This page has been archived and commenting is disabled.
A Detailed Look At The Stratified U.S. Consumer
- Bank of America
- Bank of America
- Bond
- Broken System
- Budget Deficit
- China
- Consumer Credit
- Countrywide
- Federal Reserve
- Global Economy
- Government Stimulus
- Gross Domestic Product
- Home Equity
- Housing Market
- Housing Prices
- McKinsey
- Monetary Policy
- Monetization
- Personal Consumption
- President Obama
- Real estate
- Reality
- Recession
- recovery
- Sovereigns
- Summary Report
- Trade Balance
- White House
When analyzing the recovery prospects before the U.S. economy, no analysis is complete without a detailed look at the capacity of the U.S. consumer, that dynamo that has always managed to pull the economy out of whatever hole it managed to find itself over the past 80 years. However, permanent structural changes to the economy and the first credit-based recession in decades, could mean the proverbial "this time it may be different" is applicable. Furthermore, the non-homogeneous nature of the concept known as the "U.S. consumer" implies there are many different forces that will shape consumer behavior both now and for the years to come. In this article we attempt to put some of the pieces together and draw some preliminary conclusions.
The delevering consumer
Most of the global political and economic events in recent history can ultimately be traced to the motivations and actions of the US consumer, who directly and indirectly, via an intertwined political /Wall Street complex, has been responsible for not only the bulk of US economic growth, but also was the primary reason for global growth in the last decade. A summary report by McKinsey provides the following frame for the key issues over the past decade (emphasis added):
"Between 2000 and 2007, US households led a national borrowing binge, nearly doubling their outstanding debt to $13.8 trillion. The pace was faster than the growth of their incomes, their spending, or the nation's GDP. The amount of US household debt amassed by 2007 was unprecedented whether measured in nominal terms, as a share of GDP (98 percent), or as a ratio of liabilities to disposable income (138 percent). But as the global financial and economic crisis worsened at the end of last year, a shift occurred: US households for the first time since World War II reduced their debt outstanding.
Over the past decade, rising US household spending has served as the main engine of US economic growth. From 2000 to 2007, US annual personal consumption grew by 44 percent, from $6.9 trillion to $9.9 trillion - faster than either GDP or household income. Consumption accounted for 77 percent of real US GDP growth during this period - high by comparison with both US and international experience."
Yet despite McKinsey's claims, the Flow of Funds report demonstrates that total household debt has stayed relatively constant, mostly as a function of substantial and flat mortgage debt :
And even though total household debt has been relatively flat, consumer debt has indeed been following a deleveraging path, with the most recently released data indicating a $70 billion decline in consumer debt year over year.
At this point it is conventional knowledge that the primary culprit for the consumer credit bubble was Greenspan and his policy of keeping interest rates too low for too long (a policy repeated by his successor), encouraging a borrowing binge:
"Household borrowing rose along with incomes for decades. But after 2000, interest rates fell well below their long-term average because of the combination of US monetary policy and rising foreign purchases of US government bonds by Asian governments and oil exporters. When low rates were combined with looser lending standards, consumer borrowing soared. From 2000 through 2007, the ratio of household debt to disposable income shot up from 101 percent to 138 percent - as much in seven years as in the previous quarter of a century. Even with low interest rates, the ratio of household debt service payments to income rose to a record high.
Most of this borrowing fueled consumption. For instance, from 2003 through the third quarter of 2008, US households extracted $2.3 trillion of equity from their homes in the form of home equity loans and cash-out refinancings. Nearly 40 percent of this - $897 billion, an amount bigger than the recently approved US government stimulus package-went directly to finance home improvement or personal consumption. And much of the remaining 60 percent of extracted cash was used to pay down credit card debt, auto loans, and other liabilities, thus financing consumption indirectly. The money not spent on consumption was invested, helping fuel gains in stock markets and other financial assets."
The biggest concern from a reversion to the mean perspective is that if the ongoing deleveraging trend were to follow its full course, household debt-to-income would have to decline by 27 bps to its long-term trendline, in effect extracting $2.8 trillion from the economy.
