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Thread: How bad will it get - and how long will it last?

  1. #1
    Vulture of The Western World Eric's Avatar
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    How bad will it get - and how long will it last?

    Since September - when the stock market belly flopped - the average American has lost about 20-40 percent of his net worth, most of which was tied up in things like home equity and the value of a 401k portfolio.

    If Americans understood this fact, they'd understand why the car industry is not going to recover anytime soon - even as the federal government shovels bailout money its way. These funds have no power to restore Americans' lost purchasing power - or to dispel the Fear that is spreading across the land. The bailout money is the equivalent of an anesthetic given a terminal patient. It will make him feel better for a little while - but it cannot delay the inevitable, let alone return him to health.

    The question that needs to be asked is simple but constantly ignored: How will the buying power of Americans be restored?

    But this is not the question the government is looking into. Instead, the government is frantically trying to restart the credit engine - which drove the economy through a period of epic but ultimately hollow growth during the 1990s and into the first several years of the 21st century.

    The problem with that approach is that it depends on the confidence of the debtors - and that confidence is gone. Credit is irrelevant if no one's interested in taking on the burden of a loan - either because they can no longer afford it or more fundamentally, because they no longer have confidence they can leave someone else holding the bag.

    This is why housing prices are dead in the water. Who wants to buy a new home when there is a good chance it will be worth less than its purchase price a year from now? During the previous decade, housing morphed from a place to live into a means by which average Americans could increase their income in a short time - and to compensate for salaries that had either stagnated or actually declined in terms of actual buying power (courtesy of inflation).

    Equity values took the place of a raise - or a better job. And more critically as a psychological factor, they made people feel confident. That, in turn, made the acquisition of credit (and debt) feel comfortable. This drove the economy forward as debt and value became flip sides of the same common currency.

    The rising tide of home equity values gave Americans a phosphorescent - and ephemeral - prosperity. We were all on a bender - a decade-long drunk during which we allowed ourselves to believe it could go on forever. That it didn't matter how much debt we had or how little we were earning because the constantly upticking value of our homes (and 401ks) was there to pick up the slack.

    Once the bubble popped, millions were suddenly in the red. The plunging housing market shortly took the rest of the economy with it - including the other source of middle class affluence, 401k retirement funds.

    What will replace housing values and 401ks as the source of American prosperity? Where will the lost 20-40 percent of income/assets be found?

    Here is where it gets scary.

    Because it would take a growth spurt in salary income or other sources of wealth of historically unknown vitality to replace the wealth that disappeared when the housing/stock market bubble popped. Even a 5 percent increase over say a year or two would be dramatic - and it's just as unlikely. Listen to the TV sock puppets - and the Federal Reserve puppet masters. Not one of them is talking about the prospect of much more than a "break even" scenario in which income growth maybe - if we're lucky - keeps pace with inflation.

    That means there is almost no chance of a recovery anytime soon - let alone any chance of salvation for the auto industry. If you disagree you have to explain how Americans, who have seen their net worth plummet at rates not seen since the Great Depression, are going to be cajoled into further vitiating whatever remains of that net worth by taking on yet more debt they cannot afford now that they fully realize they cannot afford it.

    The jig is up. The cat is out of the bag. People - the masses - have awakened to the essential fraudulence of our economy and they are scared. Rightfully so. The emotional pull of a brand-new car is powerful - but not as powerful as the prospect of having to say, "would you like fries with that, sir?"

    Or of homelessness.

    Things are not going to get better until the income/asset situation of average Americans gets better. Significantly better. A $1,500 "stimulus" check courtesy of Barry Otero isn't going to do the trick. It's the equivalent of shooting some ether into the carburetor of a car with an empty gas tank. It might make the engine cough and sputter a little - but you're not going anywhere soon, son.

    If, by some miracle, the buying power of Americans can be restored to the level that existed prior to the bubble's bursting, then the economy - and the car industry - will snap back. If not, don't hold your breath.

    Which outcome strikes you as more likely?

