The Wall Street brainiacs are panicked about sub-prime mortgages and the current stock-market correction. But Main Street investors -- with their plentiful incomes and longer-term stock market horizons -- may ultimately bail them out.
Main Street rescuing Wall Street? It's a compelling thought -- not only for the stock market, but the economy at large.
While Wall Street was busy conjuring up high-yielding bond packages that were heavily invested in unsustainable sub-prime mortgages -- and distributing these collateralized debt obligations to big institutional investors around the world -- Main Street was focused on the real economics of our nation. To this day, the American labor force is going to work, running the millions of small owner-operated companies that provide the wellspring of our prosperity. And Main Street is benefiting from an unprecedented global boom that is stocking our stores with affordable goods and creating plentiful new jobs as U.S. firms service the rise of new export markets.
With a record 146 million men and women working, and the unemployment rate at a historically low 4.6 percent, the American labor force has increased its after-tax real income by a whopping $257 billion. Nominal wages for non-supervisory workers alone have sprouted by $296 billion over the past year, according to Wall Street economist David Malpass. Average compensation per hour has grown 5.2 percent.
According to economist Joe LaVorgna, these high-income trends continue right to the present day. His tracking of employee tax withholding receipts collected daily by the U.S. Treasury shows 6 to 7 percent gains through early August.
All of this suggests that when adjustable rate mortgages are reset in the coming months and years, our large working population has the resources to handle it.
The pattern is the same for American business. After-tax corporate profits have grown $578 billion to $1.1 trillion over the past five years, which is why jobs, the economy, and the stock market have performed so well. Very simply, profitable businesses are creating the jobs that are providing the incomes for families to spend. It's an enduring story: Second-quarter profits for S&P 500 companies increased (SET ITAL) more than twice (END ITAL) what Wall Street expected.
Meanwhile, the Federal Reserve reports that businesses don't even need new loans. Corporate cash flow is so strong that firms are generating $987 billion in funds internally, which is actually more than the $973 billion they are investing in capital goods for new plants, equipment, and office buildings.