The economy depends on them, but they’re cracking.
American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up?
Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.
Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.
Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. So this is happening.
Other worries about consumer debt in the US are piling up. The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Mortgage debt is still hanging in there, given the surge in home prices that make defaults unlikely. But of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.
The US economy is fueled by credit. Americans turning themselves into debt slaves makes it tick. Take it away, and what little growth there is – nearly zero in the first quarter – will dissipate into ambient air altogether. So it’s time to take the pulse of our American debt slaves
In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves.
Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt.
Most of them expect to get out of debt before they die, but 14% expect to be in debt “for the rest of their lives.”
This debt adds stress. About 40% said that debt has a “substantial” or “moderate” impact on their financial security; and about as many consider debt a “high” or “moderate” source of anxiety. Given the rising defaults, this is likely to get worse.
And what changes would most positively affect their financial situations? The top two: earning more money (29%) and getting rid of debt (26%). Alas, those two, for many people, are precisely the most elusive factors in the current economy.
But there is a lot of irony in how Americans look at debt. The study asked them what they would do with a $2,000 windfall: 40% said they’d pay down debt. And this is the irony: they’d pay down their maxed out credit cards, but a few months later, their credit cards would be maxed out again, and thus that $2,000 would be consumed. Because the money always has to get spent.
It’s not like consumers don’t know this. According to the study, one quarter of Americans flagged “excessive/frivolous” spending as the financial pitfall they are prone to. And how are these debt slaves keeping the plates spinning? According to the study:
- 35% said they pay as much as they can on each of their debts each month.
- 19% said they pay off debts with the highest interest first and make minimum payments to others.”
- 18% (and 25% of Millennials) said they pay what I can when they can.
- 17% make minimum monthly payments to each creditor.
The study didn’t say how many of them are beginning to fall behind on their debts. But that number is growing, as the soaring net charge-offs at Capital One, Synchrony, and Discover show.
“One of the hardest challenges is resisting the urge to splurge on items that are beyond our budget,” explained Rebekah Barsch, VP of planning, Northwestern Mutual. “While giving into temptation can feel good in the short-term, it often contributes to an ongoing cycle of buy and borrow that can become hard to escape.”
All the more so because buy-and-borrow has become the replacement American dream for a large number of people – with the corollary: if you can borrow more, you can buy more. But these debt slaves are a crucial driver of the economy. Spending money they don’t have on goods and services they cannot afford and may not need keeps the economy from sinking. If they ever started living within their means and paying off debt as they go, the economy would quickly reveal its true colors.
This time, lousy consumer spending and the “weather” were blamed for the hobbling economy, even as inflation rose to the Fed’s target. Read… Economy “Surprises” to Downside, Growth Near Zero
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With 70 percent of us economy driven by consumer spending…
With bubble in rent and real estate along with rising insurance cost and stagnant wages let’s see how much disposable income they have….
… and yet in light of the US Governments ever growing debt .. us having elected a president who’s very business modus operandi is debt ( as well as SNAFU in light of his propensity towards bankruptcy ) .. a corporate structure so overly dependent on debt to the point of ludicrousness .. banks / lenders / CC companies pushing debt like cheap street heroin to the addicted … etc – et al – ad nauseam
Why does any of this surprises anyone ? And in light of the POTUS – Modus-SNAFU … will anyone really be shocked as defaults , bankruptcies and ‘ jingle ‘ mail increases ?
In my opinion the ‘ perfect storm ‘ is brewing .
Donald Trump, billionaire ($3.5) – Forbes:
https://www.forbes.com/billionaires/list/13/#version:static
You might want to dig a little deeper – Reality Check
This is the Biggest Monopoly Game in world.
“Bottom 50% Of Americans No Longer Matter ” http://www.zerohedge.com/news/2017-05-01/economic-reality-bottom-50-americans-no-longer-matter
Those are the ones who have lost.. The ones in debt are still trying to play the game but everything is stacked against them.
Trump is a maximum game player and won the Presidency on his way to winning the Big Game.
For the rest of us, we get our $200 as we pass go but everything just keeps costing more and more.. So people go into debt to try and stay in the game.. that means having food and shelter.. People can’t really stay in the game as the game rules favor those who already own Park Place and Boardwalk.. and St James Place etc…
So the Maximus Game Player, POTUS45, is going to win.. this is not about what is good for the USA.. It is about winning! And he will say and do anything to win… and that means everyone else will lose… And then when there is nothing left to lose, there will be a Revolution. And the game will start over..
Economicminor – Well put, well put. And really, whether I spend my whole $12K a year or not, matters very little because it’s a mere $12k.
I’m fairly certain my snooty older sister spends that on fresh cut flowers for her cats to chew up, a year.
In other words, my whole income barely equates to many peoples’ discretionary income.
As for food and shelter I’m winning that game, but if I lose this place I think my solution will be to rent a small office to use as a base, hopefully in one of the buildings around here that are cool with a person sleeping in there as long as you’re super-neat.
The zinger is, while my spending is “below the radar”, even a very small amount of savings, some tens of thousands of dollars, will go a far way with me.
People think you need a lot of money to become a writer or an artist or a lot of things. … some start-ups take expensive machinery and so on, of course. But what about becoming a fashion designer? What does that take besides maybe a sewing machine? And even for a lot of things, there’s a place called TechShop here, where if you pay a year’s membership in advance, is $150 a month and you have access to all kinds of tools and things.
Also when you are very poor, something called “opportunity cost” goes way down.
Well said.
All this philosophical stuff is merely a detraction from Problem #1 which is grossly inflated prices.
Lets stay on topic.
Ever play Monopoly?
As the game proceeds, fewer and fewer players with more and more properties with ever inflating values and rents.
Difference in our game, the better your connections, the cheaper the money and the less risk.
It is extremely difficult for non connected people to play. Yet, this is our game. You have to play to have a home and food on the table. So most people are forced into debt to keep that roof overhead. All the while those with the inside connections keep aquiring more and the prices just keep going up.
Twist is that the same connected people also benefit from lending out the money to the unconnected people. So they have multiple advantages and few risks. And more and more drop from the game completely.
This might be news to you, since you like to push anti-Trump material wherever you get the chance, but the national debt was a hair below 20 trillion before Trump tool office. The same thing could be said of the existing bubbles, the student loan fiasco, and personal debt. Funny, I did not see one word about “The Great Obama”.
All of the past presidents, including Trump, and unfortunately, including Obama with his upcoming speech to financiers for hundreds of thousands of dollars, clearly are primarily carrying out the will of the rich, and ignoring the interests of the bottom 80% of Americans. As with Goldman Sachs’s protege Hillary Clinton, who should be investigated with a special prosecutor, Trump truly only cares for the rich, while making many promises that are not going to be kept.
Credit card and other debt carries interest rates of 12% to 25% for the majority of Americans. Meanwhile, the financial parasites (banksters) that plague America can borrow from the “Federal” reserve, the private banking cartel that can create money using the credit of the U.S. government (i.e., all Americans) with a name meant to confuse Americans, at below 2%. It would take a true idiot not to be able to make millions in net income when they lend billions at 12% to 25% that they borrow at below 2% per year.
Of course, as to depositors’ funds, they rarely even pay that much. That being said, Trump seems to be on his way to give the bottom 80% of Americans the coup de grace with tax policies that will take from the bottom 80% and explode the total U.S. budget deficit to benefit the rich: he wants to get rid of the estate tax, so spoiled, privileged rich brats can get the money from their corrupt, crony capitalist parents tax free. He wants to reduce the corporate tax, so those same spoiled rich brats do not have to pay any tax. Already, as to foreign income, the rich do not have to pay taxes, until they FORMALLY bring it back to the U.S. (Via investment vehicles money in Ireland, etc., gets into the U.S. anyway.)
Trump wants even those taxes to be forgiven, so that shareholders of Apple and other companies that have made billions exporting U.S. jobs to China by producing products in China (Vietnam, etc.) can formally bring back the profits and have their taxes forgiven. Most U.S. based, legitimate businesses do not get such tax forgiveness. However, even U.S. mega corporations avoid taxation, because they provide their controlling shareholders (and their families) with jobs, cars, legal services from corporate attorneys, housing, etc., and then deduct those expenses from corporate income. Trump seeks to make that taxable corporate income subject to even lower taxes. Truly, Trump represents millionaires and billionaires and has the same contempt for the bottom 80% of Americans, i.e., the working class, as Romney expressed for the bottom 50%.
Mike, do us all a favor and use paragraph breaks (blank line between paragraphs). I inserted three of them here. Long comments are tough to read without paragraph breaks. especially on small screens.