One direct consequence of the trend of cheap credit has been an inverse move in the saving rate since the early 1990's. The sharp recent upswing in the chart below indicates that consumers on average are commencing a paradigm shift to frugality as the "wealth effect" evaporates: the increase in consumer wealth lead to an increase in consumption financed by rising asset values. While in the 90's this was facilitated by rapidly rising equity values, its most recent incarnation was manifested in home equity withdrawal as a result of spiking home prices, which translated asset inflation monetization into consumption. The double whammy of a collapse in both the equity market and housing values will ultimately result in an increase in savings rates to long-term averages in the 9-10% range. And, as pointed out above, the adverse economic impact of this transformation in the consumer psyche will likely be in the $2-3 trillion range.
Producer countries provided the US consumer with cheap financing
One of the artifacts of recent binge consumption was a shift in the global trade balance, whereby economies with an advantage in cheap labor or productivity ended up with material positive trade balances (excess exports), while increasingly service-based economies like the US and the EU would not only purchase any excess production, their cheap purchases would be financed by the producing countries transferring their savings indirectly into the US consumer. This explains the desire of China and other sovereigns for US bonds and mortgage instruments. Implicitly, the rapid quenching of the US consumer's insatiable desire for "Made in China" products is the primary reason why the Fed has stepped in so forcefully with purchase replacement mechanisms such as QE which seek to take the place of traditional security purchasers.
The problem in China is the inverse: with the trade balance shrinking rapidly and currency reserves declining, the Chinese government is subsidizing internal production in domestic currency, to stimulate exports to the US, however at lower price points (a deflationary phenomenon), while taking the resultant dollars and funnelling them back into the US in the form of additional bond purchases. The result is a massive credit bubble, as Chinese banks are repeating US mistakes from the early/mid part of the decade and providing cheap stimuli to its producers in an attempt to perpetuate a broken system. Whether or not this is sustainable, one only needs to look at the credit implosion in the US. The question of when the bubble ultimately bursts, however, is much more difficult to answer. However, unlike the one in the US, the Chinese credit bubble will likely have dramatic impacts on both the US and China, due to the intertwined nature of the two economies, both of which are trying desperately to hold on to a world in which the US consumer accounted for 70%+ of US GDP. Of course, with that world now gone, except in the imaginations of Federal Reserve economists, the longer the (anti)symbiotic relationship between China and the US persists, the more painful its unwind will be for both countries.
The stratified US consumer
One reason why delevering trends in the US consumer base are not equal, and have to be analyzed separately, is due to the dramatic schism within the consumer population, specifically the purchasing capacities, limitations and motivations of various income classes in US society. This is an approach that is all too often missing from traditional analyses of the US consumer. In order to properly analyze some of the major undercurrents within the consumer population, Zero Hedge relied on the most recent Survey of Consumer Finances, as well as an August 6 report by Bank Of America, "The Myth Of The Overlevered Consumer."
Three primary drivers determine one's willingness to spend - credit quality, disposable income, and wealth. Yet as the table below demonstrates, there is a substantial disparity in how these three factors impact the two critical classes of US society - the Middle and the Upper class.
What is immediately obvious is that based on estimates by Bank of America, the 50% of US population which makes up the middle class, is responsible for the same amount of total consumption as the 10% of the upper class. Another observation is that the balance, 40% of population considered Low-Income consumers, is responsible only for 12% of total consumption.
A drill down of disposable net income (after tax) and net worth, demonstrates why any discussion of "generic" consumers should be much more properly phrased as an observation of the "Wealthy" and "Everyone else".
The disposable income difference between the richest 10% and even the next richest decile is staggering: a 3x order of magnitude. And a fact that Taleb fans would likely appreciate most, the pretax income difference between the median and mean for the top decile is shocking: $206,900 versus $397,700. This is skewed by a statistically low number of outliers earning an abnormally large amount of disposable income.
The deleveraging of the middle class
Probably the most dramatic observation appears when evaluating relative leverage of the various consumer classes.
It is apparent that the problem of consumer (de)leveraging is actually one of a Middle class burdened with excess debt. The debt-to-income ratio for the middle class is on average more than 200%, almost double that of the highest decile, "Upper Class."
The divergence among the classes is even more obvious when comparing aggregate net worths:
While 10% of the population collects 40% of disposable income, it represents 57% of net worth! This is an impressive conclusion: on a lowest common denominator, the Net Worth variance between the 10% of the population that make up the wealthy and the 50% that comprise the middle class is over 8x! No wonder the aspirational consumer was the most vibrant retail category at the peak of the bubble: if the middle class can not accumulate 8x the net worth it needs to migrate into the top decile, it can at least dress like it. Unfortunately, it did these purchases on credit and is now paying for it (or not).
