There is plenty to be nervous about

I would not say that I am afraid, for I am not; but I will readily admit that the incredible things happening with the weather and economy make me very nervous.  There is a huge difference between being afraid and being nervous.  One is counterproductive and the other is the natural reaction to uneasy situations.

Just four years ago I would have been working 20 hours per day finding relief supplies for tornado victims in the St. Louis area and flooding victims in southern Missouri.  I know my days of trying to “save the world” after every disaster ended some time ago, but I am still deeply impacted as I see images of destruction and hear reports of catastrophic flooding soon to cause untold problems in many areas.  Throw into the mix some of the worst wildfires Texas has ever seen and you have a truly troubling situation building.

I study weather and I have seen from multiple sources that the upcoming month of May will be MUCH COOLER than normal throughout much of the USA except along the Gulf coast.  The last two times this happened were 2005 and 2008 which were years that produced hurricanes Katrina, Rita, Wilma; and 2008 which produced hurricanes Gustov and Ike.  Many experts are already warning of the imminent possibility of multiple strikes by huge hurricanes along the United States coastline this summer.

For a very long time I used to study and try to understand economic concerns.  What is currently happening is so distressing that I no longer have the desire to try and figure out what is happening and about to happen.  Contrary to what media outlets are saying, there is a period of hyper-inflation just around the next bend.  We are already seeing it in the constantly rising prices for gasoline and food.

It is estimated that nearly 15% of all Americans have had to raid their retirement accounts to find resources for emergencies.  I know this is true for I am one of those 15% and am not proud of it.  But, when all other sources of income are removed, and expenses pile up; there is no place left to go but to the IRA or 401k that was supposed to provide income for 25 years or more after retirement.

Recent studies have indicated that the housing market for super expensive properties is rebounding and doing fine.  Those with plenty of money are spending it on lavish homes that cost well over a million dollars.  Those homes in foreclosure are also being purchased by people with money and then rented out to desperate people who have lost their homes.

Meanwhile those homes in the $100,000 to $600,000 range just sit there.  No one qualifies for a loan and no one has the money to pay the huge down payment to move up or down.  Most of us live in these kinds of homes and are stuck in them for many years to come.

I cannot do nothing about the weather or the economy so all I can do is pray for wisdom for those deeply impacted by both.  May God grant us all great patience and understanding so as to make the right decisions and have the means to help our neighbor, brother, parent or child in need.

The Change in Financial Attitude between the Great Depression and current Crisis

I wrote this in November of 2007 and feel it is still as pertinent today as then. I re-submit this as a reminder that what is currently happening economically is not new and the rumblings of the current disaster were heard a year ago.

I truly feel sorry for the majority of my fellow Americans. The unfortunate reality of what is transpiring, even as write this post, is either not seen or not believed by all but a few in this country. People don’t want to see, hear or talk about what is going on economically. They close their eyes to what they do not want to see, stop their ears from what they don’t want to hear and talk about trivial matters to avoid having to speak about reality. As many of you know who read these posts; I am no fan of entertainment for many reasons, not the least of which is that it is fantasy.

It is truly incredible how many people spend the majority of their lives living in a world that does not exist. Whether science fiction, romance novels, sports or computer role playing games; anyone who lives in these worlds is not living in the real world. It is perfectly fine for children to live in their “make believe” world, but it is NOT for adults. Real is real and make believe is imaginary. Never should the two be confused with each other.

I fear that what most people think is real is nothing but a mirage. We have all seen the puddles on the highway while driving, only to watch them disappear when we get near them. A mirage looks like the real thing. Many times a mirage is simply something a person WANTS to see and thus sees it. A man trudging through the desert wants to see an oasis. Lo and behold there one sits on the horizon. He musters all his strength to reach his promised land only he never gets there. He could keep walking forever and never find that oasis, for never really existed except in his eyes.

People who live chasing mirages never find them. They are as elusive as the pot of gold at the end of the rainbow. Haven’t we all, at some point in our lives, driven in search of that pot of gold? It is never there because it does not exist. Chasing fantasies has become the great American pastime. The indelible lines which should be separating reality from fantasy have been blurred to the point most people cannot seem to tell the difference.

This country has been blessed with REAL times of prosperity. This country has also been saddled with REAL recessions and depressions. Unfortunately, those people who lived through THE depression are becoming more and more extinct. Anyone old enough to really remember the suffering that took place in the 1930’s is 80 years old or more. Anyone who was an adult during the Great Depression has to be over 90 years old. Only someone pushing 100 would have clear memories of the Stock Market crash of 1929.

The Baby Boomers parents all grew up during some part of the Great Depression. Whether they were directly impacted by the events that took place in the 1930’s or not, they all heard stories and knew people whose lives were destroyed by some aspect of the Depression era. This is why Baby Boomer’s parents all seemed to preach the same gospel of thrift, stewardship and borderline frugality. Lessons learned through enduring difficult times tend to stick with you.

Following World War II, the United States enjoyed a remarkable stretch of prosperity. This stretch of time roughly parallels the stretch of time our parents lived during the Great Depression. Thus, whereas those growing up in the depression era learned to live on less, endure hardships, take care of each other and be thankful for whatever they had; those growing up in the Baby Boom generation learned to live on credit, complain about everything, think only of themselves and feel like they never have enough.