  2. #2
    DonTom
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    "Since September - when the stock market belly flopped - the average American has lost about 20-40 percent of his net worth,"

    Not really. Money is worth 20 to 40% more right now. Most expensive items cost about 20-40% less, such as SUV's trucks, RV's, homes, gasoline, computer stuff and etc.

    IMAO, this is a great economy for anybody who has income.

    -Don-

  3. #3
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by DonTom View Post
    "Since September - when the stock market belly flopped - the average American has lost about 20-40 percent of his net worth,"

    Not really. Money is worth 20 to 40% more right now. Most expensive items cost about 20-40% less, such as SUV's trucks, RV's, homes, gasoline, computer stuff and etc.

    IMAO, this is a great economy for anybody who has income.

    -Don-
    Right, but you're among the relatively few in this position. You had plenty of money (real assets, not debt-based BS) before the collapse; so now you are even better positioned. However, most people are fucked - which is why even "40 percent off" is meaningless to them.

    We're in pretty good shape, too - but even so, I'd estimate we've lost at least $175,000 in equity/401k value.

    While we have no debt, that is still a huge hit.

    I won't be buying a new car anytime soon.

    And I guarantee we (and you and Tom) are probably better off than 80 percent of the population.

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    Quote Originally Posted by Eric View Post
    Right, but you're among the relatively few in this position. You had plenty of money (real assets, not debt-based BS) before the collapse; so now you are even better positioned. However, most people are fucked - which is why even "40 percent off" is meaningless to them.

    We're in pretty good shape, too - but even so, I'd estimate we've lost at least $175,000 in equity/401k value.

    While we have no debt, that is still a huge hit.

    I won't be buying a new car anytime soon.

    And I guarantee we (and you and Tom) are probably better off than 80 percent of the population.
    I don't blame you. I have been tempted to purchase a car on many occasions but I look at the trade off of 5 year car note versus having that new(er) car smell for a few months. So far, at least until my car dies, it ain't happening.

  5. #5
    DonTom
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    "We're in pretty good shape, too - but even so, I'd estimate we've lost at least $175,000 in equity"

    That's a meaingless number. It would be easier for you to buy another home (or any other major item) NOW with that $175,000.00 than a few years ago when you had more cash. Your cash is worth a lot more now. You did not lose a thing if you go out and spend it right now. If your equity goes up again, it will only be because your money will be worth less. Why have more money when it's worth a lot less?

    You did not lose anything. You just have a lower number that is worth a lot more.

    -Don- SSF, CA

  6. #6
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    Yup. If we enter a period of deflation, cash becomes more valuable than actually owning anything.

    Chip H.

  7. #7
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by DonTom View Post
    "We're in pretty good shape, too - but even so, I'd estimate we've lost at least $175,000 in equity"

    That's a meaingless number. It would be easier for you to buy another home (or any other major item) NOW with that $175,000.00 than a few years ago when you had more cash. Your cash is worth a lot more now. You did not lose a thing if you go out and spend it right now. If your equity goes up again, it will only be because your money will be worth less. Why have more money when it's worth a lot less?

    You did not lose anything. You just have a lower number that is worth a lot more.

    -Don- SSF, CA
    I understand what you're saying - inflated values/inflated cost, etc. - but while there is truth to this there is also real value - what you might call effective purchasing power - that has disappeared or been diminished.

    For example, while it's true that it is now possible to buy home "x" for less today than last year, due to the bubble bursting, the actual amount of the decrease may not (and very often does not) correspond to the amount of lost purchasing power of the buyer.

    Housing prices in my area have not declined by 40 percent. But that is how much we've lost in our 401k.

    Are you saying I haven't lost any money?

    Even worse, the current modest deflation is likely to be replaced by high inflation sometime not far off from now. The Fed has been pouring fresh (fiat) money into the system - and it is inevitable that this new money will reduce the effective purchasing power of the dollars already in existence. Meanwhile, prices cannot fall forever - or even parallel the loss in purchasing power.

    If that were not true, people would be buying all kinds of things. But of course, most are not buying anything - or restricting what they buy - because they can no longer afford it.

