Have you ever noticed your children's balloons a week after you got them? Maybe they are the one's you get at the local "super" market. Maybe they are the nice mylar balloon's that crashed in Roswell, NM, and they last for weeks... But, in the end, they end up deflating. Why do they deflate? Well, inevitably, no matter how good the material is, it is porous. The helium is smaller than those pores, but inevitably it will run out of helium and fall to the ground.
It is odd how similar those balloons are to the current state of the economy. The economy was full of helium back in the roaring noughties and most believed the balloon was popped. I agree, there was alot less helium in the balloon in 2009 than there was in 2006, but has the balloon been completely sealed and encased in a non-porous substance?
Today, our economy is more porous than ever. We have reinflated the balloon, but it is losing helium everywhere. Deflation is the biggest factor of all. This all stems from this recent recessionary period that have hit incomes hard. Incomes are the helium that puts the rise in the balloon. In the past, it was known that when you graduated college, you would be more marketable for a higher paying job. Why shouldn't graduates be? They now have encumbered a large amount of debt from getting an education, so economics would tell us that they are worth more. However, in today's economy, jobs are scarce. Every 3-6 months, more and more graduates are being pumped out of the system to compete for jobs that are attracting tons of applicants. Moreover, these other applicants are more qualified with years more experience than those graduates. Thus, we now have another economic problem. Supply and demand of jobs and applicants. With the supply of applicants increasing, and the decrease in the number of actual job openings, it results in an employer's dream - an ability to pay less.
We need to also take into account the recent hit in pensions, 401(k)'s, personal incomes, bonus's, etc that are being cut. This is cutting into, already employed people's dreams of retirement. Simply put, because of the economy, people are staying employed longer because they can't afford to retire - thus, taking up spots that are higher paying that the younger would occupy. This results in less upward mobility and lower pay for all.
So, what does all of this mean? Well, graduates now coming out of college are getting paid less (I have seen some taking $10/hour jobs and they aren't even able to afford their student loans, thus living at home longer, which could potentially lengthen the time that their parents would normally work, thus worsening the whole cycle). With this lower pay, these graduates are going to have less expendible income, and this will cycle through over the next 5-10 years throughout the entire working population. As time goes on, incomes will then lower, as the graduates are more willing to work for less (even if the raise is from $10 to $13, as opposed to what would've been $17 to 20/hr). Couple this with lower ability to spend due to more debt for schooling, we will see expendible incomes drop dramatically causing another shortfall. This shortfall will be seen from tax revenue's to housing. Including the rise in medical costs, the rise in various insurances and the rise in food and energy, this next generation that is being pumped out will have a much worse time than the previous generation.
See: http://lifeinc.todayshow.com/_news/2010/11/30/5545875-more-students-getting-a-load-of-debt-along-with-degree
In summary, the people graduating from 2009 and onward will have a much harder time and if the cycle doesn't change soon, we will be in for more trouble than we think because of this. The up side to this is that large corporate profits will increase due to their lower cost of overhead and it will help the big business get bigger - and thus, personal portfolio's will also increase in value due to the uptick in the markets. However, that is for the portfolio's that actually have money. Unfortunately, it will be harder for small businesses to start up because of this expendible income dilemma and the big businesses and rich will get richer.
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