Growing up in the 1950’s and 60’s bears no resemblance to growing up in the 1930’s and 40’s. In fact, they pretty much represent both sides of the coin. Although most Baby Boomers didn’t grow up in great affluence, most did not grow up in abject poverty either. In fact, the later in the Baby Boom generation one goes, the more prosperity people enjoyed from birth. Someone born in 1945 certainly didn’t have all the conveniences a person born in 1963 could enjoy. Although both are considered Baby Boomers, the older ones still had to endure some hardships compared to the younger ones.

I have a sister born in 1940. She is a true hybrid when it comes to economic thought and habit. She remembers vividly the tough times after the big war and the good times that began to unfold by the mid 1950’s. I have a brother born in 1945. He is a charter member of the first Baby Boom class. His memories start at the same time the better times started. He was too young to remember the hard times, but can vividly recall the transition from having little to having enough.

I was born in 1953. By the time I have any memories, the good times were in full swing. I was able to enjoy items that only the privileged were able to afford when either my sister or brother were growing up. I was able to grow up in a “normal” home in a fairly large city with nice schools. My sister grew up being shuttled from one state to another due to the war and its aftermath. My sister never did get to live in the dream house my parents finally purchased in 1958, she went away to college.

My brother barely lived in the home before getting married and finding his own place. I got to spend 13 years in one room in one house. Most people today would consider that torture. I look back and consider it stability and security. By the time I moved away in 1971 and left my parents an empty house, but to them a very comfortable, yet humble abode. They were able to enjoy the fruits of their labors and live in that home for another 28 years.

Instead of learning from our parents, the Baby Boom generation has for the most part decided to discard all their advice and “go for it all” while they can. The generation that grew up in the 1970’s and 1980’s knows nothing of the hardships their grandparents went through for their parents made sure they would never have to endure such things. They begged, borrowed and many times stole to get the very best for their children. There was no way their children would have to live in the “poverty” they lived through. This “spoiled” generation knows only prosperity and hasn’t a clue what it means to have to do without.

Now we have the current generation growing up in the roaring 90’s crazy 00’s. This generation is now so far removed from their ancient ancestors who endured the Great Depression; they know absolutely nothing about it, World War II, or even Viet Nam. All the current generation knows about the 70’s is it had cool music and weird television shows. They were born in the decade of non-stop prosperity and their parents have vowed to make sure they have all the things they were deprived of in their “Spartan” growing up years.

Because no one cares about what happened 80 years ago, history is bound to repeat itself. The similarities between this country in the late 1920’s and the present are eerily similar. In 1928, President Hoover said; “We in America are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us.” A little more than a year after he said this, the United States Stock Market crashed and a worldwide depression lingered for almost 15 years.

During the Great Depression some industries made a profit. If Americans couldn’t work, they could at least go for a drive, have a cigarette or watch a movie. Sales of oil, gas, cigarettes and movie tickets all skyrocketed during the depression. People were looking for an escape. Sounds pretty similar to what goes on today if you ask me.

I pity the fool who wastes his life chasing fantasies. I pray for the fool who ignorantly goes his merry way oblivious to the doom awaiting him. I abhor the fool who though arrogance and pride, refuses to acknowledge the obvious and stubbornly continues on the path that leads only to oblivion.

The Cry of More and More People; “I Can’t Afford to Get Sick”

For the past few years, I have had to stop everything and go get various teeth worked on.  I have had countless fillings, numerous root canals and 9 extractions.  I did not ask for teeth problems, I inherited them.  My mom had all her teeth pulled when she was 40 and her mom and sisters all had the same condition.  Back in her day they would just pull all the teeth and put a set of dentures in and be done with it.

Current dental guidelines are to do everything possible to “save the tooth”.  What starts with fairly inexpensive fillings moves up to very expensive crowns and root canals.  If teeth are extracted, options such as bridges and implants are nice looking but prohibitively expensive.  For people with normal teeth I suppose this is a good way of dealing with problems that arise.  For people such as myself, my mouth has become a bottomless money pit.

Today, after spending well over $1,000 at various times to “save” one of my teeth, it had to be extracted.  What do I have to show for my investment?  A hole in my mouth and prospects of many more thousands of dollars to get a bridge.  In my lifetime, including all the times my parents dragged me to the dentist to fill every tooth with mercury fillings when I was a child, I would imagine that there has been close to $50,000 of dental work done inside my mouth over the past 50 years

In 1998 I was out of state helping get my dad get situated in a nursing home after a stroke.  I had a heart attack and ended up having emergency by-pass surgery.  The hospital I was taken to was not part of my insurance “preferred network” so they were able to bill the insurance the full amount and GET PAID the full amount billed.  A week in the hospital and all surgical costs etc. ended up costing the insurance company $73,000.  An “in network” hospital would have been about $30,000.

Due to complications from that surgery along with other physical issues, the total amount paid the past ten years to keep me “healthy” has to be over $250,000.  So, between my mouth, heart and other members of my body; it has cost more than $300,000 to keep me alive and smiling.  I can guarantee you I do not smile when I think that my part of this bill is somewhere around $50,000.

During the latter half of 1997 I encountered chest pains and had to endure 7 heart caths  as one artery  kept collapsing around stents placed in it and new stents were put in.  By December of 1997 I had six stents in the right coronary artery alone.  My heart attack and by-pass was three months later after all six stents failed.  Just as in the case of my teeth, all the pain and expense of the multiple stent placements ended up being wasted.

