Tax cuts still failing to increase living standards.

[RandomGuy]

October 28, 2005

Economy continues to expand, while real average wages experience fastest decline on record

Employers' wage costs grew 2.3% over the past year, the slowest growth rate on record, according to today's report from the Bureau of Labor Statistics. Factoring in the recent energy-driven increase in inflation, the real wage is down 2.3%, also the largest real loss on record for this series that began in 1981.

With hourly wages falling in real terms, the only way working families can raise their incomes is by working more hours—certainly not the path to improving living standards that we would expect in an economy posting strong productivity gains.

This 2.3% rate is a slight tick down from the 2.4%—the previous historical low—that prevailed for the last four quarters. Compensation—wages plus benefits—also grew more slowly in the third quarter of this year, up 3.1% over the same quarter last year, the slowest yearly growth in six years.

For the first time in this employers' costs report, the BLS presented these values adjusted for inflation. Both wages and compensation are losing growth in real terms, down 2.3% and 1.5%, respectively, as slower nominal wage growth is colliding with faster inflation. In both cases, these are the largest yearly real losses on record.

This is a broad measure of earnings, including all civilian workers. It thus reveals an ongoing, important imbalance in this economic expansion. Overall measures of economic performance, such as gross domestic product, continue to perform well. For example, real GDP grew by 3.8% in the third quarter, above expectations and an acceleration over the 3.3% GDP growth rate of last quarter.

Yet the wage and compensation results show that this growth is failing to show up in hourly earnings. This has two implications. First, the view that increasing labor costs are pushing up prices is clearly not supported by these data. There is no evidence of an over-heating labor market that needs to be cooled by Federal Reserve rate hikes. Second, the resulting stagnant hourly wages will make it hard for working families to truly get ahead. Economic Policy Institute (http://www.epi.org/content.cfm/webfeat_econindicators_wages_20051028)

[gtownspur]

^^isnt homeownership up amongst all ethnicities and backgrounds.

[gtownspur]

so lets have tax hikes!!

[RandomGuy]

^^isnt homeownership up amongst all ethnicities and backgrounds.
:spin

Home ownership is indeed up, not because of economic growth or rising living standards, but because of lower interest rates.

Answer this question:

What happens to the housing market when interest rates go up?

[RandomGuy]

Aw hell, I'll answer my own question:

Here is a nice graph that illustrates what happens from a San Diego paper.


http://www.signonsandiego.com/uniontrib/20051029/images/default250.gif

Interest rates during that whole downward period were declining. Now interest rates are heading back up again. OOPS. Care to guess where the next bar on that bar graph will be? (hint: not shorter than the one to the left of it)

[RandomGuy]

Wells Fargo this week surveyed borrowers with interest-only loans and found that, at this juncture, most are paying at least some principal some of the time, a prudent financial strategy that suggests many such borrowers may not be stretched to their absolute limits by their home purchase.

That doesn't mean there is no reason to worry about interest-only loans, or a few other creative financing products that allow for smaller payments, sometimes at the expense of having your principal balance grow each month. Many of these loans are new, meaning the real trouble may still lie a year or two down the road.

Homeowners, especially first-time buyers, tend to have their finances in pretty good shape when they head into the mortgage office. They have usually paid down debt and amassed some savings in order to bolster their chances of getting a good rate on their loan, or of getting a loan at all. That good behavior often carries over into the early years of a loan.

But people being people, temptations always lurk. Credit cards that got paid off may get built up again as paint, carpeting and furniture purchases for the new house roll in over several months. Vacations denied while saving for a down payment may seem safe to take again. A new, more expensive car sure can look good in the new driveway.

And that is why mortgages tend to wind up in default, if they are going to wind up in default, two or three years in. It takes about that long to unwind your good financial deeds to the point the mortgage becomes a struggle. Of course, there are other reasons loans go belly up -- divorce, medical problems and job loss chief among them -- that can happen at any point in the life of a mortgage.

The real worry with the current round of creative mortgages is that they are, for the most part, adjustable-rate loans that are going to adjust in what may be a much higher interest-rate environment. Especially at the initial adjustment, the payment shock may be too much for even those who are financially well-behaved to handle.

The good news there is that while rates are rising, they are not rising too far or too fast. In fact, economists with the Mortgage Bankers Association expect the 30-year loan to hit 6.7% by the middle of next year, then level off through 2007 into 2008.