  8. #8

    Wha..who??

    You guys are way above my pay grade. I've lost 30% or more in retirement savings value. Last time I checked, inflation was not completely a relic of the past. I was laid off from a major corporation, and took what little I had and went into business with my brother.

    My brother and I are anxious to expand our very small business, and we're working on a way for me to move out of state to do just that. One little problem- I'd have to give my house away. Because of the freefall of home values in my area, I'm upside down in my house (as well as my American car...imagine that). So I'm stuck.

    My sister-in-law in Knoxville, TN is a real estate agent. She is acutely aware of locksmiths who are changing locks on foreclosed properties WITH THE PERSONAL PROPERTY LEFT BEHIND. Clothes, furniture, wall-hangings...people have done the math and just walk away.

    You six-figure folks may be doing just fine. The rest of us are eating cereal for dinner and laying awake at night trying to figure a way out of this mess. Increasing buying power, or simply an increase in the value of a dollar, is useless if money isn't moving!

    Hawg
    Last edited by hwyhawg; 01-19-2009 at 08:30 PM.

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    Quote Originally Posted by hwyhawg View Post
    You guys are way above my pay grade. I've lost 30% or more in retirement savings value. Last time I checked, inflation was not completely a relic of the past. I was laid off from a major corporation, and took what little I had and went into business with my brother.

    My brother and I are anxious to expand our very small business, and we're working on a way for me to move out of state to do just that. One little problem- I'd have to give my house away. Because of the freefall of home values in my area, I'm upside down in my house (as well as my American car...imagine that). So I'm stuck.

    My sister-in-law in Knoxville, TN is a real estate agent. She is acutely aware of locksmiths who are changing locks on foreclosed properties WITH THE PERSONAL PROPERTY LEFT BEHIND. Clothes, furniture, wall-hangings...people have done the math and just walk away.

    You six-figure folks may be doing just fine. The rest of us are eating cereal for dinner and laying awake at night trying to figure a way out of this mess. Increasing buying power, or simply an increase in the value of a dollar, is useless if money isn't moving!

    Hawg
    Yep. Me too. Since the invention of the 401k, retirement is an illusion.

    I can understand why people are walking away from their stuff. It is hard and expensive to transport and will give you nothing if you try and sell it.

    On the other hand, new stuff is a complete ripoff.

    The only thing that I can say that I did right in the last 10 years is stay the hell out of the housing racket. When values started balooning in 2003-2007, I got bored and dropped off. That's the way I am. No home is worth more than $90,000 in debt money. Period.

  10. #10
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by swamprat View Post
    Yep. Me too. Since the invention of the 401k, retirement is an illusion.

    I can understand why people are walking away from their stuff. It is hard and expensive to transport and will give you nothing if you try and sell it.

    On the other hand, new stuff is a complete ripoff.

    The only thing that I can say that I did right in the last 10 years is stay the hell out of the housing racket. When values started balooning in 2003-2007, I got bored and dropped off. That's the way I am. No home is worth more than $90,000 in debt money. Period.
    The reality is most people in this country will end up working well into their 70s. You're right - retirement is an illusion. 401ks are the biggest con since Social Security. They give Americans an incentive to push for their own economic disenfranchisement via freeeeeeeee trade and outsourcing - because these things push up (temporarily) the vaaaaaaalue of the stock market, which is what affects the value of their 401k.

  11. #11
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by hwyhawg View Post
    You guys are way above my pay grade. I've lost 30% or more in retirement savings value. Last time I checked, inflation was not completely a relic of the past. I was laid off from a major corporation, and took what little I had and went into business with my brother.

    My brother and I are anxious to expand our very small business, and we're working on a way for me to move out of state to do just that. One little problem- I'd have to give my house away. Because of the freefall of home values in my area, I'm upside down in my house (as well as my American car...imagine that). So I'm stuck.

    My sister-in-law in Knoxville, TN is a real estate agent. She is acutely aware of locksmiths who are changing locks on foreclosed properties WITH THE PERSONAL PROPERTY LEFT BEHIND. Clothes, furniture, wall-hangings...people have done the math and just walk away.