Despite having a decent health insurance plan, the relentless co-pays and deductibles over the years have taken their toll.  Just since January 1^st of this year, I have had to see specialists 10 times for various situations.  At $35 per visit, that is $350 just in co-pays.  I have also had to see my “primary care” doctor 6 times at $25 per visit.  I have had to pay $500 in co-pays in three months.  Of course doctors have to schedule tests and procedures to find out what is wrong.  With a $500 deductable and insurance only paying 70% of such tests; the amount spent has become a staggering figure totally out of my wife and my ability to pay. 

I also have had to go to Emergency Rooms twice and there is an automatic $100 co-pay for each visit.  God forbid I ever have to spend a night in the hospital, for there is a $500 per day co-pay.  And this is all with a good insurance policy.  The only way we have survived is through my wife’s medical reimbursement plan at work.  Unfortunately it only pays up to $2,000 annually.

Being sick of course means having drugs.  Even using our mail order plan, the cost is staggering.  Since half the drugs prescribed are not liked by the insurance company, the co-pays on many drugs are $80 for a three month supply or $40 for a one month supply at the local pharmacy.  When adding into the mix the cost of gasoline to run all over creation to various doctors and tests; the end result is financial misery and near disaster.

With all the talk about the mortgage crisis and price of gasoline; people have forgotten where their money really is being thrown away.  Even with insurance, the amount of money it takes to try and get better when sick or injured is mind boggling.  I personally know many people who literally “cannot afford to get sick” as they say.  Most of these people ARE sick and refuse to go to the doctor because of expense.  I think we all know what happens to sick people who do not get medical attention—they just get sicker.

If not already, the average family in this country will soon be caught in the horrible predicament of deciding between food and medicine, paying the mortgage vs. paying the health insurance premium, not seeking medical attention vs. filling the gas tank up with gas and other gut wrenching choices.  Considering people must eat, have a home to live in and be able to drive; the handwriting is on the wall as to what is coming.

There is a crisis looming on the horizon and it is NOT just regarding those with no health insurance.  The crisis is over choices that people are being forced into due to the economic situation in general.  Medical needs are being neglected out of lack of funds to pay the staggering out of pocket costs associated with even the good insurance policies.  Before long, few of us will be able to afford to get sick, have a toothache or slip and fall on the ice.  That is indeed a scary thought.

 

Personal Finances: Be Very Cautious & Circumspect

As stories appear and then disappear regarding the current economic turmoil, it is extremely difficult to find reliable information that is not either too upbeat or too negative.  If one were to gather the top 100 economists in a room and asked them to give their thoughts on what is coming the rest of this year; one would get 100 different opinions.  There is precious little consensus concerning what is happening let alone what is going to happen.

Rarely is there any noteworthy financial news during the short week leading up to Easter.  Not this year.  Starting with the unprecedented Sunday evening announcement of JP Morgan Chase purchasing Bear Stearns to the Fed making a major announcement concerning rate cuts on a Sunday night, to the extreme market fluctuations during the four days of trading; it was quite a week.

Now the real work begins as the rush of reports detailing just how good or bad the economy is doing start coming out.  With each report the markets will ride the roller coaster of emotion and will probably show more of the wild swings seen last week.  There is no possible way anyone can put their finger on the pulse of the United States economy just yet.  Thus, is bound to be the incredible extremes of ordering CPR for the dying economy vs. trying to lift the resuscitated economy to its feet.

Many of the moves made by the Federal Reserve Board recently are bold if nothing else.   There is no way to gauge if they were the correct moves until more time goes by.  This is not what nervous investors want to hear.  They do not want to wait any longer to find out if they need to cut back or spend more; invest or divest, push the panic button or wait.  Nervous people are not good at manifesting patience.

An article appeared this evening on Yahoo news from two Associated Press writers that is probably the best and unbiased report I have seen in awhile concerning the mess we are in financially.  With great appreciation for their excellent work I refer you to this article:

http://news.yahoo.com/s/ap/20080323/ap_on_bi_ge/economy_on_the_edge

As the long weeks unfold before the next major holiday at the end of May, this country will go through the depths of dismay and the heights of joy as major moves in the market seem to indicate one thing only to be replaced the next day by the opposite.  This manic/depressive behavior is not good for anyone.  It breeds a general feeling of uneasiness at the least and bitter anger at its worst.  Beneath it all is the gnawing doubt that seems to grow stronger every day that maybe this mess is REALLY as bad as some say it is.

This mess is far bigger than you or me.  We did not cause it and we cannot solve it.  All any of us can do is pray, prepare and be wise stewards of what we have.  Now is not the time to frivolous or stupid with assets.  Now is the time to be extremely careful with both spending as well as investing.  Now is the time to seek shelter in that which is safe and not that which is speculative.  Now is the time to stall any major decisions dealing with finances until the dust settles.

Depending upon how events pan out the next two months, everyone should be fairly clear on their personal course of action by Memorial Day.  The problem is the two months between now and then.  Unless you are a thrill seeker, I would assume the next two months should be spent as an observer more than an active player.  I would think that wisdom dictates stepping back and taking a wait and see attitude toward most financial matters.

  

America’s Economic Chickens Coming Home to Roost

It seems that not a day goes by where there is not another scandal making headlines.  No more had the bombshell regarding New York’s Governor died down then the next bomb explodes on the Republican side of the aisle.  Once the dust settles and the amount of money fraudulently stolen by the RNC Treasurer is determined; this story will run longer than the Spitzer affair ever could.  That is until the next example of adjunct corruption hits the newswires. 