A derivative and somewhat surprising observation, is that the significant decline in the 1990-2000 decade was driven almost exclusively by the top 20% income earners, who benefitted the most from increased wealth. A 2001 working paper by Maki and Palimbo concludes that as the stock market ramped higher toward the end of the last century, the wealthy benefited the most, and as a result were the income class that reduced its savings activity by the greatest proportion.
The 20% of the population, who benefited the most from the second to last equity bubble (a comparable conclusion can be drawn for the most recent cheap credit-driven bubble), were in fact responsible for a -9.3% change in savings within their own strata over the 1992-2000 period, even more disturbing is that this change accounted for 98% of the overall shaft in the saving rate over the same time period. The consequence of this datapoint is that the recent hike in savings is likely dictated by the wealthiest 20% of the populating saving much more in earnest.
As noted the primary reason for the decline in savings in the late 90's was due to the richest stratum of society benefitting abnormally compared to the "poorer" percentiles. One explanation for this comes in the form the consumption function, which was extrapolated by Case, Quigley and Shiller in the analysis of the wealth effect. It formulaic definition is as follows:
57%*Percentage Change in Pretax Income + 8.4%*Percentage Change in Housing Market Wealth + 5.6%*Percentage in Stock Market Wealth.
The practical application of this formula is that consumers change consumption by 57% of the percentage change in pretax income (or almost 100% of after tax income), with the balance going to taxes and savings. Additionally, a 1% change in housing market wealth leads to a 8.4% change in consumption, while the stock market, perceived as the least permanent, leads consumers to change consumption by only 5.6% per 1% change in stock market wealth.
There are several consequences of this consumption function: primary among them is that the recent push by the administration via various channels to inflate the stock market actually has a much less pronounced impact on the end consumer, as even a 10% increase in the stock market will be undone by merely a 1% change in pretax income (assuming housing values are flat when in reality they are consistently declining). As recent macroeconomic data have demonstrated, the massive slack in the job pool has caused real wages to decline materially. In fact, for an end consumer, a 5% real or perceived decline in pretax income would offset all the "beneficial" implications of the 50% increase in the S&P since the March lows (not even considering the 30% market decline from its highs). The reason for the Fed's nervousness is evident: the truth is that all three of the key psychological metrics that determine consumption are plunging, and absent the recent aberration driven by the abnormal market action over the past 5 months, the consumer has no reason to be cheerful about the future, and to go forth and spen and drive the US (and global) economy forward.
Yet one of the side-effects of this function is that when looking at data historically, it is once again the top decile, or the "Upper" Class the benefitted consistently over the the past 15 years, to the detriment of both the low-income and the middle-classes, which represent 90% of the population.
It is probable that the dramatic increase in savings as disclosed previously, is an indication that at long last the richest 10% of America may be finally feeling the sting of a collapsing economy. Yet estimates demonstrate that even though on an absolute basis the wealthy are losing overall consumption power, the relative impact has hit the lower and middle classes the strongest yet again.
The main reason for this disproportionate loss of wealth has to do with the asset portfolio of the various consumer strata. A sobering observation is that while 90% of the population holds 50% or more of its assets in residential real estate, the Upper Class only has 25% of its assets in housing, holding the bulk of its assets in financial instruments and other business equity. This leads to two conclusions: while average house prices are still dropping countrywide, with some regions like the northeast, and the NY metro area in particular, still looking at roughly 40% in home net worth losses, 90% of the population will be feeling the impact of an economy still gripped in a recession for a long time due to the bulk of its assets deflating. The other observation is that only 10% of the population has truly benefited from the 50% market rise from the market's lows: those better known as the Upper class.
And to add insult to injury, the segment of housing that has been impacted most adversely in the current downturn, is lower and middle-priced housing: that traditionally occupied by the lower and middle classes. The double whammy joke of holding a greater proportion of net wealth in disproportionately more deflating assets is likely not lost on the lower and middle classes.
The next consumer shock
As this post has demonstrated, so far the lower and middle classes have borne the brunt of the recession. Is it safe to say that the wealthy have managed to game the system yet again and avoided a significant loss of wealth, while maintaining sufficient access to credit? If in fact that is the case, a case could be made for a consumer lead-recovery, granted one that is massively skewed to the 10% of the population which consumes 42% in the US. Yet, in doing all it can to avoid an economic collapse, the administration may have planted the seeds of its own destruction.