    You six-figure folks may be doing just fine. The rest of us are eating cereal for dinner and laying awake at night trying to figure a way out of this mess. Increasing buying power, or simply an increase in the value of a dollar, is useless if money isn't moving!

    Hawg
    There are only two reasons why we're not broke:

    * No kids. Kids are a massive expense (especially educating them). By electing not to reproduce, we probably saved several hundred thousand dollars.
    * We sold our last house in 2004 and were smart enough not to buy an even more expensive one. Instead, we took the money and paid off everything - including our current house. With no mortgage (and low property taxes) we can get by on half or less what I needed to bring in when we lived in Northern Virginia...
    Last edited by Eric; 01-20-2009 at 08:09 AM.

  12. #12

    Hit the Road...NOW!

    Heard today-and I know this is no surprise to anyone-that our new President Messiah will be signing another executive order banning offshore drilling. While the stupid, left-wing cabal will praise this action, it will not immediately result in a decrease in oil supplies. However, this will be the action which will trigger MASSIVE AND AGGRESSIVE market speculation/short-selling.

    Such activity could easily push us back up to $3-5 gas almost overnight. If any of you guys/gals are planning a pleasure trip anywhere (of a reasonable distance), do it now while you can. Take lots of pictures, too. That's all you'll have to remember your last big trip...

    Hawg

  13. #13
    DonTom
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    Quote Originally Posted by Eric View Post
    The reality is most people in this country will end up working well into their 70s.

    That includes me. But half my social life is at work, if we can call my 3 night per week sinecure as "work". I only work enough to feel a little useful. The rest of the time I am watching movies or getting on line and having a good time.

    I tell my coworkers that someday, they might come in and find me dead from old age!

    Nevertheless, I prepare for retirement in case I ever want to or need to (unlikely). I switched my retirement savings around in time to not lose much at all. I was NOT expecting stocks to go down THAT fast after I did such, so I was lucky there!

    And I have earned so much vacation time that I can take off for vacation anytime I want (and get paid for MONTHS of vacation). I just took three nights off from work which gives me a week and a half vacation. I am taking this "vacation" to work on the RV (installing backup camera, TV, Pressure Pro, change oil and other such stuff).

    I thought there would be time left for a short RV trip, but the weather has been very lousy around here lately and don't want to be driving the RV around in the rain and / or possible snow.

    I cannot find a single reason to retire. A big part of it might be that I just don't like a lot of changes in my life.

    Tom retired years ago from a low paying job that almost cost as much to drive to as he was paid. And the Golden Gate Bridge is not cheap. He would like to be working again too, but it's difficult to find a decent job in this economy.

    -Don- (Reno)

  14. #14
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by DonTom View Post

    That includes me. But half my social life is at work, if we can call my 3 night per week sinecure as "work". I only work enough to feel a little useful. The rest of the time I am watching movies or getting on line and having a good time.

    I tell my coworkers that someday, they might come in and find me dead from old age!

    Nevertheless, I prepare for retirement in case I ever want to or need to (unlikely). I switched my retirement savings around in time to not lose much at all. I was NOT expecting stocks to go down THAT fast after I did such, so I was lucky there!

    And I have earned so much vacation time that I can take off for vacation anytime I want (and get paid for MONTHS of vacation). I just took three nights off from work which gives me a week and a half vacation. I am taking this "vacation" to work on the RV (installing backup camera, TV, Pressure Pro, change oil and other such stuff).

    I thought there would be time left for a short RV trip, but the weather has been very lousy around here lately and don't want to be driving the RV around in the rain and / or possible snow.

    I cannot find a single reason to retire. A big part of it might be that I just don't like a lot of changes in my life.

    Tom retired years ago from a low paying job that almost cost as much to drive to as he was paid. And the Golden Gate Bridge is not cheap. He would like to be working again too, but it's difficult to find a decent job in this economy.

    -Don- (Reno)
    Similar here; I enjoy my work and hope to continue ranting for many years to come.