It seems that not a day goes by where there is not another huge story coming out of New York or Washington that proves conclusively the United States of America is in not only a recession, but possibly a depression.  The amount of money being hurled by the Federal Reserve Board at failing banks and other financial institutions is astounding.  Any sane person would ask the one burning question: Where does all this money come from? 

As long as the United States Government can print money, it can always print more if it wants to.  As the Dollar continues to fall, it takes more and more of those dollars to buy things, especially commodities such as gold and oil.  For years, gold could be purchased for around $400 per ounce.  In other words, it would take four $100 bills to buy an ounce of gold.  Suddenly the dollar loses ground in a hurry and instead of four $100 bills, it takes five, then six, then seven, then eight, and then nine and now it takes ten $100 bills to buy the exact same ounce of gold one could buy of four.  Again, the question becomes one of; where does the extra money come from to pay the inflated price?

If you went to the grocery store and bought a gallon of milk for $3 today, you would not think anything of it.  You had planned to pay that much for your milk.  But, what if next week when you go to the store the cost of that same gallon of milk is now $4?  Somewhere and from some place you must find an extra $1 to pay for the milk.  Now what happens if the same thing happens with bread, eggs, cheese, meat and every other item on your grocery list?  Instead of a grocery bill of $100 which was budgeted for, the bill for the identical items is now $130.  Somewhere one must find an extra $30 or put back on the shelf $30 of items.

What if you managed to find the extra $30 only to find that the cost to fill your car up with gas suddenly increased from $40 to $60?  Now you must find an extra $20 for gas.  Upon returning home, you see the electric bill arrived.  Upon opening the envelope you see the rates increased 20% and the bill is $50 more than expected.  Also in the stack of bills is the dreaded credit card bills that used to be paid in full each month.  Guess where the “extra” money to pay the increased costs of everything else will come from?

When there is no extra money available, and there is a dramatic price increase in things such as food or fuel; the difference has to be made up from somewhere.  The only way to make ends meet is to either cut back or borrow more.  Since most of us don’t want to (or can’t) cut back any more than we have, that leaves borrowing.  To inspire us to borrow more, the Federal Reserve lowers interest rates.  Somehow this is to spur corporations and individuals to borrow more so as to spend more at inflated prices to keep the economy going.

The United States Government already spends far more than it takes in due to silly wars and pet pork projects.  The economy starts to stall.  IRS income starts to fall.  What is the Government’s answer?  First they “bless” most citizens of this country with a little check with the stipulation it is to be spent on something you don’t need so as to get the economy going again.  Then it dumps over 200 billion dollars into banks and other financial institutions to prop them up so they don’t go bankrupt.  Then they announce they will keep doing this as long as it takes to stabilize the economy.

Meanwhile, the country goes deeper into debt as it just keeps printing more “funny money”.  The more money is printed, the less it is worth.  The less it is worth, the more it takes to purchase anything.  This vicious cycle could go on indefinitely if not for the fact that other countries see what is happening and start selling their dollars while they still can get something for them.  The more dollars are sold, the less they sell for. 

If you had a $100 bill 50 years ago, it was backed by $100 of gold.  In other words, the country had to have something “hard” to back up its desire to print more money.  Ever since the country went off the gold standard in the 1960’s, the temptation has always been there to turn the printing presses up to high and print more and more money.  Why not?  There is nothing to attach it to.

Every country which has fallen into depression sees its currency lose its value and soon become worth less than the paper it’s printed on.  It happened in Germany, it happened in Mexico and it is happening in the United States of America this very day.  The reason gold, oil and other commodities have spiked in price is because it take so many more U.S. dollars to buy them.  Have you priced a Japanese car recently? 

Sooner or later the bubble will burst and the reality of the whole situation will settle in upon families all over this land.  When it does, the instinctive reaction will be workers wanting higher wages to pay for the higher priced goods they need and want.  If the employers start giving higher wages they then must charge more for their products to pay for the higher wages.  Thus the vicious cycle begins.

This country somehow endured two of these cycles within ten years of each other in 1974 and again in 1980.  The unfortunate reality of the whole situation is that most of those who can remember the impact of those two periods of high inflation are retired or passed away.  The current batch of young adults were not even born in 1974 let alone remember anything about “wage and price” controls and only getting gasoline every other day.

Sooner or later the “chickens will come home to roost” when it comes to economic policy.  If the Federal Reserve Board would have only RAISED interest rates six months ago, the country would have rebounded by now from a short recession and be well on its way to a period of nice growth.  But, the Fed opted to go for the “quick bounce” lowering interest rates provides.  The trouble is, with each bounce, the ball is going flatter and flatter.  Soon, if not already, there will be no bounce for the ball will be out of air.

Shortsighted economic policies yield long standing problems.  The irresponsible actions of the Federal Reserve Board would have gotten all involved fired long ago if it were a private company.  But, since no one controls the Fed, it can do pretty much whatever it wants, and it has. 

No matter who says what to try and keep things looking “up”, there is only one way this country can head, and that is DOWN.  I wish it were not so, but mistakes have a way of piling up and there have been a ton of them made by all levels of Government, greedy investors and ignorant people who keep covering their eyes and pretending things are not as bad as they look.  Guess what, it is time to open our eyes, evaluate and take appropriate actions to protect ourselves from what is coming. 

