Whoa, have vs. have-not {money geek talk}
 

The Big Picture - Household Cash vs. Debt

It must be nice being tabs, eh? ;)

I've heard of the debt to wealth plan, but this is going overboard.

Can I interest you in any big bank stocks or perhaps the stock of one of many 'check cashing' companies? With annual interest rates above 40% you can't lose.

This was interesting:
"Let's look at the nitty gritty: In 2006, the US savings rate was minus 1%. The previous year in which the US "enjoyed" a negative savings rate was, well, the previous year -- 2005. Prior to that loathsome twosome, we have to go wayback to the Great Depression (early 1930s) to find one single negative savings rate year."

that's because sleazy politicians and corporate america have a found a way to take more money from our pockets and into their pockets.

it's simple economics. either the money stays on Main St. or it goes to Wall St.( ie. the elite). for example, look at the high cost of health care. It's so expensive because they need higher profits.

the middle class will disappear in about 5 years. this country will become a 2 class system, the poor and the elite.

the USA is now an aristocracy. Gold Bless America.

Why would you expect the ultra wealthy to have any debt at all? Seems like a question with a foregone conclusion.

Our tax structure, while onerous in my mind, is not the cause:Tax Rate

As well, a large part of health car costs can be tied to our tort system...

There it is, the smoking gun: "profligate spending".

We as a society are so tied to immediate gratification and spending money we do not have that blamming politicians and "big business" for negative savings is absurd.

Yes, the wealthy have low debt compared to their assets.

What I found more interesting was the top 1% hold assets 5 times as great as the entire bottom half of households. Wow. That's staggering.

It would not surprise me if the top 1% have assets equal to the bottom 90%. I'd like to see the numbers.

john70t, the personal savings rate is negative while corporations are sitting on record cash levels. Disappointing, but reality in a capitalist society.

I am not suggesting reallocation of wealth. I'm just saying.

this goes well beyond capitalism, into territory we haven't witnessed historically. .. and the damage will be profound on various levels.

Wow, hit like a ton of bricks from behind. Who would have seen it coming...?:rolleyes:
The last Great Depression was solved by socialist government projects, massive industrial spending due to a little overseas strife, and winning that war, of course.

I won't argue with you there, but where would big bidness be if not for the ever-growing consumer spending? Reverse the negative savings rate and see what happens to the economy. In this game, the players have an enabler, and both parties are necessary. The masses need only pick up pitchforks to end the game.

Question is, though, are we prepared to end the game?

The masses can't afford pitchforks:)

Most people in debt in this country have no one to blame but themselves.

During tax season I volunteer on the base to do taxes for young enlisted families. The variance in the debt to earning ratio between familes is astounding.

There are some folks (usually young, single males) that will never get out of debt unless they dramatically change their spending behaviors.

Others, generally young married couples where the wife runs the budget, have very enviable asset portfolios. They may be driving a nine-year old minivan, but they have begun to take very positive financial journey.

The old rules concerning %'s of gross and net income to debt service on large expenditures is as true today as it was fifty years ago...problem is few people in the US follow the rules but feel compelled to blame others.

+1 to that.

Most of the wealthy people I know are wealthy for a reason. They are smart and responsible. Not only with money, but in all aspects of life. Get good grades, go to college, work hard and graduate, get a job and do well instead of partying every night, move up the ladder.

Most of the poor people I know are poor for a reason, they make stupid decisions based on emotion rather than logic, and they are irresponsible. Drop out of school, get a meanial job, call in sick, show up late, get fired, get another low pay job, barely make it on just enough effort to get by, blame it on the man or who ever.
It's never their fault, (as is demonstrated in pitchfork comment).

Now which one of those groups would you expect to have higher debt?

Wealth is not the cause of a lack of debt, but lack of debt and wealth have a common cause.
If you have a financial clue, you will be better off than the guy down the street wearing the wife beater and drinking beer.
You will also have less debt than him.

Now obviously these two examples are extremes to make a point, but the point is still valid when looking at hte middle class.
Some of the wealthiest men I have ever met were misers who pinched a penny like they had vice grips for fingers.

Some of the poorest people I know can't have a $20 bill without it burning a hole in their pockets. Gotta spend it NOW!
That's why they are poor, that's why they have excesssive debt.

It sounds like you have the typical misconception about the economy thinking that it is made up of "producers" and "consumers" and that there is some "adversarial" relationship between the two. This is not the basis of economics.

The economy is made up of producers trading with other producers.

Money is a tool used in that trading. People can trade with other producers and consume before they have produced any wealth equal in value to that which they consume. They do this by using the tool of money taking on debt with the expectation that they will produce wealth at some later date and complete the "trade" they've begun with their consumption.

The disparity in wealth that we can see in our economy is a consequence of the fact few people are prolific producers, while many people are not only extremely poor producers, but are willing to take on debt consuming wealth they have not produced.