CORRECTION: after reading some reports, George H.W. Bush (senior not George W.), Reagan, Carter, and apparently even Nixon, did reportedly take actions to help the bottom 80% against the top 20%, e.g., incarcerating some of the S&L criminals, despite campaign contributions. Unfortunately, after George H.W. Bush things have gone downhill with presidents. I think that as Simon Johnson (former IMF economist) said, after him financiers “captured” the U.S. government in a “quiet coup.”
The “student loan fiasco” and “personal debt” crisis are all symptoms of the same thing: the transfer of U.S. manufacturing jobs to foreign countries. Hence, U.S. workers earn less and get into debt or remain in debt, with fewer opportunities to earn their ways out of debt. That was done by the ultra rich (often based in the U.S.) and their mega corporations. China bears much blame with their tariffs, financial manipulations, and discrimination against U.S. companies. However, starting with Clinton, and continuing to the present time, the U.S. government just lay down and allowed China and other countries (or rather the rich that invested in China and those other countries) to export to the U.S. without tariff or other barriers, while China, etc., placed tariff or regulatory barriers, unofficial barriers to trade, and other impediments that prevented U.S. corporations from benefiting. We do not have “free” trade: China (and other countries) in which the rich have invested have free trade to ship manipulated, subsidized products to the U.S. to destroy legitimate, U.S.-based companies. U.S. “trade” is restricted, because our U.S. companies are not truly allowed to compete in most foreign countries, unless they produce their products there. Even those that chose to do that, like Apple, see the governments of those countries sponsoring their own foreign-owned companies for local domination of their markets: e.g., the Chinese companies now booming into the smartphone market. Thus, Apple may have given Chinese companies the technology that they will now use to smash Apple and (in the long run) take over the smartphone business. Apple made great, temporary profits from manufacturing in China, but it will ultimately pay the price. Boeing may soon be in a similar position. The rich opened U.S. and EU markets politically to China, Vietnam, Taiwan, etc., so the rich could maximize their profits. However, local control of more and more industries will make the U.S., and much of the EU (except maybe Germany) into the equivalent of developing countries. It is sad that Trump clearly does not intend to keep his repeated promises to seek fair trade from foreign competitors and is cuddling into China’s lap, like a lapdog.
Consumer spending makes up 70% of the GDP.
Excluding vehicles and gasoline, the first quarter could only manage a second straight 0.1% increase. The writing is on the wall. All you have to do is read between the lines.
When you have the five largest companies in the consumer discretionary sector contributing the most to gains being:
Amazon
Home Depot
Disney
Comcast
McDonald’s
Its easy to see where manufacturing is not! The debt slaves have not completely awaken yet. Complacency only comes to light in retrospect. It must be fully broken before it can be recognized. As the great mass of sleep walkers awake, the consequences will be epic.
Consumer spending may be 70% of GDP, but GDP only measures final output (i.e. like the stuff consumers buy). To avoid double-counting, business capital investment and work-in-process are omitted. Add these back in for a gross total, and consumer spending accounts for about 30% of gross total economic activity.
Yea you have to have consumers buying stuff, but you also have to have the right stuff being made with the right productivity level at the right price. Most Americans wouldn’t want to live in a low-capital-spending country (e.g.: Mexico, Greece, Vietnam, Jordan, Egypt) for very long (maybe fun for a short visit).
Capital investment is a big part of the GDP calculation – and one that has been painfully slow in recent years.
At its most boiled-down core, GDP = private consumption + gross investment + government investment + government spending + (exports – imports).
I stand corrected, and apologize to you & OutLookingIn
Your equation is also how I understand it. I hope everybody sees the government parts. That means that if the government decides to purchase anything- military gear, bubble gum, whatever, it adds to GDP. The true value of those purchases are very suspect pieces of the data, in my view.
There are competing measures, e.g. Gross Value Add, Gross Domestic Income etc., that might be better measures of economic activity.
The GDP as it is allows the Keynesian govt stimulus to be figured into various policies, e.g. Fed Govt fiscal, Fed Reserve monetary, etc.
Yes, GDP is a terrible measure of the economy, for those and other reasons (including that it ignores where the spending money is coming from, such as debt).
It suits the “financial economy” to have debt slaves in hock up to their eyeballs. They couldn’t possibly not understand how much the economy depends on consumer spending, yet there’s no sign of this parasite bunch backing off. If it continues they will join the rest of us in losing out ,big time. It has to happen.
On this we are in agreement . Funny thing John . A friend in the NSA told the wife and I that in the government’s eyes at present what with us being cash wealthy – debt free and OWMNB … those like us are now considered to be potential ‘ threats ‘ .. to both the economy and the US as a whole . Now that … is scary … doing the right thing suddenly makes one very wrong here in the eyes of the government .
That is because you are a threat.. I am a threat. We won’t play their game and they can’t win it all if everyone isn’t playing. They have a difficult time controlling people who aren’t in debt and aren’t playing their game.
Even worse in the next big correction, we could end up being not much poorer than most of them, which makes us.
COMPETITORS. They don’t, and can’t, control.
The most hated things by Oligarch’s, and governments employees, above all else
The elite make their living milking the herd that spends every dollar they get their hands on.
Gee, looking at car loans (over $1T), student loans (over $1.4T), and credit cards (over $1T), it sure looks like a lot of what you call “the herd” voluntarily signs up for (lots of) debt. The “elite” don’t have the time to force that many of “the herd” to make that many bad decisions.
Throwing a tantrum & blaming poor individual financial decisions and lack of personal responsibility on the “elite” may make you feel better (who cares) but businesses thrive on giving the market what it demands (within regulatory bounds defined by society). Can you imagine the riots if we passed a law saying irresponsible poor people can no longer have credit?
Your mom & dad’s upbringing plus your own common sense are how you determine what’s best for your financial situation. If you can’t/won’t do that, it’s laughably naive to blame the guy who gave you the credit card for your problem. He’s your banker, not your psychiatrist.
Is the supermarket to blame if you’re fat?
The “wealthy” (those with manageable debt and substantial savings) is a threat because it’s more difficult to control. Not only because you are not playing the game but also because you are free, you are mobile, and you have time to think. People who are free and have time to think are potentially dangerous to the system because they are the ones who are likely to catalyze rebellious movements. They prefer people who has no choice but to work their butt off, accepting the lowest conditions, having no time to ponder on what’s going on and to question the system. The little time they have outside of work should be spent shopping or on Facebook flaunting what they just bought or on Youtube watching others flaunt their material possessions. The makes for a docile bunch. Ironic that in the “land of the free”, many find themselves more chained than ever; chained to their debt and to their material possessions.
“The makes for a docile bunch. Ironic that in the “land of the free”, many find themselves more chained than ever; chained to their debt and to their material possessions.”
Easy rider “jack Nicholson”
“These people claim to be free, but know they are not. They hate anybody who exhibits the freedom they claim to have.”
A lot of people have known this for a long thine.
Only now it a lot starting to come close to many.
When (if they are allowed to) they become very many, something may change.
OWMNB wannabe, as we don’t know where we’d move, don’t want to pay big tax on gains, but don’t want to risk all that fun equity either, and still have good access to healthcare. That is a scenario likely faced by many in the 50+ and 60+ age brackets.
Query: is healthcare portability too destabilizing for the economy in general? People could up and leave on their own terms instead of groveling and getting nickel-and-dimed to death.
The only “threat” I can see is, those who are wealthy and not in debt deciding to bugger off to Switzerland or some other haven. Good old fashioned capital flight.
Point taken, Mr. Richter. Thanks.
Good points. Consumption decreases as more and more of the wealth (and more and more of the income derived from wealth) is accumulating in fewer and fewer hands. That is happening now due to the tax code. As the bottom 80% are more and more in debt, they have no choice but to spend less.
If large corporations do not pay dividends, which many, many do not pay, their shareholders do not get taxed on the dividends. They only get taxed at the lower capital gains rates many years later after the stocks are sold. That means that many of the rich, who have huge amounts of wealth in corporations basically are subject to no tax, except whatever tax (after giving their shareholders cars, vehicles, housing, healthcare, etc.,) they have to pay as corporations.
Trump would reduce that corporate tax rate, so each year (after all of these freebies to the controlling group of shareholders and their toady officers) the corporations would only pay a minimal tax: it would be much less than the majority of 80% of Americans pay. Is that fair? Should the ultra rich be able to evade taxation on most of their income of decades, as they do now?
