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alstry (35.88)

America Going Broke!!!

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March 08, 2008 – Comments (2)

"The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise."

http://www.nytimes.com/2008/03/08/business/08recession.html?_r=1&oref=slogin

However, we know that Americans owe more than ever with interest taking a bigger and bigger portion of many families paychecks.  Especially those that traded up to bigger homes or took out home equity loans.

In addition, since 1999, the cost of many major expense have doubled, or even tripled.  For example, the amount of money many families spend on health insurance has tripled since 1999(factoring premium contribution and higher copays).  The cost of fuel(gasoline and heating) has doubled and continues to rise.  Property taxes have doubled or more for many.  Homeowners insurance has skyrocketed  in some parts  of the country.  Now food is climbing into the stratosphere for anyone who has been to the grocery store lately.

Simply speaking Interest, Taxes, Insurance, Food and Fuel expenses have doubled or tripled since 1999 but wages have actually DECREASED for many families.  For a number of years, borrowing money was the bridge crossing the divide between having enough money to make ends meet and not having money.  Now that money is being cut off to the masses, people are beginning to realize that the ship they are sailing is leaking, and leaking fast.

What many don't realize, as Americans, we are all sailing on that ship.  When most Americans can't make ends meet, the ENTIRE economy is affected.  To compound matters, our governments spent trillions of dollars on various wasteful projects and additional trillions was spent prosecuting foreign entanglements depleting the financial resources of our country.

As people and a nation, we have borrowed and/or spent down much of our wealth in the past eight years and don't have much to show for it.  Production and jobs have been shipped overseas and we converted Amercia into a consumer based service economy.  Jobs opportunities exploded in real estate sales, mortgage finance, retail sales, restaurant work, and construction.  In addition, health care exploded as insurance premiums doubled.  Now we have lots of people to help people and not as many making things to sell to others.  Even a lot of high paying service jobs(software, radiology, and engineering) are currently relocating overseas.

Surveying the situation, we have a lot more shopping centers, a lot more SUVs, and a lot more granite countertops, unfortunately they are fewer and fewer who can afford take advantage of such wonderful infastructure. 

Now the banks are telling us the trillions of loans on their books are defaulting and are really not worth the trillions they thought.  As a result, banks are constricting offering money to people, business, and government.  Spending is cutting way back, government budgets are being slashed, businesses are closing, and asset values are crashing.

The asset price declines have really started to accellerate in the past few months.  http://www.voiceofsandiego.com/toscano/  As money continues to evaporate, expect the rate of asset value implosion to increase further.  As assets decline, the wealth of our nation is evaporating.  As our wealth evaporates, our ability to spend  decreases further growing into an ever increasing negative feedback loop.

We are just at the BEGINNING of the credit contraction.  If first started with subprime a year ago.  Expanded into Alt A and private equity lending.  Then it spread to commercial real estate lending as it flowed into consumer revolver lending such as credit cards and home equity loans.  Recently, the data shows that prime loans are now defaulting at subprime rates.

We just read about a small bank failing Friday afternoon.  The FDIC expects many more banks to fail as the year progresses.  Homebuilder failures have really picked up in recent weeks.  Expect half to 3/4 of all public homebuilders to go under in 2008 if current conditions continue.  Many retailers will likely contract operations even further.  Governments could be forced to layoff millions of workers.  Contruction will likely layoff millions. http://calculatedrisk.blogspot.com/2008/03/construction-employment.html

My guess is that we are in the second inning of a nine inning game.  It is already becoming a tough game to watch.  Let's hope it is not a tie at the end of the game forcing extra innings.  Play ball.

 

2 Comments – Post Your Own

#1) On March 08, 2008 at 12:50 PM, EScroogeJr (< 20) wrote:

Props for the thourough analysis.

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#2) On March 08, 2008 at 2:14 PM, joeykid13 wrote:

Great Post.  Hume Bank of Missouri failed yesterday...failure #5in the last 12 months....not including state bank failures.  I know so many people that have racked up considerable credit card debt on gas alone...it is crazy.  Time to drill for oil wherever it exists, or get drilled...$106 a barrel...cheap by next years standards.

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