Modern Competition: Part 1 of 3 (College vs. Income & Consumer Debt)

(Survival Manual/ 2. Social Issues/ Death by 1000 cuts/ Modern Competition: Part 1 of 3)

Topics:
Part I
1.  College and future income
2.  Consumer debt

Part II
3.  Wage slaves

Part III
4.  Illegal (Mexican) immigration
5.  Free trade & globalization
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1.  College and future income

Will a College Education be Worth the Investment in the Future?
November 22, 2010, econfuture
<http://econfuture.wordpress.com/2010/11/22/will-a-college-education-be-worth-the-investment-in-the-future/&gt;

Yves Smith at Naked Capitalism has a good post on the declining economic value of college, and the looming danger of massive student loan defaults. Shockingly, a full 50% of college graduates are winding up underemployed:

Take note: half the recently-minted college grads are in jobs that do not require a college degree.

Now if these graduates were going to college for the mere love of learning, and didn’t mind working at Home Depot because they could work on a novel in their garret, this picture might not be quite as terrible as it looks. But I sincerely doubt that anyone in the US goes to college to become a working class intellectual.

But the economic (as opposed to social and personal) value of higher education is exaggerated. The widely-touted College Board claim that lifetime earnings for college grad outpace those of mere high school grads by $800,000 does not stand up to scrutiny. The author of the 2007 study which the College Board relied upon disclaims that estimate and says $450,000 is a better figure. Mark Schneider, a vice president of the American Institutes for Research, who used actual earnings data of graduates ten years after college, and allowed for other factors such as taxes, pegged the difference at $280,000.

And these estimates are averages. Students who are drawn to fields such as architecture, which require advanced education, but are not terribly well paid, will fare less well.

In addition, the value of a degree is premised as much on its scarcity and credentialing value as it is on actual gains in skills. If college educations go from a sign of achievement to a mere social norm, do they really provide that much income benefit to the recipient? James Galbraith, in The Predator State, argued that encouraging more people to get college degrees actually lowered its value, but also served the useful social function of delaying entry into the job market, and hence reducing employment pressures.

But students and their parents have been sold on the value of education as an investment, and it isn’t hard to see why. As higher education costs have skyrocketed, more and more students need to borrow to finance their schooling. The Economist gives an overview:

“For decades, college fees have risen faster than Americans’ ability to pay them. Median household income has grown by a factor of 6.5 in the past 40 years, but the cost of attending a state college has increased by a factor of 15 for in-state students and 24 for out-of-state students. The cost of attending a private college has increased by a factor of more than 13 (a year in the Ivy League will set you back $38,000, excluding bed and board). Academic inflation makes most other kinds look modest by comparison.’

In the stone ages of my youth, many middle class parents could afford to send their kids to Ivy League schools. A year at Harvard, with room and board, is now over $50,000, on a par with median household income.

And perversely, student loans are the only form of consumer debt that is virtually impossible to discharge in bankruptcy.

Thanks to a provision the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act signed into law by then President George W. Bush, the current law only allows the discharge of private student loans in bankruptcy after a showing of “undue hardship,” the same requirement that is made for federal or non-profit backed student loans. Undue hardship requires a separate showing to a bankruptcy judge proving, in essence, that the borrower would never be able to pay off the loan. This is an extremely difficult legal standard to meet.

New graduates are, or at least should be, very attractive to employers. Someone who can’t find a good job right out of school will face even higher hurdles down the road. Paul and Wilson describe how high unemployment rates for young people represent a an economic and ultimately a social problem:

Recent college graduates, those in the labor force with the freshest batch of knowledge and skills, are currently underwater and sinking fast with unprecedented student loan and personal debt. Average student debt for the class of 2008 was $23,200, an increase over four years of about 25%, meaning that students are knee deep in negative equity between their educational investment and actual earnings.

Between inflated student debt and the lack of available jobs for qualified graduates, students are defaulting at an all time high level of 7.2%. From 2008 to 2009, student debt defaults jumped about 30% to $50.8 billion. This earning-to-debt gap not only hurts lending institutions, but also may affect students’ future abilities to borrow – a significant hurdle in our credit driven economy.

[Above, <http://valutarian.blogspot.com/2010/02/are-college-degrees-bubble-asset.html> the appalling graph, Earnings of Young College Grads vs college Costs.]

If student debt and job stagnation continue, younger workers will face real structural unemployment (as opposed to the fake kind that had been suspected by some economists, but was recently debunked by the San Francisco Fed). The more time these young workers spend unemployed and underemployed, the greater chance for future structural unemployment due to deteriorating human capital.

