By BJ

I seem to be coming across an increasing number of stories in the last few days showing that the, (we don't want to call it a), recession is hurting an ever increasing number of Americans.

At the overview level, there is this from McClatchy, showing the decline in overall discretionary spending.

In one form or another, Americans from coast to coast are following Wade's cost-cutting ways. Whether it's fewer restaurant visits, shorter road trips or skipping a haircut here and there, more consumers are looking for ways to stretch their dollars.
And with good reason. The soaring cost of core essentials like gasoline, food and housing now account for 57 cents of each consumer dollar spent. That leaves Americans with a record-low 43 cents out of each dollar for discretionary spending, according to new figures from Wachovia Economics Group.

. . .

Since last year, egg prices are up 30 percent. Milk and cheese have increased 13 percent. Prices for wheat, soybeans, and corn have jumped 60-to-80 percent since last year on the Chicago Board of Trade, driving up the price of cereal, bread and other products.

Governments maintain that the "core" inflation rate is only about 3.2%, but that's because it leaves out the volatiles like food and energy, which are increasing at far faster rates and, as the above story shows, eating a larger portion of people's after-tax income. Income that for most Americans, shrunk and never recovered:

The bigger problem is that the now-finished boom was, for most Americans, nothing of the sort. In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.
This has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did. You can think of this as the most basic test of an economy’s health: does it produce ever-rising living standards for its citizens?

And the rising costs of food and fuel aren't the only place where low- and middle-income Americans are feeling the pinch.

Many of the 158 million people covered by employer health insurance are struggling to meet medical expenses that are much higher than they used to be — often because of some combination of higher premiums, less extensive coverage, and bigger out-of-pocket deductibles and co-payments.
With medical costs soaring, the coverage many people have may not adequately protect them from the financial shock of an emergency room visit or a major surgery. For some, even routine doctor visits might now take a back seat to basic expenses like food and gasoline.

“It just keeps eating into people’s income,” said James Corbin, a former union official who works for the local utility in Tucson.

Mr. Corbin said that under their employer’s health plan, he and his co-workers are now obliged to pay up to $4,000 of their families’ annual medical bills, on top of about $1,600 a year in premiums. Five years ago, they paid no premiums and were responsible for only about $2,000 of their families’ medical bills.

“That’s a big jump,” Mr. Corbin said. “You’ve just lost a month’s pay.”

. . .

Experts say that too often for the underinsured, coverage can seem like health insurance in name only — adequate only as long as they have no medical problems.

“There’s a real shift in the burden of health care to people who happen to be sick,” said Paul B. Ginsburg, the president of the Center for Studying Health System Change, a research group in Washington.

The inanity of how the US runs it's health care system is worthy of a series of articles in it's own right, but for now it is enough to note that it's rising costs are placing an increasing financial burden on even those who are healthy enough to qualify for the insurance in the first place.

That burden is leading more and more people to some very hard choices.

Struggling with mounting debt and rising prices, faced with the toughest economic times since the early 1990s, Americans are selling prized possessions online and at flea markets at alarming rates.
To meet higher gas, food and prescription drug bills, they are selling off grandmother's dishes and their own belongings. Some of the household purging has been extremely painful — families forced to part with heirlooms.

"This is not about downsizing. It's about needing gas money," said Nancy Baughman, founder of eBizAuctions, an online auction service she runs out of her garage in Raleigh, N.C. One former affluent customer is now unemployed and had to unload Hermes leather jackets and Versace jeans and silk shirts.

At Craigslist, which has become a kind of online flea market for the world, the number of for-sale listings has soared 70 percent since last July. In March, the number of listings more than doubled to almost 15 million from the year-ago period.

And,

"People are cleaning out their houses of gold, silver, whatever, to get money just to fill their cars with gas," said Nat Leonard, 51, whose grandfather opened Society Hill in 1929. "People are pawning out like crazy."
Business is up maybe 20 percent over last year.

"With this economy, we're not done yet with bad times," Leonard continued. "Not even close."

Things are so awful, he said, he's getting loads of first-time customers.

"I've got business owners coming in to pawn things just to make their payrolls," Leonard said, incredulous. "I've never seen that before."