The Cost of Housing: 1050% Higher than 1970 and Climbing

Warning:  Do not try to read this if you are not wide awake and sober.  The staggering number of statistics will cause mental short circuits.  Author is not responsible for “fried brain” or other problems associated with excessive statistics.

Consider these sobering statistics.  In 1960, a new house would cost around $16,500.  Ten years later in 1970, a new house would cost around $26,500.  The cost of a new house went up $1,000 per year.  The national inflation rate ranged from 1.4% in 1960 to 6.5% in 1970.  Unemployment ranged from 5.5% in 1960 to 3.5% in 1970.  Obviously, the 1960s were a fairly stable decade with little change in most key indicators.  The highest level the Dow hit in 1960 was 685 and the highest it hit in 1970 was 842.  The average price for a gallon of gas in 1960 was .31 and in 1970 it was .36.

In 1960, the median household income was $5,600.  To put these statistics in proper perspective; a new home would cost the average family three times its annual income.  By 1970, the median household income had grown to $8,730 or 55.9%.  Guess what?  It would still cost the average family three times its annual income to get a new home. 

In the ten years of the 1960s, the median household income rose 55.9% and the average price of a new house rose 60%.  It is very interesting to note that the average price of new house in 1968 was also $26,500 compared to $20,500 in 1964.  Thus, most of the increase in housing cost came in the middle four years when inflation was averaging around 3%. 

By 1980, the average cost of new house had jumped to $76,400.  This was a $50,000 increase in ten years.  Remember the increase in the 1960s was only $10,000.  The cost of new house increased 188% during the decade of the 1970s.  Inflation ranged from around 5% in 1971 to an astounding 13.5% in 1980.  Unemployment was fairly stable between 3.5% and 6%.  The 1970s were racked with two separate oil crisis and the resulting double digit inflation that came with them.  In 1974 and 75, inflation hovered around 14%.  Between 1977 and 1980, inflation was between 11% and 13.5%. 

Needless to say, the price of just about everything skyrocketed during the 1970s.  A gallon of gasoline went from .36 per gallon in 1970 to 1.25 in 1980; a 247% increase.  A gallon of milk went from $1.15 to $2.16, a 88% increase in ten years.  The highest level the Dow hit in 1970 was 842 and the highest it hit in 1980 was 1000 which represents only a 19% increase.  The stock market was not the vehicle to wealth in the 1970s but CDs and other set rate investments provided a huge windfall to those wise enough to invest in them. 

In 1970 the median household income was $8730.  By 1980 the median household income had grown to $17,700.  Although this represents an increase of 103%, when compared with the 188% increase in the average cost of new house and the 247% increase in a gallon of gasoline; it is plain to see the average American family went backwards in the 1970s.

In 1990, the average cost of a new house had increased to $149,800.  This was a 96% increase from 1980.  To place these figures in proper perspective, a new house cost $123,300 more in 1990 than in 1970.  A new house cost a staggering 465% more in 1990 than a mere 20 years earlier in 1970.  Unlike the 1970s, inflation was fairly tame in the 1980s after 1983.  The incredible 96% increase in housing costs cannot be explained by inflation as they were in the 1970s. 

Unemployment ballooned during the recession of 1983 and 1984 to just under 10% but averaged closer to 7% most of the decade.  The big thing that changed in the 1980s was the value of the Dow.  Remember its highest close was 1000 in 1980.  In 1990, the Dow hit 3000.  Certainly the 200% increase in the Dow during the 1980s generated a huge new class of wealth in this country.  Those who invested in the stock market in 1980 were rewarded with returns on their investments never before seen in history, even with the temporary dip in 1987.

The median household income was up to $29,943 in 1990 which is more than $12,000 more than 1980.  The 69% increase in household income basically kept pace with the rate of inflation and was in line with the percentage of increase in the cost of a new house.  Again, to keep these figures in better perspective, the median household income increased by $21,213 between 1970 and 1990.  This represents a 243% increase.  This sounds good until compared to the 465% increase in the cost of new house.

Here is a statistic to chew on.  The price for a gallon of gasoline in 1970 was .36 and in 1990 it was only $1.16.  The price of a gallon of gas went up 222% in 20 years even with two huge oil crises.  By comparison, a gallon of milk in 1970 was $1.15 and by 1990 it was $2.78; an increase of 142% in twenty years.  Both the price of gasoline and milk went up less in twenty years than the median household income.

In the year 2000, the average cost of a new house was $207,000 only a 38% increase from 1990.  The 1990s were similar to the 1960s in that inflation was very low, averaging around 2.5% and unemployment was moderate in the 6% range.  What bore no resemblance to the 1960s was the stock market.  If the gains of the 1980s were impressive; the gains of the 1990s were phenomenal.  The Dow hit 3000 in 1990.  In early 2000, the Dow reached 11,723 an amazing 290% increase over 1990.  One must remember that early in the year 2000 the Dow started dropping and didn’t get back to 11,723 until 2006.

The median household income in 2000 was $42,100 which was only a 40% increase from 1990.  For the first time since the 1960s, the percentage increase in the cost of new house and the median household income were roughly the same.  Of course when comparing actual dollar figures, the comparison takes on a whole new light.  The average cost of a new house increased $57,200 while the raise in median household income raised $12,127.  This is why actual figures are better for comparing differences than percentages of increase. 