In order to finance the burgeoning budget deficit, Obama and his advisors will inevitably be forced to raise taxes, either across the board (contrary to Obama's campaign promises but in line with recent disclosures by the White House), or progressively. The latter is the most worrying, as it seems inevitable that be it to help finance the budget deficit or Obama's healthcare reform action, it is precisely the topmost wealthy decile will be the portion of population impacted the most, and one can argue, that one that has the highest marginal power to determine consumption. And as the consumpion function above indicates, a progressive increase in tax rates, effectively reducing disposable (or after tax) income for the wealthiest will undo virtually all the benefits from both an increase in the stock market, as well as the unprecedented purchasing of MBS and agencies by the Fed in order to prevent a collapse in housing prices across the board.
While for the time being, the administration may have prevented a slide into a depression, the biggest swing factor - the consumer, and more specifically the 10% that comprise the richest stratum thereof - is very weary, and for the time being the Upper class which seems to be the only fragment of US consumption that is propping up the economy, is likely to retrench very soon, absent a dramatic change in stance by the administration. Yet with a budget deficit spiraling out of control, and a policy that for the time being has advocated softening the blow now, at the expense of deterioration in the future, there is no reason to believe that President Obama will approach this problem effectively, and will likely continue relying on government spending to prop up GDP as long as possible, until eventually the key component of the real driver for the US Economy, the "consumer" finally lets go, and the economy spirals into its preordained and inevitable next crisis.
»
- 41507 reads
- Printer-friendly version
- Send to friend
- advertisements -
A place where you can get knowledge and express yourself without any flack...
I belong to several very private by invite social networks run by Nazi webbies. I posted a thread about the death of Dubai last year and got sacked. I was not aware that major ME prostitution was going on in the background.
My former favorite was Davos social network, again webbies...;-(
Love this place..I can rant, laugh and learn..Thank you TD and gang.
Nazi webbies- sounds like a ruff crowd. There must be over a billion websites defined as blogs, or social networks if one does not live in the panhandle.
I remember when the first drive-up window was installed at a fast food restaurant. I thought, this is the beginning of us not having a face. Now, we have come to a point where not only do we not have a face, but we do not have a name. Without a face and name, there is nothing we can accept as actual. All we can do is blog, or, social network.
There is no limit to being clannish. I agree with you completely, this is a good place to hideout.
Getting pretty existential there Waterdog...
I got sacked from Davos site for posting this video as the highlight of the conference!
http://www.youtube.com/watch?v=YYjj-qzUWWA
They have zero humor!
I want to apologize to you Sqworl, for my last blog as a comment to your blog. It appears my rear-end has climbed up my back and smothered me.
My blog made no sense and was inappropriate for the message of your blog.
Again, I apologize
No apology necessary...I enjoying reading everybody and happy to be read...:-)
I have great stories of the Jetset of the world in private blogs...I wrote a screen play:
I WROTE A FRANK ZAPPA LIKE 30 SECOND THEME SONG WHICH IS VERY QUIRKY.
YOU'D HAVE TO HEAR IT TO LOVE IT BUT THE LYRICS ARE...
PLATINUM PORTAL, STEP INSIDE
PLATINUM PORTAL, WEAR YOUR DISGUISE
PLATINUM PORTAL, WILL MANAGE YOUR LIES
PLATINUM PORTAL, TRY IT ON FOR SIZE
PLATINUM PORTAL...
http://gawker.com/5337819/is-harvey-weinstein-selling-his-worthless-junk-for-fast-cash
Speaking of the Devil...lmao
I think that article sums up the great problems we have right now in our society... a facebook for 10% of the upper class/millionaires that Tyler was talking about... called "A Small World"... WTF... I think it is quite entertaining that he has to try to go around and hawk that dandy little item... I would love to hear his sales pitch... but most of all I hope they do a follow-up on who bought it from him and what Weinstein's loss was.
Sales pitch: Creme de la Creme database!
You have to invited and approved
Application requires more info than a Fed Job
Now take into consideration that it is a Shagging site...they have your emails and know who you are...
If you misbehave, they either sack you or send you to ABW!!!
I might agree with *some* of the conclusions that CEPR reaches, but that org in general is a bunch of far-left Chavez fluffers whose policies would bring violence to the US if enacted in full.
We just
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Good comprehensive reading.
