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How Broke Are We?
There are signs, some say, that an economic recovery is here. No one is really enthusiastic about it — except, predictably, some people in the Obama administration — but it’s hard to argue that there are small signs that the economy is picking up.
On the other hand, Americans are broke. And they know it. From USA Today:
According to a new report from the central bank, 25% of American households say their families are “just getting by” financially, and another 13% are “finding it difficult to get by.” Compared to five years earlier, 34% feel like they are worse off today, while the same number feel about the same. Only 30% report that they were somewhat or much better off financially.
To be fair, those survey findings are from one year ago. So as the economy gets stronger, you’d expect those feelings to improve. Except there’s this:
The average auto loan term increased to sixty-six months during the first-quarter, according to Experian Automotive. That is the highest level since Experian began publicly reporting the data in 2006. Nearly 25% of all new vehicle loans originated during the quarter had terms extending out seventy-three months to eighty-four months, representing a 27.6% surge from a year earlier. The average amount financed for a new vehicle loan also reached an all-time high of $27,612.
“As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,” said Melinda Zabritski, Experian Automotive’s senior director of automotive credit. “The benefit of a longer-term loan is the lower monthly payment; however, the flip side of that is consumers can find themselves paying more in interest or being upside-down on their loan if they seek to trade their vehicle in early.”
This doesn’t sound cheery. And it doesn’t sound optimistic. Stretching out payments — in essence, making the decision to hold onto a car longer than you might have a few years ago — is a deeply bearish thing to do.
When Americans are broke and feel it, they curb spending, investing, and the exact kinds of activities it takes to get an economy moving again.
So here’s the question: do you feel broke? Broker, say, that a few years ago?
Published in General
I haven’t seen my income rise in a few years now. But I haven’t seen it drop, so I am grateful. I don’t feel broke, but I don’t feel well off either.
Do you feel broke? Unless one is solely interested in the mood of repliers, this seems an odd question. Total debt went off the charts in 29, it exceeded that level again in 07, and this year we passed the 07 level. A twist this time is that a significantly larger portion of the debt is held by central banks and a higher percentage is government debt. While it is better for an individual to have a 1% car loan than a 8% one, when their cash flow no longer allows them to make the payments the car gets towed.
1. Don’t let them borrow money for any major that doesn’t have job prospects.
2. Maybe they could go to community college and work for UPS for a year or two (welcome to the “real world” in other words).
3. My 4 kids all enlisted in the military to get money for their college. It’s a good option.
I’m not accusing you of cheating. I forgot about the destination charge, or I’d have looked into that asterisk more closely.
But my gut sense is that your evaluation of why people are keeping cars longer and stretching out payments is incorrect.
Your mileage may vary, of course.
Has no one told Kudlow about the 2008 economic collapse? Apparently not.
Anyway, I’m sure Kudlow’s wealthy friends were stacking up the loot, but everyone else, nope.
I’ve long had a theory that people who still supported GWB at the end and then became early supporters of Romney were exactly those folks. They became totally mystified when people who weren’t benefiting from the longstanding open borders/ free trade policies of the US government lost enthusiasm for politicians espousing the same failed policies. Remember, DC imagines itself the global hegemon, responsible for the whole wide world not just the piddling United States, so we simply don’t rate compared to an entire planet.
I suspect that there is a tremendous political opportunity for a political party that could convince people it wanted to change those policies, but alas no such party exists.
I’m not sure that loans on new cars are a super helpful metric when it comes to talking about broke people. Broke people don’t buy new cars.
Remember Cash for Clunkers? That was a welfare program for poor people and auto manufacturers which fleeced the former in favor of the latter.
Plenty of broke people got new cars. If they were interested in their financial health they probably shouldn’t have, but many of these people are poor for a reason – they lack sound financial judgment!
This may not be bad news. One strategy for financing a car is to try to time the loan to wrap up about the same time your ownership of the car does. Maybe cars are just getting better — lasting longer — which justifies paying them off over a longer period of time. At least for me, this consideration would swamp any minor changes in interest rates. In other words, cash flow is a bigger deal than the extra interest I’ll pay.
Of course, maybe it just means people are so broke they’re planning to hold onto their cars longer. In that view, the duration of car loans is a leading predictor of the economy. Bad news, in that case.
It is an aggravation. I know about a dozen IT people looking for jobs with no luck. But most the IT departments I work with seem full of foreigners and seem to be hiring foreigners over US citizens. I keep hearing that we need to increase the number of H1-B visas but can’t help thinking that maybe we need to take care of our own first. But saying such things make one a nationalist, bigot and most likely to be replaced by a person with a H1-B visa.
The people who got cars from Cash for Clunkers were upper middle class people who had the credit and means to buy new cars. It was a welfare program for upper middle class people.
I feel pretty sure that the sort of cars that were being peddled weren’t really being marketed towards the upper middle class, and just as Fannie Mae and Freddie Mac were encouraged to buy mortgages from people who had no visible means of support, the government collaborated with the domestic automakers various finance divisions (through the bailouts) to loosen the credit-worthiness requirements for lower income people.
Most everyone I know is living either paycheck to paycheck, or living on a ruthless austerity budget because they think they will be soon.