Here is your statistical food for thought of the day.  A gallon of gasoline cost $1.38 in 1980 and in twenty years it still only cost $1.50.  In twenty years, a gallon of gasoline only went up .12 on average.  That amounts to 8% increase in TWENTY years.  Amazingly, gasoline in 1999 averaged $1.17 or .21 LESS than in 1980.  I do not believe we Americans have much to complain about just because the price of gasoline has finally caught up with everything else. 

Finally we come to 2006.  What has transpired in six years since 2000 is truly incredible yet horribly troubling.  The median household income increased to $48,201 which is up all of 14% since 2000.  The Dow finally managed to get back to where it was in 2000 and even went over 14000 before falling back to its current levels.  Inflation had been pretty much under control until the last year, and unemployment has been very stable.  From these perspectives all seems to be going well.

That gallon of gasoline that cost $1.50 in 2000 now ranged between $2.20 and $3.05 in 2006.  We have seen pretty much a 100% increase in gasoline prices in the past six years.  Keep in mind, we saw a 247% increase in gasoline costs in the 1970s.   The average cost of a new home in 2006, just before the sub-prime crisis turned the housing market upside down, was an astounding $305,900.  To say the cost of a new home increased 48% between 2000 and 2006 doesn’t do the comparison justice.  The only way to really see what has happened is to realize the average cost of a new house jumped $98,900 in less than six years.

Here is the crux of the whole matter.  A new house cost 1050% more in 2006 than in 1970.  That means a new house in 2006 was 10 ½ times more expensive than one in 1970.  By comparison, the median household income increased 452% between 1970 and 2006.  The 600% difference between income and housing expense is why there is a crisis of monumental proportions plaguing this country.   

In 1970, the ratio between income and new home cost was 33%.  In other words, a new home cost about 3 times more than the median household income.  By 1980, due to the horrific inflation during the 1970s, that ratio dropped to 23%.  The new home was now 4 times more than the median household income.  By 1990, the ratio had dropped further to 20% and was still at 20% in the year 2000.  By 2006, the ratio had dropped to 15.7%.  People can no longer afford new houses.  The income is not rising nearly as fast as the cost.

Think about these statistics when you drive down the road and see the signs advertising “new homes starting at $300,000.”  Who exactly can afford to move into a new home with that kind of price tag?  Yet, every day in America someone signs their life away just to purchase a grossly overpriced piece of the American dream.  Every day in America, tens of thousands of construction workers go to work building more and more houses with price tags that only a few short years ago represented the anticipated lifetime earnings of a worker.

America cannot handle what is happening in the housing market.  The only way would be to hike wages dramatically.  If that were to happen, we would be back to the days of 13% inflation.  The only solution is for the housing costs to come back down to a level commensurate with income.  This does not sit well with those building the houses and those who have already paid highly inflated prices for them.  But, who deserves the break today?  The few who through greed and shortsightedness grossly overpaid for their home or the rest of us who are fighting to stay in ours?  I vote for us, how about you?

Financial Ethics; May I Rip You Off?

There was a time when honesty ruled financial matters.  Evidently that time has long since disappeared.  Not a day goes by where there is not a story decrying the obnoxious and repulsive greediness that rules the western world.  I am left with one overriding question; when is enough ever going to be enough?  At every turn the rules of sanity have been turned upside down to where what is totally absurd is considered normal and what should be the norm is looked upon as crazy. 

A bike has handlebars.  Can we all agree on that?  It does not have a steering wheel, it has handle bars.  A brand new bike has handle bars that are squarely in alignment with the bike.  If a person sits on the seat of the bike, the handle bars form a U or a V directly in front of the rider.  This is the correct (and logical) way to position handle bars on a bike.  If a person rode the bike with handle bars in this position, they would have no problems steering.

But, take that bike and turn the handle bars to one side and tighten them.  Now the U or the V of the bars is pointed to one side or the other.  If an experienced bike rider got on the bike and tried to ride, he would immediately wreck the bike.  It would not be possible to drive with handle bars turned sideways. 

But, if a person who never rode a bike before was taught how to ride using the sideways bars, guess what?  They could learn to ride and steer with no problem.  Now, put the person who learned to ride with sideways bars on a normal bike.  The result would be an immediate crash.  That person would have the same problems adjusting to what is “normal” as the previous rider would have adjusting to the abnormal.  The question then becomes; what are we going to establish as normal and what is going to be askew?  Once the norm is set up, then everyone should abide by the norm.  Everyone should have handle bars that face forward and not to the side.

In England cars are driven on the opposite side of the road than in the United States.  Is one country right and the other wrong?  Of course not, it is a matter of the established norm.  People from the United States must conform to the English norm when driving in England and vice a versa.  No one takes offence at this agreement.  In fact, St. Ambrose is credited with stating:  “When in Rome, do as the Romans”.  Whether dealing with situational conduct or driving etiquette, few wiser words have ever been spoken.

The age old conundrum in all this is; what if Rome is wrong?  Is one to still “do as the Romans” even if doing it is not ethically right?  Let us say I visit someone’s home and they have a household rule that everyone in the house must slap the person next to them every hour on the hour.  As a guest, not wanting to offend the host, am I to start slapping people on the hour?  If I refuse, I will be escorted out and miss the fellowship.  If I “do as the Romans”, I compromise my own principles and betray myself.

