Tuesday, April 13, 2010

Life in these United States...

I got this from Zero Hedge. I am sure many of you have already read it... I thought it was important enough to repost:

Submitted to "Zero Hedge" by Graham Summers of Phoenix Capital Research

It’s Impossible to “Get By” In the US

While the market cheers on the fantastic job “growth” of March 2010, the more astute of us are concerned with a growing tide of personal bankruptcies. March 2010 saw 158,000 bankruptcy filings. David Rosenberg of Gluskin-Sheff notes that this is an astounding 6,900 filings per day.

This latest filing is up 19% from March 2009’s number which occurred at the absolute nadir of the economic decline, when everyone thought the world was ending. It’s also up 35% from last month’s (February 2010) number.

Given the significance of this, I thought today we’d spend some time delving into numbers for the “median” American’s experience in the US today. Regrettably, much of the data is not up to date so we’ve got to go by 2008 numbers.

In 2008, the median US household income was $50,300. Assuming that the person filing is the “head of household” and has two children (dependents), this means a 1040 tax bill of $4,100, which leaves about $45K in income after taxes (we’re not bothering with state taxes). I realize this is a simplistic calculation, but it’s a decent proxy for income in the US in 2008.

Now, $45K in income spread out over 26 pay periods (every two weeks), means a bi-weekly paycheck of $1,730 and monthly income of $3,460. This is the money “Joe America” and his family to live off of in 2008.

Now, in 2008, the median home value was roughly $225K. Assuming our “median” household put down 20% on their home (unlikely, but it used to be considered the norm), this means a $180K mortgage. Using a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008 monthly mortgage payments were roughly $1,022.

So, right off the bat, Joe’s monthly income is cut to $2,438.

According to the US Department of Agriculture, the average 2008 monthly food bill for a family of four ranged from $512-$986 depending on how “liberal” you are with your purchases. For simplicity’s sake we’ll take the mid-point of this range ($750) as a monthly food bill.

This brings Joe’s monthly income to $1,688.

Now, Joe needs light, energy, heat, and air conditioning to run his home. According to the Energy Information Administration, the average US household used about 920 kilowatt-hours per month in 2008. At a national average price of 11 cents per kilowatt-hour this comes to a monthly electrical bill of $101.20.

Joe’s now down to $1,587.
Now Joe needs to drive to work to make a living. Similarly, he needs to be able to drive to the grocery store, doctor, etc. According to AAA, the average cost per mile of driving a minivan (Joe’s a family man) in 2008 was 57 cents per mile. This cost is based on average fuel consumption, tires, maintenance, insurance, license and registration, and average loan finance charges.

Multiply this cost by 15,000 miles per year and you’ve got an annual driving bill of $8,550. Divide this into months (by 12) and you’ve got a monthly driving bill of $712.

Joe’s now down to $877 (I’m also assuming Joe’s family only has ONE car). Indeed, if Joe’s family has two cars (one minivan and one sedan) he’s already run out of money for the month.

Now, assuming Joe’s family is one of the lucky ones (depending on your perspective) they’ve got medical insurance. Trying to find an average monthly medical insurance premium for a family in the US is extremely difficult because insurance plans have a wide range in deductibles, premiums, and co-pays. But according to eHealth Insurance, the average monthly premium for family policies in February 2008 was $369.

So if Joe has medical insurance on his family, he’s now down to $508. Throw in cell phone bills, cable TV and Internet bills, and the like, and he’s maybe got $100-200 discretionary income left at the end of the month.

This analysis covers all of the basic necessities of the average American household: mortgage payments, food, energy, gas, driving expenses, and medical insurance. It also assumes that Joe:

1) Didn’t overpay for his house
2) Made a 20% down-payment of $45K on his home purchase
3) Has no debt aside from his mortgage (so no credit card debt, student loans, etc)
4) Only has one car in the family and drives 15,000 miles per year
5) Keeps his energy bill reasonable
6) Does not eat out at restaurants ever/ keeps food expenses moderate
7) Has no pets
8) Pays for health insurance but has no monthly medical expenses (unlikely with two kids)
9) Keeps his personal budget under control regarding cable TV, Internet, and the like
10) Doesn’t spoil his kids with toys, gadgets, trips to the movies, etc.
11) Doesn’t take vacations.

Suffice to say, I am assuming Joe maintains EXTREMELY conservative spending habits. Personally, I know NO ONE who meets all of the above criteria. However, even if the above assumptions applied to the average American, you’re still only looking at $100-200 in “wiggle” room for spending per month!

If Joe:

1) Overpaid on his house
2) Didn’t have a full 20% down payment
3) Owns two cars
4) Eats at restaurants
5) Splurges on heating & A/C bills
6) Has any medical expenses aside from monthly premiums…

… he is running into the red EVERY month.

