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  • From: "Don Bowen" <don.bowen AT earthlink.net>
  • To: <homestead AT lists.ibiblio.org>
  • Subject: Re: [Homestead] More economic fallout
  • Date: Thu, 10 Apr 2008 13:17:20 -0700

The city of Birmingham, AL is in financial trouble:
Only one among many more. Several California Cities and the state are nearing trouble because of the falling housing market.

There are other indicators, the LIBOR spread is growing again, and helicopter Ben is going to shower more money later this month. Maybe not an interest rate reduction but a further loosening of who can tap the fed and what they can use to borrow against. With any amount of luck he will be able to dump all that bad paper on the taxpayers lap.

I listened to a very interesting talk by Elizabeth Warren today. She has researched and studied the fall of the American middle class. I took a few notes of the talk and here are some highlights.

Since 1970 American household incomes have risen sharply. Some expenses such as clothing -32% (all those Chinese sweat shops), food -18%, appliances -42%, and auto costs -34% have decreased while others such as housing +76%, health insurance +74%, cars +52% (two income families usually have two cars), child care +100%, and taxes +20%. Some of the costs have unequal distributing for families with children, for example housing costs for a couple with children have increased 100% while for those without children increases were 50%. These are cost increases for the period from 1970 to 2005 or almost one generation, a generation that saw the largest increase in family income as more women entered the workforce.

The net result of all this is that fixed costs have risen from 50% of a typical middle class income to 75%. You have to keep in mind that 75% is with a two income family. In the single income family if something like a job loss or a serious illness came along, the 50% could be made up by a combination of the safety net of disability or unemployment payments, cutting back, and the spouse taking on a job. The modern two income family is in much worse condition, the safety net is torn, the other spouse is already working, there are little one can do to cut back on the fixed expenses.

Add to that the 1970 savings rate of almost 10% and the revolving charge debt of less than 15% to today's savings rate of less than 0 and a revolving charge debt 1800% larger.

Don Bowen KI6DIU
http://www.braingarage.com/Dons/Travels/journal/Journal.html




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