My view is that debt-to-income will fall below (overshoot) the long-term mean before it settles back at the mean, if it ever does. Housing will also likely fall too far as well, nothing ever settles precisely at the mean, it always overshoots...it will all be quite interesting to watch, glad my tarpaper shack isn't worth too much, a lot less to lose!
im so f'ed!
15 years, same company.
maxed out 401K every year.
Pulled 401K out of the market last spring.
Own 1/2 my house.
Live modestly, own both cars...no other debt other than house.
In that "death range" for income (i.e. here come the taxes).
Plan for US is to socialize the losses, privatize the gains....
we're so f'ed!
Your preaching to the choir! I spent 20 years on WS..left started my own company and it died last year...;-( Now what? No employment prospects and looking at no light at the end of my tunnel...who ever flagged your comment as junk is Barney Franks bitch!
very interesting analysis. perhaps this shows why the government is more concerned about feeding those at the very top with bailouts and free money than assisting the middle class. if on balance it will be the same for the economy. it is much easier to please 10% than the rest, especially if you are also in that 10%. I guess the only question is: how long will the other 90% allow this to continue? for the last 30 years you could get away with it, as those in the middle class fooled themselves into believing they too would be rich one day. only the truly stupid believe that myth anymore.
Interesting thoughts and I agree... and by the way I can't imagine who would flag your post as junk... must be someone in that 10%... :)
amen
I feel uncomfortable.
Maybe shifting positions would help :)
Thanks, that helped.
@ Tyler: Great interview you did with Max Keiser, I did a post about it myself:
http://www.econocataclysm.com/max-keiser-interviews-tyler-durden-video/
All my thoughts about the way you and Max interact are up there, but I think it's worth repeating here that if you guys can get get your groove worked out then future collaborations would be hipper than hip! Pretty much, Max Keiser and yourself are my two mainstays. Keep up the good work!
How's that google rank doing for ya?
Excellent reading, thanks. I have one truck with the analysis though:
http://www.zerohedge.com/sites/default/files/images/McK%202.jpg
138/101 != 101/62, nowhere even close, 38% vs 63%
Most of the wealthy people that I know don't use credit much. They know that debt is for suckers, which, at least, partially explains whey they are wealthy.
Regardless, can you post a copy of The Myth Of The Overlevered Consumer to your Scribd account? I can't seem to find it anywhere.
I realize we may have reached the end of consumer evolution. It is literally a colorful journey. It started out with the Green Card, allowing us to have tomorrow today. Given the need for many of us to feel exclusive, it morphed to Gold. When too much was never enough, it went Platinum. The asset bubble swelled those ranks, however, so the most deserving amongst us were finally awarded that old fashion standby: the Black Card.
The latest permutation is available only to the truly chosen few, many of whom spend their days at 85 Broad, weekends in the Hamptons or Nantucket, winters back in Telluride, and vacations at Sasakwa on the Grumeti Reserve. This card is invisible. Those possessing it merely take whatever they want and never need to pay the bill.
Mayor Bloomberg just lit another $1600 Cohiba to that!
good morning ZHers .... here is something for you to read to grasp the concept of mathematics ... fantastically interesting read, written in a simple manner .. enjoy .. http://www.scribd.com/doc/17673018/Philosophy-of-Mathematics-Routledge-Contemporary-Introductions-to-Philosophy
I had no idea that there was a "philosophy" of mathematics... read the first chapter... well written and interesting... will save the rest for when my brain needs exercise.
that's the beauty of both philosophy and mathematics; everything can be philosophized about, and everything can be mathematicized. That's why i absolutely love those two disciplines. Enjoy the read, it is fucking awesome. ( and yes those two words exist )
You never heard of constructivism, which is the entire basis of mathematics since Aristotle? You never heard of logicism, intuitionism or formalism?
Never... I went all the way through upper level math classes towards a computer science degree... and never, I repeat, never once had a class on constructivism, intuitionism or formalism. I have however solved an 1000's and 1000's of useless equations that I have never used again in my life :-)
Thank you! I welcome your reading suggestions..;-)
$70bn yoy debt reduction is not much by any standard. it is the normal debt retirement for 100m people at $700 per year or $60 per month. this is smaller amount than the principal repayment of a financed vehicle and much smaller than the mortgage principal repayment.
Stimulus, stimlus,
raise income taxes
raise health care taxes
raise crap and trade taxes
Future's so bright... That reminds me, I gotta finish that bunker.
