The Real Economic Boom

A real boom, on the other hand, is one that results from increased earnings, not from debt. When people earn more they can spend more

PIM

In all honesty, I worked for years, and I never experienced what you describe above.  I understand the equation of living within one's means and all that, but the realities are most of us in my situation--single mom with three children--worked from paycheck to paycheck, and I never had the luxury of having more money than I could spend. And I don't believe I was an anomaly.

Probably you misinterpreted what I tried to explain. or I haven't been complete enough. Never go beyond your financial reach is the first axiom, the second try to save money for the bad day that may come.

What you described is on the same line, what one shouldn't do is use their CCs as an extension of their income, because that gets you in trouble. You are spending yr money correctly, all the others that went into debt should be disqualified and labeled anomaly.

I was listening to some show with an economist who was advising on how to handle finances. He suggested that 50% of income should be saved and 50% to pay down debt.  He didn't say anything about living expenses!  Anyone with children who can save 50% of their income probably doesn't have to worry because they would have to be in six figure income.  This is not most people.  Economists need to realize that families with children have all sorts of expenses that say a couple with no children have.  There is not an equation of one size fits all because it's not realistic.

a211423,

It is all about financial discipline, IMHO, to an individual level.

Before buying something we must really think hard whether we need whatever we buy. Need is the keyword here. The classical category of needs come to mind - 'must have' and 'nice to have'. If we look at the recent housing boom' or whatever it is known in the US, as far as I understood (it happened in here also) money lenders (banks etc) gave away loans to a lot of people who neither have the real capacity to repay the monthly installments in a long run, nor a necessity . The 'loan sharks' (wow, I like this term) created a false 'must have' need in people’s mind so that they just go ahead and buy a house they really don't need. As you know, the initial EMIs do go only to the interest part of the loan and a very small amount goes to the repayment of the actual principle. Since the spending was not from the real money, as PIM and Roy pointed out, which the borrower does not have, even a small personal financial crisis must snowball into a major one within a short span of time. Then they can’t repay the loan amount.

I guess that, unfortunately this small personal financial crisis hit the US in the form of raising gas price. Gasoline, which was so far very much affordable, became an expensive commodity. Since people are too much dependent on their fuel guzzling automobiles, (again bought on unreal money, unnecessarily) the skyrocketing gas price eaten  up a major part of their monthly income with which they used ‘rotate’  or ‘manage’ their loans. As gas budget is a necessary expense, the only other place where the cut can go is the other EMI amounts (housing, car etc etc..)

Again note that, initial EMI’s goes to the interest part, and this is what our ‘loan sharks’ project as their profit – among other things. No EMI, no profit to show in the paper. Less ‘paper profit’, there goes the stock value. There starts the chain reaction of the downfall of the false economy.

I am no financial / economical expert. But since I started reading PIMs articles, I went to do my own study about the financial things around me (don’t pretend to understand every thing and whatever I learned, I am not sure if it is correct). This is my beginners assignment report :-)

PIM , Roy and other gurus….. Marks please.

.Agent.

Agent

Thank you for your comments.   Increased fuel costs caught a lot of people off guard last year. For example, I use propane and the cost for 100 gallons last years was $435.  This year is was $210.  Then there was fuel for cars and increased food costs because of increased cost of transporting goods to market. And of note, once the prices go up, they very rarely go down again, except for gas.  I don't know if you are old enough to know what happen to coffee prices in the 1970s, but they never decreased after increasing 400% in eighteen months. 

If someone commutes, which is common here their costs were doubled, and some had no choice except to charge gas on credit card.  Now they have to pay off the debt.  This has nothing to do with financial discipline.  It's survival.  If you have ever really experienced having to make a choice between feeding and clothing your children versus financial discipline, then you will understand.  As fuel costs fluctuate, I have not seen the prices fluctuate at the grocery store.

Some responsibility must be assigned to how businesses operate in the economy of raising and lowering prices.  It's not all about how an individual handles their finances, but also how we have to accommodate to a seemingly ruthless system that sees an opportunity to use these economic variables to their advantage to increase their bottom line. 

 Is this the Capitalism we want?     

Pim, thanks for brightening my day...........not.

Unfortunately, this is another spot-on article.  Not a bright spot in it either.   THE only chance for the present administration (the same would have applied to the previous) to even have a slim chance of pulling this out, is to cut and run on ALL other issues.   Drop them now. Health care won't matter if you and i and the gummit are all broke. Even if he gets it, we can't pay for it.

The economy needs his full, undivided attention - and ours.