The elimination of the estate tax would mean that after paying the capital gains tax once, the children of those rich could then continue holding shares and borrow against some, so their income tax payments for their entire lives would be a minimal portion of their increase in their wealth. Creation of a hereditary aristocracy that was mostly immune from taxation is how many states in history ultimately collapsed. As it accumulates wealth, less and less of the real, gross income of the estate becomes subject to taxation: more and more of the burden inevitably falls on the middle class and poor. The result will be a social explosion like the French Revolution, before Napoleon. It was not a pleasant time, for anyone.
– It reminds me of HSBC who took a $ 3.4 billion charge in february 2007. And we all know what happened afterwards.
http://www.nytimes.com/2007/11/15/business/worldbusiness/15bank.html
– Correction: HSBC took a charge of $ 1 billion in february 2007 and increased that amount afterwards.
It is funny that the cheer leaders at the FED get all excited when consumer credit rises, yet they fail to see that creates a void in future demand when the consumer has to throttle down consumption to repay the debt.
If the debt always magically expanded and nobody had to pay it back then part on Garth!
It only creates a void for that consumer. Whomever receives the money from the consumer now has new money that they can use to consume. So it is really just shifting demand between people, not from the future.
Not if the money is newly created debt. The entity that received the money now has a future sale today. Thus forward demand is used .. Do this enough times and all the earned income goes towards past purchases and the current sales just stops. I believe this is what we have happening. Most income is going towards something that was purchased in the past or some mandatory expense that has risen. So there isn’t any more room for new purchasing.
They do have a future sale today. But they also have income today that can be used for their own expenditure that they would not otherwise had. And that will become income for someone else down the road.
I don’t disagree with the idea debt is part of the economic problem. But it is more related to WorldBlee’s comment below. The money isn’t being adequately recirculated.
Exactly.
Thats what we have.
Just like QE, a point comes when the return per QE/Credit dollar, simply isn’t worth printing it.
Japan goes on and tries to throttle back as the other options for them are not tenable, as they got to big to fast..
The FEB has probably avoided that trap. The ECB and china may not be able to.
But the money is not shifting from a consumer to another consumer, it’s shifting from a consumer to a corporation that will not use that money to consume.
Exactly. Much of the money amassed by corporations and the ultra wealthy do no return to the real economy via consumption. It sits somewhere in some fiscal paradise and/or is used to be LENT OUT AGAIN to the consumers; so double-whammy to the consumers. A suckers game.
Debt transfers the wealth from those who work for a living to those who manipulate the system. So more debt is good for the Rentiers, the Owners, PTB.
Well, you just got a real boost to that debt, the national debt…
ONE TRILLION to carry the fat lady to September. That means we will have a TWO TRILLION added debt minimum next year. The sky is the limit when you make the ‘minimum “interest only” payment’.
Where is the outcry? Where? The silent majority must be dead.
It would seem that numbers…in currency terms, has no meaning anymore to and for the general public. ZERO. It is all just numbers. It is NOT money, gold is money, those paper notes are ‘currency’. If you had to pay off your debts in gold, you would wake up fast.
So to whom is all this debt owed? The Rothschild’s? Well, they did lend to governments and ended up having those governments beholding to them. True now too, but who else? Mr.Bufet,? Mr. Zoros? Mr. Elizon? Who?
Indeed, when you owe trillions to a bank, you ‘might’ be in the drivers seat. But when you are a government and owe Trillions, you have your countrymen’s balls in a vise. Someday, that debt will be paid off…paid real assets not paper…paid in national parks, resources, toll roads, privileges, etc. Because this debt can not be paid off in gold, and the lenders won’t take your ‘ In Trust currency’ anymore.
Teach you children well, as the song went.
“But when you are a government and owe Trillions, you have your countrymen’s balls in a vise.”
Not in America, there you have your lenders in a vice.
If you look into it, the US govt can default, keep all its public assets, and the US Dollar can remain basically stable.
As the FED which Issues the currency and will pay on the Currency. Is not part of the Government.
This is why the chinese love the FED and $ cash. They understand this and that Unlike CNY/RMB the $ is not tied completely to the fate of the US Govt.
Thats why the CCP/PBOC what to drive the $ out as a global trade currency. It is one of the few Government divorced currencies in the world.
You cant rule the game, if you cant game the global State divorced currency.
CNY/RMB is still not even 1% of global held government reserves. As most governments and central banker simply aren’t anywhere near as stupid as many claim they are.
US govt Defaults. Oh dear.
FED goes Bankrupt. Watch out at the bottom of the Global sewage treatment plant’s. As that is where everything is going, in a big Hurry.
WOW WOW & WOW
“In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves.”
Revelation 13:17
And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.
When you have that kind of debt YOU WILL jump through hoops to preserve your earthly life.
God told His people to be the head not the tail for
Proverbs 22:7 says:
The rich (head) ruleth over the poor, and the borrower (tail) is servant to the lender.
The main function of the U.S. Military is to protect an economic system that showers well-connected speculators with extreme riches and transforms all others into a workforce of indebted servants.
Rich
Your naivete makes it sound like the US Marines hold a gun to “all others”, forcing them into indentured servitude.
A free society provides opportunity to (almost) everybody. Some know how to manage this to their advantage, and others that don’t can easily get into trouble. However, any politician proposing to restrict these opportunities to “competent” users would quickly get run out of town on a rail.
It’s a matter of personal responsibility…and the old 80/20 is probably in full effect.
Now if you are a full-blooded SJW, and propose to make the successful group pay for the unsuccessful group, socialism was invented for you…I mean, of course, as long as you’re one of the rulers telling everybody else what to do (like chubby Maduro in starving Venezuela).
The truth is some people make stunningly bad decisions even without a gun to their head.
“Your naivete makes it sound like the US Marines hold a gun to “all others”, forcing them into indentured servitude.”
No, that is your misinterpretation of what I wrote. It’s the winner-take-all system of crony klepto-corporatism, that is being protected by the U.S. military-industrial-surveillance-complex, that is forcing Americans, 76% of whom are living from paycheck to paycheck, into indentured servitude. Do you really believe that an economy, in which “World’s eight richest people have same wealth as poorest 50%”, is not a stacked deck, but rather a meritorious system?
https://www.theguardian.com/global-development/2017/jan/16/worlds-eight-richest-people-have-same-wealth-as-poorest-50
“A free society provides opportunity to (almost) everybody.”
Naivete? You throw terms around like “free society” like they mean something, and then call someone else naïve?
“It’s a matter of personal responsibility…and the old 80/20 is probably in full effect.”
Riiiiight, because those kids growing up in the projects, or in rural Alabama, going to terrible public schools with no resources, no jobs, no community… they have the same “opportunity” as the middle or upper class if they just try really, really hard! It’s just a matter of personal responsibility, is all… said nobody who has ever studied poverty and wealth inequality.
“Now if you are a full-blooded SJW, and propose to make the successful group pay for the unsuccessful group, socialism was invented for you…I mean, of course, as long as you’re one of the rulers telling everybody else what to do (like chubby Maduro in starving Venezuela).”
Riiiiight, because the world is black and white, and it’s just the “successful group” paying for the “unsuccessful group.” It’s just “capitalist” or “socialist”, America or Venezuela. Right? There’s no in-between?
Your naivete makes you sound like a well-trained pawn, nary an original thought to be written.
Gee Smingles, I’m crushed.
Most folks would understand “free society” (aka not Venezuela, Russia, China…) without my writing a PhD thesis on it. Just for grins, please give your example of a society larger than 15M that you consider freer than the USA.
re Personal responsibility & schools (which is your strawman – I didn’t mention it; however I agree with you that union-dominated public schools are a problem) – Asians (specifically 1970s-era Vietnamese) seem to have overcome this with spectacular success in CA.
I didn’t get the point of your “nothing in between capitalism & socialism” comment, but I did get the snark. If all you have is ad hominems, you don’t really have an argument.
The system is obviously out of balance. And has been for 20yrs. Starting with NAFTA, then Graham-Leech-Blilly, then China most favored nation status, and finally bankruptcy reform laws of 2004 that gave away all responsability of lenders, and all the risk on lenders. Went from 7yr to 14yr judgements. No wonder it only took a few short years to economic crisis #1. Without major changes crisis #2 is just around the corner. A free market-capitalistic society/economy is based upon many buyers & many sellers. We do not have that now….it is oligarchy-monopoly-corporotacray-globally controlled facade. And has been since the fall of the USSR>
“And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.”
Cash less Society.
