Snow job of all snow jobs

WHY THINGS CHANGED
Slipping standard of living squeezes middle class
BY JOHN GALLAGHER • FREE PRESS BUSINESS WRITER • October 12, 2008

Ron and Laurie Kopack are educated, hard-working suburban Detroit homeowners who, by American middle-class standards, should have earned comfortable family evenings, a little peace of mind and a few luxuries. Instead, they are struggling.

Ron, an electrician, spent most of his summer living in a tent city while doing flood repairs in Iowa because he couldn't find work at home. Laurie, who just got a bachelor's degree but is paid only $15 per hour, faces $30,000 in student debt and a teenager coming of age with his dad often gone.

"The whole American dream, that's a snow job," Laurie says. "I mean, who tried to sell us that? Is that to keep us good consumers?"

Without question, the U.S. economy is an engine of prosperity that produces comfort and wealth admired worldwide. But the Kopacks' plight illustrates an uneasy truth for millions today:

Our middle-class standard of living, a seemingly unstoppable vehicle that has carried generations from dirt-floor cabins to manicured suburban subdivisions, has sputtered and stalled.

This is a long-term shift, under way long before this year's financial crisis made the economy the key issue in the presidential campaign.

The common link is debt. It's swallowing family budgets, with the average household now owing more than $110,000 while saving only about $400 a year. Much of this decade's middle-class spending -- critical to the nation's economic growth -- has been fueled by borrowing.

But forces other than debt are pulling down the standard of living. Increased borrowing has helped mask the fact that middle-class household incomes have stagnated for years as expenses rise from cradle to grave. Health care, college education, food and energy costs have risen far more rapidly than inflation.

Retirement is riskier: One study -- done before the latest stock market dive stripped $2 trillion from retirement plans -- suggests eight in 10 workers face a lower living standard in retirement.

So it is that in El Paso, Texas, Ivonne Moreno, 37, a single mother of two teens, crosses the border to Mexico to find cheaper doctors and medicines because she can't afford U.S. health care.

In Tampa, Dalia Pereira, 59, a veteran ticket agent with Northwest Airlines, says cutbacks by the airline have reduced her pay to what agents made in 1996.

And in rural Iowa, Scott Davis, 33, and his wife have become a three-income family -- she's a teacher while he farms and runs a trucking business -- yet they pinch pennies at the grocer, limit trips to town, eat out less and worry more.

The implosion of major Wall Street firms has pushed the economy to the top of the news in recent weeks. But Wall Street isn't feeling any pain today that middle-income families haven't been struggling with for years.

Americans' incomes were losing ground to inflation even in 2002-04, when the national economy was booming, gasoline was selling for $1.50 a gallon and subprime mortgages weren't yet a problem.

With gas prices at record levels this year and families burdened with rising debt and falling home prices, the likelihood of Americans seeing their incomes keep pace with inflation grows less and less.

Even so, many have faith in the economy's resilience.

Certainly, the United States remains a wealthy country, the fruit of decades of innovation and hard work. Productivity, or output per worker per hour, has risen steadily for generations, thanks to new technology and higher education levels.

For this reason, Dana Johnson, chief economist with Dallas-based Comerica Inc., says the free market will correct itself as it has in the past.

"At the end of the day, we have an incredibly productive economy that's going to continue to get even more productive and evolve in reaction to the changing relative price of things," he says. "The idea that you would look to the future with the idea that standards of living in the United States are generally going to be lower is absurd to me."

Others argue that unemployment and inflation remain modest by historical standards.

But Jared Bernstein, an economist with the Washington, D.C.-based think tank Economic Policy Institute, says almost none of the new wealth created by rising productivity of recent years has made its way to the middle class -- the broad swath of U.S. households generally described as those making around $40,000 to $100,000 a year, although no official definition exists.

Productivity has risen 20% since 2000, he notes, while working families' incomes lost ground to inflation in five of the past seven years.

"What's really been violated here is that the bakers themselves, who have been baking a better pie, are ending up with smaller slices," Bernstein says.

"We're not talking about the Great Depression," he adds. "We're not talking about massive homelessness. We're not even talking about huge losses. We are talking about stagnation, and we're also talking about inequality."

Charles Ballard, an economist at Michigan State University, agrees that prosperity gains have gone mostly to those at the top.

"This is a rising tide that has lifted about a quarter of the boats a lot, a quarter of the boats some, and the other half of the boats has essentially not been lifted at all," he says.