I also wish to note that my analysis didn’t include real estate taxes and numerous other expenses that most folks have to pay. So even if you are extremely frugal and careful with your money, it is impossible to “get by” in the US without using credit cards, home equity lines of credit or burning through savings. The cost of living is simply TOO high relative to incomes.

This is why there simply cannot be a sustainable recovery in the US economy. Because we outsourced our jobs, incomes fell. Because incomes fell and savers were punished (thanks to abysmal returns on savings rates) we pulled future demand forward by splurging on credit. Because we splurged on credit, prices in every asset under the sun rose in value. Because prices rose while incomes fell, we had to use more credit to cover our costs, which in turn meant taking on more debt (a net drag on incomes).

And on and on.

Does this mean the market is about to tank? Not necessarily, stocks have been disconnected from reality since November if not July. Bubbles (and we ARE in a bubble) take time to pop and this time around will be no different.

Best Regards,

Graham Summers


See, the thing is... this predicament or condition, whatever you wish to call it... is NOBODY'S fault. This is phenomenon. It just happened. Sometimes bad things happen to good people, good groups, even good countries... and that's life.

The answer to this is NOT political - no amount of government or regulation is going to satisfy anyone in this regard. Nope. THIS IS PERSONAL. This is your problem and you have to work out its solution for you and yours.


bureaucrat said...

To suggest that no one was "at fault" I'm sure makes all those who profited by what is going on the last ten years feel better, but yes, there is always someone at fault. No one will be prosecuted for the little deflationary depression and attack and destruction of the middle class we are experiencing. But it all was not an act of nature. It was man made, from the purposeful restraining of government bodies (Spitzer says as much), to the assault on the minorities (blacks and Latinos, who were three times more likely to be targeted for subprime loans), to the S&P 500, who have offshored more and more of their labor and brought the losses home to the U.S., so they would end up with tax credits instead of paying any taxes (hello, GE?)

I'm not naive enough to think all the Republicans decided in their "annual meeting in Vale, Colorado" to rob the country blind these last ten years, using every legal and illegal method at their disposal (with Bush flying cover for them). But it's kinda like the Kennedy assassination, isn't it? We know someone wanted him dead, we know someone was to blame, but finding the exact people was made purposefully impossible.

Anonymous said...

This numbers seem high to me. My wife and I make more than this avg 50k family, yet only get roughly around the same amount take home each month--about 3,700.

We bought a 15 year mortgage on a 100k fix-er upper home, and put down 20k on it. We have two cars, old, bought cash rather than credit.

But as we are both college educated (state schools) we pay about $650/month between the two of us, which is about the same we spend on our mortgage.

We grow a lot of food by most people's standards, enough to get rid of close to two months worth of grocery bills--although we spend some money on the garden as well.

All in all, we can't help the consumer economy much at all--since discretionary spending isn't really something we have, and we tend to save a bit of money each month for the 'rainy day' fund.

So if we are slightly above the Avg. Middle class family in income, we certainly can't be the engine of economic growth by our spending. Gas prices and energy prices alone can pretty much take out our budget potentially.

And we don't have cable, we do have internet--that's about it. This is with two people working, maybe in another 10 years we will have discretionary spending--once student loans are paid off, but until then, that is basically the difference between us and our parents who did better than us (and were less educated) and still do better than us--since they paid off their debts decades ago--rather than becoming yuppie types who need to buy expensive fancy shit--on credit.

Oh well, tis' sunny out today :)

Anonymous said...

The Dems are just at least as responsible as the Republicans. Remember CRM? It is all about loans to those who could not pay. Mish has a great piece about the corporate income tax, and its huge incentives to outsource.

Business operates in the legal and regulatory environment that government creates. By federal law, corporations are required to do what is best to provide the most value to their stockholders. You wouldn't want them to break the law, would you? If you crate a regulatory environment that encourages outsourcing and bad lending practices, that is what you get. And we got it.

GE is not a charity. If government regulations make it more profitable to move out of the US, they will. Why wouldn't they? The US government is killing the goose that lays the golden eggs.

The things that are really wrong are not the things that the Dems and Reps disagree on, they are where the Dems and Reps are in tacit agreement.

The Dems appear to be more in the bag for the S&P500 than the Reps by a long shot. Follow the money. Who was Obama's biggest contributor? Who was the biggest contributor to Democrats for national office? The Democrats are financed almost entirely by big money interests. It's the Republicans who still get a pile of $50 and $100 donations from the little guys. But, don't get me wrong, I'm not happy with any of them.


Coal Guy

Donal Lang said...

The only flexibility is in the house prices - if people can't afford their houses (rent or purchase) then prices HAVE to fall. And as oil/transport/food prices rise, house prices will fall further.

