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If we didn't have these bail outs people would be forced to save. But "thanks" to the government we are living in this illusion that we can continue spending when the average American household currently has 5.5x as much debt as they do disposable income. But it's ok, Obama says we're recovering because people are spending MORE! HELLOOO, we have 5.5x as much debt as we do disposable income and he's applauding that we are spending MORE?!?! HAHAHAHAHAHHA, this is why we need common sense economists and financial experts in Washington and not career politicians/lawyers.
I was reading a banks quarterly report today (reported up to March 31, 2010) and their non-performing loans are UP 26% from last quarter. This bank never participated in sub-prime mortgages and these are the loans that they kept on their books (didn't sell to the secondary market) so you know they thought they were the safest loans they wrote.
There have only been two stats that politicians and so called economists keep pointing to in relation to our "recovery." They point to increased GDP. GDP is a function of spending. As of March the average US savings rate is down below 3% (in the 60's and 70's we averaged around 8% savings). As you saw in the article above we are spending more than we take in. Nearly half of ARM mortgages haven't even reset yet (they will reset in 2011 and 2012). By then interest rates will have to be higher than they currently are, which is based on many factors. The second thing they point to is that housing prices are "stabilizing." They are stabilizing because the government is paying banks to keep their bad mortgages on their books so they don't add to the supply of houses. Eventually they will run out of this TARP money and will have to let banks release these houses and put them up for foreclosure. We are currently on pace for more bank closures this year than last. And housing prices are a function of rent, and using this principle housing prices (in general) are still severely overpriced. I could go on and on, but my main point is things aren't getting better. We shouldn't be spending more because we have to pay off our debts before we can spend (so increased GDP, in this situation, is bad even though the government doesn't see it that way). And when we have 5.5x as much debt as we do disposable income, we can't keep putting off paying off our debt because sooner than later we will be forced into individual bankruptcy or forced to quit spending (resulting in a drastic drop in GDP).
I like to compare our current situation to the calm before the tornado. In the midwest we get severe thunderstorms. The first thing that happens is severe rain, hail, wind, etc (this was 2008 and part of 2009). Right before the tornado hits the rain, hail, and wind all stop. It is dead silence (this is our current situation). After the silence....the tornado hits (that is what we're headed toward). After the tornado hits and the destruction is done the skies open up and you see nothing but blue skies. At this time people start rebuilding (that's off in the distant future but something our economy drastically needs). We desperately need to rebuild our economy based on exports not imports. This starts by us first paying off our debts and then saving a substantial amount of money. At that time we can then invest in basic infrastructure companies or companies that export basic goods to other countries. That is the definition of a sound economy (we are currently the exact opposite of that).
I'll second the accolades for that tremendous post by hskrfan2187; another very idiotic part of that 'cash for clunkers' program was that insane 130+ page rulebook which came with it!!!
The fact that automobile dealers had spectacular profits during that program, primarily because hundreds of thousands financially illiterate carbuyers were so fixated on the rebate portion of the program that most of them didn't bother to negotiate a discount from the vehicle's sticker price, as a mesmerizing article in Automobile News pointed out.
This is mostly a result of an extremely high cost of living and low wages in the US.
Not really, without credit driven consumption prices would have to come down. That is to say the mismatch between the cost of living and wages is a direct result of increased utilization of credit.
Not really, without credit driven consumption prices would have to come down. That is to say the mismatch between the cost of living and wages is a direct result of increased utilization of credit.
Indeed. Kill access to credit and your consumer base has no ability to afford goods at the prices offered. Thence prices would have to come down.
This is largely a good thing, the only impact you would see is a visible lowering of standard of living of the median wage earner who currently about makes it or breaks it at the end of the day SOLELY due to the credit infusion to reach the mark. The disappearance of that de facto subsidy upsets the masses as it reminds them how poor they really are for their toil, and it should to a degree; American hyper-productivity expected at work doesn't taste so good when you got jack chit to show for it at the end of the month. Americans are not that different than Greeks, breaking your back to come out short in the abscence of access to credit doesn't motivate the masses to take on more student debt and be obedient (ergo productive). The capital class doesn't care, toss a couple of entitlements their way and keep the playground livable until they figure out their part-time expatriate retirement to Austria.
The american consumer is a stubborn child fighting a losing battle. The 2010s will be lack luster in America. It will be a purging decade for generations to come up on the shadows of the boomer's retirement. It will yield a society where one could afford less excesses, and that will cause resentment and bitterness among the median worker. The rich will be alright, the indigent will still get their entitlements (otherwise the system collapses with insubordination), but the working classes will further split and snarl at each other competing for a fleeting piece of pie. The 20th century economic construct of America is dead.
