THE FRUITS OF SELF-GRATIFICATION

Imagine the average middle-class family in the United States. Both parents work and make a decent income.  Neither is a professional, but both have a degree and have been successful. They had good stability during the housing crash of 2008 and were able to take advantage of others misfortune, buying a new house after home values fell. They are living the American dream.

They have two children– one in grade school and one just starting middle school. Once gas prices had stabilized near $2 a gallon, they upgraded their economy cars, she with an SUV to have more room for hauling kids and gear while he selected a full-size crew cab pickup. They also splurged and bought a camper so they can go camping with the kids.

Since mom works, eating out or picking up takeout is the norm on week nights. By the time taxes and insurance are paid, plus all the payments on the house, cars, and camper, their student loans and health insurance, there isn’t enough left to put in savings. However, they are young and at least one of them should get a raise soon. They must also start saving for the kids’ education. The economy is good, things are looking good for the country’s future and theirs.

According to Pew Research, roughly half of Americans are in the middle class. That research also revealed that the middle class is shrinking. In 1971, the middle class made up 61% of Americans; however, the overall median income of the middle class has actually lowered over the past 15 years.

But, there is more news that makes the otherwise rosy picture look a bit bleaker.

After the housing balloon popped in 2008, banks have returned to some of the old practices of the past. Housing prices have been on the rise and just like the stock market, it is subject to corrections. Banks are again loaning on first and second mortgages, and people are once again looking at bigger, more expensive houses.

A recent “stress test” placed on Fannie Mae and Freddie Mac show they are counting entirely on continuing growth, and a new economic crisis could require a government bailout (this means you and me) to the tune of $100 billion.

Many families similar to to the one above use credit cards to fill in the gap from time to time. According to recent reports, consumer credit card debt is now over $1 trillion. Some of the larger banks in this industry are writing off an increasing amount of this debt. Capital One, for instance, has written off 5% of its outstanding credit card loans. This is considered dangerous territory.

While this family is paying on their student loans, that is not so for everyone. And if things get tough, the student loan is usually the first commitment to go. NPR reported in May that 3,000 people a day default on their student loans, adding up to an unpaid bill of $136 Billion! And this is with a supposed recovering and growing economy. Student loans total a staggering $1.4 trillion.

As cars get more and more expensive (often due to government regulations and requirements), lenders have adjusted loan terms to keep the auto industry going. Auto loans for 6 and 7 years are not uncommon. This leaves the owner with a “subprime” auto loan as they owe much more on the car than it is worth. There is also a growing problem of auto loan fraud— misstatement of an applicant’s income to make the sale is nearing 3% of auto sales. This is the same percentage of fraud in home loans in 2008.

The low interest promoted by the Fed has encouraged US corporations to take on $7 trillion in new debt.  No one seems concerned about these numbers, well, almost no one. With government adding debt daily, currently $20 trillion and unfunded liabilities over $120 trillion, it seems the government and the people are in sync with each other…whistling past the graveyard.

In 2008, one hiccup pushed us over the edge—  gas prices.  When gas soared to $4 a gallon, everything went up in price and people cut back. There was no room for this adjustment in the economy. The house of cards collapsed.

We are there againWe have built another house of cards, a larger one, and because the stock market is doing well, people just keep on looking at the world in their rose colored glasses.  What could possibly go wrong?

Perhaps a dictator in North Korea might start something, or perhaps we might do something first.  Perhaps Iran might fill the vacuum left by ISIS and attempt to fulfill its goal of an Islamic Crescent. It could be domestic issues or something entirely unknown at this time.

Our economy is built entirely on people buying products and services— spending.  So the things that make the economy work also make it susceptible to collapse. There is not only any incentive to save, there is an incentive to spend. The longer it takes to make a correction, the worse the correction will be. We can not escape reality and what history tells us. And I have not factored in the advent of A.I. and automation which will continue to displace people from the workforce.

Our ancestors lived simple lives; they were self-reliant and self-sufficient. They also operated on a belief that there was an obligation to not only take care of yourself and your family but to help those around you. Much of their gratification came from a sense of well-being from working hard and helping others; it was not in the accumulation of things.

King Solomon is regarded by most Christians and Jews as being the wisest man to ever live. He realized after giving it much thought that much of what man seeks and strives for is vanity, and is meaningless. I would encourage you to read Ecclesiastes. Prepare yourself for the eventual economic changes that are sure to come. It will not be a great leader that saves our republic. It will be individuals who return to the essentials upon which our republic was founded. I plan to be one of those; what about you?

 

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