No Wealth created in 8 years, So called Windfalls and why Jax should Rethink.

[stephendare]

This story is what happened all over the united states, and especially here.

The whole get rich quick scheming catapulted would be real estate tycoons and the Builder's Association into positions of remarkable power and public indulgence.

What did we get out of it in the end, despite the tax rebates and special treatments?

Well look around.

What would we have done if we had really looked at the underpinnings of our economy and focused instead on production?

By now everyone knows the sad tale of Bernard Madoff’s duped investors. They looked at their statements and thought they were rich. But then, one day, they discovered to their horror that their supposed wealth was a figment of someone else’s imagination.

Paul Krugman

Unfortunately, that’s a pretty good metaphor for what happened to America as a whole in the first decade of the 21st century.

Last week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.

At one level this should come as no surprise. For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income. Why should we have expected our net worth to go up?

Yet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naïve, it’s worth remembering just how many influential voices â€" notably in right-leaning publications like The Wall Street Journal, Forbes and National Review â€" promoted that belief, and ridiculed those who worried about low savings and high levels of debt.

Then reality struck, and it turned out that the worriers had been right all along. The surge in asset values had been an illusion â€" but the surge in debt had been all too real.

So now we’re in trouble â€" deeper trouble, I think, than most people realize even now. And I’m not just talking about the dwindling band of forecasters who still insist that the economy will snap back any day now.

For this is a broad-based mess. Everyone talks about the problems of the banks, which are indeed in even worse shape than the rest of the system. But the banks aren’t the only players with too much debt and too few assets; the same description applies to the private sector as a whole.

And as the great American economist Irving Fisher pointed out in the 1930s, the things people and companies do when they realize they have too much debt tend to be self-defeating when everyone tries to do them at the same time. Attempts to sell assets and pay off debt deepen the plunge in asset prices, further reducing net worth. Attempts to save more translate into a collapse of consumer demand, deepening the economic slump.

Are policy makers ready to do what it takes to break this vicious circle? In principle, yes. Government officials understand the issue: we need to “contain what is a very damaging and potentially deflationary spiral,” says Lawrence Summers, a top Obama economic adviser.

In practice, however, the policies currently on offer don’t look adequate to the challenge. The fiscal stimulus plan, while it will certainly help, probably won’t do more than mitigate the economic side effects of debt deflation. And the much-awaited announcement of the bank rescue plan left everyone confused rather than reassured.

There’s hope that the bank rescue will eventually turn into something stronger. It has been interesting to watch the idea of temporary bank nationalization move from the fringe to mainstream acceptance, with even Republicans like Senator Lindsey Graham conceding that it may be necessary. But even if we eventually do what’s needed on the bank front, that will solve only part of the problem.

If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion â€" our decade at Bernie’s â€" will be a long, painful slump.

[gatorback]

President Clinton said today that the Repubs doubled the deficit in the past 8 years and didn't create any new jobs.  I guess that's at least the path not to follow.  Clinton said he would be doing exactly what Obama is doing.

[BridgeTroll]

Clinton said he would be doing exactly what Obama is doing.

Is that what he really said?

[NotNow]

As of today, the Obama administration has incurred more debt in one month than the USG did in the previous twelve months.  And many more promises to keep.

[gatorback]

bt, luckily I'm a former tolerance center board member.  So, I'm going to ignore that last remark.

Jacksonville has a large insurance industry presence you'd think they'd be asking for bailout money to develop the systems to streamline the medical insurance industry.

[JeffreyS]

As of today, the Obama administration has incurred more debt in one month than the USG did in the previous twelve months.  And many more promises to keep.

The stimulus money was originally approved under the Bush administration he should get some of the credit and or blame.

[BridgeTroll]

But this is not a "governmental" problem.  The article clearly puts the blame for lack of wealth creation on the public... the consumers.  WE as Americans have been living above our means for two decades now.  We blame the government for deficit spending yet we do it every day... the governments spending habits are but a reflection of our own.  It is a viscous cycle of monkey see... monkey do... and we are both monkeys...

For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income.

Consumers owe $971 billion, which is $3,184 of credit card debt per person, or $8,299 per household. (Source: Federal Reserve, G.19 Release, November 7, 2008)

Yet until very recently Americans believed they were getting richer, because they received statements saying that their houses and stock portfolios were appreciating in value faster than their debts were increasing. And if the belief of many Americans that they could count on capital gains forever sounds naive

[gatorback]

How did I contribute to doubling the federal deficit last 8 years?

[BridgeTroll]

Please reread the article...

[gatorback]

I paid my taxes, I paid rent, I paid off 2 houses, 3 cars, I gave gifts, I saved money, I took nothing from the government, I gave to my church...I was a giver during that time.

[Johnny]

The mindset is what needs to be fixed. Easy money, look at gangstas popping caps in each other's asses. It's all about get now, screw the future. Current times has brought us the following...

Credit cards
Easy financing
20+" rims
Bling


We keep with the Joneses... saving is a thing of the past. Good luck to all of us that did. It will be useless b/c we will share the wealth. You may as well buy now, otherwise you'll be robbed for it later.

[BridgeTroll]

It is a toxic mindset...  and worse yet... we are now going to look to the government to fix our problems rather than point the finger at ourselves.

[Johnny]

I need to clarify my statement... "saving is a thing of the past. Good luck to all of us that did."

Anyone that looks at their 401k statement will probably agree that saving has been a thing of the past for quite some time now. I'm really considering pulling all of my money out and investing half in a CD and half in some of these foreclosed properties.

BTW Stephen, what happens if a meteor destroys the Hare Krishna? Is all debt forgiven?

[BridgeTroll]

A fish can begin rotting from any source... the article you posted stated...

The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income.

And I found this tidbit to add...

Consumers owe $971 billion, which is $3,184 of credit card debt per person, or $8,299 per household. (Source: Federal Reserve, G.19 Release, November 7, 2008)

These are not minor things.  This is a toxic american mindset from Mommy and Daddy all the way to the Presidency and Wall Street.  We approve of this!!  Deficit spending??  Why not?  Every one of us do it.  Blaming Tom Delay is soooo easy Stephen.  We will not get better until we look inward as a country...

[BridgeTroll]

Mom and Pop didnt take out the bulk of the high interest loans.

Oh yes they did... look at your credit card statement.  18-20% interest is high in anybodys book.  Moving from a savings rate of nearly 9%(which is still pathetic) to almost nothing... is disastrous.  In addition it seems many were convinced that the "American Dream" of home ownership was a right rather than an obligation... and took on even more debt... not to mention the two car loans and the home equity loan.

Mom and Pop have been living with this debt for so long it became normal.  It was not so long ago that this was absolutely ABNORMAL behavior for the family unit.

It is too easy to blame some faceless Halliburton or Blackwater... the truth is probably in the mirror.