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How the poor are fuelling the booming U.S. economy

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 Mortgages, auto loans and credit card debt: How the poor are fuelling the booming U.S. economy

https://business.financialpost.com/news/economy/mortgages-auto-loans-and-credit-card-debt-how-the-poor-are-bolstering-the-u-s-economy

Quote

A Reuters analysis of U.S. household data shows that the bottom 60 per cent of income-earners have accounted for most of the rise in spending over the past two years even as the their finances worsened — a break with a decades-old trend where the top 40 per cent had primarily fuelled consumption growth.

With borrowing costs on the rise, inflation picking up and the effects of President Donald Trump’s tax cuts set to wear off, a negative shock — a further rise in gasoline prices or a jump in the cost of goods due to tariffs — could push those most vulnerable over the edge, some economists warn.,,

..

It is this recovery’s paradox.

A hot job market and other signs of economic health encourage rich and poor alike to spend more, but tepid wage growth for many middle-class and lower-income Americans means they need to dip into their savings and borrow more to do that.

As a result, over the past year signs of financial fragility have been multiplying, with credit card and auto loan delinquencies on the rise and savings plumbing their lowest since 2005.

Myna Whitney, 27, a certified medical assistant at Drexel University’s gastroenterology unit in Philadelphia, experienced that firsthand.

Three years ago, confident that a steady full-time job offered enough financial security, she took out loans to buy a Honda Odyssey and a US$119,000 house, where she lives with her mother and aunt.

Since then she has learned that making US$16.47 an hour — more than about 40 per cent of U.S. workers — was not enough.

“I was dipping into my savings account every month to just make all of the payments.” Whitney says. With her savings now down to US$900 from US$10,000 she budgets down to toilet paper and electricity. Cable TV and the occasional US$5 Groupon movie outings are her indulgences, she says, but laughs off a question whether she dines out.

“God forbid I get a ticket, or something breaks on the car. Then it’s just more to recover from.”

 

Edited by Saving For a Space Ship

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There's no 'paradox' - the economic boom in the USA is based upon usurious lending practices, as is the UK's.

I received a letter yesterday telling me how I can release equity from my CAR!

This is the economic miracle we are experiencing, and is the reason IRs will never rise unless the BoE's hand is forced by a plummet of our currency (which of course may well happen if the speculators decide to attack the pound next spring).

 

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The point is there is no economic boom. It's all fake.

The US economy, such as it is, has been on life support since 2007/8 and won't recover.

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There are more people that want to spend what they do not have, they haven't yet earned it......than wealthy people who have more than they want to spend they have already earned and banked it, their money has been removed from the economy.

So economies require the poor to easily obtain debt to spend to help keep the economy flowing/ticking over........poor people do not repay debt, just by borrowing it and spending it they have done their job to help the economy.😉

 

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2 hours ago, zilly said:

There's no 'paradox' - the economic boom in the USA is based upon usurious lending practices, as is the UK's.

I received a letter yesterday telling me how I can release equity from my CAR!

This is the economic miracle we are experiencing, and is the reason IRs will never rise unless the BoE's hand is forced by a plummet of our currency (which of course may well happen if the speculators decide to attack the pound next spring).

 

I just can't comprehend how we have reached this position. Why do so many people not care about getting into debt?!

They will do everything they can to keep the plates spinning and get more people into more and more debt. My worry is that people are so use to it that it will be years before there is any change. Hence it'll make thing much worst for people who want to steer clear of excessive borrowing. 

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12 hours ago, Saving For a Space Ship said:

 Mortgages, auto loans and credit card debt: How the poor are fuelling the booming U.S. economy

https://business.financialpost.com/news/economy/mortgages-auto-loans-and-credit-card-debt-how-the-poor-are-bolstering-the-u-s-economy

 

 

12 hours ago, Saving For a Space Ship said:

Mortgages, auto loans and credit card debt: How the poor are fuelling the booming U.S. economy

https://business.financialpost.com/news/economy/mortgages-auto-loans-and-credit-card-debt-how-the-poor-are-bolstering-the-u-s-economy

Quote

 It is this recovery’s paradox.

A hot job market and other signs of economic health encourage rich and poor alike to spend more, but tepid wage growth for many middle-class and lower-income Americans means they need to dip into their savings and borrow more to do that.

As a result, over the past year signs of financial fragility have been multiplying, with credit card and auto loan delinquencies on the rise and savings plumbing their lowest since 2005.

Myna Whitney, 27, a certified medical assistant at Drexel University’s gastroenterology unit in Philadelphia, experienced that firsthand.