It's gloom, but not doom really. Expect a social construct a lĂ¡ Brazil/Spain to account for the impoverishing of the median worker and their inability to sustain a boomer lifestyle on jack chit wages, crappy or no retirement vehicles worth a damn (like a 401K), and reduced purchasing power though now in theory at least be financially solvent (zero debt).
I've never been able to get a straight answer from the multiplicity of people I know who spend more than they earn. The closest lowest common denominator I've been able to identify amongst them is their pushing of the idea that "well, I expect to make more tomorrow". When I ask why that would be true they simply say: "that's the way it's supposed to go". Optimism-bias runs rampant in our society. That's what happens when you take career advice from people that came before you....
Top 1% of earners pay ~50% of all taxes but also tend to have rather high savings and investing rates (perhaps something to do with basic financial literacy, self-discipline and work ethic)
Most humans are economic underachievers due to a variety of factors: DNA, values, poor decisions, etc
That said, many extraordinarily profitable, almost uniquely American, industries are arguably built on extracting money from consumers, money that they probably should have spent on basics and/or saved instead, rather than on stuff they really don't need and certainly can't afford....consider industries like housing (Ponzi scheme of cheap mortgages and ever-appreciating houses w/tax-deductible mtgs), junk food, soft drinks, consumer goods (P&G's super-duper toilet paper, etc), sports/entertainment, tourism, fancy branded clothing/sneakers, plastic surgery/botox/Lasik, retailing, etc etc
Such industries often can yield excellent returns to their investors (who may include JoeSixpack via his pension or mutual funds)
Conversely, if everyone were more frugal and significantly decreased such discretionary spending, these arguably junky, often unhealthy, industries would shrink and lose jobs, leaving many low-skill workers (incl most illegal immigrants) unemployable; many of US' most lucrative industries, like tech or finance, require high-skill, quant-oriented workers; even advanced manufacturing work involving automation/robotics, etc requires skills beyond realm of toilet cleaning work of tourism industry
Then, more low-skill workers would need to work for the government: the ultimate employer, offering low-skill workers high pay jobs with full benefits, pensions and full job security...and tax rates would increase further on the few economically productive workers/entrepreneurs to pay for such a sclerotic welfare state
After all, aside from Germany, Europe is utterly irrelevant economically (and lacking any tech or financial innovation or wealth creation); much of population has a low std of living (w/plenty of vacation); and "works" in low-pay, low-skill industries like tourism, government and unionized industries protected from global competition....not particularly different than economies of FL or NV or MI...such variations of communism are ultimately not sustainable
Top 1% of earners pay ~50% of all taxes but also tend to have rather high savings and investing rates (perhaps something to do with basic financial literacy, self-discipline and work ethic)
Most humans are economic underachievers due to a variety of factors: DNA, values, poor decisions, etc
That said, many extraordinarily profitable, almost uniquely American, industries are arguably built on extracting money from consumers, money that they probably should have spent on basics and/or saved instead, rather than on stuff they really don't need and certainly can't afford....consider industries like housing (Ponzi scheme of cheap mortgages and ever-appreciating houses w/tax-deductible mtgs), junk food, soft drinks, consumer goods (P&G's super-duper toilet paper, etc), sports/entertainment, tourism, fancy branded clothing/sneakers, plastic surgery/botox/Lasik, retailing, etc etc
Such industries often can yield excellent returns to their investors (who may include JoeSixpack via his pension or mutual funds)
Conversely, if everyone were more frugal and significantly decreased such discretionary spending, these arguably junky, often unhealthy, industries would shrink and lose jobs, leaving many low-skill workers (incl most illegal immigrants) unemployable; many of US' most lucrative industries, like tech or finance, require high-skill, quant-oriented workers; even advanced manufacturing work involving automation/robotics, etc requires skills beyond realm of toilet cleaning work of tourism industry
Then, more low-skill workers would need to work for the government: the ultimate employer, offering low-skill workers high pay jobs with full benefits, pensions and full job security...and tax rates would increase further on the few economically productive workers/entrepreneurs to pay for such a sclerotic welfare state
After all, aside from Germany, Europe is utterly irrelevant economically (and lacking any tech or financial innovation or wealth creation); much of population has a low std of living (w/plenty of vacation); and "works" in low-pay, low-skill industries like tourism, government and unionized industries protected from global competition....not particularly different than economies of FL or NV or MI...such variations of communism are ultimately not sustainable
So if I understand your assessment of the problem, the productive have two choices. Either spend more than they earn purchasing goods they don't need in the first place to validate the low-skill surplus of labor that exists in society, at his and everybody else's expense, OR have the government do the subsidizing via government payroll, again at the expense of the productive and the masses alike (eventually). Interesting problem. I'm not quite sure I buy the idea that patronizing Charmin ultra toilet paper and buying gimmicky iphones I don't need fares me better than just getting taxed by the government. I have the choice of not patronizing fluff industries, whereas government takes the share of my toil as they see fit. My point is to say I'm not gonna volunteer my own economic hardship, I'll let the government establish the "minimum number of flairs" I need to tote around. As you suggest however, both are unbalanced outcomes. So perhaps this is merely academic. I do see a constant inference to the government labor offering as a "bloated guarantee" on the part of many private workers. This puzzles me in that when times are booming, private workers merely scoff and laugh at the proverbial DMV ticket puncher, but when times are bad the same DMV ticket puncher is all of a sudden deemed lazy and undeserving of his "priviledged" position. That's just envy and barking up the wrong tree.