Long term previous trends don't help here; we're in virgin territory of steeply declining real living standards.

Anonymous said...

We've been heading into the abyss for years. That's what the housing bubble has been about. It was encouraged by the government to mask the damage done by de-industrialization. They've been kicking the can down the road for years. Does anybody really think that the Fed and Treasury didn't see the bubble? They claim to be that stupid. I'm a bit skeptical.

We are in virgin territory here. The private (productive) sector of the economy has been decimated, but the public (unproductive) sector still grows. For 35 years, we have increasingly financed consumption of outsourced production. This is the end of the rope. There is no new bubble to blow.

Private debt is beyond the limit of what can be repaid. But, don't worry, the government has taken up the reins and is creating debt at a dizzying pace, and cannot stop. No good outcome follows from this trend.


Coal Guy

westexas said...

"End of Suburbia" trailer:


This video was released in 2004. It's very interesting to see how events have unfolded since then.

Anonymous said...


I'll disagree that it is nobody's fault to the extent that this is the culmination of 40 years of lousy government policy, and there ARE things that could be done to improve our situation. But, I totally agree the each of our solutions will be personal, because, at this point, nothing is likely to get done that will help. The politics are dead against it, same as always.


Coal Guy

Dextred1 said...

We all agree that oil is going to peak. A week, a yr, a decade. To suggest that the republicans did it is absurd. They were just on the train that was coming to an end. The human mind wants to place blame. Complex systems are inheritably "complex". If one input is stymied we have a problem. The wars were a waste of money, unless Iraq produces enough Oil to slow decline. I am not naive enough to think that this did not filter up to the highest levels of government. They knew peak oil was coming and placed are military right in the middle of the largest stockpile on earth.

By the way Bur,
Nobody forced them to get loans, get over it. They took loans and bought houses, then equity lines of credit for new plasma, tight ride and pissed away the rest. When time to pay came they let the house go. Who fucked who? Standing withsome because they were wronged is one thing, sstanding with them because they gamed the system is silly.

bureaucrat said...

The very definition of "laws" is for the government to "professionally" (haha I know) regulate situations where, in the past, people have tried to do something on their own and made a mess. Not everyone is fully able to handle every situation.

You don't operate on yourself cause you don't know what you are doing. You have a doctor do it, and his/her background in becoming a doctor is REGULATED. Doing the work yourself not only hurts ;), you are very unlikely to do it correctly.

NOBODY can understand what all those documents that you sign say (thank God for U.S. HUD). That's why you are supposed to have a lawyer with you when you sign. But not everyone has a lawyer, so you hope and pray the government REGULATES the transaction enough that you don't end up losing your shirt. I bought a $420,000 building hoping that HUD was there every step of the way REGULATING.

And my piece above, the regulators were told (forced, actually) to stay at home instead of doing their jobs and preventing these poor (colored, mostly) people from making a big mistake with the subprimes. And who was at the top running the show during the last 10 years? Who kept the regulators home? Republicans, mostly, along with Barney Frank and Chris Dodd (Democrats).

Dextred1 said...
This comment has been removed by the author.
Dextred1 said...

I think there is equal opportunity on each for blame. I really think that we just need to go to a hard cash capital ratio of 15% or 20% percent make bubbles a little harder to grow. I Think repeal of Glass steagall was 98. I would like to point out that it was luck plus some hard bargaining by republicans that brought the surplus for the federal budgets. The luck being a onetime event of the Internet and the related company's exploding stock prices. I know that it is convenient to blame Bush or repubs, but if memory serves me right, they never had filibuster proof majority. Bush wanted to dismantle Fannie and Freddie, but it did not get done. You are Joking yourself if you think Gore or Kerry would have stopped the mess from happening. Just in the cards. By the way Bush and Obama 48% To 48% in recent polls. Hahahaha. This just keeps getting better.

Dextred1 said...

Plus if we had a hard cap. It would be simple to regulate. Get under the cap, you give said bank 60 days to get to min or shut them down. Real simple.

Free-enterprise economics of Adam Smith

Freedom to Try
Freedom to buy
Freedom to sell
Freedom to fail

Greg T. Jeffers said...

Coal Guy:

I meant that is was not some planned conspiracy - it just evolved over the term. You can call it poor public policy... I don't think that covers it, though.

Greg T. Jeffers said...

Coal Guy:

I meant that is was not some planned conspiracy - it just evolved over the term. You can call it poor public policy... I don't think that covers it, though.

Anonymous said...


I understand, and there is more to it. It is the culmination of trends and attitudes through that period of time. There is a lot to be learned from it. I'm not really angry about it either. We got to spend 40 years in the most affluent era in the wealthiest country the world has ever known. How do you bitch about that?


Coal Guy