'The consumer isn't overleveraged -- the middle class is'- merrill lynch

[jk]

can the wealthy save the economy?
time to dig out those old discussions of plutonomy!

'The consumer isn't overleveraged -- the middle class is'

August 14, 2009 | 10:00 am

The well-heeled might be able to save the U.S. economy from a long period of dismally weak consumer spending -- if only we don’t jack up their taxes.

That’s one conclusion to draw from a new Bank of America Merrill Lynch report this week, "The Myth of the Overlevered Consumer."

The report hammers home what you might already suspect: The consumer debt problem in the economy really is a debt problem for the middle class. The need to work off a chunk of that debt will sap middle-class families’ spending power for perhaps years to come.

By contrast, the upper 10% of income earners face a much smaller debt burden relative to income and net worth. Those people should have ample spending power to help fuel an economic recovery.

Using 2007 data from the Federal Reserve, BofA Merrill defines the middle class as people in the 40%-to-90% income percentiles. It defines lower-income folks as those in the zero to 40% income percentiles, and the wealthy as those in the top 10%.

Lower-income families account for 40% of the population but just 12% of total consumption, BofA Merrill estimates. The middle class is 50% of the population and nearly as large a share of consumption, at 46%.

That leaves the wealthy to account for a hefty 42% of consumption.

In terms of their debt burdens, neither lower-income families nor the wealthy are constrained the way the middle class is constrained, the report asserts.




http://latimesblogs.latimes.com/mone...y-we-dont.html

[FRED]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

can the wealthy save the economy?
time to dig out those old discussions of plutonomy!

'The consumer isn't overleveraged -- the middle class is'

August 14, 2009 | 10:00 am

The well-heeled might be able to save the U.S. economy from a long period of dismally weak consumer spending -- if only we don’t jack up their taxes.

That’s one conclusion to draw from a new Bank of America Merrill Lynch report this week, "The Myth of the Overlevered Consumer."

The report hammers home what you might already suspect: The consumer debt problem in the economy really is a debt problem for the middle class. The need to work off a chunk of that debt will sap middle-class families’ spending power for perhaps years to come.

By contrast, the upper 10% of income earners face a much smaller debt burden relative to income and net worth. Those people should have ample spending power to help fuel an economic recovery.

Using 2007 data from the Federal Reserve, BofA Merrill defines the middle class as people in the 40%-to-90% income percentiles. It defines lower-income folks as those in the zero to 40% income percentiles, and the wealthy as those in the top 10%.

Lower-income families account for 40% of the population but just 12% of total consumption, BofA Merrill estimates. The middle class is 50% of the population and nearly as large a share of consumption, at 46%.

That leaves the wealthy to account for a hefty 42% of consumption.

In terms of their debt burdens, neither lower-income families nor the wealthy are constrained the way the middle class is constrained, the report asserts.




http://latimesblogs.latimes.com/mone...y-we-dont.html

Who could have known?

Where will we get the money? The usual place.

Lower per-capita real GDP translates into lower living standards, especially for the bottom 50% of the net worth group that went into this with little or no liquid net worth.

When we started posting our distribution of income, debt, and net worth charts back when we reopened in 2006 many readers thought we were making some kind of socialistic point about how unfair the distribution is.

In fact, every time we posted these charts we made the point that in the coming economic depression, the majority who have little savings to fall back on and most of the debt will need the government to bail them out at a time when tax receipts from that group evaporate due to rising unemployment and falling incomes.

Our question: Which economic group will government go after for money to pay unemployment benefits and other economic disaster support?

Our forecast: Lousy distribution of wealth in boom times means high taxes on capital and wealth redistribution during busts. It has always been so throughout history.

Our fear: Wealth redistribution becomes structural. Then we’re sunk.

The lesson: In the future boom aim policy at the wealth distribution problem so it would cause the usual backlash later. That means get rid of the rent seeking FIRE Economy and focus on productive enterprise.

The report misses a crucial point that we have made here for 10 years. The top 10% may spend 42% by dollar volume but not by unit volume. There are only a few million of them. We had the same problem during The Great Depression: How can a few million rich create enough demand to employ everyone else?

The outcome of these crashed FIRE Economies is pathetically predictable.

