This Indicator Suggests It Is Time To Worry

How is it possible that real income and wages are declining while the average standard of living and the economic strength of the population is on the rise? It is a bit contradictory right? How is it possible and, importantly, should we be worried?

With those questions in mind, Zerohedge took a long hard look at different economic indicators. What became clear quickly is that the bridge between the rising GDP and declining economy is ‘debt’. While demand has been down because of lower real wages, the economy ‘grew’ because of the debt that is calculated into the GDP of the US. Zerohedge does not find it appropriate to calculate debt into real income and refers to the individual level, as we do not count our debt on top of our income. The reason is that we know that we are going to have to pay that back and with interest.

Adapted Indicator

Looking for a GDP figure that represents real wealth, the website adapted the GDP and the changes in the GDP to changes in debt on both the consumer level as the level of the Federal Reserve. If you do that it appears that the United States has not shown any economic growth since the ’70s, barring a period of 4 years between 1996 and 2000. Even more shocking: the data shows that economic wealth has decreased over the last 6 years.

When people say that the markets are currently overvalued, they often refer to the Buffet-indicator. The result most often is that people state that the markets are lightly overvalued, but that they are still below the levels we saw around the turn of the century. But what does this Buffet-indicator look like when the adapted GDP (without calculating in debt as growth)? Feast your eyes on the chart below…

The adapted indicators suggest that the current market is much more overvalued than in 2000, the complete opposite of what the ‘normal’ Buffett-indicator suggests.This is at least food for thought and something to think about when you hear about another positive indicator that underlines economic growth.