It is still supremely true that if I owe the bank $10,000, I have a problem. But if Americans in the aggregate owe the banks trillions of dollars… the banks have a problem. Which, given today’s warped and dishonest political system, means that the government has a problem, which means that the taxpayers have a problem.
Looks awfully much like a deepening, accelerating vortex to me.
Tom
Supremely incorrect.
If you qualify for $10,000 from a bank (congratulations!), you have an opportunity. If you spend wisely, you’ll prosper. If you do not not, NOW YOU HAVE A PROBLEM.
The issue is not the debt, it’s how you use proceeds from the debt. In a free society, this is primarily your choice and your responsibility.
Yea, the political system isn’t perfect (which one is?), but it’s a stretch to blame stupid personal financial decisions on that.
Ah Chip! And need I remind you that in our “free” society, the Law in its majestic impartiality prohibits the rich as well as the poor from sleeping on park benches, begging for bread, panhandling in public places and camping out in alleyways. Thus things continue on to their wonted ends in this best of all worlds………
Jerry Bear
Your point about the law – unequal burden even if evenly applied – agreed.
However that does not justify blaming “elites” because you bought a more expensive car than you could afford when an affordable car was siting right next to it.
‘I’ve got holes in my shoes
And I’m way over due
Downpayment blues
Got myself a steady job
Some responsibility
Can’t even feed my cat
On social security
Hiding from the rent man
Oh it makes me want to cry
Sheriff knocking on my door
Ain’t it funny how the time flies’
I always thought of this song when debating if I should borrow to buy. If you can’t pay for something straight up, you can’t afford it IMO. Some things never change.
or alternatively ;
” I owe .. I owe .. so off to work I go “
It’s even more ridiculous in Thailand. The national debt was doubled the last 10 years. And consumer credit is out of control. The other day, a friend whom I had bailed out with an unsecured loan threatened suicid. (He has a young daughter and a wife). And a good job. Now he allowed the credit card companies to sue him => his complete wages have been garnished (cannot believe this – surely a worker can keep some of it for food & necessities??)
Car loan, motorcycle was seized. He is behind on the mortgage, too. Now a life is tumbling out of control without him even losing his stable job with a Japanese company…
When tenants leave the junk they accumulated behind, I found unpaid cell phone bills for 4-digit amounts. Fools! Why not get some flat rate calling plans? Nope, they run up those bills. So much ignorance and when one’s credit gets taken away, that will be a truly life-changing experience!
While your post is accurate, I am a bit put off by the term “fools”. Instead, I would say their behavior is foolish or irrational. There are articles out there showing how poverty, financial stress, duress, etc. impair rational thinking. I would be thankful that you have means, the wolf is not at the door, and that you can plan better.
I have arguments with my coworkers all the time about why they’d be better off not carrying a credit card balance month to month. Some of them only make the minimum payment and carry $5000 month to month because they think it’s necessary for a good credit score. They definitely don’t understand the cost and more than willingly will run max out credit cards to buy more motorcycles, guitars, fishing poles, guns, you name it. They have way more than they ever regularly use and yet these people complain to me about feeling poor but won’t admit to bad spending habits. I suggest selling some of their accumulated stuff. The horror on their face suggests that’ll never happen. I’d say no, a lot of people really are just fools.
I generally agree but my attitude has softened. I watched an interesting documentary called Century of the Self in which Edward Bernays and others developed and perfected the art of mass marketing and manipulating shoppers. Also have read some behavioral finance articles on the effects of poverty on the brain. Of course Americans all should cut back a bit and step back from the ledge, but I do see better why this is not happening.
Edward Bernays quote which rings so true:
“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in a democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government, which is the true ruling power of our country. We are dominated by a relatively small number of persons (only six companies in the US control the media landscape today), who understand the mental processes and social patterns of the masses. It is they who pull the wires and control the public mind.”
Professional sports is a great example of the control mechanism and manipulation. They get you to support a sports team that has no real personal connection to you. You watch the team every week as though they are your brothers. You know all their names, and they couldn’t tell you from a Donkey’s XXX. They garner all your emotion. You may even buy their overpriced jerseys, hats, and mugs. You’ll make sure over-priced stadiums get built, just like the impressive churches were built in the old days. You pay hundreds or maybe thousands for tickets, to sit with thousands of other strangers with similar needs. Their presence confirms your belonging and self-worth.
They’ve manufactured and exploited the whole thing so you can buy their stuff. What do you get out of it, aside from a meaningless distraction?
I always wonder. If the average American has so much debt, why are there so many shiny big cars in the Costco parking lot? Who is paying for them?
My neighbour has been renting for 13 years. He could’ve have bought the house outright with that money by now, but he obviously doesn’t have the down payment. He and his wife have decent jobs. Where is the money going?
>>”Who is paying for them?”
Answer: debt.
Century of the Self is great viewing. I think it is free on YouTube. Recommended viewing.
Independent Variable
A cursory GOOGLE search on credit scores shows that exceeding (about) 30% of your credit line counts as a negative toward your credit score – EVEN IF BALANCE IS PAID IN FULL EVERY MONTH FOR AS LONG AS YOU’VE HAD THE CARD.
I’m recently retired, have only car & mortgage debt, but travel extensively (charging & paying cards off 100% each month). My credit score was excellent, but not perfect. Turns out I had never increased my credit lines since about 1985, SO I LITERALLY INCREASED MY SCORE TO ABOUT PERFECT JUST BY INCREASING MY CREDIT LINES SO SPENDING NO LONGER EXCEEDEDS 30% PER MONTH.
Don’t believe me? Go have a 15 minute talk with your banker.
I stand corrected. Who am I to judge?!?
Budgeting & saving would be a subject they should teach in schools and at the military. Buying clothes on Ebay, getting that replacement transmsission on Ebay for like 300 € vs 4,500 € from BMW… A lot depends how one spends the money.
Dan, it’s the other way around. Foolish thinking leads to poverty. Many of us came from poverty, but we changed things for ourselves. My family didn’t have much of an income growing up, and I lived on my own with roommates. I shopped at Aldis and did not eat out. Eating out by the way is not a necessity.
I work in a job today where I can save for retirement. But even with this job, people making the same as me do not do the same. Some are up to their eyeballs in debt.
“Dan, it’s the other way around. Foolish thinking leads to poverty. Many of us came from poverty, but we changed things for ourselves.”
And many, many, many, many, many more will never escape poverty. Why? Because they are foolish? Think long and hard about that after you stop patting yourself on the back.
Riiiight! And we should annul all laws punishing heroin dealers. After all , the dealer didn’t hold a gun to the guys head to make him buy the stuff. It is not his fault if the idiot becomes a hopeless addict! The Libertarian approach you guys espouse makes perfect sense to me……
An apt reader comment from ZH that captures the prevailing moral hazard created by the Fed: “Don’t worry, people. The central banks cannot afford to let you down from living the levered lifestyle. They’ll print away your debts. Just hang in there, keep borrowing, and watch more television. Your debt will be diced, sliced, sold, resold, re-resold, and eventually become someone’s retirement investment or collateral for their own leveraged adventure into unbridled debt-gasm.”
” Your debt will be diced, sliced, sold, resold, re-resold, and eventually become someone’s retirement investment or collateral for their own leveraged adventure into unbridled debt-gasm.”
I think I have been able to pretty much understand how economics work but the above is the one I just can’t figure out. Just how do you take a debt and then onsell it to make money has got me scratching my head.
Can anybody please enlighten me but keep it simple…… if a con job can be kept simple :)
The simplest explanation/analogy I can offer is .. think of it as the economics version of the classic ‘ Shell Game ‘
https://en.wikipedia.org/wiki/Shell_game
For the purposes of illustration and simplicity I will approximate numbers. Let’s say you have a 30 year $100K mortgage paying 5%.
Every year the bank expects to get ~ $8K in payments from you, ~$3k in principle and ~$5K in interest. They can sell $3K one year notes, for the first year, paying 1%. This will allow them to get back $3k from the note buyers and pass back to them only $30 of the interest you paid. They could sell more notes, $7K in one year notes and pass thru $7070, and pocket the rest.
This is a good business and they could sell out the entire 30 year income stream that way. But if they sell the entire 30 year income stream in advance and you decide to sell your house or refinance, then they have a big problem. They won’t have the money they expected coming in. If you sell your house in 10 years and they have sold notes beyond that, they won’t have the money to pay the interest.
This is a very simplistic example and in the real world the real examples are so complex that the risk can never be fully calculated.