[Jim Nickerson]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

[quote=FRED;116749]Who could have known?

Where will we get the money? The usual place.

Lower per-capita real GDP translates into lower living standards, especially for the bottom 50% of the net worth group that went into this with little or no liquid net worth.

When we started posting our distribution of income, debt, and net worth charts back when we reopened in 2006 many readers thought we were making some kind of socialistic point about how unfair the distribution is.

In fact, every time we posted these charts we made the point that in the coming economic depression, the majority who have little savings to fall back on and most of the debt will need the government to bail them out at a time when tax receipts from that group evaporate due to rising unemployment and falling incomes.

Our question: Which economic group will government go after for money to pay unemployment benefits and other economic disaster support?

Our forecast: Lousy distribution of wealth in boom times means high taxes on capital and wealth redistribution during busts. It has always been so throughout history.

Our fear: Wealth redistribution becomes structural. Then we’re sunk.

The lesson: In the future boom aim policy at the wealth distribution problem so it would cause the usual backlash later. That means get rid of the rent seeking FIRE Economy and focus on productive enterprise.

The report misses a crucial point that we have made here for 10 years. The top 10% may spend 42% by dollar volume but not by unit volume. There are only a few million of them. We had the same problem during The Great Depression: How can a few million rich create enough demand to employ everyone else?

The outcome of these crashed FIRE Economies is pathetically predictable.[/quote]

It may be "pathetically predictable," but it does not seem to be so clear as to just when the FIRE economy might be replaced by a productive economy. It certainly does not seem that anyone in Washington is committed to a change of how they wish this economy to operate compared to the past 2-3 decades.

So I suppose the answer is that at some unknown point in the future of the earth, the US finance, insurance, and real estate economies will take a back seat to the reestablishment of a production economy. Is that about right?

[MulaMan]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

[quote=Jim Nickerson;116753]

It may be "pathetically predictable," but it does not seem to be so clear as to just when the FIRE economy might be replaced by a productive economy. It certainly does not seem that anyone in Washington is committed to a change of how they wish this economy to operate compared to the past 2-3 decades.

So I suppose the answer is that at some unknown point in the future of the earth, the US finance, insurance, and real estate economies will take a back seat to the reestablishment of a production economy. Is that about right?

This is the same problem I have - the assumption seems that we must return to the "economy of old" - that which we all learned about in school and have lived in our entire adult lives.

But it is hard to imagine the USA as the world's #1 producer of real things ever again unless the USA becomes an improvished 3rd world country first.

It would be great to read people's ideas on how exactly the USA could return to the productive economy and the effect on the globe as we now it?

I believe the future is in progress and that there will be some kind of "new world order" and a new type/form of "economy" not yet understood...you either prepare yourself and your kids for it or not.

That is a magic of great consipracy theories like "new world order" because in hind-sight they have a 100% chance of becoming true - they will simply tweek the definition in the future to whatever actually happens and history will not be the wiser.

[GRG55]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

It may be "pathetically predictable," but it does not seem to be so clear as to just when the FIRE economy might be replaced by a productive economy. It certainly does not seem that anyone in Washington is committed to a change of how they wish this economy to operate compared to the past 2-3 decades.

So I suppose the answer is that at some unknown point in the future of the earth, the US finance, insurance, and real estate economies will take a back seat to the reestablishment of a production economy. Is that about right?

How long did it take the FIRE economy to replace the post-WWII manufacturing economy in the USA? Did it actually ever completely replace it?

Why should the current transition be much different in terms of its pace?

I think the only thing we can say with reasonable confidence [and that only if one accepts iTulip's research and conclusions] is that the FIRE economy cannot be revived, and therefore the process of the change has already started.

[jtabeb]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

How long did it take the FIRE economy to replace the post-WWII manufacturing economy in the USA? Did it actually ever completely replace it?

Why should the current transition be much different in terms of its pace?

I think the only thing we can say with reasonable confidence [and that only if one accepts iTulip's research and conclusions] is that the FIRE economy cannot be revived, and therefore the process of the change has already started.

Where does one go exactly after reaching the Plutocratic-Oligarchy phase of governance?

Fascist dictatorship

or

A new Dark Ages, perhaps?