We all profess to love freedom, but true freedom must also include the freedom to fail. Why are we offended when free adults make willfull decisions that result in economic failure?

If you want to "level the playing field" by improving the educational prospects for the poor I'm all for it. The problem is that too many people view poverty and debt as some sort of stigmata foisted upon the poor by the wealthy. It is not.

[1] It's more that they buy votes w/ tax dollers, though they certainly are not above feathering their own nests.

[2]Health care can be blamed as much on the legal envoironment in this country as much as the expensive technical advances in medicine.

[3]It's been an ongoing process since the '50s

[4]In fact if not in name, there is some movement up/down the economic ladder but it' less prevalnt than in previuous eras.

Not onerous, but certainly designed to benifit the haves at the expense of the almost haves

agreed

agreed again

and again

I read a very interesting comparison between the era leading up to the French Revolution and the current times, As w/ most analogies there were some big stretches of the imagination needed but it was interesting nevertheless.

The French peasants did not have food to feed their familys. The modern American 'peasant' has a DVD player, microwave oven and a car. What are they going to do? Riot because their cable got cut off?

Now if you will excuse me, I need to go polish my AK47.......

So what you're saying is capitalism is a *****, right? ;)

I'm thankful to be in a country that allows me to get ahead in life economically, but the Robert Nardelli's of the world convince it is far from perfect.

edit: for context

As I said, analogies are never exact, but anyhow, if you think that there is no real hunger and poverty and need in this country, you are a part of the problem.

I've done my work here, well.

Nobody is going to riot until they lose their SUV and can't watch the Super Bowl.

There is one thing U boyz have missed. The Historical perspective. After WW2 the MC grew, any Schmo working in a Factory could be MC, mever before in the HISTORY F MAN HAD SO MANY PEOPLE HAD IT SO GOOD. This was unsustainable in light of the increasing economic competition the US faced from the 1960s onward. The US is probably returning to the more Historic norm. It would be interesting to compare the MC of 1910 to the MC of 2007.

The implications of your comments is complete BS. You are implying that there is some "limit" on everyone being in the middle class.

There is nothing limiting everyone from being extremely wealthy, much less living at a middle class status.

People are poor because they are not productive (or in the case of mixed economies and socialism, because the government took their wealth or put up restrictions on their abilities to create wealth).

"Foreign competition" has no net negative effect on the wealth of the U.S. population -- in fact, the creation of wealth in other countries will primarily have a positive effect for productive people here. There is no damage done to you if other people are productive in this country or in other countries. One person does not produce "at the expense" of the person who does not produce! More productive people mean more trading partners, which means a bigger (world) economy which benefits everyone.

Competition may mean that one has to change the nature of work one is engaged in if the marketplace won't support the particular enterprises people build, but competition never "takes away" any wealth.

Although my combined family income is much greater than most of the folks that work for me (about 80 people), all seem to spend a great deal more money day-to-day than members of my family do. They drive newer cars, have bigger TVs, fancy audio and video components, take more vacations to more exotic places, etc. They spend a lot on entertainment, movies, shows, sports events, etc. They eat out daily while I rarely do (I usually brownbag my lunch). They send their children to colleges where they have to pay out-of-state tuition and room-and-board while my child attends a local school on full scholarship. They also provide their children an amazing amount of expensive toys (electronic gear such as x-box, Ipods, etc), clothes, and cash. Many of them have little or no savings or investments and could not pay the rent if they missed one pay check. Almost all that are home owners have refinanced their home for spending cash multiple times and have no equity or are actually upside down now. The ones that are civil service have the opportunity to contribute to a 401k where the first 5% of their salary that they contribute each year is matched with free money from their employer (the gvt) but do no contribute at all. Although I do not make all that much, I have saved a bit and have investments to the point where the fellow that recently did the investigation for the renewal of my security clearance was concerned about why I had so many assets/money. I second the point that someone made earlier about freedom providing the opportunity to screw up as well as succeed. A good illustration for me is a rental house that I own near Denver. I rented it out to a family when I was reassigned to another city in the early 80's. Initially the mortgage was slightly higher than the rent, but I was able to write the small difference off on my taxes. When interest rates dropped, I refinanced and the house rent became a net positive. At this point, the renters could have purchased exactly the same house in the same neighborhood for less than their payments to me, but did not do so. They are still renting the house today, but after all this time, it is paid off. They could be living in a fully paid-for home, but instead, own nothing. To add insult to injury, I am thinking about selling the home now...and would be willing to give them first shot at buying the home for $175,000 that was worth about $60,000 when they moved in, that they have paid off for me. They are nearing retirement age with really only Social Security as their retirement plan...and don't even own a house. Life is tough...but it is tougher when you are stupid.

Not saying that. There is certainly real hunger, and real poverty in this country. There are people in desperate situations.