We live in an age where laws are made to be broken and many people deliberately strive to “push the envelope” as far as possible, to get away with as much as possible.  Is the longstanding defense of; “everyone else does it” grounds to do whatever one wants to do whenever wanted?  Is it allowable to do whatever one feels like doing regardless of the harm it may cause others?  These questions define ethics and ethical questions hold few definitive answers.

People become very defensive when ethics are brought up in the context of financial compensation.  Capitalism is a very controversial subject when ethics are brought into the equation.  Just how much profit should one person be allowed to make off a transaction with another person?  Capitalism, or free market theory, would suggest the answer is; “as much as the other person allows him to make”.  This idea sounds legitimate except that it breeds dishonesty and opens the door wide to those whose character is shady and whose “sales skills” are slick and well sharpened.

I used to sell used cars many years ago.  I hated every minute it.  The whole business is built on lying to people.  The determination of the value of a trade-in is one of the most devious tactics ever devised by anyone to “rip people off”.  So what if a blue or yellow or black book says a vehicle is worth so much in such and such condition.  It is all objective.  It is impossible to be subjective in this situation.  There are a few honest vehicle dealers, but there are far more dishonest ones lurking as vultures waiting to pounce on a gullible naïve person who doesn’t know or has forgotten how to “play the game”.

I recently had a van break down while away from home.  The van had many problems, so I decided to see if I could find a replacement vehicle instead of trying to fix the broken one again.  I succeeded in negotiating what I thought was a fair deal on a five year old Dodge pickup that had less than 100,000 miles on it.  I had told the salesperson I was willing to let the dealership make $500 if they would just be fair with me.  He came back beaming for the manager agreed to the arrangement.  After a long day I drove home thinking I had made a fair and honest deal. 

The next morning I started the truck and the “check engine light” came on.  Driving to the nearest auto shop, I found out the truck needed $1,500 of work just to get the light to go out!  I was furious and called the manager where I had purchased the vehicle.  He proceeded to yell at me over the phone saying:   “You bought the vehicle AS IS so it is your problem”.   When I threatened legal action I was cussed at and hung up on.  This was coming from the used car manager at the biggest Chevrolet dealership in all of central Missouri. 

Ethically who was right and who was wrong in this situation?  Was I wrong because I trusted a car dealer to tell me the truth?  You bet I was wrong, and I paid dearly for my stupidity.  Was the used car manager at the dealership wrong for lying to me and yelling at me and refusing to fix a problem he knew existed prior to the sale?  In his mind he was not at fault, for in his business, lying is allowable and acceptable because “everyone does it”.  In other words, it is the established norm.

I took the truck to a Dodge dealer where it was established that a “quick fix” had caused the “check engine light” to not be lit up when I first drove the truck, but came back on after a day.  In other words, the dealership knew there were problems, covered them up, stuck an “As Is” sticker on the window and placed the truck on the lot.  I don’t know if this is legal, but I do know it is NOT ethical.

I traded the truck in the next day to a “Five Star” dealership who upon hearing what had happened wanted to do things right.  They showed me the paperwork for the van I wanted.  They brought in the used vehicle broker who showed me exactly what the truck I had purchased was really worth to a dealership.  They were willing to make a deal if they could make a profit of $250 with no tricks.  I agreed and have been happy with the van ever since.  Oh, by the way, they figured the previous dealership made around $2,500 profit on the transaction I was told was a $500 deal.

When dealing with those who smile and tell you “trust me” but all the while are lying through their teeth, what can you do?  If the adage of doing what they do in Rome holds true, then I guess you should lie right back at them.  But, do two wrongs make a right?  When I first was taught how to sell cars back in 1986, I was told it was allowable to lie to the customers because they always lied to the salesperson.  How is that for a new slant on; “when in Rome…”?

Is it possible to be an honest salesperson?  Of course it is and there are plenty of them out there.  But, in our greed driven society there is no profession more prone to dishonesty than sales where deals must be negotiated, especially with “trade ins”.  Is it right to “rip someone’s head off” if they allow you too?  Is it right for me to make a huge profit at your expense if I lied to you?  These are ethical questions that need to be addressed in our selfish, “it’s all about me” culture.  Trust me; there is still a need for defining what is right and what is wrong, especially when your hard earned money is at stake.

The “Cost of Living”; 1957 vs. 2007

It is time for me to post some more sobering statistics.  This time around I want to compare what it costs to live in America today verses fifty years ago in 1957.  To put this in perspective, 1957 is considered to be the height of the baby boomer generation.  Dwight D. Eisenhower was the United States President and Richard Nixon was the Vice President.  There were around 170 million people living in this country (compared to 300 million today).  The 1957 Best Picture of the Year (The Bridge on the River Kwai) grossed $27,200.  So far in 2007 the movie “The Departed” grossed $125 million.  No one owned a computer fifty years ago.  The only games were “board games” and make believe games.  Girls still wore dresses and guys still dressed up to take a girl on a date.  Mothers stayed at home to raise the kids and fathers were happy to be the breadwinner of the family.

A lot has changed in fifty short years.  The United States of America bears little resemblance to the country bearing its name not even two generations ago.  States that were mainly deserted deserts fifty years ago are now the fastest growing states in the country (Arizona, Nevada and Utah).  Areas that were farms fifty years ago are now cities with hundreds of thousands of people.  There was only one Interstate Highway fifty years ago and that was I-70.  Now people can travel all over the country on multi-lane super highways going pretty much as fast as they want. 