High debt, high defaults, and low family earnings will prevent many students from finishing college at all. High unemployment for those who do manage to graduate with a degree will create barriers for those unable to start their careers.

This is a slow motion train wreck. Optimistic estimates of economic recovery project unemployment reverting to pre-bust norms by 2015; more realistic forecasts put it at years later. And the more students drop out of college, the worse job market pressures become.

At the end of their piece, Paul and Wilson make a persuasive case for action:
“In order to solve future structural problems in the United States and ensure a future for the sandwich generation, fiscal policy focused on educational and job growth is crucial. While deficit hawks may squawk about the costs, the burden of repayment is on younger people. Without adequate education and careers for students, we will never be able to balance the budget. In the long run, it makes more fiscal sense to create jobs and collect tax revenue than to rely on a model that merely waits for the private sector to invest.”

But the “long run” and “fiscal sense” don’t count for much in deficit debates. Sadly, the very real plight of this cohort is certain to be ignored unless they can find a way to make their needs heard.

Unfortunately, I think there is every reason to believe that the problem will get worse. Technology will increasingly be leveraged to automate the knowledge worker jobs that are often taken by new college graduates, and this is likely to hit especially hard at the entry-level.

I also think the future impact of offshoring is underestimated. We cannot escape the reality that intellectual capability within the population is subject to a normal distribution. This implies that, collectively, India and China have more smart people…than the United States has people. In the future, technology will make it even easier for the millions of people on the right flank of Asia’s bell curve to compete directly with Americans for knowledge-based jobs.

Here is a section from The Lights in the Tunnel in which I discuss the future of college education:
“Nearly everyone agrees that a college degree is generally a ticket to a brighter future. In the United States in 2006, the average worker with a bachelor’s degree earned $56,788, while the average high school graduate earned a little more than half this amount, or $31,071. Workers with graduate or professional degrees earned a still higher average salary of $82,320. While the primary motive for the majority of individuals to pursue advanced education is almost certainly economic, we would all agree that education also conveys many other benefits both to the individual and to society as a whole. A person with more education seems likely to enjoy a generally richer existence, to have an interest in a greater variety of issues and is perhaps also more likely to be focused on continuing personal and professional growth. A more educated society is generally a more civil society with a lower crime rate.” An educated person is likely to hang out in the library—rather than on street corners.

The unfortunate reality, however, is that the college dream is likely at some point to collide with the trends in offshoring and automation that we have been discussing in this chapter. The fact is that college graduates very often become knowledge workers. As we have seen, these jobs—and in particular more routine or entry level jobs—are at very high risk. The danger is that as these trends accelerate, a college degree will be seen increasingly not as a ticket to a prosperous future, but as a ticket to a job that will very likely vaporize. At some point in the future, the high cost of a college education, together with diminishing prospects for college graduates, is likely to begin having a negative impact on college enrollment. This will be especially true of students coming from more modest backgrounds, but it will have impact at all levels of society.

This is, obviously, a very unconventional view. Most economists and others who study such trends would probably strongly argue exactly the opposite case: that in the future, a college degree will be increasingly valuable and there will be strong demand for well-educated workers.

This is essentially the “skill premium” argument—the idea that technology is creating jobs for highly skilled workers even as it destroys opportunities for the unskilled. I think the evidence clearly shows that this has indeed been the case over the past couple of decades, but I do not think it can continue indefinitely. The reason is simple: machines and computers are advancing in capability and will increasingly invade the realm of the highly educated. We’ll likely see evidence of this at some point in the form of diminished opportunity and unemployment among recent graduates and also among older college-educated workers who lose jobs and are unable to find comparable positions.

We may not see an actual closing of the gap in average pay for college v. non-college graduates because opportunities for workers of all skill levels are likely to be in decline. I am not suggesting that high school graduates who would have otherwise gone to college will chose to remain completely unskilled, but I do think there is likely to be a migration toward relatively skilled blue collar jobs if there is a perception that these occupations offer more security.

As new high school graduates begin to shy away from a course leading to knowledge worker jobs, they will increasingly turn to the trades. As we have seen, jobs for people like auto mechanics, truck drivers, plumbers and so forth are among the most difficult to automate. The result may well be intense competition for these relatively “safe” jobs. As high school graduates who might previously have been college-bound compete instead for trade jobs, they will, of course, end up displacing less academically inclined people who may have been a better fit for those jobs. That will leave even fewer options for a large number of workers.

We see evidence of this trend already in the daily news. Newspapers routinely report that people are specifically seeking jobs that can’t be off shored. Much is made of new “green collar jobs that cannot be outsourced.” While this is certainly a desirable development, we have to acknowledge that the bulk of these jobs are going to involve installing solar panels, wind turbines and so forth. They are trade jobs; not jobs for college graduates.