PETUNIA’S BAAAACK!
aaaaah…. all is well. i was very, very worried.
and i was just reading the comments wishing i’d seen her name as i’ve scrolled ahead before on earlier stories but i stopped…
but you’re BACKETY BACK… you’re BACK!
x
Glad to see you back Petunia. I real voice of reason!
Ricardo
Yea, they sell it to your pension fund. You nominally “own” it but you don’t even know you bought it…let alone how risky it is,
I will preface my comment by saying that I don’t believe in minimum wage or basic income, etc. and that there seems to be abundant evidence that minimum wage laws have contributed to the situation. However…
It seems to me that we have both a spending problem and an income problem. I am early 30s, the time when we are supposed to be hitting our strides financially, and I realized recently that almost all of my friends and family rely on their parents for financial support. Everyone needs help for the big stuff (house, wedding, car, grad school), and some even need parental support for credit card bills, rent, food.
Sure, some of the spending is not strictly “necessary” – e.g. one can elope vs having a wedding. But when I look around at my peers and the NORM is that they can’t afford anything without help from parents and/or the bank, I have to ask if wages are keeping up with standard of living? And that’s definitely no when you look at how much costs have increased for tuition, houses, healthcare, even food and utilities. I did work my way through grad school but it was rough. I don’t think it is possible, for example, to work through college anymore (not just have a job, make enough to support self and pay tuition), so if you don’t have parents to pay tuition, you graduate with debt.
Big picture, I still think we have more of a cost / spending problem (research “cost disease”) than an income problem, but stagnating incomes are not helping. I’ve said this before: I think my generation has been fed the message that it is good and normal to borrow, to have debt.
Questions that bother me:
1. When did we stop questioning why we can’t buy education and housing outright, support ourselves on our incomes? I have heard stories that this was once possible?
2. Why is it normal to be in debt for 30 years for a house? For some, in debt for a lifetime for an education?
3. How can we reverse the idea that debt “supplements” income? Home equity lines of credit commercials drive me crazy!
4. Since incomes are not going to magically double in the next few years, why aren’t we rebelling at the insane cost increases in housing, tuition, healthcare? But what would that rebellion look like? People stop going to college? People stop buying houses? Healthcare seems unavoidable.
Given all of the above, I keep expecting all spending to grind to a halt, but it just keeps going! How much longer?
Max,
I really liked your comment except for the preface on minimum wage rates. Regardless, well said.
I am astounded at the rate of frivilous spending in society. It seems to be the ultimate entitlement, “Treat thyself, for you deserve it. Now”.
However, this concept is not really new:
“The notion was known by the late 16th century, when it was expressed in rhyme by Thomas Tusser in Five Hundreth Pointes of Good Husbandrie, 1573:
A foole & his money,
be soone at debate:
which after with sorow,
repents him to late.
The precise wording of the expression comes just a little later, in Dr. John Bridges’ Defence of the Government of the Church of England, 1587:
If they pay a penie or two pence more for the reddinesse of them..let them looke to that, a foole and his money is soone parted.”
http://www.phrases.org.uk/meanings/a-fool-and-his-money-are-soon-parted.html
The only rebellion available is at the voting booth, which has been captured by Citizen’s United.
Don’t stop voting, though. Everyone’s future depends on it. And don’t stop asking questions. Yours are pertinent and important.
Not sure voting will save the country as we have known and loved it, anymore.
The party in control of both houses of the U.S. Congress and the presidency, has caved on every important economic issue to the minority opposition party, since taking the Senate in the 2014 mid-terms.
“The only rebellion available is at the voting booth, which has been captured by Citizen’s United… Don’t stop voting, though.”
The latter part of that invalidates the former. Statistical proof from the groundbreaking 2014 Princeton University study which got virtually no attention in the US, but plenty overseas:
Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens
Excerpts:
A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. We report on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues.
Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.
In the United States, our findings indicate, the majority does not rule—at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.
…the preferences of economic elites (as measured by our proxy, the preferences of “affluent” citizens) have far more independent impact upon policy change than the preferences of average citizens do. To be sure, this does not mean that ordinary citizens always lose out; they fairly often get the policies they favor, but only because those policies happen also to be preferred by the economically-elite citizens who wield the actual influence.
——-
I’ll elaborate on that last sentence by pointing out that if what YOU want doesn’t alter the hard won status quo flow of trillions of dollars of taxpayer money and new debt accrued on the taxpayers’ tab, the only things the oligarchy is concerned about, you might actually get your way on an issue. Helps to maintain the illusion of voter control you see…
Well, the voters seemed to reject the “mainstream” candidates from both parties in the last election. Who we got in the end is beside the point, but both parties need to rethink their approach. Hope they received the message. I am not holding my breath.
IdahoPotato,
The voters certainly did not reject the mainstream candidates. The voters overwhelmingly put their existing Congressmen and Senators back in power. And Congress has far more power than the President.
Potatohead……. Government is the problem, not the solution. Grossly inflated prices and rigged markets is the other problem. Falling prices to dramatically lower and more affordable levels is the solution.
If we all just vote in the most rightous Ferengi ???
MaxDakota,
There was a relationship between the government, industry and the population that was the result of the Great Depression and WWII. It was a view of government and industry that united both of the moderate wings of the republican and democratic parties. The resulting economy resulted in decent wage growth, low-cost education and low-cost housing.
That system was discarded, beginning in the 1980’s, for what we have today: financialization and neo-liberalism.
If you want to understand the answers to your questions, look at government spending priorities in those older days, tax rates, laws regarding import/export, labor union support, those kinds of things. Those things produce a certain kind of economy. The choices we have made produces a the kind of economy we have today.
This wave of “trickle down” economics is gripping the whole globe and just doesn’t work. Worth a watch.Increase the video speed to 1.25 to cut down viewing time.
https://www.youtube.com/watch?v=Be1Nu1r9D10
“People often misunderstand Adam Smith”
Neo-liberal propaganda has been extremely effective.
The system you speak of is sometimes referred to as the “Keynesian consensus”. It was discarded in the 1980s because by the 1970s it wasn’t working anymore. The law of diminishing marginal returns kicked in; and public debt started to grow faster than the economy itself. 40 years on, we still haven’t figured out how to get out of that cycle.
Max,
I think you are going to see the “Greed is Good” era come to a screeching halt sometime soon. It will be replaced by the “Oh s**t, what did we do?” era.
If I may .. allow me a minor pedantic correction Petunia .
The era of ‘Greed is Good ‘ is already long gone …. having been supplanted and replaced by the theology of ‘ Greed is god ‘ … as espoused by the Gospel of Ayn Rand , Anarcho- Capitalism and the rampant rise of delusional Narcism in its purist form
But yes .. the Piper’s about to demand his due … and when he does … holy ( censored ) will be the town criers announcement across the land
TJ Martin… your compulsion is adorable. but it’s not POLITE to correct someone else’s expression and how they choose to use an ever-evolving english language. lowercase intended. i’m an author who now flings words carelessly against any wall to see which ones stick in this day of reality screams sweat. no and and no commas intended. because on my own in secret i tend to now write in long run on sentences all caps only periods and slash marks so you know when my screams pause so i can catch more air… so YOU can catch more air.
you are missing true reality when you only look for the corrections now. everything’s gone wrong. don’t seek control in slapping anyone’s hands for how they talk speak. it makes you persona non grata and the last one anyone calls at 3am with a gun to their head.
you don’t want that because when the safety of chicago manual of style breaks down… as it is NOW… you need the ones who know how to best holler clearly across the chasm. like yodels.
such new screams make sense. i used to hate texting killing spelling. the only place i respect the queen’s english is in texts because that’s its own rebellion for me who hardly ever texts.
but i also chafe whenever ANYONE silences a woman or doesn’t listen to the meat of what she SAYS. women hardly ever speak up because they’re already critical of themselves, their stomachs, their tits, and won’t speak up.
so for the love of all things beautiful and holy, please step off dear Petunia. i love her being here. talking. sharing what she might ever consider “too much.” nah. never enough.
blessings and much respect to you, TJ. i say that because this medium is brutal for true kindness and intimacy.
x
Change on the horizon? I don’t think so. If you erase the surface personality differences, the Trump era is looking very much like the Reagan era. Big tax breaks for the wealthy, drastic cuts in social programs, gutting of laws that protect the environment, budget increases for the Pentagon, embrace of strongman-style foreign dictators…..
