Good Times Are Here for Some, But Can They Last?

by Emma Davis
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Submitted by Investment Contrarians as part of our contributors program.

By George Leong

On the surface, America appears to have recovered from the Great Recession. The housing market has seen prices ratchet higher over the past 10 months, creating another cycle of property wealth. The stock market has rewarded investors with strong gains. The S&P 500 is up 21% over the past year. The number of the jobless continues to fall, at least at first glance. But is it all an illusion? For many, it is.

If you are part of the highest five percent of earners and established in the upper middle-class, your future is probably looking pretty good. You have money and disposable income to spend on those extra things such as cars, vacations, restaurants, and clothing. The positive consumer spending and durable goods readings support this. For you, at least, the country is on the mend. But there are underlying issues.

The social cost of the economic recovery is rarely discussed in the mainstream financial media, but there have been real problems generated by the free spending policies of the Federal Reserve and the government that have resulted in massive budget cuts.

After years of excess spending, America is now facing a mountain of debt that is building every day. That’s why we had the sequestration, in which automatic budget cuts came into effect.

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The problem is that the budget cuts?while necessary to control the runaway debt from getting worse for the future generations?is also impacting programs for the less fortunate. And trust me: the number of less fortunate is growing.

The Supplemental Nutrition Assistance Program (better known as SNAP or food stamps) is designed to help those less fortunate Americans. The number of people receiving aid through SNAP has increased from 44.71 million in 2011 to around 47.66 million this year, according to the United States Department of Agriculture. (Source: United States Department of Agriculture web site, last accessed July 10, 2013.)

The chart below shows the number of people receiving aid from SNAP over the past year. It’s obvious that the situation has worsened, and with the budget cuts, it could get even worse.

Chart copyright Lombardi Publishing Corporation, 2013;
Data source: United States Department of Agriculture

In April, the number of people collecting food stamps jumped 2.8% year-over-year. The number of households in SNAP was even worse, rising 3.7% year-over-year.

What’s interesting is that the numbers only represent those who are eligible for help. There are millions more people in America who are poor and living in sub-standard conditions similar to third-world countries, but they are not eligible for SNAP.

So while upper middle-class America appears to be doing fine, the rest of the country is not, and more budget cuts will only hurt them.

There will be a greater demand for government funding for the poor, and that will conflict with the need for budget cuts. It will not be easy and will come down to some difficult choices.

Of course, for those of us who are more fortunate, there will continue to be ample opportunities to make money either from the rising bond yields or opportunities in the stock market?at least in the short term.

Others, however, will continue to be impacted by the budget cuts. And their plight might have an adverse effect on the long-term economic picture.

This article Good Times Are Here for Some, but Can They Last? was originally published at Investment Contrarians

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