Great Work Tyler - probably just one mistake when you say
"The disposable income difference between the richest 10% and even the next richest decile is staggering: a 3x order of magnitude. "
It should be three times and not three orders of magnitude if I read the chart right.
Thanks
Useless data from memory:
Top 10% of U.S. earners account for 23% of consumption.
Higher-end home prices are starting to crack ... MSM picked up on this about a week ago ...Can share from personal experience here in Lakeview/Lincoln Park Chicago, prices have come down 5-10% in the last couple months as nothing is moving without government adamantanium.
Expect that the focus of higher-end consumption will be 'affordable luxury' over the next few years... that will not effect the Starbucks latte, couple bucks ain't no big deal, it will kill big-ticket and aggregate numbers.
ZH - this likely will not be posted (as I see comments are now being moderated) - but how do you reconcile your "manifesto" protecting "anonymity" with your stated coming requirement of "registering" with an identity? Yves tried it for a while but went back to allow users the option -- Calculated Risk requires it - and while he has hundreds of thousands of readers, those who post are a veritable clique of regulars. Krugman allows anonymous but even worse he "moderates" e.g. decides which comments get posted and which ones get discarded. Mish who like CR has hundreds of thousands of readers requires registration and also moderates comments.
I'm just wondering as an early follower of ZeroHedge - I never observed a lot of "inappropriate" posts so what is the rationale for collecting peoples email addresses and tracking their comments? e.g. my initial question vis a vis your manifesto.
I just posted the question on anonymity and see you have (for now) gone the "moderation" route - now I'm positive my earlier comment (and this one) won't make the cut.
Too bad, this was a fun and informative blog
so apparently I was incorrect - we shall see if this post is held for moderation -- ZH don't spoil a good thing of course if this doesn't post in a timely fashion perhaps I was correct... whatever
why not register? you can do so under any name. and you get access to many more features as a registered user
how secure are your servers? I suspect the NSA guys peak into your house everyday.
they are in Sweden, or Lichtenstein, or Switzerland ... they are not in the USA ..
The servers are near Stockholm and Amsterdam. You don't want to know what is in Liechtenstein. If you are paranoid it doesn't really make a difference of where they are.
More Cowbell, Singles greatest post I have seen.
Nice job of capturing many salient dynamics. Beyond the consumer per se, we also have to consider aggregate debt to GDP.
Couple of points on the household DTI...
I suspect the rising mean is due to overall assets to income provding for additional leverage capability. I suggest it has to drop even further due to wealth destruction.
Seems you have a typo. The mean reversion is % not bps.
Planned? absolutely. Twitmonkey Alan Greenspan and Elaine Chao have both chirped "health sciences," the only source of jobs left in the US. IT to India; manufacturing to China. Transitioning to a job in health sciences is a long, 3-5-15 year process, depending on the job, so don't look for a consumer led recovery. Limiting jobs in the US to one field is absolutely counter to Adam Smith's writings in "The Wealth of Nations."
"But it would be otherwise in a country where the funds destined for the maintenance of labour were sensibly decaying. Every year the demand for servants and labourers would, in all the different classes of employments, be less than it had been the year before. Many who had been bred in the superior classes, not being able to find employment in their own business, would be glad to seek it in the lowest. The lowest class being not only overstocked with its own workmen, but with the overflowings of all the other classes, the competition for employment would be so great in it, as to reduce the wages of labour to the most miserable and scanty subsistence of the labourer. Many would not be able to find employment even upon these hard terms, but would either starve, or be driven to seek a subsistence either by begging, or by the perpetration perhaps of the greatest enormities. Want, famine, and mortality would immediately prevail in that class, and from thence extend themselves to all the superior classes, till the number of inhabitants in the country was reduced to what could easily be maintained by the revenue and stock which remained in it, and which had escaped either the tyranny or calamity which had destroyed the rest."
Relax, it's been a busy weekend in the Hamptons. The bonus is working its magic.
http://www.ritholtz.com/blog/2009/08/busy-weekend-in-the-hamptons/
Enjoy the fucking Calamari...Extra lemon juice courtesy of porch monkeys!
That fits in with TD's research article... the top 10% of our population at the Hamptons are now the litmus test of how the rest of the economy will do... I hope that is the case... but I am not so sure... from my vantage point my usual upper-end travel destinations are still dead as a doornail...
Yeap! many hotels are closed this summer!
