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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: GraceZ who wrote (51028)	1/23/2006 6:44:15 PM
From: mishedlo	Read Replies (4) of 110194

I watch the IRS income stats pretty closely as well as the surveys that the BLS does on income and spending and it conflicts with the notion that wages aren't keeping up with CPI inflation over the last ten years. The numbers of bankruptcies and levels of debt suggest otherwise. I offer several explanation that are probably part of it 1) Averages lie. Monstorous pay rates at the top end balance out 10 times as many people at the bottom end suffereing. 1000 people on the bottom end each lose a very important $100 to the guy at the top making $100,000 more 2) Medical expenses and divorices 3) People simply refuse to save and furthermore buy way more of everything than they can afford from SUVs to houses. SUVs are particularly stupid as they will eventually be worth zero over time. 4) Food is plenty cheap, possibly close to all time lows if you cook it yourself but people eat out too much in addition to just plain eating too much. Furthermore they have no idea how to shop when high purchase items like meat are on sale. Does anyone have a frezer anymore like my parents did? 5) Leverage - people are way over leveraged 6) Grace, you are not the average person. Period. It is possible to hugely overpay for houses and most recent purchasers have. Equating the % you pay on houses when you are in a high income group with some semblance of value to the average person, to those below average and struggling is not a valid comparison. One has to look beyond the averages and see what is actually happening in practice. I see rising bankruptcies, rising foreclosures, huge loss of jobs to india and China replaced by jobs at Walmart with lower pay and fewer benefits, with those at the top end doing very nicely with stock options, brokerage fees, and bonuses. The only reason things are not worse is the "deflationary wind" you spoke of. That deflationary wind is going to become a hurricane when people lose their jobs and their equity in a housing bust. The cure is not higher wages and protectionism but lower wages and lower prices. I have no freaking idea what they are going to do to put a stop on rising medical expenses but it is starting to be an enormous problem. Mish

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