His print some more money shtick cannot continue. We are in a deep, deep hole. Play money won't work. We need real money, produced by american work, not profits culled from Chinese prodution.

.Agent this is the best compliment I have read so far "I am no financial / economical expert. But since I started reading PIMs articles, I went to do my own study about the financial things around me (don’t pretend to understand every thing and whatever I learned, I am not sure if it is correct). This is my beginners assignment report :-)"

This is exactly what I had in mind when starting to post my essays on nowpublic. I sincerely hope that many others will do the same you're doing. Lets get ourselves better educated on these aspects to make sure that "financial illiteracy" -as Roy once coined- gets eliminated and people in charge know that the don't deal with a bunch of stupids, and stop manipulating the financial industry and its systems, on taxpayers' account.

One final comment on this topic.  We can all comment and agree or disagree with how we got here, and agree that jobs are the key.  How do we get from here to there?  Some have suggested the "do nothing and let the economy correct itself."  Is this a pro-active approach or just a gamble?  I don't know about you, but standing by and doing nothing does not appear to be an answer in my opinion.  Many are not in agreement with the administration, so what should be done to better create jobs?  Infrastructure money is helping somewhat, but if any of you have better ideas about creating jobs, I would like to hear it.

First it was raid the pensions (to fund the dotcom boom and IT built out), and then when that was used up, it was the 'trap': the oldest and best trap of all: housing. Everyone wants a house and the illusion it brings: security and wealth. It was the best trap of all and it had its best target markets: women (who love security) and minority communities (previously frozen out of the security). As a social control ploy, it was genius. 

a211423: You pose some great questions! In my opinion, the only way that jobs (other than make-work jobs as occurred during the FDR administration) will be created is to allow the U.S. economy to seek its own level. Obviously this will never happen. If it did, people would literally be starving and dying in the streets, not to mention all the social unrest that would occur. There's no easy answer to any of your questions due to the dramatic unemployment numbers. However, today's numbers are not as high as those during the Reagan Administration where the unemployment rate hit 9.8% in July of 1982, hit a peak of 10.8% in December of that year and didn't come back to 9% until July of 1983. Economists have varying views on what constitutes "full employment".Some suggest that "full employment" is 0% of the work force being unemployed while others say "full employment" can be achieved with as much as 10% of the work force unemployed. The facts are that the U.S unemployment rate since about 1948 has been in the 4% to 7% range during non-recessionary periods and often in the 5% range. There were a few periods where the figures were in the 3% range--the last time being  about four months in 2000. In September of this year the unemployment rate was 9.8%--a full 1% lower than the unemployment peak in December of 1982 under Reagan. .

While I'm in agreement with most of PIM's analysis I'll take issue with the more output=more earnings part of your equation. If worker productivity rates were increasing during the past 10 years, equaling more output, how does one explain the stagnant or declining wages of workers? I think the answer is quite simple: Our economy after World War II was the only viable industrialized producer of just about everything in the world economy. Germany and Japan's manufacturing infrastructure was destroyed. China's was non-existent. This factor allowed for the expansion of the wages and the income growth for a growing middle class society. (To the victor goes the spoils; (but not infinitely.)

Once the manufacturing base of Japan and Germany were re-built, and pressure was exerted on our base of output, wages started to level off, and as time moved forward, and US manufacturers shifted production to less expensive labor markets, the wages of average Americans started to stagnate or decline. We essentialy went from a large manufacturing economy to a service sector economy. GM, Ford, Chrysler and other large manufacturers couldn't compete with Germany and Japan. Blame the unions, and demand concessions on wages and benefits. Northern textile manufacturers moved to the organized labor averse south, and a continuation of wage decline or stagnation continued. Once these strategies of  keeping wages in check were no longer sufficent to keep profit levels at where investors and stockholders demanded, production went to Mexico first, followed by an exodus to 3rd world countries were the standard of living is in the range of 1,500.00 US dollars a year. How are we supposed to compete with that, without lowering our own standard of living?

I've heard the argument that we've got to re-establish our manufacturing base. Who is going to buy our finished goods when the Chinese and developing nations are producing comparable products for our corporations for 10 cents on the dollar? We can't all be greeters at Wal-Mart and expect to be able to pay the bills, afford health insurance and dream of sending the kids to college. Can we? We've basically exported our future and our standard of living to countries that are willing to work for less, much, much less that we've grown accustomed to.