I don't necessarily agree one could describe the entire government workforce as a sea of low-skill toilet cleaners. The government employs engineers, lawyers, accountants, doctors, scientists, et al. Sometimes the government offers better benefits as perceived by me, the one with the labor skill to trade. So if I were to apply my engineering education tomorrow to put food on the table I'd probably pursue civil service because I deem it a higher value for the trade of my sweat. I value the source of the paycheck and its perceived stability more than the number in the check itself. This is my right as a prole to establish a trade value for my labor. There's nothing inherently immoral about it. Furthermore, it proves not all government work dilutes to cleaning toilets, though your point is noted about the proportions to which government may end up employing the majority of the otherwise unemployable.
This still doesn't quite pin-point a particular reason why the american masses are so inclined to spend more than they earn, as a cultural/personal value. What IS clear is that in the absence of credit, Americans actually make jack chit compared to the overarching cost of living in what most Americans deem a desirable American urban/suburban landscape. In essence, we're insolvent. So, the choices would be to either dial back as a value, creating more unemployment in the short term, though not necessarily a damning construct, as we could shift away from the service economy and back to producing goods for export with the right fiscal and monetary policy. That, or continue living in excess, permanently yoked to a payment we can't increasingly afford, and give ourselves the lowering of standard of living we had coming, now in a more painful and suddent dose. I rather have the former.
Top 1% of earners pay ~50% of all taxes but also tend to have rather high savings and investing rates (perhaps something to do with basic financial literacy, self-discipline and work ethic)
Most humans are economic underachievers due to a variety of factors: DNA, values, poor decisions, etc
That said, many extraordinarily profitable, almost uniquely American, industries are arguably built on extracting money from consumers, money that they probably should have spent on basics and/or saved instead, rather than on stuff they really don't need and certainly can't afford....consider industries like housing (Ponzi scheme of cheap mortgages and ever-appreciating houses w/tax-deductible mtgs), junk food, soft drinks, consumer goods (P&G's super-duper toilet paper, etc), sports/entertainment, tourism, fancy branded clothing/sneakers, plastic surgery/botox/Lasik, retailing, etc etc
Such industries often can yield excellent returns to their investors (who may include JoeSixpack via his pension or mutual funds)
Conversely, if everyone were more frugal and significantly decreased such discretionary spending, these arguably junky, often unhealthy, industries would shrink and lose jobs, leaving many low-skill workers (incl most illegal immigrants) unemployable; many of US' most lucrative industries, like tech or finance, require high-skill, quant-oriented workers; even advanced manufacturing work involving automation/robotics, etc requires skills beyond realm of toilet cleaning work of tourism industry
Then, more low-skill workers would need to work for the government: the ultimate employer, offering low-skill workers high pay jobs with full benefits, pensions and full job security...and tax rates would increase further on the few economically productive workers/entrepreneurs to pay for such a sclerotic welfare state
After all, aside from Germany, Europe is utterly irrelevant economically (and lacking any tech or financial innovation or wealth creation); much of population has a low std of living (w/plenty of vacation); and "works" in low-pay, low-skill industries like tourism, government and unionized industries protected from global competition....not particularly different than economies of FL or NV or MI...such variations of communism are ultimately not sustainable
You fail to address the fact that the declining wealth structure is primarily from most of the countries purchasing being done overseas. Our trade policies are basically killing us. Small business was once the back bone of our economy and has been devastated by the big box stores. The big box stores offer menial jobs and funnel most of our business dollars to foreign countries. It is equivalent to financial cannibalism.
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