Rising prices, debt
Middle- and working-class Americans' standard of living has been buffeted by the disappearance of manufacturing jobs in states like Michigan, by aggressive marketing of consumer debt and by household incomes' failure since the late 1990s to keep up with inflation.

From 1999 through mid-2008, the price of milk has risen 35%, ground beef 54%, eggs 128% and gasoline 244%, government data show. Yet middle-income Americans saw their yearly household incomes fall by $408 during that period when adjusted for inflation, the Census Bureau reports.

Over that time, Americans turned more and more to credit. Credit card and other consumer debt, not counting the dramatic growth in mortgages, has soared 150% since 1994, more than four times faster than inflation, according to Federal Reserve Board data. The increasingly easy availability of credit to fuel consumer spending, which accounts for about 70% of the U.S. economy, has been important to growth as real income has stagnated. Consumers aren't hapless victims in the explosion of debt; not only rising costs, but also their expectations for how they should live have led them to take on debt -- for necessities and luxuries from cars to college educations, vacations and more.

Most families are getting by -- even if the value of their home has fallen or a secure retirement program has been converted to a voluntary plan that is exposed to stock market swings. Still, economic worry and discontent has taken center stage as the country heads into the home stretch of the presidential campaign.

Rising living standards are part of the American story. Over the past century, the steady growth created the middle class, defused economic unrest and helped the nation absorb millions of working-class and immigrant families into the mainstream.

Against this backdrop, Jacob Hacker, a political scientist at the University of California at Berkeley who studies the risks facing Americans, says he sees a broad decline in the economic security of most Americans.

"The unemployment rate or the inflation rate doesn't capture the degree to which people are at risk of losing their home, or see their finances crumbling, or the risk of high health costs without insurance coverage, or the risk of retiring without adequate income," he says.

On the road
For Ron and Laurie Kopack of Oak Park and millions like them, what philosopher and economist Adam Smith called the invisible hand -- the knack of free markets to reward effort and innovation -- has become an invisible fist, pummeling even those who show old-fashioned American grit.

Certainly Ron, 53, is used to working hard. A unionized electrician who helped build the Chrysler Tech Center in Auburn Hills and the McNamara Terminal at Detroit Metro Airport, he has spent several months on the road this year, first in West Virginia and more recently in Iowa, seeking the jobs he cannot find at home.

In Iowa, he worked 12-hour shifts, seven days a week, repairing flood damage at a Cargill grain plant in Cedar Rapids.

Living in a small tent in a campground filled with itinerant electricians and other tradespeople, Ron says life on the road makes sense only when a job is big enough to pay lots of overtime. When the overtime runs out, he and the other nomads move on.

In the meantime, his life, once focused on family and friends in Michigan, has shrunk to encompass little beyond long days of work and phone calls home.

"I get back to the tent, by the time I eat and shower and maybe drink a beer, it's time to crash," Ron said this summer in Iowa. "Maybe I'll read for a half an hour. And then up at 3:30 or 4 in the morning. It's not the type of life I consistently want to do for a long time."

Yet despite such effort, Ron, and Laurie, 50, a secretary at a college in Detroit, have been unable to put away savings toward retirement.

They don't know how they'll pay for their son Leo's college tuition in a few years, particularly after going in debt for Laurie's recent college education.

"We're not financial planners," Laurie says, sitting in the living room of the family's bungalow. "We haven't done everything right. But we certainly don't live extravagantly. Our vacations have been camping trips. ... I'm not begging on the corner. It hasn't come to that. We're just doing what it takes to get by. But it's not good, and it's not normal."

It is startling for families like the Kopacks how different their lives feel from their upbringing.

Laurie's father, a plumber, raised six children on one income while Laurie's mother stayed home with the children. Their family lived in a suburban waterfront house on popular Lake St. Clair and still managed to save money long-term.

That secure, slowly improving family lifestyle, once so common as to virtually define America, has become increasingly hard to find in a world of rising prices, risky employment and rocketing debt.

"There's no way we could afford that today," Laurie says. "Things have changed radically."

Canary in a coal mine
Michigan is a good place to help bring this story into focus, and not just because families like the Kopacks abound here.

Michigan is the nation's economic story writ large: The state gave birth to the American middle class in the early years of the 20th Century, as rising productivity in the new auto industry boosted incomes for millions of working families.

Today, though, Michigan's pain is a portent for what the rest of the nation might soon be feeling.