The cost to society of such a turn away from education would be enormous. It would damage the hopes, dreams and expectations of our children and potentially rob them of things that we ourselves have come to take for granted. Those workers whose prospects were diminished by a new influx of more “book smart” competitors would become even more dispirited and more likely to turn to crime or other undesirable alternatives. This hash new reality would fall most heavily on people in disadvantaged sectors of the population. Finally, and perhaps most chillingly, a trend away from college would rob us of talent we may well need in the future.

2.  Consumer Debt

 A.  Consumer Debt Statistics
2006, Money-zine.com
<http://www.money-zine.com/Financial-Planning/Debt-Consolidation/Consumer-Debt-Statistics/&gt;

The latest statistics from the Federal Reserve indicate that the total amount of consumer debt outstanding remained fairly steady in 2010. The total amount of consumer debt in the United States stands at nearly $2.4 trillion. Based on the 2010 Census statistics, that works out to be nearly $7,800 in debt for every man, woman and child that lives here in the U.S.

If you’re saying to yourself – that that statistic doesn’t seem quite so bad – keep this in mind: We’re talking about consumer credit, which does not include debt secured by real estate. If you thought that number has debt associated with mortgages, it doesn’t.

Consumer Credit Breakdown
So just how does that debt breakdown in terms of credit cards or the purchase of a new automobile? Roughly 33% of all consumer debt, as of October 2010, is what is termed revolving credit. This is credit that is repeatedly available as periodic repayments are made to lenders. The most common type of revolving credit would be credis card debt.

The other 67% of that debt is derived from loans that are not revolving in nature. This type of debt would include automobile loans, student loans, as well as loans on boats, trailers, or even vacations. In fact, these statistics also tell us that the average new car loan is over $27,600, and the loan to value ratio is 83%. That means new car buyers are using down payments that are 17% of the car’s purchase price.

Credit Card Debt
According to information gathered by the US Census bureau, there were approximately 173 million credit card holders in the United States in 2006, and that number was projected to grow to 181 million Americans by the end of 2010. These same Americans own approximately 1.5 billion cards, an average of nearly nine credit cards issued per credit card holder.

In addition, Americans charged approximately $1,950 billion to their credit cards in 2006. That’s just over $11,300 in charges per cardholder. This information includes all credit card types such as bank cards, phone cards, as well as credit cards issued by oil companies and retail stores.

This data also tells us that Americans carried approximately $886 billion in credit card debt, and that number is expected to grow to a projected $1,177 billion by the end of 2010. This works out to over $5,100 in credit card debt per cardholder (not household) and that number is expected to increase to over $6,500 by the end of 2010.

[The above chart shows credit card debt on a per-household basis,compared to and dwarfing median household income growth since 1980.]

Bankruptcy and Consumer Debt
In January 2008, the American Bankers Association reported credit card accounts that were 30 or more days past due dipped slightly to 4.18% in the fourth quarter of 2007. That’s good news because it means more consumers are paying their bills on time.

But even with this decline in late payments, credit card delinquencies were at the third highest level on record. To James Chessen, ABA’s chief economist, that can signal financial distress, and he attributes this distress to the rise in gasoline prices as well as rising interest rates.

In January 2010, Fitch Ratings reported the number of cardholders 60 or more days late on payments stood at 4.50%. Cardholders that were 30 days late declined to 5.72%. Both of these values are significantly higher than reported by the ABA back in 2008.

Bankruptcy Filings
Despite the Fed’s feelings about consumer credit, the bankruptsy law changes that were instituted in the fall of 2005 resulted in a rush of indebted consumers to file for bankruptsy. At that time, personal bankruptcy filings rose to their highest levels on record, with estimates in excess of 2 million filings.

The trend in stagnating or falling real wages has been happening since the 1970s.
The chart below shows household debt as a percentage of GDP. Once wages began to stagnate, households turned to borrowing to make up the difference. You can also clearly see that the debt-fueled housing boom begin around 2001. Consumer spending makes up more than 70 percent of the economy, and it usually drives growth during economic recoveries.  Households are now beginning the painful process of deleveraging by cutting back on spending and paying down their debt.

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What If the Consumer Economy Never Comes Back?
http://www.quizzle.com/blog/2011/10/what-if-the-consumer-economy-never-comes-back/ According to a recent article in the New York Times, there is no “going back to normal.” This is the new “normal.” America’s economy was propelled for almost 30 years by consumer spending, consumer credit, and home equity debt, and the driving forces that made this situation possible are no longer in play.