As I said a real voice of reason
i know. i feel like i can sleep soundly with BOTH of my eyes closed when i know Petunia’s still around.
oh, man, Petunia… i will NEVER EVER take you for granted EVER again! you are such an intrinsic part of this SITE’s bearability with all the bad news.
it’s like you and Wolf have done surrealist’s trick with bad cop/good cop. your clutching of rhinestone flip flops to the bitter end is a good counter to Wolf’s ability to love life in San Francisco while documenting the fall of the u.s.a.
it gets a little hard to take. i think that’s why some fall off. i have to take breaks, too. if i’m particularly despairing of the state of the world, James says, “you NEED to take a break off that wolfstreet.”
but he can watch the news while eating dinner, which gives me existential agida, so i don’t listen to him.
besides, Petunia… i’m about to hit you up for some advice. i’ve further honed in on my focus with clothing AND i ended up going to an event in the castro where some guy who knew my books from way back had tried to get me to do something and i said no, but he’d been watching me at the gym dance and go mad grunting and lifting heavy weights…while probably making FUN of me!
because when i met him, he smiled with the embarrassment at having been the butt of a very long joke that turned out to be on him and who he THOUGHT he was and what he thought he wanted from me… he ended up getting MORE.
magic is EVERYWHERE. Petunia’s back!
you’re amazing, Petunia. this site is grey and bleak and too bloody without you.
the rest of you can pretend you didn’t care and weren’t clutching your computers scrolling madly down looking for Petunia’s NAME. i KNOW i’m not the ONLY one who was counting on her foreverness. this computer stuff doesn’t bleed. it fucks our heads up.
don’t leave us again, Miss Petunia. i’ll never treat you badly again!
(smile)
x
KL & TJ,
I enjoy a good discussion and even a good argument, it’s censorship I can’t tolerate. The reality is that money is a political instrument, as well as, a moral one in our society. We assign too much goodness to money and those that have it and too much negativity to those that lack it. I try to keep in mind that I live in a society that described Mother Teresa as a money grubbing midget. It helps me keep my perspective.
Petunia, “We assign too much goodness to money and those that have it and too much negativity to those that lack it. ”
What a wonderful insightful statement!
It isn’t money that’s the problem but the love of money! And to look down upon some for not loving it enough or for being unfortunate should be a sin.
It is a very difficult balance for me to try and save and accumulate enough money and assets to get my wife and I thru our coming old age and yet that accumulation amounts to a form of greed. Is a million enough? $2 million? 3,4,5,6? How much is enough?
This would be an easier analysis if there was some stability in our world but I see rapid change and chaos everywhere I look. Yet for my Karma and my soul I don’t want to be aggressively greedy.. I want to be a moral person. What little I have accumulated would be gone in an instant compared to the numbers of souls that are truly struggling.
I always wonder where the lines are between being a moral person and a hoarder.
“We assign too much goodness to money and those that have it and too much negativity to those that lack it. ”
F. Scott Fitzgerald wrote novels about precisely that belief, and how it drove all of society – at least the society he tried to function in.
MaxDakota, congrats on working your way through grad school!
I paid my way through at the U of MN to earn a Bachelor’s degree, but it wasn’t difficult back in the day, and I feel for students and parents trying to finance their way through University.
Currently, a full year of in-state tuition at the U of MN is $14,142, but when I entered in the fall of 1980, it was $1,150. Talk about inflation, eh?
You want to see inflation in university/grad school tuition?
A little over forty years ago I paid US$525 a year for my undergrad degree and then US$1750 or so a semester for my first grad degree.
Before being taken by another school over the fees for that MBA zoomed up to around US$90,000 or so for the course.
Now they are charged at “only” US$25,000 or so a year. Amazing – it must be the first case of deflation ever for tuition!!!
After moving to Oz I went back to school, wasted my time and money, and got a useless Master’s degreein another field and I sure didn’t pay anything like that for the tuition which I paid in cash.
New rules/fees for university courses here were announced yesterday with the cost of the degrees going up so that a three year degree here will cost about A$20,000.
(Note to you Yanks: people here in Oz are soooooooooo smart that they finish a university degree in only three years, then do what they call an Honours degree for a 4th year if going on to a higher degree, and when that is completed immediately go into a Ph.D. program!!!!)
You can see the cost of the various degrees here:
http://www.theage.com.au/business/federal-budget/eight-per-cent-fee-increase-earlier-repayments-funding-cuts-full-university-package-released-20170501-gvwgi3.html
My local college was about $900 a year in the early-mid 80s. And I fell for the suckers’ game of “Oh, go to jr. college first, to get the lower-level classes out of the way”.
It’s a suckers’ game because in jr. college they don’t seem to be updated on what the 4-year place requires, so you get suckered into taking all kinds of classes you don’t need. Plus the actual support you might need as a poor student isn’t there. If you’re poor, you’re exchanging A’s for support, and in a 4-year, they understand that. Keep on getting A’s and they’ve got your back to a much greater degree.
While I think college was largely a mistake and I’d have been happier learning a trade, if I were to do it again I’d have gone to the 4-year place and borrowed as much as I needed, so I’d have been maybe $20k in debt instead of $10k, but much better able to pay it off.
Dan Romig that’s over a 10X increase. Wow.
Well, Max
I just turned 60 and I can say I hit my stride about 5 years ago. You know why? Because I avoided spending foolishly “all the time”.
I was never able to get student loans because my parents had a smidge over the limit for loan approval. They were not highly educated and didn’t see the point.
So as I made my way through life, I had to save to buy. Every down payment whether for car or house was not easy because that meant no holidays or nice clothes. I made my own clothes.
Then credit started loosening up a tiny bit for ordinary people like me and we were allowed to have $500.00 limits then a year later to $1000.00. If one tried to charge more you were refused at the counter.
And that’s how us old folk have money now. Because we had no access to money before.
60 isn’t old, Annette…Try 61. :-)
Bang on comment. The only debt I have ever had, (and I have also worked my way through post secondary training, University, Grad school etc…plus bought homes and raised a family on a very modest wage), was my very affordable mortgage. And why was it affordable? I had no other debts and bought less than what I could afford at the time. Plus, I paid the houses off asap and then saved/invested the payment in relative safe investment vehicles. At 55 it went into cash and I retired at 57.
I just spent a rainy morning building some furniture in my shop. The new plan is to take a nice walk with my dog after lunch now that the sun is out. Then, I may take a nap before cooking souvlaki for my wife and I.
That, is what having no debt does. Just ask RD.
55 and on your path Paulo. Though, I’ll probably wait to 58. Your day sounds exactly like I hope mine will be in a few years. I have a house, 2 cars, motorcycle, and boat and $0 debt on anything.
Amen.
An Acquaintance of mine is 72, and still holds a regular job.
When quizzed as to why he replied
“I will probably live to be close to 100, My army and state pension don’t go far enough now. What will they buy in 20 years time??”
He is also stuck in the NIRP trap’s.
Annette,
I hit my stride probably about the same time. Kids were out of school and the house and cars were paid for. I was very fortunate to be in real estate during the good years and I never changed my lifestyle. I never went for the insanity. I just squirreled away all the extra money I made. Those were good years but the last few haven’t been bad either. I still have no debt and still have the income from my real estate office and I am still squirreling away money while being generous too.
For me life is good.. Even though I look around and see chaos and change everywhere and I worry about where things are going.
Annette,
I know what you mean by “no access to money”. I’m 55, going on 56 VERY soon. In the early 80′, I wanted to rent a car to go to Quebec City. Called a couple of rental outfits. Everything was fine until I told them I had no credit card. “NO CREDIT CARD? Well you can’t rent a car without a CC”. So, I didn’t get my extended week end in QC City.
I got my first CC in 1987: 500$ limit. One year later, they wouldn’t give me a 1000$. “900$ max”, they said. “Fine”, I said. I managed with that limit until 2004, even though they offered to raise it many times in between. Today I have 10k limit and if I didn’t stop them, they would give me 25k.
Fortunately, I was raised by parents who paid their debts on time and in full every month and took after them.
However, not everyone in my generation grew up the same way. I just have to look at people in my extended family. Several of them with good salaries and benefits struggle with CC debts and can’t seem to find their way out of it. Since most of them are also in my age bracket, I hope all hell won’t break loose and wipe out Federal and Provincial retirement funds before AND after they turn 65.
The answer to your query is can be summed up in three letters: FED
Since when does DILIBERTLY creating inflation become a goal? THE goal of a privately owned Central Bank which is supposed to be a “guardian’ of the health and welfare of a nation…OUR NATION, the United States of America ?
Everyone of your points of curiosity has roots in their claws in this monetary system. “Keep up with the Jones” was the term in years gone by, and now “don’t get left behind” and ” refi so you have more money to spend” in the new crass terms.