Three years ago, confident that a steady full-time job offered enough financial security, she took out loans to buy a Honda Odyssey and a US$119,000 house, where she lives with her mother and aunt.

Since then she has learned that making US$16.47 an hour — more than about 40 per cent of U.S. workers — was not enough.

“I was dipping into my savings account every month to just make all of the payments.” Whitney says. With her savings now down to US$900 from US$10,000 she budgets down to toilet paper and electricity. Cable TV and the occasional US$5 Groupon movie outings are her indulgences, she says, but laughs off a question whether she dines out.

“God forbid I get a ticket, or something breaks on the car. Then it’s just more to recover from.” 

$119k  house, that equates to about 3.75 times earnings,  single income , assuming a 37 hour week.

Honda Odyssey, big people carrier thing, list price is  $30k-47k - lets assume about $350 a month to finance the car.

That takes things up to about 4.3 times single earnings, after the car payment. And supporting the family members living with her no doubt.

Scary.

 

 

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1 hour ago, UnconventionalWisdom said:

I just can't comprehend how we have reached this position. Why do so many people not care about getting into debt?!

They will do everything they can to keep the plates spinning and get more people into more and more debt. My worry is that people are so use to it that it will be years before there is any change. Hence it'll make thing much worst for people who want to steer clear of excessive borrowing. 

We've reached this position due to the corporate capture of the political process by the world of big finance, and its promises of glittering prizes for politicians who play the game...

Plus these same very wealthy folk have spent a lot of money to convince people - gulls - that the problem is due to excessive government intervention, and onerous taxes, rather than their own greed and desire to become richer than they already are; a process that started around 40 years ago with the implementation of the extreme, fundamentalist economic system which has destroyed the middle class via 'trickle up', and loaded us with frightening amounts of debt to plug the hole left by the search for 'stockholder returns' (stockmarket indexes being naturally the only measure of economic prosperity...).

Hence no-one bats an eyelid at a TV advert offering loans at 1200% APR - because that level of usury and exploitation of the unfortunate and naive (vilified by the right-wing press as 'feckless' etc etc) has been normalised.

When the highly abnormal becomes normal (not so long ago usury was a crime - for good reason), you know you've got a problem.

Edited by zilly

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54 minutes ago, Andy T said:

 

$119k  house, that equates to about 3.75 times earnings,  single income , assuming a 37 hour week.

Honda Odyssey, big people carrier thing, list price is  $30k-47k - lets assume about $350 a month to finance the car.

That takes things up to about 4.3 times single earnings, after the car payment. And supporting the family members living with her no doubt.

Scary.

 

 

Unreasonable to my mind that someone in their late 20s with middle-class job cannot live in a society where it's out of their reach to aspire to a a cheap house and average sort of car.  She doesn't sound like a debt-crazy to me. 

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She ought to count her blessings....a house for $119k ...less than £100k??  Little chance of that in old Hampshire...where our hard earned pounds have been turned into toilet paper. 

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6 hours ago, Andy T said:

 

$119k  house, that equates to about 3.75 times earnings,  single income , assuming a 37 hour week.

Honda Odyssey, big people carrier thing, list price is  $30k-47k - lets assume about $350 a month to finance the car. 

That takes things up to about 4.3 times single earnings, after the car payment. And supporting the family members living with her no doubt.

Scary. 

Scary that it's not possible for an OK full-time job to support a basic lifestyle, including a very cheap (by UK standards!) place to live.

5 hours ago, Funn3r said:

Unreasonable to my mind that someone in their late 20s with middle-class job cannot live in a society where it's out of their reach to aspire to a a cheap house and average sort of car.  She doesn't sound like a debt-crazy to me. 

Absolutely agree with this: she is not "feckless" by any stretch of the imagination. In addition to keeping down a decent job and (by the sounds of it) supporting other people, she also managed to save $10k ... albeit that's now draining away. As "Durrhamborn" used to say: if a full-time worker cannot afford a basic house, then it's the government that is the problem.

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7 hours ago, UnconventionalWisdom said:

I just can't comprehend how we have reached this position. Why do so many people not care about getting into debt?!

They will do everything they can to keep the plates spinning and get more people into more and more debt. My worry is that people are so use to it that it will be years before there is any change. Hence it'll make thing much worst for people who want to steer clear of excessive borrowing. 

You've answered your own question perfectly there. 😉

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7 hours ago, zilly said:

Plus these same very wealthy folk have spent a lot of money to convince people - gulls - that the problem is due to excessive government intervention, and onerous taxes, rather than their own greed and desire to become richer than they already are; a process that started around 40 years ago with the implementation of the extreme, fundamentalist economic system which has destroyed the middle class via 'trickle up', and loaded us with frightening amounts of debt to plug the hole left by the search for 'stockholder returns' (stockmarket indexes being naturally the only measure of economic prosperity...).

