Archive for June 16th, 2012
How to lose 40 percent of your net worth in 3 years – Americans see their net worth collapse during the recession. Federal Reserve survey highlights a case of austerity for the masses and social welfare for the politically connected.
Working and middle class families already feel the burden of a more limited financial middle in our economy. What was once taken for granted such as affordable qualitycollege education, homes with moderate mortgages, and healthcare costs that didn’t put families on the verge of bankruptcy are now largely harder to come by. The Federal Reserve in their triennial Consumer Finance Survey (CFS) showed what most of us already know. The middle class has been crushed since this recession. The survey looks at data going back 18 months but the trend is unmistakable from 2007 to 2010. Middle class families were crushed as their number one asset in housing has plummeted while stocks which are largely consolidated in thetop echelons of our wage earners had a stellar recovery since 2009. The median net worth of families fell a stunning 40 percent over this period.
From six digits to five digits
Wealth is a good measure of financial success. It shows the ability to earn but also to save in a variety of assets. For most Americans, housing is their number one net worth booster. Yet with the housing bubble popping thanks to financial de-regulation and incomes being crushed, most Americans have seen their number one asset plummet to the floor. In fact it drove the median net worth down by roughly 40 percent from six figures to five figures:
At the same time the stock market has done this:
This large discrepancy in wealth but also of how the rebound has occurred also highlights the growing income inequality in our nation:
“(CNN Money) Families in the top 10% of income actually saw their net worth increase over the period, rising from a median of $1.17 million in 2007 to $1.19 million in 2010.
Meanwhile, middle-class families who ranked in the 40th to 60th percentile of income earners reported that their median income fell from $92,300 to $65,900 over the same time period.”
This is central to what is going on with our economy. As most Americans saw their wealth contract severely, those in the top 10 percent actually saw their wealth increase. Low wage capitalism and social welfare to financial institutions does have its benefits and this survey simply highlights what we already know with more concrete data. The 40 percent drop in net worth simply reflects the survey in 2007 pulling data from the inflated housing bubble and currently measuring the bubble’s pop.
Contrary to the mainstream media, it is obvious the typical family is not participating in thisWall Street stock rally party. Why? First, many barely have enough to save to begin with. 1 out of 3 Americans do not have a cent for retirement.
Read the rest at My Budget 360
The Supremes are scheduled to rule before the end of the month on Obamacare. If you read the punditry, the expectations are that some or all of it will be struck as unconstitutional. That would not surprise.
But what also does not surprise is the duplicity of everyone in the political sphere on the actual root cause of the problems in the medical system, and our refusal to address them. Witness this from the WSJ over the weekend:
In short, the GOP may be positioning itself to become the dog that caught the car. Political and policy uncertainty is perhaps inevitable given the range of what the Court could do. But the Republicans need a more coherent strategy, and more credible alternatives, to avoid reprising the payroll tax holiday debacle of last Christmas, except with generational consequences.
Republicans are down the line opposed to the individual mandate, but there’s an internal debate about what to do if the Court also overturns the main insurance regulations. A sizable cargo cult within the GOP wants to preserve some Affordable Care Act provisions and favors passing stand-alone bills reinstating them if necessary. The idea circulating is that the Republican Party should consider a “keep the good stuff” approach.
Nobody (except for a few like myself) are talking about what really happened with Medical Care and why we’re here. In brief (which I’ve explained at great length) the mess began with EMTALA, the Reagan-era law mandating that anyone who shows up with an “emergent” condition be treated irrespective of ability to pay, and we compounded the errors up and down the line by providing the medical industry in all its forms with “protections” that allow it to behave in ways that are unacceptable in any other line of business (and in many are flatly felonious.)
You can be provided a service without any idea what you will pay for it until after the fact. This is especially true if you’re in duress (e.g. unconscious); in such a circumstance you will be later billed the maximum they think they can extract, sometimes 10, 20 or even 100 times what they would pay a government insurer for the same thing.