In 1973 I had $200. By 1978 I had $35,000 by plain really hard work doing lawn and garden. A house cost was more or less constant. That was what I was saving for…a house…$34,500 total cost. I did NOT need to get a loan to buy a house. But then the FED, Realtors, banks, credit cards sponsors, all got the sent of blood, and Wall Street and Madison Avenue took the ball and ran the consumer into the coral. And there he stays to this day. So I wanted a car, I went into debt and there after sleep was evasive as was peace of mind. I sold it two years later at a loss but…I slept like a baby.
Debt is slavery. No debt is freedom. Debt does not bring happiness. You must trust that saving, even though you get no interest (thanks FED) will pay off in the end.
As for #4: ask the CEO of United Health Care how before Obamacare his salary was a disgraceful million a month and after it became law, it jumped to 250,000 PER DAY in 2014. Why?
UnitedHealth CEO Stephen Hemsley took home $66,125,208 in total compensation in 2016. This equates to over $33 thousand per hour on a 40 hour per week, 50 weeks a year basis.
http://www.startribune.com/unitedhealth-ceo-stephen-hemsley-made-more-than-66-million-in-2014/298924971/
Look up the word neoliberalism. That is the answer to why things are getting worse for those without capital today.
The reason your parents have capital is that they were able to accumulate capital in a time when interest rates were high, money was stable (gold standard), and they were not competing with China, India and Russia. The value of their labor was not diluted by global competition or educated immigrants on tech visas. Oh, and cheap rent and cheap housing because 0% interest rates later sent housing prices to the moon.
http://www.cnn.com/2017/05/01/us/san-diego-shooting/index.html
THis what may happen the class divide widens and people high on debt has nothing to lose…
IN many countries with extreme poverty and extreme riches, the rich people can’t move freely, they always have to be with their private security guard and live in a secured fortress…. lest they get killed/kidnapped by the poor..
That’s the reason, elite in USA have to keep the govt entitlement schemes up and running so that poor have enough ..
…and buy isolated places to retreat in the “end times”.
https://www.bloomberg.com/news/articles/2016-11-02/the-rich-have-found-a-place-to-escape-the-horrors-of-the-world
A minority of us lesser individuals have practiced a comfortably modified, “prepper” lifestyle for years now – in my case, since the Cuban missile crisis.
Will it save us? Who knows. But we certainly have a better chance than someone trying ti get out of a city by automobile (or any other means) as a catastrophe develops.
As if the Millennial’s did not have enough debt already. Fannie Mae making it easier to get a loan when they have student debt.
—————————————–
WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced new policies that will help more borrowers with student debt qualify for a home loan. The new solutions give homeowners the opportunity to pay down student debt with a mortgage refinance, allow borrowers to exclude non-mortgage debt paid by others as part of the loan application process, and make it more likely for borrowers with student debt to qualify for a mortgage loan by allowing lenders to accept student debt payments included on credit reports.
Innovative Solutions for Making Homeownership Affordable for Borrowers with Student Debt
– Student Loan Cash-Out Refinance: Offers homeowners the flexibility to pay off high interest rate student debt while potentially refinancing to a lower mortgage interest rate.
– Debt Paid by Others: Widens borrower eligibility to qualify for a home loan by excluding from the borrower’s debt-to-income ratio non-mortgage debt, such as credit cards, auto loans, and student loans, paid by someone else.
– Student Debt Payment Calculation: Makes it more likely for borrowers with student debt to qualify for a loan by allowing lenders to accept student loan payment information on credit reports.
Is this a creative way for subprime mortgage lending? It makes it tempting for millennials, like me, to spend above what I can afford. Its a recipe for disaster.
‘it’s a recipe for disaster’ …
In SPADES !!!!
I sure hope the millennials don’t buy into the CON !
“Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt.”
Shocking. If I had $37,000 of any kind of debt I would be freaked out. And I can write a check for that without thinking. I can’t imagine how people live day in and day out like that. It must be incredibly stressful.
I think it’s surreal that all the stats are “excluding mortgage debt.” Presumably some (significant) subset of people owe 37k in debt ON TOP of a mortgage.
I did see the news recently that student loans will no longer preclude the borrower from obtaining a mortgage. That’s double crazy. So soon, people might have 5-figure debt on top of mortgage AND student loans?? This is sustainable, how? I think a large chunk of my generation will die in debt.
Only way to prosper and live a good life now is to leverage the system to its fullest.
People who are conservative and savers are stupid and are punished big time by the system.
Exactly…I know of a few people who ran up $15k to $20k of credit card debt in the during the mid-2000s and eventually quit paying the credit card bill. Of course the debt was sold to debt collects for pennies on the dollar. This worked out well for the people I knew as they then negotiated with the debt collects to pay only 40% and 50% of the debt they owed. The debt collectors probably bought the debt for 10% and made some money too.
So essentially they were able to run up $15k – $20k of credit card debt and only pay 8k of it back. They get to keep the Big Screen TV, furniture, and other items they bought with the credit card. In just 5 years they were able to buy a new home using FHA 3.5% down and got a 3.5% mortgage. The debt they defaulted on did not affect them at all in the long run.
Jon, yeah but at least we sleep well at night and pass on good ethics and financial habits to our children.
Oh, how I would love to demonstrate decision after decision, year after year, how a lifelong conservative personal financial policy finds my situation now Not stupid and NOT punished.
Bur I promised Wolf I’d desist posting it again, so you’ll have to look for it in older posts of mine, if you’re interested (and I don’t blame you if you’re not).
There is a not too secret society of Americans who make a conscious decision to live far below their potential standard of living. The goal being to have enough money to not have to depend on anyone else. That might mean living in a trailer for some years, eating Ramen noodles regularly, driving an old car that you maintain yourself.
Most young men can’t do this because it doesn’t make them sexually attractive enough to young women. And the bankers know that. Young men will generally trade their personal liberty for the attention of the fairer sex.
Thank God I’m past that age.
It’s a new paradigm what I wrote..
Think this way… if you are prudent and a saver, your concern is to secure, protect and enhance your assets…
But if you have neck deep in debts… you don’t have to worry… it is the problem of others aka taxpayers to keep you affloat..
This is what I have observed in USA for the last 17 years..
Kent, reconsider.
There are probably just as many women as men who value liberty over debt slavery.
E.g., See Annette’s post, supra
“Young men will generally trade their personal liberty for the attention of the fairer sex.”
And the fairer sex. Will generally trade their personal liberty, for the acceptance of other clan members of the fairer sex.
Not being one of the in-crowd at school, either turns you into monster, or somebody who no longer cares about peer group acceptance.
Not caring about Peer group acceptance, is the first step to individuality, and personal freedom.
Sheeple was probably coined, by one of the outs, watching all the uniformed in’s, bleating in unison, over some sport or politically correct speech.
And its apt, its what the majority go on to become.
At this rate many will be doubling down on the heroin train as well as debt, on their way to Death’s door !
…. and our political, as well as our corp(se)orate finance lairds are more than willing to acquiesce in our young-people’s demise … all for a buck !
MAYDAY!
Two articles now up on zerohedge:
“Manufacturers reported that growth of production and order books have [slowed] markedly since peaking in January… The signs of slowing growth are most evident in the domestic consumer sector…”
“Despite the exuberant hype surrounding Trump’s election, American’s appear to have once again turned to saving – not spending – as the savings rate jumps to 5.9%, the highest since August”.
These are not causation for the malaise of the economy, rather signposts of the deepening underlying systemic sickness.
Debt rolling over to default will be sooooo…deflationary.
Maybe deflationary for asset prices, but not necessarily for consumer prices. Waves of consumer defaults are common. They’re part of the credit cycle. But consumer price deflation in the US is incredibly rare – only a few quarters in my entire lifetime. And those brief episodes were immediately followed and wiped out by pretty steep inflation.
Wolf…bingo on asset deflation….real estate bubble…stock market bubble (margin debt at record high) and a bond bubble…I don’t think I have a concern over consumer deflation….the credit markets may freeze up to the point of no availability of consumer goods to purchase at any price….In 2008 had the Fed not inervened, I believe this exact scenario would have played out….massive deflation until the printing presses went into high gear to produce the asset inflation we have today…
As you have said so many times before we have never seen true Consumer price deflation of everyday goods and services. in our lifetimes
I thought I saw a 7% price deflation in a local laundromat, but a few weeks later it became apparent the chinese owner is trying to sell, and simply want’s to boots sales numbers/door traffic.
New owner will undoubtably increase price back to market median, and immediately loose the extra stolen traffic.