Mate, you are quite right at observing that the final descent into the current cesspit was embarked upon some 40 years ago, 40+ actually. I think what you are still to digest properly is that it was not libertarians or Austrians that put most of the western world on the slippery slope we are all rightly concerned about. In fact, you couldn't be further away from the truth. To call the system which is increasingly a mishmash of socialism and fascism as something fundamental is quite something. For starters, would you like to familiarise yourself with the concept of honest money? You know like gold. That naturally inhibits credit expansion and inflation. Last shackles that tied a certain government to a gold standard were abandoned 40+ years ago. It is no coincidence that the government controlled cartels of banks were able to embark globally on an unprecedented credit expansion and deficit spending spree that we are yet to see a finish of. 45 or so years later. It is also no coincidence that the well-being of the common man peaked exactly 45 years or so ago (specifically in the states). And it is, of course, exactly the purpose of the whole set-up to squeeze the wealth from unsuspecting "middle class" sheople. With the the help of the government that pretends to be protecting and working for the said class, bt actually does everything possible to fleece it to enrich certain corporates and increase its own dead weight on the society.

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15 minutes ago, Meerkat said:

Mate, you are quite right at observing that the final descent into the current cesspit was embarked upon some 40 years ago, 40+ actually. I think what you are still to digest properly is that it was not libertarians or Austrians that put most of the western world on the slippery slope we are all rightly concerned about. In fact, you couldn't be further away from the truth. To call the system which is increasingly a mishmash of socialism and fascism as something fundamental is quite something. For starters, would you like to familiarise yourself with the concept of honest money? You know like gold. That naturally inhibits credit expansion and inflation. Last shackles that tied a certain government to a gold standard were abandoned 40+ years ago. It is no coincidence that the government controlled cartels of banks were able to embark globally on an unprecedented credit expansion and deficit spending spree that we are yet to see a finish of. 45 or so years later. It is also no coincidence that the well-being of the common man peaked exactly 45 years or so ago (specifically in the states). And it is, of course, exactly the purpose of the whole set-up to squeeze the wealth from unsuspecting "middle class" sheople. With the the help of the government that pretends to be protecting and working for the said class, bt actually does everything possible to fleece it to enrich certain corporates and increase its own dead weight on the society.

OK, but you have to concede that the monetarists and neoliberals who've been in charge for the last 40 years took a great deal of their inspiration from the Austrians. The laissez faire principle that markets are best left to regulate themselves is inherently Austrian in sympathy and would have scandalised Adam Smith and his fellow classical economists who never used the phrase. Mathematically, it requires that markets operate close to a dynamical or statistical equilibrium at all times, something that is never observed empirically in financial markets. Adam Smith, notably, spent much of his time examining the moral inadequacies of capitalism, which makes him more modern ironically than either von Mises or Friedman.

Your argument about the gold standard is broadly correct but ignores entirely the causes of its dissolution: by the mid 50s it had become a straitjacket from which corporate America progressively escaped by financing credit creation in so-called Eurodollar deposit markets. By 1970 the volume of dollar denominated credit held overseas was approximately equal to the domestic US money supply and the French threat to redeem their dollar deposits for physical gold could no longer be faced down or bluffed away.

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3 hours ago, Toast said:

Scary that it's not possible for an OK full-time job to support a basic lifestyle, including a very cheap (by UK standards!) place to live.

Absolutely agree with this: she is not "feckless" by any stretch of the imagination. In addition to keeping down a decent job and (by the sounds of it) supporting other people, she also managed to save $10k ... albeit that's now draining away. As "Durrhamborn" used to say: if a full-time worker cannot afford a basic house, then it's the government that is the problem.

Agree but never expected to own a house on my own when I started out and never have 

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9 hours ago, Funn3r said:

Unreasonable to my mind that someone in their late 20s with middle-class job cannot live in a society where it's out of their reach to aspire to a a cheap house and average sort of car.  She doesn't sound like a debt-crazy to me. 

As my previous reply - late 70’s none of us expected to get a house without our girlfriend or our wife

Perhaps a little middle class scenario that was a moment in time ?

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10 hours ago, UnconventionalWisdom said:

I just can't comprehend how we have reached this position. Why do so many people not care about getting into debt?!

They will do everything they can to keep the plates spinning and get more people into more and more debt. My worry is that people are so use to it that it will be years before there is any change. Hence it'll make thing much worst for people who want to steer clear of excessive borrowing. 

