Global Analysis from the European Perspective. Preparing for the world of tomorrow

Race and demography play a role

COVID and ethnic differentiation in American society or why the prosperity era in the USA will come to an abrupt end.

The real economy of America and the Wall Street indexes are diverging ever more sharply. In January, we warned our readers about the possible clash and we were right: in the middle of the COVID crisis, share prices were on a downward slide. Well, nobody who analyses economic data would have expected to see the S&P 500, Dow Jones and Nasdaq back at their all-time highs within a few months. We have pointed out before that small, mostly inexperienced investors are responsible for the optimism on the US markets. The big investors like Buffet are sitting on cash and insiders are selling their shares at a level we last saw in 2012.

What makes this rally even more dangerous is the fact that most of the money is actually invested in high-tech; this one-sidedness is evidence that investors wear blinkers and blindly follow the trend in which the big, powerful players in the financial world no longer participate. The trend is not just for the USA, it is global. The belief in IT, the power of Silicon Valley and the whole West Coast of the USA has become absurd, while California’s infrastructure is increasingly endangered year after year with previously unseen fires, while some ethnic groups across the USA are slowly but surely digging a pit of the economy into which they themselves will fall.

Data for the current year confirm that the differences between the various ethnic groups of Americans are widening. Although employment in the richest group (those earning over $60,000 a year) fell by 12% in April, it recovered after a few months to such an extent that the number of workers reached the level before the COVID crisis. So if you took the top earners as the determining factor in the economy, you could see that the US economy recovered and calmly start buying stocks. The middle class looks bleak, though, compared to the upper class. At the beginning of the pandemic, the number of middle class workers fell by 22% and is currently 6% lower than a year ago. What is the situation in the lower class, where the arrivals from Central and South America, Africa and Asia, which are so valuable to US society, make up a majority? Among those earning less than 27,000 dollars a year, 35% were laid off in April; today, the employment level in this group is only 85% from the time before the “pandemic”.

Worse still, employment in this group has not grown for 8 weeks. At the moment about 16% of African-Americans, 14% of Asians and 12% of whites in America are unemployed.1)Labor Force Statistics from the Current Population Survey, U.S. Bureau of Labor Statistics.

Black lives matter. Yellow lives matter. Who will revive the economy? Indians?

Even more important are the savings. The Japanese and the Germans are nations known for their thriftiness. The whole Abenomics, the attempt of Shinzo Abe, who has just resigned from office, to get the Japanese to spend more and thus boost inflation, failed. The dramatic drop in car sales in Germany over the past few months is proof that the German soul is similar to that of the Japanese. Besides: hardly any other nation is as bound to cash as the Germans. Citizens’ savings ensure a healthy middle class in both countries. By the way, it is a pity that these savings are slowly being lost due to the policies of the central banks.

What do savings by race in the US look like? 41% of Latinos and 41% of “African Americans” are no longer able to pay their monthly rent after the COVID crisis. The generation of white baby boomers, on the other hand, who invested their savings wisely and continue to invest them, are still gaining from the COVID crisis, as stock and real estate prices continue to rise. The bonzes are getting even fatter, as 1% of the richest Americans already own 50% of the shares in US companies. For the younger people, whether white, black, yellow or red, the future does not look pink because they have to pay back loans for their studies, house, car, etc. and have virtually no savings to fall back on. So the gap in American society runs along different strata. Divisions affect both races and generations, with educational levels also having a strong influence.

The new American crisis will result from the ethnic, demographic and structural differences. Social tensions will grow in the USA and may intensify after the presidential elections. Please think back to the French Revolution. Remember that although this revolution is said to have brought modern ideas, it did indeed plunge France into chaos and undermined the old, beautiful world of the monarchy, which everyone in Europe had respected.

Is Joe Biden capable of changing this state of affairs in the economy and society at a stroke? Can he restore the American entrepreneurial spirit and Protestant work ethic on which America was built? Or can he only impose new, “revolutionary” ideas?

The stock market is like a sensitive measuring instrument that reacts to future events in the present. Let’s see what happens on Wall Street after the election.

References   [ + ]

1. Labor Force Statistics from the Current Population Survey, U.S. Bureau of Labor Statistics.

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