BTW, how's the bunker coming along, GRG?

[Jim Nickerson]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

How long did it take the FIRE economy to replace the post-WWII manufacturing economy in the USA? Did it actually ever completely replace it?

Why should the current transition be much different in terms of its pace?

I think the only thing we can say with reasonable confidence [and that only if one accepts iTulip's research and conclusions] is that the FIRE economy cannot be revived, and therefore the process of the change has already started.

I don't know what "iTulip's research and conclusions" are, but unless it is that the congresspeople at some point will no longer be financed and to one degree or another "owned" by the monied interests of this country, then the FIRE economy is not going to go away. Hopefully, granting that this country will never achieve the mess it was in say two years ago, I think it is foolish to think Wall Street and banksters will not evolve new methods to circumvent whatever, if any, new regulations/enforcement may evolve, and they will devise new methods to make the greatest profits relative to benefits received from those who are buyers from whatever they come up with next to promote.

What would a single payer healthcare system do to the insurance industry? Single payer healtcare is probably generations away.

Try this on for size for attempts at regulation of the residential appraisal industry.
http://www.nytimes.com/2009/08/19/bu...9appraise.html

That article is worth reading IMO.

[ThePythonicCow]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

Try this on for size for attempts at regulation of the residential appraisal industry.
http://www.nytimes.com/2009/08/19/bu...9appraise.html

That article is worth reading IMO.

Could you summarize that article, Jim? It seems to be for subscribers only.

Yes, subscription is free. But I prefer not to provide the New York Times even that modicum of encouragement.

[doom&gloom]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

search the title on google and i bet even the cow get's it free!

[ThePythonicCow]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

search the title on google and i bet even the cow get's it free!

Now I'm confused. When I clicked on Jim's link last hour, I got an invitation to subscribe to the New York Times, which I chose not to consider.

Now when I click on the same link above, I get right through to the article in question.

Dang computers ...

[doom&gloom]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

don't be "cowed" bytechnology, just "moooooo-ve" along....

[ThePythonicCow]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

don't be "cowed" bytechnology, just "moooooo-ve" along....

If only you knew how hard it is to type with hooves, you'd have more sympathy .

[doom&gloom]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

kick it!

[GRG55]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

I don't know what "iTulip's research and conclusions" are...

Surely you jest Jim...


http://www.itulip.com/forums/newrepl...reply&p=116417

August 2009 FIRE Economy Depression update – Part I: Snowball in Summer (Update 2)...



...Another factor hammering producers is consumer credit.

Everyone knows that the credit crunch that followed the collapse of the securitized debt market in 2007 brought down total consumer credit during the FIRE Economy Depression that started in Q4 2007. But rarely is it observed that after the recession of 2001, that followed the crash of the technology market bubble, consumer credit never recovered as it did after every other recession since WWII.

This is one of the reasons why we believe that the FIRE Economy ended with the 2007 collapse, that the current depression is a continuation of the massive recession that would have occurred in the early 2000s if not for the housing bubble. Of course, this depression is much worse than that one might have been because debt levels were so much higher going into this one than the previous one...

...Now that the U.S. is not importing as much, where will the foreign direct investment come from to generate jobs in the U.S. to fuel the recovery?

I recommend to deflationists that they focus their minds on one fact: governments cannot print purchasing power.

iTulip Forecast: The U.S. will experience stagflation as the economy drifts in and out of periods of moderate to high inflation while unemployment remains high. The sources of inflation are: 1) high import costs, with energy costs exerting the greatest upward force on the prices of goods, 2) reduced quantity of goods and services, 3) industrial concentration. The challenge for investors and consumers alike will be managing through inflation volatility, high unemployment, and political uncertainly, a new problem for the U.S. that will weigh on the dollar even more than the Fed's and Federal Government's balance sheet. As the U.S. fiscal and external debt position grows increasingly precarious, the U.S. remains vulnerable to a sudden stop event...

[Jim Nickerson]

Re: 'The consumer isn't overleveraged -- the middle class is'- merrill lynch

http://www.ritholtz.com/blog/2009/08/home-appraisal/
Here's more on topic of appraisal regulation, which I haven't read yet, but it seems to be a hot topic.