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The First-World Fear That Makes Life Harder
The First-World Fear That Makes Life Harder
Here in the so-called First World, we give up a lot because of an exaggerated fear of a particular feeling.
It’s usually pretty subtle, but I see this fear made explicit whenever Mr Money Mustache or other early-retirement advocatesget national news coverage. The comment sections of these major publications are always vile, and I don’t recommend you read them, but if you do you will notice a trend. Even when Pete explains the shockingly simple math that proves early retirement is possible for people of average incomes, commenters insist they would prefer to leave their lifestyle costs unchanged than retire twenty years earlier but “live a life of deprivation”.
This unexamined fear of deprivation has a huge effect on our lives. Consumers go into debt because they’re afraid of going without something they’re used to. We eat too much because we’re afraid of being disappointed by small portions. We continue bad habits for years because the thought of disallowing ourselves to do something we enjoy feels oppressive. “We deserve it!” we tell ourselves. Or at least advertisers tell us to tell ourselves that.
The strange thing is that usually it’s not even real deprivation. These are all choices. The big purchase, the extra calories, and the indulgent habit are always available to you to take or leave.
…click on the above link to read the rest of the article…
Are You Ready for the Coming Debt Revolution?
Are You Ready for the Coming Debt Revolution?
Gualfin (“End of the Road”), Argentina
Dear Diary,
There is a specter haunting America… and all the developed nations of the world.
It is the specter of a debt revolution.
We left off yesterday talking about how the economy of the last 30 years – and especially that of the last six years – has favored the old over the young.
“Rise up, ye young’uns,” we as much as said, “you have nothing to lose but your parents’ debts.”
We showed how the value of U.S. corporate equity, mainly held by older people, had multiplied by 28 times since 1981.
That was no honest bull market in stocks; it was a market sent soaring by an explosion of credit.
But what did it do for young people whose only assets are their time and their youthful energy?
Alas, the real economy has increased by only five times over the same period.
A Grim and Menacing Specter
And when you look more closely at work and wages, the specter grows grimmer and more menacing.
Average hourly wages have barely budged in the last 30 years. And average household incomes have fallen – from $57,000 to $52,000 – in the 21st century.
But as our fingers came to rest yesterday, there was one question hanging in the air, like the smoke from an exploded hand grenade: Why?
Was this huge shift – of trillions of dollars of wealth from young working people to old asset holders – an accident?
Was it just the maturing of a market economy in the electronic age?
Was it because China took the capitalist road in 1979?
Or because robots were competing with young people for jobs?
Nope… on all three counts.
First, old people, not young people, control government.
…click on the above link to read the rest of the article…
The Self-Employed Middle Class Hardly Exists Anymore
The Self-Employed Middle Class Hardly Exists Anymore
Many people rightly aspire to improve their household’s state of resilience through actions such as storing emergency supplies, starting a vegetable garden, and learning basic readiness/maintenance skills, etc. In general, resilience boils down to self-reliance. But like it or not, in our largely urbanized society, true long-term self-reliance needs to include some measure of financial independence.
By ‘financial independence’ I don’t mean so much wealth that you no longer have to earn a living. Rather, in this discussion, financial independence means owning income streams that you control lock, stock and barrel. Some of this income may be passive (for example, royalties earned off a patent you own) but for most people, ‘independent’ income is actively earned via their own labor (i.e. self-employment).
Of course, the easiest path to financial independence is being born into a wealthy, well-connected family. But since few of us win that born-rich lottery, this article addresses the important question: How do “the rest of us” carve out financial independence?
How Many Make a Middle Class Income from Self-Employment?
Let’s start by defining ‘self-employment’ as an enterprise without employees that has more than one client. If a consultant’s entire annual income is from one client year after year, for example, the Department of Defense (DoD), the consultant is more of a proxy employee of the DoD than a sole proprietor. In an era where Corporate America and the government attempt to shed employment costs by hiring independent contractors rather than employees, we need to differentiate between quasi-employees who work for one client and the truly self-employed. Unfortunately, the officially-reported employment data does not distinguish between the two.
…click on the above link to read the rest of the article…
What If Mortgage Rates Go Up?
What If Mortgage Rates Go Up?
From 4% to 5%
If the 30 year mortgage rate increases by just a quarter percent to 4.25%, monthly payment increases by 3%, which may only have a minor impact on the market. Half a percent to 4.5% would increase payments by 6.13% and that may start pushing marginally qualified borrowers into the “application denied” pool. With a 1% increase, from 4% to 5%, the monthly payment goes up by 12.44%. Needless to say, in order to qualify household income would have to increase proportionally. That should put a real damper on purchases, especially at the entry level.
The 30 year fixed mortgage rate average, 1979 – 2015, log scale, via Saint Louis Federal Reserve Research – click to enlarge.
Scrambling to lock-in rates
Builders may be particularly vulnerable in this environment. They may see a higher cancellation rate, or may have to offer some concessions to keep deals together. Qualified buyers may become marginally qualified buyers, with less incentive to buy.
What about refinances?
With rates being so low for so long, there are not that many procrastinators left. Those who have not refinanced in the last couple of years are probably not qualified to do so because of lack of equity, or income, or unfortunately they may not fit into any of the many easy refinance programs. If rates go up, say, by 1/2% or more, I expect not to see just a decline, but an abrupt stop to refinancing.