Consider these sobering facts from the article:
•  American consumers are on track to buy 28 percent fewer cars in 2011 than in 2001.
•  Sales of ovens and stoves are at their lowest level since 1992.
•  Americans’ “discretionary service spending” (i.e. restaurant meals, entertainment, education, insurance and other categories) is own 7 percent – more than any other time in history.
•  Walmart’s CFO has mentioned that Walmart customers are buying smaller packages at the end of the month – a sign that these families are literally running out of money each month.
•  The U.S. unemployment rate has risen 5 percentage points in the past four years.
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B.  Personal debt and peak oil
Published Feb 1 2005 by <www.powerswitch.org.uk, Archived Feb 1 2005 by Clive Smith
http://www.energybulletin.net/node/4200> (from England, what happened there soon happens in the USA)

National identity cards, a national road toll system that will charge car users large sums of money for driving at peak times by 2014. The government has already given warning that the current pension system, is not in the long term affordable. In the summer of 2004 the UK government announced that it was prudent that people should put three weeks worth of food aside for emergencies (the BBC ran several pieces on this), mainly terrorist attack. Along with plans to base the army at food depots during the next fuel strike and you begin to understand that we have all quietly been put on notice.
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[Note: The USA Gov’t. has increased the recommended amount of household emergency food storage from 72 hours (3 days) to 5 days–as opposed to the UK’s 21 days. Who do you suppose is the most in error. It occassionally takes 3 days just to enter a damaged area, mush less beging to service the needs of the surviving residents. Mr. Larry]

For the majority of us, our standard of living is better than it has ever been. You just have to look around to see all this newfound wealth – although with the UK consumer debt having topped the £1 trillion mark last summer (including mortgage debt), you begin to wonder. Many homeowners discovered in the last few years that their homes are worth so much more than they paid for them, so they have borrowed extra, to finance home improvements or a new car and holidays. This new wealth is in reality huge debt running on borrowed time.

Most of our recent increased personal wealth, seen as new cars, home improvements, bigger homes, two holidays a year and expensive electrical goods, has been funded by personal borrowing. One of the most popular forms of borrowing has been to extend mortgages, as the UK has over the past few years seen a huge housing boom. Increased borrowing on a mortgage is the most expensive form of borrowing. The interest is paid over a very long period and unfortunately the housing bubble will be the first to burst in an economic down turn, leaving many people out in the cold so to speak.

You are probably thinking this is all very interesting and you have probably heard some of it before, “so what has this got to do with me?”

Since we have done nothing to prepare for the coming oil shocks, we are completely reliant on increasing our supply of oil to power all of our transport needs, our food production, our manufacturing of goods and 40% of our total energy needs. With an economy that is based on perpetual growth, this is very bad news. As a lack of surplus energy, means a lack of economic growth.[As it becomes more difficult to service debt, debt ceilings will be lowered for many and the lines of credit cut off for most. Mr. Larry]

It is generally given in simple terms, that a shrinking oil supply will mean a recession and high prices for all goods. In a recession, people tend to lose their jobs and spend less money. Thus the spending of less money – a consumer downturn – makes the spiral even worse and more people lose their jobs.

I had a conversation with a friend who works in the airline business the other day. He has known about the basics of peak oil for a while and could see the price of oil continuing to rise into the future. He suggested that as the price of crude oil increases and thus the price of holidays and flights, people would just pay more as they wouldn’t stop travelling to go on holiday.

This idea is very common, put completely incorrect. In the short term this might happen. Although as many people lose their jobs and there is less money around as the economy enters into a crisis, the majority of us will not be going on holidays abroad whatever the cost. Many companies will go to the wall. Not only will there be less money available, but also less goods. It’s a spiraling down effect that will continue, even if we manage to find a miracle that can replace oil, for many years.

If I could offer you three pieces of advice that would make your life easier in the future, it would be the following;
a) Get out of debt, b) Reduce your debt base, c) Pay off your debts.

The future is likely going to be tough. Many changes will happen and we will have to change our very ideals and ways we live. Governments have known about this for years, but the changes that are needed to secure our futures are unpopular and not vote winners. So nothing will be done, until it becomes complete obvious to all that we really are in trouble and most of our beliefs about our lives and prosperity come crashing down around us.

If you are up to your eyes in debt, with a mortgage, loan(s) and credit card(s), what will happen when you lose your job or are forced to take a job paying substantially less than you need to service these debts? “Your house is at risk, if you are unable to keep up the repayments on it”. This well-known phrase should give you an idea of what is likely to come. The economic downturn that brought on the last housing market crash in the early 90s was small, compared to the possible energy crisis ahead. Many people lost their homes and were left with huge debts. The current housing boom has taken personal debt to new highs and left many families very vulnerable.