Yeah, generally when the gap between the haves and the have-nots gets this big - the shit goes down. And especially when there's a racial schism in the data as well:
http://www.tremblethedevil.com/my_weblog/2009/06/overtaken-by-events.html
Thanks for this excellent post, it is well worth reading closely and thinking about.
The asset bubble swelled those ranks, however, so the most deserving amongst us were finally awarded that old fashion standby: the Black Card.
We just
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Fox biz channel, led by Off-The-Rails-Tracy was bashing American workers yesterday for borrowing THEIR OWN MONEY from 401Ks, saying "We'll end up bailing out these (***turds)..." This over-the-top Jerry Springer stuff is to get ratings, but highlights the class warfare, it's downright SCARY!I work now at Albertsons, where I managed to go back to my UNION job when architecture dried up. I can tell you if it's not on sale, people don't buy it. The gov't is trying to reflate the consumer back into debt before the deleveraging is finished. The middle class(still?)I work with is hopeless. Hours are squeezed into part-time, they could'nt give a damn about stocks. Most don't own any!The market is only the elite's playground now, with Grandma now jumping in, forced by the Fed's CONSPIRACY to not allow interest on savings, pushing savers into the risk assets.Tim Iacano on financialsense called this immoral. It is and should be CRIMINAL. The Fed is dictating what banks can pay on savings. If a regional pays too much, Goldman can take them down using CDSs and extortion. They can drive their stock to zero in a heartbeat if they don't play ball. All this is sickening. To think of pathetic Cash-For-Clunkers schemes, MANDATORY SCRAPPING OF PAID-FOR VEHICLES! instead of encouraging savings, this is the greatest injustice, why the hell isn't there rebellion in the streets? Who represents the elderly needing interest income? This is a sick country, the sickest lecherous in history.
Don't blame Alan!
Whenever I think of the American Consumer being 70% of the American ecomony, I think of this.
Between 40 to 45% of all of the jobs created in this country between 2001-2007 were closely tied to the real estate boom. We've lost a lot of these jobs now to the depression (I think it's a depression now. The govt. waited almost two years to call a recession. Do you really think they're going to be on top of calling a depression?), and there's more downside.
When I talk about job creation, I'm not just talking real estate agents, I'm thinking landscapers, maintenance, appraisers, etc...
I wish I could remember where I read that statistic, but it's sobering.
Excellent piece of analysis. Sometimes its worth digging below the aggregate numbers.
In my opinion what we are seeing is the thesis of Robert Reich, who coined the term symbolic analysts, to describe the new “upper class 20%”, that would produce most of the wealth. This was after the crisis in the late eighties, that where followed by the Greenspan “miracle”.
Personally I believe, that the crisis of the eighties where never resolved, and the trends that Robert Reich saw where never reversed. They where only postponed by equity extraction, negative savings rates, cheap imports and immigration for the service sector.
It was thus possible to uphold the illusion, that there was a large middleclass, that would support the existing system, in the belief that it worked for them. Part of this process, a large financial sector was created, which primarily had the purpose of fooling everyone, to some extend including the participants, that prosperity was here for good.
Part of this process has been a massive outsourcing of jobs to developing countries, that has increased wealth in these countries to a great extend. However, this trend has been accelerated by the false economic messages of a tight labor market in the west, because in reality a great deal of people have not really been producing anything of value. They have only been employed to uphold the mirage of a sound economy.
One irony of the current bailouts is, that while the 80% of the population would have been “wiped out” financially if all the banks had been allowed to fail, they would also have been lifted from the debt they are now carrying. So indirectly, the bailout of middle America has been the bailout of the savings of rich America.
In the end this cannot work, so the savings will have to be eroded by inflation in the time going forward. Might actually have been better if more banks had been allowed to fail.
Money could have been spend more proactively on new projects going forward.
interesitng stuf. reich may be right on.
We just
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
There are 2 main problems with this essay.
1) The main wealth disparity is the top 0.01%, not the top 10%.
Conspicuously absent from the data is a graph of income versus population, which would demonstrate the above point clearly. Graphs of tax contribution in absolute and relative terms would also be highly relevant.
Dealing with this exponential function in deciles is a nice piece of propaganda, since it encodes the idea that millions of [upper middle class] people will be put in harms way before the focus turns to the real financial elite, surprise surprise.
2) The problem with the economy isn't taxation.