…click on the above link to read the rest of the article…
High End Real Estate in Canada in Frenzied Bubble Blow-Off
High End Real Estate in Canada in Frenzied Bubble Blow-Off
Throwing Caution to the Wind
We have discussed the dangerous housing and consumer credit bubble in Canada in these pages on several previous occasions in some detail (see “Carney’s Legacy” and “A Tale of Two Bubbles” as examples). Since we first wrote about Canadian real estate, the bubble has continued to grow with nary a pause. Why are we calling it a bubble? The gap between incomes and house prices is widening ever more, and has been far above what is considered normal for several years already.
This decline in affordability is the result of monetary pumping and ultra-low administered interest rates imposed by Canada’s central bank. Moreover, the boom is subsidized by a giant state-owned mortgage insurer, an institution that has the potential to severely impair the government’s finances once the bubble bursts.
Vancouver skyline at night – no doubt a nice place, but a bit pricey.
Photo credit: Mohsen Kamalzadeh, imaginion.wordpress.com
The housing bubble is most pronounced in big cities like Toronto and especially Vancouver. Trophy properties are selling like hotcakes to people who evidently don’t care much about money. In fact, the frenzy proves that the demand for money has long been overwhelmed by the huge growth in its supply among the richer strata of society
A friend has pointed us to a short video at CTV News about a recent high end property sale in Vancouver that is quite remarkable, to say the least.
…click on the above link to read the rest of the article…
Canadian Families’ Debt Jumped By 64 Per Cent In Just Over A Decade
Canadian Families’ Debt Jumped By 64 Per Cent In Just Over A Decade
The amount owed by indebted Canadians grew by 64 per cent to $60,100 in just over a decade, according to a new Statistics Canada study.
The StatsCan report released Wednesdayfound that between 1999 and 2012, the median debt held by indebted families increased by $23,000. The number of households with debt — including mortgages, car loans, lines of credit, personal loans and student debt — also rose, from 67 per cent in 1999 to 71 per cent in 2012. The median figure is the middle number separating the top half of families with the most debt from the bottom half.
However, the government agency also points out that the value of assets held by Canadians families grew over the same period by an even greater 80 per cent, or $179,800, to $405,200. The value includes both financial assets like investments and pensions, and non- financial assets such as real estate.
Both phenomena can partially be attributed to rising real estate price tags, especially in the past few years. As homes become more expensive, many Canadians must take out bigger mortgages to afford them. But as they pay down those carrying costs, the value of their biggest asset, their home, also rises.
Economists and government officials have been warning Canadians for years about the perils of sky high debt loads, which rose to 110 per cent of median incomes in 2012 from 78 per cent in 1999. More than one-third of families had a debt load of 200 per cent of after-tax income.
But the situation for families when comparing debt to assets is much more stable as debt loads rose alongside the value of assets such as real estate. The median Canadian family had debt loads about one-quarter the size of their assets in both years.
For some groups of Canadians, debt loads rose much more significantly than assets.
Those groups include non-homeowners, single people and families whose major income earner was between 15 and 34 years old.
Income, Education and Inequality in the “Recovery”: Prepare to be Surprised
Income, Education and Inequality in the “Recovery”: Prepare to be Surprised
Note to the higher education industry: issuing diplomas doesn’t magically create new jobs in the real world.
By virtually any standard, wealth inequality has soared to historic levels in the six years of “recovery” since the Great Recession of 2008-09. Economist Emmanuel Saez, who has long collaborated with Thomas Piketty, described the recent extremes of wealth inequality in a recent paper Striking it Richer: The Evolution of Top Incomes in the United States, which provides an in-depth look at the widening gulf between the top 1% and the bottom 90% from 2009 to 2012.
Here is a chart of the top 10% share of income, based on their research (the note in red marking the beginning of financialization in 1982 is my own):
As author David Cay Johnston noted in an insightful review of Piketty’s book Capital in the Twenty-First Century, Trickle-Up economics: “The top 1 percent of Americans raked in 95 cents out of every dollar of increased income from 2009, when the Great Recession officially ended, through 2012. Almost a third of the entire national increase went to just 16,000 households, the top 1 percent of the top 1 percent, Piketty and Saez’s analysis of IRS data
…click on the above link to read the rest of the article…
The Age of Vulnerability by Joseph E. Stiglitz – Project Syndicate
The Age of Vulnerability by Joseph E. Stiglitz – Project Syndicate.
NEW YORK – Two new studies show, once again, the magnitude of the inequality problem plaguing the United States. The first, the US Census Bureau’s annual income and poverty report, shows that, despite the economy’s supposed recovery from the Great Recession, ordinary Americans’ incomes continue to stagnate. Median household income, adjusted for inflation, remains below its level a quarter-century ago.
It used to be thought that America’s greatest strength was not its military power, but an economic system that was the envy of the world. But why would others seek to emulate an economic model by which a large proportion – even a majority – of the population has seen their income stagnate while incomes at the top have soared?
A second study, the United Nations Development Program’s Human Development Report 2014, corroborates these findings. Every year, the UNDP publishes a ranking of countries by their Human Development Index (HDI), which incorporates other dimensions of wellbeing besides income, including health and education.
Read more at http://www.project-syndicate.org/commentary/economic-failure-individual-insecurity-by-joseph-e–stiglitz-2014-10#qtjXzquHerihJ4ZK.99