That may not be quite the picnic that 5.25% mortgages were at the lows, but it isn't likely to create a downpour of misery either.

http://www.investors.com/breakingnews.asp?journalid=32546146&brk=1

[RandomGuy]

This just in:

{I]personal outlays increased $169.0 billion (7.7 percent) in the third quarter, compared with an
increase of $146.6 billion (6.8 percent) in the second. Personal saving -- disposable personal income
less personal outlays -- was a negative $100.1 billion in the third quarter, compared with $7.4 billion in
the second. The personal saving rate -- saving as a percentage of disposable personal income --
decreased from 0.1 percent in the second quarter to a negative 1.1 percent in the third. Saving from
current income may be near zero or negative when outlays are financed by borrowing (including
borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods. For more information, see the FAQs on "Personal Saving" on
BEA's Web site.[/I]

http://bea.gov/bea/newsrel/gdpnewsrelease.htm


So if we are all borrowing more than we are earning WHAT HAPPENS WHEN INTEREST RATES RISE?

[Extra Stout]

There's a saying that goes something like this:

"If I owe you a thousand dollars, you own me. If I owe you a million dollars, I own you."

That's what our current economy is based on. Our creditors are so wrapped up in our economy that if they start to balk at continuing to finance our debt, the subsequent upheaval would destroy us and them.

Our biggest foreign creditor is China. They are experiencing something like 8-9% annual growth. Their middle class is skyrocketing in purchasing power. Right now, they need overextended Americans to keep buying Chinese-made goods to keep their engine running. That's why they give us cheap credit.

But before long, there will be enough middle-class Chinese buying houses and cars and TV's and shoes and toys that China can charge more to loan us money. Once that happens, we are so overextended that our economy will fall apart pretty quickly.

Alternately, there could be a bird flu outbreak in China that kills tens of millions and incapacitates hundreds of millions. The resulting slowdown could cause China to have other priorities than financing our profligacy. Again, then things fall apart rapidly.

That's why the world is building up this savings glut. That's why the price of gold is so high. That's why other currencies are being developed as reserve currencies. They know what's coming. And when it happens, it will happen quickly.

There's a growing feeling of unreality in this country. You look at the data and the inevitable result is staring you right in the face. It's like the tech bubble -- none of the numbers made sense any more, but the market kept going up, so people figured maybe the rules had changed. They hadn't.

They still haven't. We have crippling government debt. We have crippling business debt. We have crippling consumer debt. We have gargantuan commitments to upcoming retirees for which we have no money and no clue about where to get it except to keep borrowing. Eventually those cows will come home. And when they do, the United States of America as we know it will be gone.

The only difficult part is to know exactly when the tipping point will come, and to move whatever assets one has into things like gold, precious metals, foreign currencies, oil, etc. If your wealth is in dollars in the bank, POOF! It's gone. If your wealth is in the equity in your home, POOF! It's gone. If you're tied up in the U.S. stock market, POOF! Those stocks will become worthless. Bonds? POOF! They'll default and you'll have nothing.

This will make the Great Depression look like a minor stagnation.

Our Argentine friends have been through this recently, except that we have been more irresponsible than they were, we are in a much precarious state than they were,and it will be much worse for us. The only thing keeping us above water is that the world economy cannot afford for the United States to collapse... yet.

[SWC Bonfire]

The only difficult part is to know exactly when the tipping point will come, and to move whatever assets one has into things like gold, precious metals, foreign currencies, oil, etc. If your wealth is in dollars in the bank, POOF! It's gone. If your wealth is in the equity in your home, POOF! It's gone. If you're tied up in the U.S. stock market, POOF! Those stocks will become worthless. Bonds? POOF! They'll default and you'll have nothing.


Good thing that I can eat a fair amount of my wealth. In the event of the collapse of the western capitalist world, I'm rich, biatch! :lol

[Useruser666]

How will this affect the value of Chucky Cheese tokens?

[Extra Stout]

How will this affect the value of Chucky Cheese tokens?
They will become more valuable than your life savings. :depressed :hang :drunk

[RandomGuy]

...We have crippling government debt. We have crippling business debt. We have crippling consumer debt. We have gargantuan commitments to upcoming retirees for which we have no money and no clue about where to get it except to keep borrowing. Eventually those cows will come home. And when they do, the United States of America as we know it will be gone.
...

The only difficult part is to know exactly when the tipping point will come, and to move whatever assets one has into things like gold, precious metals, foreign currencies, oil, etc. If your wealth is in dollars in the bank, POOF! It's gone. If your wealth is in the equity in your home, POOF! It's gone. If you're tied up in the U.S. stock market, POOF! Those stocks will become worthless. Bonds? POOF! They'll default and you'll have nothing.

This will make the Great Depression look like a minor stagnation.

Our Argentine friends have been through this recently, except that we have been more irresponsible than they were, we are in a much precarious state than they were,and it will be much worse for us. The only thing keeping us above water is that the world economy cannot afford for the United States to collapse... yet.

Yup. These charts illustrate the level of danger...

http://mwhodges.home.att.net/nat-debt/natdebt-vs-natincome.gif

AND

http://mwhodges.home.att.net/nat-debt/debt-total-ratio-trend.gif

Just something to keep you awake at night...