    But most people aren't in our position - financially or otherwise. They have to work, like it or not - at a job they don't especially like.

  15. #15
    DonTom
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    Quote Originally Posted by Eric View Post
    But most people aren't in our position - financially or otherwise. They have to work, like it or not - at a job they don't especially like.
    As I tell many others, when the words "most people" are used, it most likely means it leaves me out.

    Perhaps you too. Very fortunate in this case!

    -Don- (Reno)

  16. #16
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by DonTom View Post
    As I tell many others, when the words "most people" are used, it most likely means it leaves me out.

    Perhaps you too. Very fortunate in this case!

    -Don- (Reno)
    Agreed!

    But, we're "weirdos" by the standards of normality.

    In our case, for instance, our friends in the Big City all thought we were crazy to move to the country. According to them - at the time, anyhow - we should have bought a $600,00 McMansion in the DC 'burbs when we sold our $400,000 place. Instead, we bought a $300,00 place outright - in the country.

    So now, we have a paid-for house (and money in the bank) instead of an upside down mortgage on a McMansion and lotsa debt!

    We also pretty much decided not to breed - just like you two! - and that, by itself, makes achieving financial independence much easier.

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    $3/4 gas means more revenue for the government, as the tax is calculated as a percentage. At least in the short term. Longer term, people will be selling their F-150s for Toyota Yaris and gas tax revenue will fall as people consume less.

    $1.73 at the BP along I-85 this afternoon for regular grade.

    Chip H.

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    Quote Originally Posted by chiph View Post
    $3/4 gas means more revenue for the government, as the tax is calculated as a percentage. At least in the short term. Longer term, people will be selling their F-150s for Toyota Yaris and gas tax revenue will fall as people consume less.

    $1.73 at the BP along I-85 this afternoon for regular grade.

    Chip H.
    Chip.

    There are a few states and counties that do that, but most charge a flat gas tax on each gallon. The government's take as a percentage is much greater at 2.00 per gallon gas than at 4.00 per.

    I have noticed gas creeping up every day for the last five weeks. The era of $1.50 gas was short lived.

  19. #19
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    Quote Originally Posted by Eric View Post
    Similar here; I enjoy my work and hope to continue ranting for many years to come.

    But most people aren't in our position - financially or otherwise. They have to work, like it or not - at a job they don't especially like.
    Yeah, me too. I hope that someday we can stop ranting for a while to enjoy life, but I don't see that happening. There's simply too much shit going on.

    I am sick and tired of people saying "slow down and enjoy.... it could be worse." Damned right. It is getting worse every day. For those who think like that, I say "IT AINT FRIGGING MAYBERRY ANYMORE!!!!!!!@W#$@!@!"

    I am not in a financial position to do too much of anything except pay my bills and be thankful for my job that allows me to do it. Otherwise, I'd be hunting squirrels for food.

  20. #20
    Vulture of The Western World Eric's Avatar
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    Quote Originally Posted by swamprat View Post
    Yeah, me too. I hope that someday we can stop ranting for a while to enjoy life, but I don't see that happening. There's simply too much shit going on.

    I am sick and tired of people saying "slow down and enjoy.... it could be worse." Damned right. It is getting worse every day. For those who think like that, I say "IT AINT FRIGGING MAYBERRY ANYMORE!!!!!!!@W#$@!@!"

    I am not in a financial position to do too much of anything except pay my bills and be thankful for my job that allows me to do it. Otherwise, I'd be hunting squirrels for food.
    If this shit storm had hit 5 years ago, we'd be up a creek, too. I have great sympathy for others less fortunate because I know full well it could have been me - and that being in a tough spot is by no means a reflection on either your abilities or your work ethic. Sometimes, you're just fucked by circumstances.

    The thing I am most grateful for is that I am not 22 and just out of college. What a bleak landscape. As PCR notes, even graduates of excellent schools with degrees in "hard" sciences, engineering and so on are having a tough time finding jobs - other than at Starbucks or Wal Mart.

    Many will be living with mom n' dad - or in "group housing" - into their 30s and beyond.

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