results in an additional drag on the prospect of economic growth. This is a vicious cycle.
With the looming uncertainty of the ‘fiscal cliff’ and the news received regarding food stamp recipients, I would recommend proceeding with caution when considering new investment positions.
It pains me to hear people open up and discuss the debt they have incurred. The pain is not the result of angst or anger towards the person, but more a deep felt sorrow for the situation they are in. It’s comparable to seeing an animal stuck in a bog that continuously fights to free itself from the muck. As the animal fights to free itself from the trap it has found itself in, it either retards its own progress, remains stuck in its current state, or can only make very slow strides to stable ground.
Frivolous debt; that debt which cannot be leveraged for tax purposes or is not incurred for the generation of future wealth (e.g. A farmer taking out a loan at the beginning of a season.), represents a form of voluntary enslavement. Selling your ability to make future decisions freely may sound a little preposterous, yet many people every day willingly limit their freedom of choice because of an unquenchable desire to consume.
A troubling message has been echoing for years. It has been told over and over again that the individual consumer in society (U.S.) accounts for approximately 70% of measured GDP activity. This has led to individuals foolishly thinking that their unchecked consumption has a transcending virtue. Not only is their thirst for more stuff and entertainment being temporarily pacified, but they are also spurring the economy. Glory be to the consumer!
Your own fiscal health is primary. Going on a consumption binge in an effort to breathe life into a weak economy is secondary.
Without going into a discussion about limited resources and their economic allocation, consider where our man of consumption stands. Spending beyond one’s means is quite similar to eating beyond ones means. When a person regularly eats beyond their body’s needs, they will gain weight. For a period of time the increased amount of weight will be negligible. Some minor inconveniences may occur, but likely nothing to cause a serious shift in eating habits. Yet, the impact cannot be ignored. Whether it’s mobility, energy, health, or other measures of well-being, the extra weight is a form of baggage that is a hindrance.
Consumption via the use of debt is akin to adding extra body weight as the result of over eating. Debt is analogous to fat that weights a person down when considering future choices. It becomes a force that controls the person. The power of enslavement places the debt as the master and the debtor as the slave.
People incurring frivolous debts are living in a dream that they are soon to realize is a nightmare. The ability to consume today on the debt of tomorrow cannot be expected to exist in perpetuity. Once the line of credit is exhausted, the debt still lives. Do you want to live in a future where you serve yourself or a future where you have enslaved yourself to the debts of your past?