Layoffs are rising as national unemployment is at the highest level in five years. High gas prices have crimped travel plans, with the Federal Highway Administration reporting that Americans have driven 53.2 billion miles less from last November through June than during the same period the year before.

These economic pressures, known to Michigan families for years, are increasing elsewhere. And, as a result, Americans everywhere are dialing down their lifestyles in ways large and small.

They are giving up vacations and putting off trips to the dentist. They're dropping out of health clubs. They're packing their lunch instead of buying it, taking in roommates to share living expenses.

Some of the adjustments, like Ron Kopack's summer in a tent city, run counter to what most Americans think of as their promised standard of living.

In Oregon City, Ore., landscaper Gordon Westfall, 39, still walks with a limp two years after an accident mangled his foot because he and his wife, April, could not afford health insurance.

Like Ron Kopack's months-long exile from home in search of work, Gordon Westfall's limp doesn't show up in the nation's economic statistics. But it says a lot about how Americans live today.

Political scientist Hacker, in his book "The Great Risk Shift: The New Economic Inequality and the Decline of the American Dream," wrote that the American dream itself is at risk.

"It is a fixed American belief that people who work hard, make good choices and do right by their families can buy themselves permanent membership in the middle class," he says. "The rising tide of economic risk swamps these expectations."

Trying times
Some ideas to help working families might emerge from this year's presidential campaign. Repeated campaign trips to Michigan by Democratic candidate Barack Obama and Republican John McCain demonstrate that, if nothing else, the nation is focusing on economic issues.

But in the meantime, Laurie Kopack expects Ron to spend many more months on the road. Ron is slowly moving up the list of unionized electricians on a job-call list in the Detroit area. Several hundred names remain on the list ahead of him.

When he moved into his tent city in Iowa, Ron met other electricians from Michigan, and he and a few of the men bought a refrigerator and installed it in their campground. But they had to padlock it when they were away so others didn't steal their food.

For Laurie, the image of itinerant workers living in tents reminds her of photos of Depression-era Civilian Conservation Corps camps. She says the late songwriter Woody Guthrie, who put the Great Depression to song, should come back to write an anthem for today's struggling families.

"These are historical times, I'm afraid," Laurie says. And she gives a small, mirthless laugh.

Lap's Comment:
"The whole American dream, that's a snow job," Laurie says. "I mean, who tried to sell us that? Is that to keep us good consumers?"

YES.

I'm just as guilty. I love to buy crap. But our selfish ways are coming home to roost. And all we can do is complain.

Here's another one:
Middle class is mired in debt
Simple misfortunes make bills pile up quickly
BY JOHN GALLAGHER • FREE PRESS BUSINESS WRITER • October 13, 2008

What does bankrupt Detroit-area auto mechanic Ernie Berthet have in common with Wall Street?

Both have been humbled by bad debt, the thread that ties the economic struggles of ordinary Americans to the once-venerable financial houses brought to their knees in recent weeks.

It was Berthet's mortgage foreclosure, multiplied by at least a million other bad home loans across the country, that rocked America's financial system and moved the nation toward the biggest business rescue plan in history.

The numbers on Wall Street are dizzyingly large. But brought down to the level of just one distressed borrower, the story shows how even modest levels of debt, if made unmanageable by a layoff, divorce, illness or other hardship, can turn tragic.

Like a lot of bankruptcy filers, Berthet, a 51-year-old Dearborn Heights resident, saw his problems mount not from a profligate lifestyle but from simple misfortune linked with perhaps too-easy credit.

His modest, one-story house in a working-class area cost $82,000. He had a zero-down, adjustable-rate mortgage that reset from 7.35% to 10.35% and then to 13.35%. Losing his job and owing child-care payments to his former wife put him in the red.

"I'm a mechanic by trade," he says. "I was a contract worker, worked in a couple different dealerships. It seems like I'd just get caught up, got all kinds of overtime, and then -- boom! -- we got laid off," he says.

Unable to pay his bills, Berthet filed for bankruptcy and gave up his house in foreclosure this summer.

"The way the state of the economy was, when I bought my home, I planned on living in my home until I died, but the times they are a-changin'," Berthet says.

The problems on Wall Street and those facing Main Street thus are twisted together in a pervasive tangle. If Wall Street's problems are getting most of the headlines now, debt problems for most of this decade have been posing a large and growing challenge to maintaining a traditional middle-class standard of living for ordinary Americans.

