Counterparties: Why the young are falling behind

By Ben Walsh
March 20, 2013

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Things are better, but they’re also still bad. That’s the shorter version of the Fed’s view of the job market: “Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated”.

The economy may be puttering steadily along, but young people are falling behind. Annie Lowrey reports that younger workers are doing worse than one particularly personal gauge of success — their parents. A study by the Urban Institute finds that Americans under 40 have accumulated less wealth than their parents at the same age. As Lowrey points out, “because wealth compounds over long periods of time”, that puts young people at a distinct long-term disadvantage, and also lowers economic expectations. The usual culprits — stagnant wages, the financial crisis, student debt — are to blame. Surveys from Pew and Gallup also highlight the damage the current economy has inflicted on the young.

On the bright side (sort of), younger consumers are less enthusiastic about credit cards than they used to be. Which is fine, because for credit card companies, the feeling is mutual. They’re just not that enthusiastic about extending credit in an idling economy to people with falling wages and shockingly large amounts of student debt.

The numbers here are not completely reliable. The Urban Institute calculates that $42,000 in wealth can be lost if you buy a house when you’re 40 rather than 30. The problem is that this number comes from using data from the “past few decades”. Price appreciation during those few decades, we now know, was an anomaly. But that doesn’t stop comments like this, from a mortgage consultant, about young people’s lack of credit history: “You could say that they’re not going to get mortgages, and that could have dire economic consequences”. On the other hand, if you bought a house in 2007, that too could have had dire consequences. — Ben Walsh

On to today’s links:

EU Mess
Britain’s 2013 budget: Cutting beer taxes, subsidizing shale gas, backing ÂŁ130bn in new mortgages – BBC
Cyprus is asking for a new loan from Russia to avert a financial meltdown - Reuters
Should Cyprus go “full Iceland” and institute capital controls? - Pawel Morski
“Demagogy has emerged as the real winner of Italian elections” - Vox EU

Freddie Mac is suing 15 banks for what it says were fraudulently low Libor rates – Bloomberg

The Fed 
How Bernanke would answer press questions while drunk – Neil Irwin

Truly depressing: States that have cut funding for higher ed since 2008 – Mark Thoma
Children in private school dropped 11% between 2005 and 2012 – Atlantic Cities

Mas Kapital
The world’s largest banks now only need to raise $270 billion in new capital – FT

Cris Retro 
Citigroup is selling synthetic CDOs again, but this time they aren’t really CDOs – Bloomberg

Morgan Stanley is marketing a fund that invests in companies with women on the board – William Alden

MF Doom
JP Morgan has now returned more than $700 million to MF Global clients – WSJ

The SEC is asking hedge funds tough questions about Maroon 5 concerts and plane tickets – WSJ

Apparently, Bill Gross has a multi-million dollar rare stamp collection – Jennifer Alban

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i’ve owned my house for almost 41 years, and even though its still deteriorating, it’s eaten almost every spare dollar i’ve had…

Posted by rjs0 | Report as abusive

I’ve owned my house for just 12 years, the mortgage is paid off, and the taxes+insurance cost me less than a quarter of what it would cost to rent a dingy 2BR apartment.

Delaying a home purchase often saves money, however, because people typically rent cheaper properties than they own.

Posted by TFF | Report as abusive

One of the reasons why this generation of 40 year olds has less wealth at the same age than their parents is because many of their parents told them: “You won’t need to worry about money, I’ve got lots.” I have heard this reason first hand many, many times when talking to clients about the benefits of pensions, savings or investments. Compared to the grandparents’ generation, the parents DID have a lot, and maybe this coloured what they said to their children; however, it still isn’t enough to support two generations of retirees.

And then there’s the consumer credit problem; which Western economy does NOT have high levels of personal debt? OK, maybe Switzerland, but I was thinking of countries with more than 40 million population. Of those, most are too indebted due to having bought too many latest TVs and other consumer goods, often many times over as fashions change.

And who makes consumer goods? China. That’s where all the jobs have gone to that young people of previous generations took for granted. Jobs where there are most vacancies in the West are now very often in farming, picking vegetables. The highly educated Westerners refuse such menial work their parents would have been happy to do and so employers bring in immigrants.

If you look at why Governments don’t do anything about this, it’s because they’ve become addicted to bribing the electorate with tax breaks that should be used to pay down debt, and cheap credit to import more stuff. As more stuff is imported, the currency weakens, which hits profits and savings.

The people who benefit most from this warped version of Capitalism are the rich, the Executive Class, and the Chinese. The 99% are getting poorer, and their jobs are being exported to urbanising Chinese peasants, while the only jobs available in many places are those that Chinese peasants used to do in China: picking vegetables.

Ironic, isn’t it?

Posted by FifthDecade | Report as abusive

I think the cost of college certainly factors into the equation. College tuition has massively outpaced inflation, and these days there are not enough jobs to keep all the college graduates employed either.

I’d wager that the average 25-year-old has much more debt than 25-year-olds did one or two generations ago.

Posted by mfw13 | Report as abusive