Majestyk, you make it sound like Lil’ Abner and the woeful citizens of Dogpatch were all rolling around in Beemers thanks to Uncle Sugar. The Cash for Clunkers subsidies were in the $3500 range. Most cars–not luxury cars–are in the $15,000-25,000 range. If your credit was lousy before the C for C program, it was still lousy, and in 2009–the depths of the recession–nobody was eager to make loans. The program might have moved a lot of cars, but they didn’t put poor people in the seats of ritzy cars they couldn’t afford. I think you’re blurring this one together with the artificially loose mortgage situation.
I don’t think it’s the case that people were getting beemers. But I do think people were getting a lot of crummy Chevy Cobalts and Aveos. Driving around some less-nice areas of the country you might notice the trend towards newer, domestic economy cars.
No it doesn’t make you a nationalist or anything of the sort. Just wrong.
IT jobs are a dime a dozen. The question is if one has the required skills for those jobs, and whether one is willing to move to the particular location where the jobs are. If, as in the example given here, jobs are available but the person is not willing to move there, then the companies still need to hire someone.
You’re assuming that somehow companies would rather hire an H1B holder than a “native”, which is obviously not true. H1B holders cost more to a company.
I can’t say they prefer to hire an H1-B or if it costs them more money, I can only say that from what I see they are hiring H1-B over locals.
Maybe in the larger cities IT jobs are a dime a dozen but in cities not in the top ten list this is not so, it definitely is not in my city. But hey I am used to the big city arrogance, as long as things are going well for the top 10 the rest of the country can go hang itself.
1) No need to accuse me of arrogance. Just stick to the facts.
2) The fact that there’s fewer high-tech jobs in smaller cities is obvious.
3) You’r hitting on the issue of people being unwilling to…move…to where the jobs are. Not sure what this has to do with “big city arrogance”. But, whatever.
4) The job categories where H1B visa holders are concentrated have very low unemployment rates, and very high compensation rates. All indications that there is shortages in the labor pool for those positions, and that H1B holders are filling jobs which go unfilled by “locals”.
What you’re in essence asking companies to do is hire you, who are unwilling to move to where the jobs are, for a higher price, and then shift those costs to the consumer…in the name of “patriotism”.
No thanks.
PS: Of course, vast majority of these H1B visa holders are US educated. They’re not coming fresh off the boat from India or China.
PPS: Foreign-born students comprise 30+% of graduate students in most STEM fields, and in many much higher % (I think in chemical engineering grad, for example, its around 80%). Yet somehow the conclusion drawn…here…is that there’s “plenty of qualified natives” to go around. Where are these “qualified natives” being produced, cause it doesn’t seem to be in US universities.
PPPS: So the argument proposed here seems to be that companies should NOT hire the most qualified people, for the best price, but instead should hire “you and me”, even if we’re less competitive. And if they don’t, then Mr. Government ought to step in and enforce an artificial shortage in order for “me and you” to be hired.
Not exactly “John Galt”-ish, now is it?
I hope Larry Kudlow didn’t compliment the GWB economy. Mr. Kudlow is right about the causes of the current persistent weakness in the economy, which can be boiled down to a massive expansion of the government coupled with a weak dollar. (Gosh, am I over-simplifying again?) That understanding puts him ahead of some on the “reform” right that won’t even acknowledge that much.
If Mr. Kudlow did compliment the GWB economy, he’s forgetting that the above bad policies started under Bush and were only amplified by Obama.
The first step toward conservative electoral recovery is to admit the role George W. Bush played in the current mess. If we don’t make that admission, voters will have no way of knowing that we won’t do it again.
That would be me. My 12 year old Chevy Suburban with a 7.5 liter V8 choose that month to die. So I cheerfully took some Obama stash money along with a nice discount on my new VW ( a mini van Routon) . I felt it my Patriotic Duty to liberate back as much cash as possible from The Man.
And that’s fine and all. I was just challenging that idea that it was somehow a welfare program that put poor people into cars. If anything, it screwed over lower income people who buy used cars since CfC required the old car to be destroyed.
The Cash for Clunkers program was a terrible affront to poor people and to those not particularly well off. Those who were not particularly well off – but stable enough to get credit – were strongly incentivized to take on debt that may or may not have been a good idea for their situation. But, the most disgusting part of Cash for Clunkers was that poor people lost access to inexpensive used cars (the ones traded in and destroyed pursuant to the program).
Right on, Tabby!
Destroying things to boost the economy never works. Anyone who has read That Which is Seen, and That Which is Not Seen by Frederic Bastiat would know that.
The official inflation rate is suspect — many items that people actually need to buy are given very low weighting or excluded from the inflation rate. Perhaps the the Inflation Rate is jiggered to keep Payouts for TIPS and Inflation Pegged Benefits ( Social Security?) low? The official inflation numbers are very political and statistically adjusted to the benefit of the adjusters.
We are a childless couple living in Silicon Valley. We tend to live well below our means, so things would have get a lot worse before we “felt” broke.
We are starting to pay more attention to expenditures, though. I asked my husband the other day how much he thought we spent on food each month. “$1200.” He seemed very certain (I hate that) so I pulled the debit card statements and added up the charges for the supermarket, Costco and various restaurants.
Oops. It was more like $1400. Granted, that includes pet food and hard goods. But still.
That’s enough of a wake-up call that we eliminated our fancy-schmancy Sunday dinners. We saved $400/month right there.
Costco tempts us to buy more than we can consume before it spoils. We have AmazonFresh now, so I’m experimenting with ordering small quantities and getting deliveries first thing in the morning, the way European housewives do the marketing every day. I wish I could have another freezer but we have the highest electrical rate in the nation along with a public utility that flambés people in their homes.