In this economy, people aren't buying as much jewelry as usual, so retail jewelers on and around South Street have to pawn inventory to pay their workers. "One jeweler owes me $150,000," Leonard said, showing off the pawned collateral in a backroom safe.

. . .

Over at Carver W. Reed & Co., a pawnshop at 10th and Sansom Streets since Lincoln was president, more and more higher-echelon people are filing in, owner Tod Gordon said.

"The upper middle class is feeling the crunch like never before," he said. "They're bringing in diamonds and gold to pay for margin calls on stocks. There's a feeling of despair.

"These people are used to paying their bills, no problem. Now it's a whole new world. They're struggling. So maybe they won't go on vacation this summer, and they'll pawn jewelry to fix the roof."

As a result, pawnshops are more frequently becoming the secret repositories of great local wealth.

Outside of hoping that the pawn shops in Philadelphia have really good security systems since they're no longer quite-so-secret repositories of great wealth, the above stories show just how deep some people are digging to keep themselves afloat these days. But personal possessions are a well that can't be tapped indefinitely, and there is also the fact that with so many people unloading so much stuff, the price they can get for those treasured heirlooms is dropping. Too many selling and too few buying, and even the pawn shops won't be doing that well anymore.

Moving back out to the bigger picture, Fester noted on Friday that the decrease in discretionary spending is leading to a decrease in local government revenues, since they don't tax the things like food and healthcare that are eating up people's income. To offset this, municipal and state governments are turning to selling debt, gambling their employees' pension futures to shore up today's deficits.

The other part of what Fester posted leads to some troubling questions as well,

. . . there are a couple of interesting things in the GDP report. The first is that the purchases of tangible goods decreased over the last quarter, and that a good deal of the growth in goods and services purchased were from imputed/calculated transactions such as the cash value of the rent owners pay themselves to live in their house.

The reason I find it troubling is this post by Stirling Newberry at The Agonist.

The market understands that the US economy is using monetization to avoid writing off the lost value of capital. This is showing up in the sharp drops in the value of the dollar against independent currencies, and against the trade weighted average of the dollar. Measured in trade weighted terms, rather than devaluing dollars, the commerce department's sluggish growth over the last two quarters becomes outright contraction. You want "two quarters of negative GDP?" Well you've got them measured in the world average of currency. What has happened is a sleight-of-hand to turn the devaluation of the dollar into non-inflation.
How did this work? Well gas prices and housing prices are in tension. The fall in housing prices is being used to offset the rise in gas prices in the GDP deflator. Presto! Having to bleed money to hold on to your house becomes "growth".

Now I predicted this in 2002, namely that we would see a "Japanification" of the American economy, that the currency would be devalued both to prop up exports and as a tax - a tax that would be used to pay for the war - and that the collapse of the bubble would be used to offset the inflation rate. This has led to what it led to in Japan, a perpetual "Bright Depression", where nominal growth at the top of the economy in assets that are over-valued because they are artificially constrained in liquidity - read, everyone agrees not to sell their 9 Billion Puppies on the open market, because they won't fetch that much any more,and thus carry them on the books as worth 9 billion dollars - to create an illusion of more growth than exists.

It goes on quite a bit from there, but suffice to say that the big numbers that people in the Bush administration and their supporters throw around tend to be more about masking problems than addressing them. For an example, we can go back to the McClatchy story I started with.

While things remain tense for poor and middle-class Americans, Commerce Secretary Carlos Gutierrez told McClatchy Newspapers on Friday that things are better than could be hoped for in the broader economy, considering the deep housing-market correction and problems in credit markets.
The economy shook off those problems to grow at a sluggish rate of 0.6 percent in the first quarter. And while employers trimmed the workforce for the fourth consecutive month, Friday's job numbers showed that unemployment actually improved to 5 percent.

"All of the indicators that we look at suggest that the fundamentals are still strong, and once again it is a great example of a resilient economy," Gutierrez said.

The New York Times did a good job some time ago on why such unemployment numbers are less than useful, and we've already seen why the so-called increase in GDP is no increase at all. The ultimate effect is that the vast majority of Americans are, or are going to, see their standards of living drop, and thanks to the fact that the American consumer has been the driving force of the world economy for the last several decades, the rest of us will likely be following suit.

Newshoggers.com

May 04, 2008

Sunday Evening Economic Doldrums

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