If your “debt” (after being billed 10x the rate paid by some other person) is then “forgiven”, you will be 1099′d for the difference as taxable income on an amount that the other party would have never paid in the first place.
You cannot buy a service that is billable only if the person alleging to provide you with help succeeds in doing so (would you accept a mechanic working on your car billing you if he failed to fix it?)
The medical industry has lobbied for and received “protection” from you going across a border and buying the very same drug or device made in an authentic manufacturer’s factory and bringing it back here for resale, thereby enforcing an artificial 2, 3 or 10-tier pricing mechanism that effectively forces you to pay 90% of the cost of a Canadian’s access to the same therapy.
The medical industry is “encouraged” to develop therapies for which there is no rational cost justification; as an example Dendreon’s Provenge provides an average 4.1 months of additional life to recipients yet it costs nearly $100,000. That is, for every additional statistical year of life the price is $250,000 — to someone. Were the “someone” each individual who received it there would likely be no market for this drug. Yet it was developed “on the come” with the premise that government would pay (a large percentage of prostate cancer patients are Medicare) — that is, government would force everyone to fork up that which the average senior citizen would refuse to pay for himself.
The market is an excellent arbitrer of what is an “acceptable” cost for a given thing. I would love to drive a Lamborghini. I cannot rationally justify buying one, as the price does not convey to me sufficient value, in my view, to purchase, own and insure one. Therefore I do not buy one and the market is constrained — there are few produced, as there are few people who have both the means and ability to purchase one.
But with health care it’s different. The demand for “every breath I can draw” is of course nearly infinite. Most people, if there is no material bar to the lengths they can go to extend their life, will spend as much of other people’s money as is possible.
The only means to stop this sort of thing is to bring back the market and accept mortality. That is, we must accept that we are all born with a unique genetic make-up and some of us drew longer straws in that department than others. We did so in intellectual capacity and, of course, health. We are able to influence but not guarantee outcomes through our behavior. All of this makes each of us unique.
The only sustainable position is that one’s unique gifts — or curses — when it comes to medical matters are things that one must deal with through their own resources. This does not mean that we cannot help others through voluntary compassion; we both can and should. But it does mean that “equality of result”, which in fact is the goal of socialization of medicine no matter how it is couched, is both doomed to failure and a relentless cause of ratcheting costs far beyond our ability to pay.
We have taken medical spending at the federal level alone from $53 billion in 1980 to $820 billion last year. This is a 9.3% approximate rate of compounding. At this rate of increase within 15 years medical spending will rise to $3.28 trillion 15 years from now — a time when most people who are 65 years and younger will live to see.
The government cannot spend that amount of money as it doesn’t have it and can’t acquire it. If we do not stop this here and now both government and private industry will collapse attempting to provide cost-shifted medical care “from cradle to grave, on demand, in any amount demanded” to everyone in the country.
We must both tell the truth about the lies we have put into the public sphere on this matter in the past and accept or mortality in the present and future. There is, quite literally, no other choice.
I have written repeatedly on the specifics of how to address these problems in the health industry; you can find the compendium here– start with the oldest articles first. Or, alternatively, pick up a copy of Leverage – the medical industry figures large within the book both in problems and solutions as it is one of the largest areas of distortion in our economy and one of the first and most-important we must address.
Many people hype “the coming economic collapse” as if it is some kind of big summer Hollywood blockbuster. Many people out there write about it as if it is something that will happen in a single day or over a few weeks and that it will suddenly change how the entire world functions. But that is not how the financial world works. The financial world is like a game of chess – very slow and methodical. Yes, there are times when things happen very quickly (like back in 2008), but even that crisis played out over a number of months. Sadly, most Americans are not used to thinking in terms of months or years. These days, most Americans have the attention span of a goldfish and most Americans have been trained to expect instant gratification. They are simply not accustomed to being patient and to wait for things. Well, despite what you may have read, the economic collapse is not going to be a single event. It is going to play out over quite a few years. In some ways we are experiencing an economic collapse right now. When the next major financial crisis occurs, many will be calling that “an economic collapse”. But if you really want to grasp what is happening to us, you need to think long-term. We are heading for a complete and total nightmare, but it is going to take some time to get to the end of the story.