I can’t stress the importance of this. Having excessive debt is going to make things very difficult. Although, I do think it is important to have some sort of balance, between this and things that you want to do in your life. What I mean by this is, if you have always wanted to travel the Far East or back pack round the world, now is the time to do it. It’s a balancing act, between getting your life in order and enjoying the party, whilst we are still living through it.

Try to clear loans and credit cards and reduce your mortgage. This is far more important in the long term to your well being, than buying a new car (or the latest plasma screen, dishwasher etc), when a cheaper second hand model is adequate. You could also sell expensive assets to help pay off your debts or mortgage quicker, i.e. downgrade from a prestige car to a more economical cheaper model. You might decide that this is the right time to sell your house/flat in London and move to a house in the country or a small town, thus reducing your mortgage.
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C.  Eight Things You Need to Know About the Shaky U.S. Economy
by Larry Saltzman and Linda Buzzell-Saltzman
<http://www.forthefuture.org/assets/articles/col_shaky_econ.htm&gt;

On the macro level, we may be concerned about the negative impacts of globalization and so-called “free trade.” We may also be uncomfortable with the kind of planet-destroying capitalism that has sprung up under the giant international corporations. But there is more – much more – we need to understand about how economics is impacting our personal and collective lives and the health of our planet.

The economic consequences of globalization and late stage hyper-capitalism are reaching a crisis point that will be felt by most of us in the next few years “up close and personal” – probably even before we feel the immediate results of peak oil or global warming. Even if we are doing everything we can to live a low-impact, sustainable lifestyle, we need to understand what’s happening in the U.S. and world economies.

The Big Picture
We have lived most of our lives in a growth economy, and our society has been getting rich off the consumption of cheap fossil fuel. That “free ride” up to Peak Oil and along the gradually declining top of the curve, is just about over, while a number of disturbing economic trends are appearing that spell big trouble for oil-dependent economies and for the average U.S. citizen. The era of endless “economic growth” is coming to an end. The Energy Descent economy has begun.

So let’s examine eight worrisome economic trends. They are interconnected and when stirred together create a nasty brew…

_1.  Private Debt
“Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” – Charles Dickens, “David Copperfield”

America has forgotten Charles Dickens’ famous words of wisdom. We are collectively trying to buy happiness by going on the greatest credit binge in the history of humanity.

Here are a few of the shocking facts:
•  The Federal Reserve reports that Americans collectively owe $2,164 trillion, of which $804 billion is credit-card or other revolving debt. By 2001, Americans were paying $50 billion a year in finance charges to service their debt and that number has since climbed higher. The average American owes $8,562 on their credit card(s) and will need ten years to pay that amount off at the minimum payment. At that point, they will have paid out over $16,000 or almost double the amount they originally borrowed.
•  These levels of personal debt are virtually enslaving Americans, forcing many of us to work harder and harder, for longer hours, at often meaningless corporate jobs in order to pay off our obligations. And bankruptcy laws have recently been hardened to make it even more difficult to escape the impact of serious personal debt, often caused by huge medical bills as well as our own intemperance.

_2. The Real Estate Bubble
Thanks to low interest rates, Americans have been on a real estate binge, buying any property at any imaginable price in the belief that real estate will appreciate forever. Interest-only loans, variable interest loans, balloon payments and low- or no-down payments have become the norm in the usually conservative world of home loans. The result is that as interest rates continue their inevitable ride upwards, many recent home buyers are going to see their home payments rise beyond their ability to pay. And as home prices begin to fall, and perhaps collapse, some home owners are going to experience negative amortization. That means that every month, instead of the equity on your home increasing, it will decrease and the total amount you owe will increase.

As real estate prices soften, which is already happening on the South Coast and elsewhere, foreclosures may rise as people go “upside down” on their loans, owing more on their mortgage than their properties are currently worth. Banks, stuck with unwanted properties, may begin to sell them at fire-sale prices, further depressing the price of real estate.

 Any fall in real estate values is especially worrisome as some Americans have been using their home equity as a kind of last-resort personal bank, taking out second mortgages to pay off credit card balances, do home remodels, buy cars or take expensive vacations. Others have used their equity to pay monthly or extraordinary bills, masking the fact that it’s getting harder and harder for many Americans to retain a middle class lifestyle in the era of outsourced jobs and flattened incomes.