Here's a novel idea, and I'm not advocating anarchy. Have you got a lot of credit card debt and can't figure out how to repay it? Especially if you are out of work, or lost one income in your family? Don't pay it! Tell the financial institution that they made a mistake in lending you the money in the first place, and secondly, your taxpayer dollars have already paid your balance off. Do you honestly believe that bankruptcy reform was passed coincidentally?  These greedy bastards knew all along we couldn't afford what was being lent to us, and some of us weren't sophisticated enough to know better. Indentured service is now back in vogue.

Rory,

Thanks for the statistics. 

WE NEED JOBS

Where are they?  Here is my suggestion.  Take transportation projects.  They are huge particularly in California if we can get the funding for high speed train.  People can be put to work on transportation projects that take five or more years to complete, and upon completion there are jobs to maintain them.  The Depression had TVA, but we don't need any more dams; therefore, lets create high speed transportation projects all across the U.S.

How about school facility repair and improvement.  There must be hundreds of schools that need paint and repair.  This provides jobs locally and the wages spent stay local. 

a211423: The problem with the "high speed rail" projects (although I'm in favor of the concept) is that their returns, in actual dollar and profit terms, do not come close to the initial project cost. In other words, the cost over benefit ratio--say 20 years down the road--doesn't even come close to 1. And what occurs in that event is that the locality that the high speed rail is in winds up holding the bag. As to school repairs and improvements, I'm intimately familiar with the process. The problem is that schools, throughout most of the nation, are funded in  large part through homeowner property tax revenues. And as we all know, home prices--and therefore the value assessment-- are down anywhere from 30% to 60%. Thus the homeowner tax base is 30% to 60% lower and any capital improvement projects in regard to schools is down correspondingly. BTW: Due to the relationship between property/home values and tax revenues, it should come as no surprise that the real estate industry and the politicians have always been engaged in an unholy alliance to artificially prop up (i.e. inflate) home values. In other words, local governments and local business entities have had a major hand in propagating the decline of the U.S. housing market. Prices can only go up so much until the house of cards collapses . . . .

Rory,

Everyone said the same thing about BART train, but here we are some 30 years later with several hundred thousand people using it every day, and plans to expand and improve. 

Schools can get federal infrastructure money identified for buildings.  I am not suggesting the already strapped districts try and do it.

What are your suggestions for jobs?

 recent nobel and peer reviewed economist that more fully comprehends a global inter-connected economy.

Who is this?  Can you give a name please : )

Thank you rng

Sorry about being lazy, but ever so nice of you to pass along the information.

I appreciate it.  Can I bring the F up a bit if I research him a bit?

Did you see the Frontline tonight about Brooksley Born who predicted this back in 1998, and was basically eliminated by the Clinton administration for her whistle blowing?

Wow...it was a real eye opener. 

Krugman has an author's page on Amazon.  I am getting The Return of Depression Economics. 

Has anyone considered there is no answer, and there is no such thing as economics. It's all about the whims and moans and who has a good idea....gets the notoriety and the leg up? I for one have no answer to this...except try for once to stop trying to make money. Our whole makeup in society revolves around that... No one tries to do things without a price tag? For once how about cooperation and helping your neighbor? How about trying to give money? Here in China people go out of their way to help one another. People try to give someone money...and they end up fighting about not wanting to accept it. They argue about who will pay the dinner bill.....that is one guy insists on paying while the other also insists.

I just think Americans are too money concious....and need to start looking at developing a way to create Americans in trust. One thing for sure that really turns Americans off is the big brother is always watching you.. Everyone is tracked with Credit Ratings...while banks are never scrutinized.

I find myself at this trouble. You know I left the US and have been here in China for 9 years....and every so often I come into situations where I see another American in the room....and frankly I am totally uninterested to associate. Now being away from home, and not hearing English much in my neck of China...you would think I would be pleased to talk...but I have no trust or willingness to even consider it would be worth anyones time...

So I have come to the conclusion this is similiar in the States.. It is like people plotting against each other....to get money....to support whatever they do... It is never about real community....or pot luck dinners...bringing something or even having friendly neighbors. America loss something.....and I am not sure how or if it will ever come back.

Jobs can not be created without trust. The only thing that Americans trust it seems is the Military...America traded it's wealth and soul for a gun......because that is the only trust they have... Sad I think......

The Rev.

 I haven't seen anyone advocating that maybe the unwise lenders take a hit on the debt. Why not?

nanute

Thank you for the article.

If lenders of say credit cards and medical providers would forgive the debt of those who are unemployed, this would truly define an era of compassion for our nation.  And I would not label the lenders as "unwise" even though they probably were; rather, call them partners in the recovery.  They can use the forgiven debt and claim a loss on income tax.  

There is a time to share the wealth, and this is time to share defeat.