Yes, there will certainly be times of great chaos. The financial crisis of 2008 was one of those moments.
But the financial crisis of 2008 did not completely destroy us.
Neither will the next crisis.
I think it is helpful to think of what is happening to us as a series of waves.
When you build a beautiful sand castle on the beach, the first wave that comes in does not totally destroy it.
Rather, the first wave weakens the castle and it is destroyed by subsequent waves.
Well, that is what is happening to us.
The financial crisis of 2008 was a wave.
The epicenter of the next great financial crisis will be in Europe and that will be another wave.
For many, the next financial crisis will feel like “the end of the world” but it won’t be.
There will be waves after that one that will be even worse.
Yes, the waves are going to start coming more rapidly and will start becoming more intense.
In that way, they will kind of be like birth pains.
But these problems did not build up overnight and they are not going to disappear overnight either.
A lot of people that write about the coming economic collapse seem to suggest that we should just let it happen so that the “recovery” can begin.
Unfortunately, it is not going to be so simple.
It took decades to build up a national debt of almost 16 trillion dollars.
It took decades for American consumers to build up the greatest consumer debt bubble in the history of the world.
It took decades to gut the economic infrastructure of the United States and ship millions of our jobs overseas.
These problems are going to plague us for a very long time.
Sadly, a lot of people out there seem to wish for an economic apocalypse. They seem to think that if the global financial system crashes that the government is going to disappear and we are going to start fighting with each other using sharp pointed sticks.
Well, it simply is not going to happen.
The U.S. government is not going to help you survive when things hit the fan, but it is not going to disappear either.
In fact, the federal government will probably try to grab more power than ever in an attempt to “restore order”.
The governments of Europe are not going to disappear either. In fact, in the long run Europe is probably going to end up more “federalized” than ever even if the euro breaks up in the short run.
A lot of people out there seem to think that when the old system collapses that it will give them an opportunity to help put in a new system.
Sorry, but that is not going to happen either.
The powers that be are going to have their own ideas about what needs to happen.
They never like to let a good crisis go to waste, and they will certainly try to use every crisis to shape the world even more in their own image.
The coming economic collapse is going to play out over a number of years and it is going to be absolutely horrible.
Billions of people will deeply suffer because of it.
It will be unlike anything any of us have ever seen.
Personally, I believe that it will eventually be much worse than the Great Depression of the 1930s.
The United States is going to get hit particularly hard. The United States is going to lose its position as the leading economic power on the globe and the U.S. dollar is going to lose its position as the default reserve currency of the world.
If you thought that the unemployment crisis during the last recession was bad, just wait until you see what is coming.
We are heading for a complete and total unemployment nightmare in the United States. Unemployment is eventually going to soar well up into the double digits.
The U.S. government will try a wide variety of measures to try to “fix” things, and some will likely have some limited success.
But the debt-fueled prosperity that we are all enjoying now is going to come to an end.
Many communities all over America will degenerate into rotting cesspools.
There are going to be riots in our major cities, crime and looting will be absolutely rampant and it will seem like society is coming apart at the seams.
The U.S. government will likely respond by becoming more authoritarian than ever, and that will truly be frightening.
But all of this is going to play out over time.
Right now, things are not as good as they were five years ago.
A couple of years from now, things will be even worse. Many of us will look back and wish that we could return to the “good old days” of 2011 and 2012.
We are on a decline that is not going to stop. There will be little false bubbles of hope like we are in now, but they won’t last long.
But just because the economy is falling apart does not mean that your life is over. Many that are busy preparing right now will be greatly blessed even in the middle of all the chaos.
And it is when things are the darkest that the greatest lights are needed.
Make the decision right now to be a light during the times ahead.
You can choose to let the times that are coming destroy you, or you can choose to make them the greatest adventure of your life.
The choice is up to you.