In 1957, the average income of America’s 44 million families (according to the United States Commerce Department) was $5,000.  There were actually 4 million families whose income was over $10,000.  There were also 6.5 million families whose annual income was under $2,000.  The vast majority of American families, 33 ½ million of them, had annual income between $2,000 and $10,000.  In 2006, the average income for an American family was $48,000.  In fifty years the average income had increased tenfold.  The main difference between 1957 and 2006 is that most families need two incomes to reach the $48,000 figure whereas fifty years ago only the father usually worked.  Logic dictates that if annual income has risen tenfold in fifty years, then the cost of most items has probably risen about the same.  This logic is correct in many categories, but horribly flawed in one huge area.

In 1957 the average price for a gallon of milk was $1.00.  Today, that gallon of milk averages around $3.00.  It really is quite amazing that something as vital as milk has only tripled in price in 50 years.   The price of most other things has definitely gone up much more rapidly and dramatically.

In 1957 gasoline averaged around .30 per gallon.  This should not be surprising since only a few years ago it was still under a dollar.  But, even if you took the high average today of $3.00, that is only a tenfold increase in 50 years in one of the most volatile commodities on the market.  Of course at the rate of increase gasoline has gone up, that would put a gallon of milk at $10.  Thank God the rate of inflation for milk has not kept up with oil.

Fifty years ago, the postage stamp was 3 cents.  Now it is 41 cents (at least this week).  Calculating the difference in the cost of a loaf of bread is a little more difficult.  There are so many kinds of bread out there today that it is very hard to compare apples and apples, but in 1957 a loaf of bread cost 19 cents and today the range is from $1.90 to 3.90.  A dozen eggs cost .28 fifty years ago and many times they cost barely over a dollar today.   

Most things that are still bought and sold today are about 10 times more expensive than they were fifty years ago.  Even “big ticket” items follow this same rule of thumb.   The average cost of a new car in 1957 was $2,100.  Today, the average price for a new vehicle is $27,958.  Although vehicle prices have gone up more than 10 times, the average for today’s vehicles includes SUVs and luxury cars.  It also takes into account the incredible advances in technology found in today’s vehicles. 

It is very interesting to note that in all the years my dad bought and sold vehicles (1932 through 1989), he always paid cash for the new vehicle.   “Back in the day”, no one ever financed a car except possibly through a credit union or a family loan. Today, the average new vehicle loan works out to $378 per month for 63 months!  Considering that a new vehicle loses 70% of its value in just 48 months, what exactly do people have to show for the $4,536 per year, or the $18, 144 they pay in four years of vehicle payments?  A used vehicle worth 30% of what they paid for it.

Here comes the statistic I have been leading up to all this time.  In 1957, the average price for a house in the United States was $2,330.  Can you believe that!  A house and a car cost roughly the same thing!  I know “normal” people who pay $2,330 per month to rent an apartment.  Just 50 years ago, this figure represented the average price for a house in this country.

Now consider what the average price is today (not taking into account the current depressed prices due to the sub-mortgage crises); which is $212,800.  The average price of a house fifty years ago represented 50% of the annual income for the average family.  The median price today is four times MORE than the average family makes in a year.  This statistic explains why Americans today are saddled with a debt load that destroys marriages and causes the current unheard of foreclosure rates. Families simply cannot afford the home they live in.  This is NOT  a good thing.   

In 1958 my parents purchased a modest home in a nice residential neighborhood in Wichita, Kansas.  The house cost about $8,000 and their monthly mortgage payment was a little over $100 per month.  Today, the average family in this country has a house payment of around $1,250 per month.   All things being equal, if nothing else had changed between 1957 and today; then the amount paid each month for the house payment would not be much different than fifty years ago (the rule of things increasing tenfold), but all things are not equal.

Most people fifty years ago bought a house and lived in it for most, if not all of the 30 years of the mortgage.  Today, people want to move into bigger and fancier houses after a few years.  They never get to an equity position.  If they do, they get home equity loans for toys, vacations, and other “things” and suddenly have not only a house note, but also a home equity loan note.  Add in a couple of car loans, college loans and medical expenses.  Once again, people cannot afford the home they live in.

Our country has always taken pride in home ownership.  It is “The American Dream” after all.  But, if the current trends continue, no one will be able to afford the home they live in.  Instead of moving up, they will be forced to move down to housing they can afford.  This is not the American way of thinking.  People are not used to having less and less.  That flies in the face of the “bigger, better, more and more” mentality that has fueled so many of the problems now being encountered.

There was a time in this country, not too many years ago, when people simply “made do” with what they had and could afford.  With the advent of credit cards and cheap credit lines, people have been conditioned to get whatever they want, when they want it.  There is no financial discipline or maturity to speak of.  This ugly mentality is now being passed on the next generation who has been conditioned to have everything they want without working for it, saving for it or waiting for it. 

The old values learned by those who suffered through the Great Depression have died off with that generation.  The baby boom generation ushered in the greatest spending spree in American history.  With it has come utter incompetence in financial matters at home, within businesses and inside the government.  Perhaps a good recession or even a depression would not be all bad for this country.  At the very least it would provide a wakeup call to millions of people.  People might begin to understand that you can’t keep spending what you do not have without someday suffering the consequences for it.

For even more information on this topic, I just posted a new blog dealing specifically with the housing costs and how dramatic the upswing has been since 1960.  The title of the post is: The Cost of Housing: 1050% Higher than 1970 and Climbing.