It's the fact that fincancial reward is inadequately paired to productive activity. Power and wealth are disproportionately concentrated amongst a small elite of middlemen, to the extent that productive activity is actively damaged.
The top 10% of workers by income, aren't the economic problems you're looking for.
The analysis of the deleveraging of the middle class is well done and convincing, lets see if Tyler Durden is correct... http://tinyurl.com/qoxl7l
Excellent post and analysis - one of your best yet, which is saying something.
terrific analysis
Surely the taxation issue is upside down. Sure you can taxing the top 10% of individuals but we're better off to ensure the corporations cough up their proper share instead of hiding it in tax havens. A dramatically reduced dividend payout and the impact on share prices in general will even the field substantially for the top 10% relative to the rest of society in terms of wealth.
If it ain't fixed its broken...
The glass floor will shatter soon...the HS will crash, sending the world into it's final resting place, the abyss. Then in a magical babylonian moment that will follow, the wizards of finance will produce a miracle reset of the world economy.
Merrill Lynch now part of Bank of America is catering to their most affluent clients with a call not to raise taxes to the super rich. Their report is quoted here and in:
http://accruedint.blogspot.com/2009/08/consumption-person-of-some-import...
and
http://latimesblogs.latimes.com/money_co/2009/08/the-well-heeled-might-b...
So this is class warfare all over again. Which side are you on?
Let me add that JPMorgan Chase came with a similar study just a few days before Merrill. So be careful, big banks think alike and they got us into this mess in the first place.
Theirs is called "COMMON MYTHS ABOUT US CONSUMERS" and is available:
http://www.google.com/url?sa=t&source=web&ct=res&cd=15&url=https%3A%2F%2...
They proclaim as myths the following:
Myth #1. Permanently higher unemployment will keep
the consumer on a short leash
Myth #2. Paper wealth is ephemeral and rational
consumers would not respond to it
Myth #3. Households need to step up their saving—
change their behavior—to recoup losses on retirement
savings they suffered last year
Myth #4. Households are ill prepared for retirement
Myth #5. Fine, but more households own houses and
homeownership society is under water
Myth #6. Households are overleveraged
GREAT WRITEUP, TD!!!
Question: One byproduct of higher taxes on the rich is that they would find ways to avoid the tax through various measures (such as being residents of tax haven countries). If that's the case, wouldn't the rich's income, and hence, consumption be less affected by higher taxes than anticipated?
So does the destruction of the American Economy hinge on a tax increase? What are the odds of that happening in the next one, two, three years?
Who's to say that Obama doesn't get this same analysis, agrees with the conclusions, and then does not raise taxes!
The consumer would be allowed to recover and the economy would start justifying these S&P levels.
57%*Percentage Change in Pretax Income + 8.4%*Percentage Change in Housing Market Wealth + 5.6%*Percentage in Stock Market Wealth.
Interesting equation and quite damining in reverse. Given that only 57% goes stright to consumption though, there is obviously a positive multiplier effect for house prices and stock markets.
Given that incomes and house prices have gone into reverse, presumably a negative multiplier should go into effect, how the hell the markets are managing to hold up is beyond me but then 1931 was a pretty good year too...
Inflation also seems kind of persistant, policymakers tell us this is a good thing but frankly, if my income and wealth fall, I need lower prices to maintain my standard of living. I don't buy the fact that people postpone consumption ad infinitum in a deflationary environment simply because they know prices will fall, I do buy the fact that they don't want to exacerbate the fall in their standard of living by locking in good at prices that have not adjusted to the same extent as their wealth.
People evaluate goods and services in a relative sense, its about maintaining the same standard of living or marginally better than Joe next door. People will buy goods and services at an appropriate level for their new standard of living and prices will have to adjust to clear at that level. However, if you are selling speed boats or cabin cruisers, you're simply not in the revised standard of living spectrum for most people. Luxury just became exclusive again and people actively expect a lower standard of living.
Its one of the good platform for awareness of people. Keep sharing such stuff in the future too. xbox 360 s
I found lots of interesting information here. The post was professionally written and I feel like the author has extensive knowledge in the subject. Keep it that way sports administration masters
I found
lots of interesting information here. The post was professionally written and
I feel like the author has extensive knowledge in the subject. Keep it that
way
sportsadministration masters
This is very good blog and I also show you some imformation through this .
House Cleaning Dripping Springs http://www.themaidsservingaustin.com