But folks who have jobs, who have stupidly gotten themselves into debt, are in a prison of their own design. And that prison often includes some pretty nice toys to keep them distracted.

fintstone is right. too many people try to live above their means. and this is a formula for financial disaster.

if you can't afford that 2K HDTV, dont charge your CC and don't buy it , simple as that.

How does one change that mindset?

Look at the ads. Target's little ditty: "Gotta gotta have it, gotta have it right now...."

An entire generation brought up on instant gratification. Not necessarily stupid, but brainwashed.

Shoudn't there ba a mandated course in Highschool on some elementary money management? There used to be. It was called "Home Economics".

The only way to fix the problem is to let them pay for their mistakes. That will teach them their lesson and the folks that stupidly loan them money...not to.

That sentence represents one of my favorite shibboleth's:

To wit, the tax code favors the rich. Tax Rates

% of Taxes Paid, by Bracket

Of course you are now going to say that I have tax advantages (itemizing, business deductions, mortgage breaks, etc.). What I will say is that I worked for it.

Y'all are missing one HUGE nuance.

The US saving rate, as measured, does not include money invested in the market. The purchase of stocks, mutual funds, EFTs, and such are NOT considered to be savings. They’re purchases of assets.

So if you have $200,000 in stocks and $50 in your savings, you're probably one of those non-savers.

No, competition doesn't take wealth away. But it does divide the aggregate demand by one more party.

What about limits to natural resources and natural limits to demand? There is, at any particular time, a limit imposed by nature to all human activities. We can't all build cars if there isn't enough steel to support it. We can't farm without water and land, etc.

Competition does nothing for demand -- it's effect in the economy is on the supply side -- it helps create more goods at lower prices.

For most practical purposes, we are not even a fraction of a percent near depleting resources that would limit all citizens from living like "wealthy" people, if they were as productive as most wealthy people are.

There would be some limits obviously, for example, not everyone would be able to live on a 100,000 acre ranch -- but a free marketplace is very efficient in effecting the distribution of resources limited by nature.

...sigh
In case you missed it.

Tabs,

What class are you in?

I don't think this addresses the issue with the bottom half having such a poor asset to debt ratio, though. I'm sure YOU and all other Pelicanites are doing fine, but the bottom half of households don't seem to be doing all too great.

Something stinks, and it ain't my feet.

Figures don't lie, but liars sure can figure and just show the #s that they want. We all work hard for our $, some harder than others and there ain't no free lunch anywhere. But the folks at the very top sure have made it easier for themselves by controlling the legislative process.

the tax burden is the collective result of all of the taxes and fees that one is subject to, when all taxes as a % of gross income are totaled the curves show an increasing % into the low $100k range then a decrease beyond that.

As to the second reference if the top 1% pays 32% of the total federal income tax but owns 50% of the assets the effective tax rate is less than that on the rest of the population

Don't forget to consider that it's the first $30k or so of income that is most significant to food, shelter ie the real necessities of life.

Tabs is like school on Saturday....no class.

SmileWavy

Capt. is correct. The people who wrote that article, and the others like them, are stupid at best and are deliberate alarmists to get attention at worst.

I won't argue that the US should save more (on average Americans should save more) but we do not have a negative savings rate. The things that are not included in savings are precisely the places where any American with an ounce of sense puts his money these days: Investments, 401(k)s, paying down the mortgage, etc. Take out thosethings and what is your savings rate?

Alarmist, perhaps, but everyone has an agenda, correct?

What do you say of the statistics about assets and debt of the top 1% vs. bottom 50%? If households really are socking away money in assets, why the disparity? Also, absolute numbers shouldn't be the focus. Could we simply review the trend? Have there been changes in society that make the trend less accurate?

I think the truth is somewhere in between. Americans do not save like their counterparts in Europe and Asia, but Americans aren't one step away from the poorhouse.

I fail to see how an individual's decision to not save money and run up credit card bills is a national concern...

I did some digging at the BEA (Bureau of Economic Analysis) web site.

From the FAQ section:

The BEA does not use capital gains in their income calculations, so that helps Americans.

Note above that principle paydown on mortgages is not considered an expenditure. It is paid with personal savings.

BEA compared their numbers against numbers generated by the Federal Reserve. The Federal Reserves Flow of Funds gives us insight into where money is flowing.

http://www.bea.gov/bea/dn/nipaweb/Nipa-Frb.asp

http://forums.pelicanparts.com/uploa...1170701640.jpg

The yellow line represents personal savings via BEA, and is the negative personal savings rate referenced by the media. The red line represents personal savings as calculated by the Federal Reserve. Notice the negative rate in 2000.

The blue and green dots represent acquisition of assets, while the purple dots represent taking on new debt and new home mortgages. Acquisition of assets is up substatially, but it's offset by a massive jump in mortgage debt.

Simplified conclusion: Americans are fine if housing prices continue to climb and asset prices go up. Americans aren't fine if housing deteriorates further or financial assets perform poorly. Duh!