Consumers did not get into a deep debt in the last 100 days.
They have not become slaves overnight.
President Trump is not the enemy of the forgotten men / women.
If you became a slave, he will give you freedom.
Debt jubilation, from the new republican party. That how he SHINE.
President Trump is not the enemy of the media.
He is the media.
After softening their arrogant attitude, he will eat the most wonderful
Chocolate cake with CNN anchormen, will give a huge hug to his
most favorite beloved old lady : the NYTimes.
The stupido academia will never get what is coming.
After all, he is just an apprentice. Everything, all the animosity
will be forgotten. Almost and then flare again…
The republican party is the “freedom party”.
The banks will write off bad some assets. Better than paying hundreds of
billions in fines to the UST.
From fat cow they will become your lovely, friendly & devoted pet.
When things will go south, a lot, first, that what he will do.
Help the forgotten men.
Old Madison bridge that connect the president with the American
people, is full of pot holes and cracks. It’s impassable. It need
repairs. The infrastructure will be allocated to repair this bridge.
When it will be shut down for normal traffic ( congress spending),
and enable only emergency traffic(like defense) to go through, he will use his wall street guys to peak at the holes in the constitution.
He will go to the private market to do some Trump spending, with
some government assets as collateral. Congress will be in repairs
for a while. Have no say. Or dare not to say.
The American people will understand the situation, will thank the president for their long voyage to freedom,,they will have no better choice.
you have no idea the amount of Americans who will now make strategic defaults on their unsecured credit card debt…
the chained dog has been kicked one to many times…
and NOBODY dare even stick a hand in the cage…
the bite comes now…
Several states still have laws that allow you to put 3.5% down on an FHA loan, then hand the house over to the bank if the RE market drops. You only have to risk 3.5% for a chance to get a return that could be 10x that amount in a few years. The bank has no recourse in these states.
I imagine many individuals are and will take advantage of banks in these states, and ultimate taxpayers via government insured loans.
It’s legalized crime.
Wolf,
I would agree that deflation has been transitory at best. However, one might conclude the Fed has already used their bag of tricks at delaying the collapse of excess in 2008.
I do not think the same hat trick work this time because the FEDs, the US Government as well as private citizens balance sheets are over leveraged.
This time might be quite different and much worse.
Sorry folks but you don’t understand the rules of the game. People and businesses get to go BK and start the game all over again. In business they call it DIP financing, It is probably a play on words since the old stockholders and lenders turn out to be the real dips and the new lenders and stock buyers in the new company reap the benefits.
If you need an example, think about the old GM and the new and improved GM. So who are the real DIPS. The guys who don’t know how to play the game. The debt slaves always win because BK just renews their useful lives.
Here is the thing:
It is easier to not spend money when you have money.
It is counterintuitive but if you have savings it is far easier (psychologically) not to buy something. If you are in debt it is easier to buy things (psychologically). Seen it time and again, most recently with my 20 something son. He has now paid off his school debt and has savings. He now actually spends less on almost everything then he did while in school with little income.
James Wordsworth I think you’re onto something.
I was really annoyed by having change left over when I’d go shopping. I finally got to where I was just keeping the quarters, and the dimes, nickels, and pennies I’d put in little bags and when they got full, I’d take ’em with me when I went downtown, the first bum to ask me for a dollar got one of these little bags; $1.50 or so.
But one day I got the bright idea to take a liter tonic water bottle and cut a neat little slot in it big enough for a quarter (and of course anything smaller) and started putting all my change in it, with the idea in mind that I want to see (a) how long it takes to save up a liter of change, and (b) how much a liter of change is worth.
So now it’s a fun game. I like getting change. I’m getting by on very little right now but that change goes right into the liter bottle. The other day I played my trumpet for an hour downtown and got exactly $10, and I was happy that $1 of it was 4 quarters – those went right in the bottle.
So I can easily see how it would work that way with savings. And my having to live on very little for the next month or so to get caught up on my taxes has made me determined to save all I can. Since my main work is only half-time, I really should be able to do something else also, to live off of, and bank what I make in my “main” job.
In Japan they have Five dollar cons.
Change is always a pain in our industry, so it always goes in a drink can.
In six months working in Japan. I would save enough in change, to fund a 3 week holiday/Party in the Philippines.
“look after the pennies, and the pounds, will look after themselves.
“Excluding mortgage debt”
Why exclude the very thing that has created this mess in the first place?
Paying 300% premiums for a depreciating asset like a house is never a good idea but tens of millions did just that over the last 17 years.
Meanwhile, extend-and-pretend goes on in the Eurozone as Greece gets yet another bailout in return for more empty promises of reform. But the alternative – a sovereign default on unplayable debts – would almost certainly be a catalyst for the next Eurozone or even global financial crisis.
http://www.marketwatch.com/story/greece-and-its-creditors-agree-to-bailout-package-2017-05-02
Read the fine print on the deal greece get’s ZERO CAPITAL DEBT RELIEF.
Dippy could get teh vote to get out of the Euro as the greeks didnt want to go back to devalued every day drachma.
So the screws will keep getting turned in greece until the greeks in the street see drachma devalued every week as less pain than the EUR.
Then they will vote accordingly.
Then greece will leave the EUR, collect its german golden handshake, then default on everybody still holding greek debt. This will not include Germany or any german bank’s, or several others who wont have any.
This will not worry the wealthy greeks as they will still have lots of EUR and $ banked outside greece.
The greek people, Not including greek corporates, currently have more money in foreign banks, that the greek state owes.
Greeks have been working the EU and EUR since they joined them.
The EU Deserves it for allowing them to join. It is just punishment to the swell headed Fascist Eurocrats in brussels.
The EU and EUR possibly still have a future. But not under the Socialist fascist who currently run Brussels.
HI Wolf. Living in a large Apartment Complex In Baltimore Co with almost 900 Apartments I see this happening right now. . MGMT raised the rent on my wife and I Apartment almost 100 bucks for a 2 bedroom last year. . They just emailed me a advertisement for anyone who moves in by the middle of the month they get a free hanging plant basket, application fee is waved which is 50 bucks. , Never done that before in the 2 years living here and they are not cheap. 2 bedroom is $1,050 a month. Not including gas or water, electric or cable, Phone. We pay for my wife living 5 minutes away from work and less wear and tear on the car and convenience of having all the shopping we need around the corner. What I have noticed since getting back from our cruise is the vacant apartments in our building and the one across the street and other surrounding us. It seems so many moved out in the almost 2 weeks we where gone and nobody is moving in. We have had a boom in Apartments being built in the area and it has become over saturated. While Hirschfield MGMT has been raising everyone’s rent the surrounding Baltimore area has dropped 9 pct from reading your column. You think they would have caught on. I have made them aware at the office that I know what the price drop is in the area and they can not do this or empty apartments will be a problem. They never listen . They raise it again many will be moving out including my wife and I.
matt,
you may find that your complex is holding out for higher rents as part of their endgame. They attract come renters who might otherwise leave B’more for anywhere else less crime-ridden. How long they may hold out is anyone’s guess. Good luck and keep saving up for the next transition.
My thanks to Wolf Richter for putting up this site, and to all of you who contribute with your comments. You’re a good bunch.
As for this article, I am among those who have always tried to live below their means, got out of debt several years ago, and feel, I think justifiably, a little smug about it.
The term “debt SLAVE” is apt, as is the term “debt FREE”. I am not rich, but I did the work to become free, and it’s a wonderful feeling. My sadness is that most people I know have resigned themselves to being slaves.
But it seems like Visa and Master Card are doing fine in their latest quarter. Can you comment on that?
Visa and MC get their cut from the dollars that flow through the credit card system. They have no credit risk. So they take no losses when people default on their credit card debts. Those risks are with the banks that issue the cards, such as Capital One, Discover, and Synchrony – they have to eat the losses.
Thanks Wolf! So Visa/Master are more like platform, not exactly loan originators. And thanks for all your great articles — I have been reading it for almost 6 months now and greatly appreciate your efforts.
Wow 150 comments. I think you struck a nerve. Great article and thoughtful comments.
Thanks Wolf
“Therefore I must say that, as I hope for mercy, I can have no other notion of all the other governments that I see or know, than that they are a conspiracy of the rich, who, on pretense of managing the public, only pursue their private ends, and devise all the ways and arts they can find out; first, that they may, without danger, preserve all that they have so ill acquired, and then that they may engage the poor to toil and labor for them at as low rates as possible, and oppress them as much as they please.”
Thomas More, Utopia