Practical Look at an Impractical Problem
About 10 years ago...Taxes, Interest, and Insurance consumed about 85% of the average family's income in America. That is ALL forms of Taxes, Interest and Insurance and does not include Food, Clothing, Entertainment and other expenses. It was something that I was very aware of....and knew if I managed those three areas in my life....the rest was relatively easy applying the 80/20 rule.
America hit the wall when during that last 10 years....many payments to taxes, interest and insurance doubled or tripled while often incomes remained stagnant or declined. The delta between income and expenses is what made the last 10 years fundementally different than any previous 10 years in American History.
Let me demonstrate with a few key areas.....
10 years ago families paid much less for health insurance....as time passed, not only did rates and copays go up...but the amounts employers were allocating to employees increased dramatically where many family's today are paying 300%-500% more for health insurance out of pocket than a decade ago. Imagine if you are now self employed and are paying health insurance today????
Property Taxes.....we all know about the housing boom......if you didn't trade up, it is likely your property taxes at least doubled during that period....if you traded up with your house......many families are paying 300-400% higher property taxes than they did ten years ago.....homeowners insurance costs generally rose with the rising price of your home....unless of course you lived in a hurricane vulnerable area where HO costs increased exponentially.
Mortgage Interest.....this one exploded for those families that traded up......but even if you didn't move, many families took out home equity loans during the last 10 years adding substantially to their interest expenses....how many families had HELOCs 10 years ago???
Once you start adding in extra gas tax, sales taxes, credit card interest, auto insurance, life insurance, and more....familiies got nickeled and dimed to a negative savings.
If 10 years ago 85% of the average family's income was allocated to the above expenses NOT including food, clothing, entertainment and misc spending.....can you see why tens of millions of families were forced to borrow trillions of dollars just to make ends meet..........as expenses in many areas doubled and tripled but incomes often remained stagnant or even went down.
By the way...similar arguments can be made for cities, states, businesses, school districts, hospital systems, etc.......
Now look at what is happening to families, our economy, and the world's economy now that many of those families can't spend and the banks can't or will not lend......the debt that can't be paid back is the toxic debt we are hearing about day after day....
Who is going to pay back the trillions of dollars of existing debt as wages are imploding and millions are losing their jobs??????????????????
Do you think taking the debt off the bank's books is going to motivate the banks to loan to families, businesses, and governments that can't pay them back???? Didn't we just sing that song????
In the end, the problem is really simple...the expenses for the average American family often doubled in the last ten years but overall incomes remained stagnant. Many leveraged up to keep things going.....now there is no more room to leverage and few want to believe it.......WELCOME TO REALITY.
Now what do you think those charts are going to look like in a few months as millions MORE start defaulting on their debt and can't spend???
Let's take a survey of CAPs players and see how it compares to the rest of the nation.......any comments below are appreciated.