Fake Wealth

Yesterday President Bush declared that our economy was “sound” and all this concern about home foreclosures is overblown. He said, “I’m a glass-half-full person” (USA Today). Well, what if you’re a what’s-really-going-on-here kind of person?

What’s your house worth? How much home equity do you have? Will your mortgage readjust in the next two years? Welcome to the wealthiest country in history. But is it the wisest? Recent news is full of a declining housing market with the biggest price declines in the shortest time in history (“Economy.com Forecasts Historic Home Price Decline”). What we’ve just experienced is called asset inflation. It’s when the price of things goes up but their underlying value doesn’t. It’s all due to easy credit. It drove up the stock market before the 1929 crash. It drove the Internet bubble of 1998-2000 (which eventually cost 17 trillion dollars in stock losses), and now it’s hitting nearly all homeowners who live paycheck to paycheck. Whether the ripple effect of 3 million mortgages adjusting to higher payments in the next two years is going to choke our economy is yet to be seen. But if it does, it will hurt those who have the least resources. And the worst is it could have been avoided. It didn’t happen by chance.

About 30 years ago our leaders decided that turning America into a consumer economy was a good thing. So today instead of borrowing to invest in factories, technology and ideas, we spend 70% of our 12 trillion dollar economy on buying stuff. We can’t afford to repair our bridges, our levees, or fix education, but anyone can get a credit card. You see, there is lots of money to be made loaning us the money. But since we quit investing in productive assets and now mostly spend it on consumption, look what we’ve produced. Today, two-thirds of Americans believe their children will be economically worse off than they are. This might be why:

• We live in a country of 300 million people in which the richest 3 million own more than the bottom 256 million. 1% owns more than 90% of us put together!

• Profits are at a 40 year high for Fortune 500 companies ($705 billion) nearly 2X previous high, and worker productivity is up 48% between 2000-2006, but average wages are only up 1% (inflation adjusted) (Bureau of Labor Statistics (BLS)).

• Median personal income is actually down, below 2000 levels (BLS), and also below 1977 levels in real dollars! (The real median income in 1977 was $51,223 (inflation adjusted). In 2006 it was $50,700.) (National Center for Education Statistics (NCES)).

• Prices in real terms of housing, college education, and health care have risen nearly 300% more in the past 30 years, while individual incomes are stagnant. (College Board and U.S. Census Bureau).

• The amount of monthly income it takes to buy a house today is nearly 23% vs. 17% in 1970. People who pay 50% of their income for rent or mortgage payments are at an all time high.

• The average home price adjusted for inflation in 1970 was $115,000. Today it’s 2X as much in real dollars ($219,000). (Fetterman, Mindy. (2006, Nov. 19). Young people struggle to deal with kiss of debt. USA Today.) In many markets it’s 4X more (475,000+).

• The average debt of a college graduate is nearly $20,000+ (College Board).

• 47 million are medically uninsured. Most are in families with at least one full time worker.

• In many communities, teachers, policemen, and firefighters cannot afford housing.

• Medical Insurance Premiums of an average American family exceed $1000 per month.

• Loan defaults and foreclosures are doubling monthly in many parts of the country.

• In Cleveland, Ohio nearly 10% of the homes are vacant and abandoned due to foreclosure caused by job loss.

• Retail sales are declining due to increase costs of gasoline, insurance, and housing.

• The savings rate for the average American 30 years ago was 9%. Today it is at zero.

• America has fewer manufacturing jobs (14.3 million) than it did in 1950 with 2 times the population. SOURCE

• Since 1977, inflation-adjusted medium income for U.S. males has declined 7.5%.

• U.S. productivity in terms of output ranks 8th behind Norway, Belgium, France, Ireland, Italy, Austria, and Germany (OCED).

• U.S household debt exceeds $12 trillion.

• U.S. Federal Deficit is $8.8 trillion!

So what’s our plan? Can this continue? Is this the best society we can produce?

Maybe we need new leadership with a vision for a new future. A future in which we get our identity and our joy from who we are and what we create rather than from how we appear and what we consume. We need a new economic agenda for our future and individually we need to make sure our personal economic agenda is serving our real dreams rather than the dreams of someone trying to sell us something. The lessons are simple. We need new leaders with a new agenda. And most of all…we need to invest in ourselves, not in our stuff.

Let us know what you think. We want to hear your voice.

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