_3. Our Savings Rate
The citizens of the United States can now boast having a negative savings rate. We remove more money every month from our collective piggy banks than we put in. The average baby boomer will retire with a net worth of $23,000. The parents of baby boomers left their children far better off than the baby boomers are going to leave their children. Perhaps we can partly blame boomers’ extravagance, consumerism and sense of entitlement. But we also have to look at changes in the U.S. economy that have allowed those at the top to earn more and more while paying less and less taxes, while the middle and working classes are being squeezed with job losses and the export of much of our manufacturing.

_4.  The Bond Bubble
This is a little more obscure problem, but worth understanding. As interest rates have been increasing on short term debt, the interest rates on long term debt have remained stubbornly low — probably because of foreign investment in U.S. Treasuries and the fact that U.S. currency has been until recently the preferred currency to accept payment in. Recently a 90-day Treasury bill paid approximately the same interest rate as a ten-year bond. As interest rates keep rising, the value of bonds may plummet, causing many people to lose a lot of money in supposedly safe and secure U.S. Treasury Bonds.

Bonds are confusing to most people. High interest rates mean that the price of existing lower-yielding bonds falls. Why buy an existing bond paying 5% when you can get a new bond paying 6%? Much of this U.S. debt is of course held by foreign countries, most notably China. If foreign countries ever panic and begin dumping U.S. Treasuries, we will see interest rates rise dramatically and we will be very lucky to escape a full blown depression.

_5. Government Debt
Whatever happened to old fashioned conservative fiscal responsibility? Thanks to George Bush and his imbecilic economic policies, we have now become the nation with both the largest personal debt and the largest government debt. Our military policies are hugely expensive as well as immoral and stupid. And as the effects of Peak Oil and Energy Descent begin to be felt, we will have little wealth available to invest in new solutions.

If we are lucky enough to elect one of the hapless Democratic candidates for President and this person turns out to be a Franklin Roosevelt disguised as a centrist Democrat, he or she will have none of the maneuvering room, that Roosevelt had, to get us out of the economic depression that we may face in the not too distant future. Roosevelt was able to keep the much smaller federal budget of that era in balance while spending on programs to jump start the economy. Today’s Bush economics will leave a great deal of our federal budget servicing the debt the fiscally irresponsible Republicans have run up.

_6. Inflation and Higher Prices
By lowering interest rates to practically zero to encourage false and unsustainable economic growth, the Federal Reserve under recently-retired Chairman Alan Greenspan set the stage for inflationary pressure in the economy. Virtually non-existent interest rates not only fueled the current real estate bubble but made borrowing in general too cheap and easy. This conned millions of Americans into a borrowing binge that has left us deep in debt to the banking industry. If we cannot pay those debts, the banks themselves may also falter.

_7.  Loss of True Productivity
What does America actually produce these days? Our financial services sector is now far larger than our manufacturing base. In other words, the business of America is moving money around. And what happens to this truly unproductive economy when the shaky American dollar falters or exorbitant fossil fuel prices make it impossible to import what we need?

_8.  The Shaky U.S. Dollar
A currency has to be based on something of true value. But the U.S. dollar is increasingly dependent on its status as the world’s default currency rather than the underlying worth of America’s productivity. So what would happen if oil producers, for example, decide they’d rather be paid in Euros than dollars?

Add it all up…

So what do these eight interconnected trends add up to? An unsustainable situation, a house of cards waiting for a tiny breeze – another spike in oil prices caused by a natural or terrorist supply glitch, a sneeze from our major creditor: China, a major oil producer requesting payment in Euros, another bad hurricane season – to start the downward cascade.

How You Can Survive and Thrive in Spite of these Trends
The solutions at the individual level are clear:
•  Stay out of debt, and if you are in debt get out ASAP. If you don’t pay your credit cards off in full every month, get rid of them and use a debit card.
Even if you aren’t in credit-card debt, consider getting rid of your cards anyway as a political act. Credit cards have tricked and deluded Americans into feeling richer than we actually are. They start arriving in the mail while we are in college so we get hooked young. Then these plastic handcuffs enslave many of us, creating an illusion of wealth and disguising the fact that our salaries have stagnated and fallen. This has benefited politicians and banks, not ordinary people. Credit cards lock us into the world of materialism, consumerism and greed and keep us like hamsters in a treadmill, running to keep up, going nowhere. If you think of debt as an addiction, the credit card companies are the pushers.
•  Find work that has a future in an energy descent economy in which “economic growth” is a relic of the pre-Peak past.
•  Learn to take your pleasures from simple and sustainable living. Live at or below your means and save for the future, even if you can sock away only a few bucks a month. Let friends, family and spiritual pursuits replace consumerism and greed. The Voluntary Simplicity movement has done a great job of showing us how to enjoy a rich and satisfying lifestyle without excessive materialism. And Permaculture offers the practical tools for sustainable living that increase our real prosperity and the true wealth of the earth rather than squandering it on the impossible nightmare of endless economic growth at the cost of environmental and social destruction.
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D.   Cycle of debt continues through life
11 May 2008, Seattle Times, by Barbara Steiner
http://seattletimes.nwsource.com/html/businesstechnology/2004406000_pfdebtstages11.html.
An indispensable tool in modern life, debt happens for many reasons. As the economic struggle of the Depression and rationing of World War…