Because you know what all money is a man made thing , it’s not courage, love or happiness so use it and abuse it it’s not your master 

You started with nothing and your shroud ain’t got no pockets 

So as soon as you can:

stop working for the man

Marry well

Work longer and harder than people around you 

timeless principles that still apply 

yep the housing market is f**** up but ignore that and follow ancient principles you will do ok 

Edited by GregBowman

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10 hours ago, GregBowman said:

Marry well

This is often over looked. Not strictly getting married but forming a permanent relationship with someone (pretty much the same thing afaic). That is more financially beneficial than getting a 50% pay rise. A lot of costs half. Almost all costs decrease, when divided between two. Particularly housing! 

If you marry an idiot, which many people do, then you don't benefit quite so much. 

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14 hours ago, Toast said:

if a full-time worker cannot afford a basic house, then it's the government that is the problem.

Agree. If a person on say £40,000 can't afford a house and a car without taking on massive debt then something is massively wrong. This alone shows how the system is totally FUBAR.

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28 minutes ago, bushblairandbrown said:

If you marry an idiot, which many people do, then you don't benefit quite so much. 

A very rich idiot is ideal. Young and pretty would make it perfect.

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12 hours ago, GregBowman said:

As my previous reply - late 70’s none of us expected to get a house without our girlfriend or our wife

Perhaps a little middle class scenario that was a moment in time ?

It was a very funny time. I remember about 1979 naively asking at my local branch of TSB for a mortgage and the manager practically had a fit when he found out I had no deposit savings and kicked me onto the street.

Slunk off and forgot about it but by 1981-82 things were blazing and I had no trouble getting 105% mortgage for an off-plan and never looked back.

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16 hours ago, GregBowman said:

Because you know what all money is a man made thing , it’s not courage, love or happiness so use it and abuse it it’s not your master 

You started with nothing and your shroud ain’t got no pockets 

So as soon as you can:

stop working for the man

Marry well

Work longer and harder than people around you 

timeless principles that still apply 

yep the housing market is f**** up but ignore that and follow ancient principles you will do ok 

Great advice. 

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18 hours ago, GregBowman said:

Because you know what all money is a man made thing , it’s not courage, love or happiness so use it and abuse it it’s not your master 

You started with nothing and your shroud ain’t got no pockets 

So as soon as you can:

stop working for the man

Marry well

Work longer and harder than people around you 

timeless principles that still apply 

yep the housing market is f**** up but ignore that and follow ancient principles you will do ok 

Preferred Greg's older advice about The Richest Man in Babylon.

I try to practice all 7 cures myself, except the home bit.  That has to still wait for the future, after another BTL buyer frenzy during the past 5 years.  

Can't afford to overpay for a home, and other people's chums decided (with their own thinking independent minds) to lay claim to other people's homes, some 5 million of them, by way of BTL during the past 2 decades.  And it has paid off big for so many BTLers.  No trickery involved, they did what they chose to do, and decided BTL was right for them; rentierism.  Fully involved.  No passive investment but one which requires their continuous activity to maintain, and collect rent from.

https://en.wikipedia.org/wiki/The_Richest_Man_in_Babylon_(book)#Seven_Cures_for_a_Lean_Purse

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On 26/07/2018 at 12:27, UnconventionalWisdom said:

I just can't comprehend how we have reached this position. Why do so many people not care about getting into debt?!

They will do everything they can to keep the plates spinning and get more people into more and more debt. My worry is that people are so use to it that it will be years before there is any change. Hence it'll make thing much worst for people who want to steer clear of excessive borrowing. 

Debt is the new wealth.

Why bother about debt when the asset you buy this year will be worth 25% more in 2 years?

 

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9 minutes ago, GreenDevil said:

Debt is the new wealth.

Why bother about debt when the asset you buy this year will be worth 25% more in 2 years?

Not that far from the truth for house prices in many areas, and, same again for 2 years back on that..

And people here were full of bottle-green ego about people taking out mortgages then, thinking the debtors were idiots.

Only people I have some sympathy for are the ones who take debt to just scrape along, with rent and food. 

All other debtors make their own choice.  The woman in the article sounds like a whinger.  She's not got it bad.  And whingers too making her out as a victim.   Debt isn't all evil.

And it's been an absolutely raging great party out there past 5 years as well.

You have to remember some have just had it great.   Look at San Fran.  And for UK, well credit-crunch onwards has been no hardship, it's just been about young people buying too many iphones and not working hard enough, as house prices doubled again in many areas.  

It's been full on party time.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • up 5%



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