Debt life stages (discussed in paragraphs below)
College
: As the cost of higher education soars, more students are taking out loans.
Young singles: At a time when people don’t have much money, they need it to get established.
Young families: Having children can stretch finances to the breaking point.
Mature families: A time of relative security, but maybe too much spending.
Empty nesters: Now it’s time to help the grown-up kids.
Retirees: Time to relax? Maybe.

An indispensable tool in modern life, debt happens for many reasons.

As the economic struggle of the 1930s Depression and rationing of World War II fades from the collective consciousness, Americans feel more confident taking on debt and optimistic about their ability to pay it all back and start saving one day in the future.

Robert Manning, author of “Credit Card Nation,” studied the financial practices of Americans across generations to discover what influences spending in specific age groups. The research professor and director of the Center for Consumer Financial Services at Rochester Institute of Technology also examined the different attitudes toward debt to find out why people owe so much more today than they did 40 years ago.

“You really can’t overgeneralize,” Manning says. “You have to look at people in particular life cycles to find out why they spent more on those particular items than did a previous generation.”
Experts explain that debt starts from youth and continues on through life, often into those not-so-golden years. 

College
Borrowing to pay for college has become the primary way that most students pay for college,” says Tamara Draut, director of the Economic Opportunity Program at Demos and author of “Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead.”
Parents unable to save the staggering amount of money needed to fund their children’s undergraduate degrees have a few choices. They can go into debt by getting a plus loan or by taking out a second mortgage — or they can put the burden on their children.

“If you look at the way we used to do it, we had pressures on states to keep tuitions low and affordable for middle-income households, and for lower-income households we had grant aid that covered about three-fourths of the cost of going to college,” Draut says.
“Now the majority of aid is debt-based aid and the grants cover about a third of the cost of school.”

According to the College Board’s “Trends in College Pricing 2007,” average tuition costs for the 2007-08 academic year are $23,712 at a private school and $6,185 for a public school. Add in room and board and the totals come to $32,307 and $13,589, respectively.
The borrowing doesn’t stop there for college students. Undergraduates make easy targets for credit-card companies that often give out swag for signing up for a card. “Young people are starting off graduation not only in debt, but it also shows that that competitive pressure that they experienced in high school is what they see as the norm when they go to college,” Manning says. “As we start to see the competitive consumption start at an earlier and earlier age, it’s not surprising that it then continues in older age groups,” he says.

Young singles
Getting established in the world costs money — lots of money. In a cruel twist, people fresh out of school often don’t have a lot of it. Some lucky people can fall back on their parents for help, but not everyone has that option or wants to take it.

“It’s unfortunate, but people have always judged others on superficial stuff. So you have to have nice clothes, a nice car, a nice apartment,” says Lewis Mandell, professor of finance and managerial economics at the University of Buffalo.
A recession may mean that college graduates won’t be able to waltz into a cushy corporate job that offers ample pay for a worker bee living in the big city.

“Earnings have been really flat for young people with college degrees,” Draut says. “Incomes are not really keeping up with costs, but one particular difference is that you’re talking about a starting salary and a lot of debt that has to be repaid,” she says.
With tight budgets and soaring living expenses, young people end up on a tightrope between paydays and too often credit cards are their only safety net. “There is not a lot of cushion left at the end of every month, which makes young people very vulnerable to amassing large amounts of credit-card debt when the car breaks down or when they need to go to the dentist,” Draut says.

But if college graduates are feeling bruised by harsh economic realities, those without degrees feel it even more. “The potential for a young worker without a college degree has plummeted within a generation,” Draut says. “They make a lot less than they used to and all of the benefits that we used to think of coming with your first real job have disappeared.”

Young families
For young people already struggling with living expenses and stagnating wages, adding a baby can stretch finances to the breaking point.
According to Draut, couples with children are twice as likely to file for bankruptcy.

This is a time when you’ve got loans that have to be repaid,” she says. You have earnings that are starting lower and growing slower, and then you add a new baby into the mix — which has always been an added expense. It’s nothing new for this generation. “What’s new is that those student loans, those credit cards, don’t go away overnight.”

This life stage also ushers in new housing needs. Whereas a studio or one-bedroom apartment may have been sufficient a couple of years earlier, with the addition of a spouse and a child, space becomes an issue — as does the school district.
“You get married in the late 20s now in the states and you have a kid and then you want, of course, to live in a nice house in a neighborhood with a good school. The American way of life virtually compels most people to take on a lot of consumer debt and it doesn’t really give you an opportunity to get rid of it,” Mandell says.

Home values in good neighborhoods force many young families to confront difficult choices. The best jobs are in metropolitan areas, but those areas don’t come cheap, Draut says. “A starter-home market has disappeared for a lot of high-cost areas,” she says.

Mature families
Typically, mature families have reached a certain level of security. But Manning found that families in this age group spend more and save less than did previous generations.
“One of the most striking findings of my study was the elasticity of demand for people who have children — there’s never a good reason to not indulge our children these days,” Manning says. “Instead of saving money for their children to go to college, parents are spending that money while the kids are in high school.”
Indulging the short-term whims of teenagers can further perpetuate the debt cycle, obligating children to take on loans for college as well as diverting money from retirement savings.

Debt in this stage can be particularly precarious, especially if savings are spare. Many parents take on debt to fund children’s education — for instance, by taking out a second mortgage — which puts them in the uncomfortable position of either entering retirement with debt or using money that would otherwise be saved for retirement to service the debt.

If parents put off saving for retirement until the kids are out of the house and out of school, they may not have enough time to accumulate adequate funds. “It just means that people aren’t going to be able to retire, and that’s fine for people who enjoy their work and are in good health. But for people who aren’t in such good health, that’s one of the costs of debt that’s going to really come back and bite them,” Mandell says.

Empty nesters
In his study, “Living with debt,” Manning found that older people weren’t necessarily shifting their spending into a lower gear.
“By the time we see older people, they are used to living on debt and don’t want to cut back on their standard of living. So they’re maintaining. While their savings rate may go up, they’re spending more — maybe on helping their children. “It was remarkable how many people in their 50s, 60s and 70s are helping a child or maybe a grandchild,” Manning says.

With the kids out of the house and the accompanying pipeline into the wallet of mom and dad removed, empty nesters should be sitting pretty.

Using data from the 2001 Survey of Consumer Finances conducted by the Federal Reserve, Tansel Yilmazer, assistant professor in the Department of Consumer Sciences and Retailing at Purdue University, found that debt does decline with time.
“In general, the probability of carrying debt decreased with age,” she says.
However, some experts think this could be changing, or shifting with the changing demographic. People are having children later in life and reaching the empty-nest phase later as well. As acceptance of debt has increased, the older population is increasingly indebted.

“Some of them, of course, are maybe opting to work longer periods of time. That certainly is a trend that may be part of the changing life cycle stages,” Mandell says.
But he adds that attitudes toward debt at this stage are also changing.
“Also I think that the thinking that ’60 is the new 40′ is really encouraging older people who might in previous generations have been a little bit more sedate in their lifestyles. Now you look on TV and see a 60-year-old doing helicopter skiing and sailing boats across the Atlantic single-handedly. So I think the notion of settling into an empty-nest sedate lifestyle is going against the grain.”

Retirees
Retirement is on shaky ground. No longer assured of pensions, today’s retirees are easing into their golden years with less savings and more debt. If acceptance of debt and lack of savings are symptoms of the debt epidemic, this stage of life is where the ravages of the disease really flare up.

Throughout their lives, people are spending what they used to save, Manning says. “And so the real crisis is being deferred to retirement.”
“We’re seeing retirees leaving the workforce now with as much as $60,000 in unsecured debt,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies.

The cycle of debt has a domino effect. As today’s young people take on more debt for education, they will spend the money they should have been saving for their retirements to pay off that debt.
Today’s retirees are also affected by skyrocketing education costs. “A bigger percentage of retirees today still owe on their mortgages and that’s not isolated from what’s happening to young people around college. A lot of people are taking out second or third mortgages to help pay for college,” Draut says.
“That’s moved mortgage payments to the retirement years which used to be much more uncommon than it is today.”

For older Americans in good health, that leaves only one option — work. Those that find themselves in debt and in poor health will struggle.
“There are going to be very bad endings for a lot of people,” Mandell says.
He points out expected cuts in Social Security and diminished pensions. “The one thing that may save them is that, with the shrinking labor force, if they are valuable to their employer, they might get the opportunity to work until they’re 92,” he says.
“This may not be what people had originally hoped for.”
End of Part 1 of 3.

Continued in Survival Manual/ 2. Social Issues/ Death by 1000 cuts/ Modern Competition: Part 2 of 3

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