Today, debt pervades all aspects of American life:

• The average household now holds more than $110,000 in mortgage and other debt, against annual personal savings of around $400, according to figures from the Federal Reserve Board and other government bodies that track the economy.

• American consumers today collectively owe $2.5 trillion on their credit cards and in car payments and similar loans. That's up 150% from 1994, an increase more than four times greater than inflation over the same time.

• New college graduates carry more student-loan debt than ever. The nonprofit Project on Student Debt reports that by the time they graduate, nearly two-thirds of students at four-year colleges and universities have student loan debt, compared with less than one-half of graduating students in 1993. Over the past decade, debt levels for graduating seniors with student loans more than doubled from $9,250 to $19,200 -- a 108% increase, or 58% after accounting for inflation -- the project reports.

Student loan load
Scott Howland, a 2003 graduate of the University of Michigan, has a common debt story at age 28. A ticket office manager for Palace Sports & Entertainment, Howland graduated with $22,000 in student loan debt, has a $150,000 mortgage on his house in Madison Heights and owes $5,000 on credit cards.

He's getting married soon and plans to help pay his fiancée's credit-card balance of around $15,000.

He says his student loans require a minimum monthly payment of $138, which he has automatically withdrawn from his savings.

"For a while there I was trying to pay a little bit more every month, get more on the principal, trying to almost pay double sometimes, but then other expenses crept up and it got to the point where I can only pay the minimum on this and I need to focus my money on the other debts," he says.

The nation's debt burden has soared since the late 1990s, much of it tied to the bubble in housing prices between 2000 and 2005. Americans added about $1 trillion in new mortgage debt -- including home equity debt -- per year since 2000, and many families borrowed still more on credit cards.

When home prices collapsed, much of that new accumulated debt could no longer be supported and homes couldn't be sold, at least for what was owed on them. But by then, Americans owed more than they made. Since 2002, debt has exceeded disposable income in America by an ever-growing margin. In 1990, debt equaled 78% of disposable income; as of 2007, the figure was 129%.

Types of credit unknown 20 years ago, such as home-equity loans and borrowing against 401(k) retirement accounts, have sapped long-term savings.

Home equity loans became a popular way to borrow against the value of a home in the mid-'90s, and since 1998, such debt in the United States has soared from about $300 billion to more than $1.1 trillion.

Since early 2007, homeowners owe more on their houses than they hold in equity. Americans now hold as equity 46.2% of their home values. That's down from 57% in 2001, and represents the first time since World War II that equity levels have shrunk so low.

Stephen J. Church, an investment consultant who heads Piscataqua Research Inc. in Portsmouth, N.H., says some retrenchment in the way Americans live is inevitable. Before 1990, he says, Americans spent about 80% of their incomes on goods and services, paid debt with about 10%, and used the rest for savings or discretionary spending. By 2006, Americans were spending nearly 90% on consumption and 13% to cover debt, meaning they had to borrow just to maintain their lifestyle.

"Basically, we had a strong economy built on a mirage of borrowing. It is right there in the numbers," Church says.

As a result, more and more Americans are facing a significantly bigger burden each month trying to pay down mortgages, credit cards and other types of debt. The U.S. Census Bureau reported last month that 37.5% of American households now spend more than the traditionally safe 30% of income on housing.

American living standards, which through the country's history have promised an ever-improving way of life for each new generation, already were under threat as middle-class incomes stagnated. Adjusted for inflation, middle-class households earn about $400 less today than they did in 1999, the Census Bureau reports.

Now the borrowing spree of the past decade threatens to make that problem a lot worse. With personal consumption accounting for 70% of the U.S. economy, any cutting back to pay down this mountain of debt threatens a slowdown for the economy -- and a further lowering of standards of living for millions of Americans.

Wake-up call
Ann Howard, a bankruptcy attorney from Southfield, says the lesson of recent financial woes is simple: The party's over.

"I think it's been a real wake-up call for everybody because you just can't assume that you're always going to make what you're making now or what you made two years ago," Howard says. "You have to keep your expenses low enough so you can ride through the storm if there is one."

Responsible debt, of course, will remain an integral part of financial life in America, with borrowed money paying for everything from cars and homes to complex corporate deals.

"I don't want to create the wrong impression that all debt is bad debt," says economist Jared Bernstein of the Washington, D.C.-based think tank Economic Policy Institute, noting that many families borrow for college education and other productive uses. But he adds that many struggling families borrowed not for long-term goals but simply to keep up, especially as paychecks lost ground to inflation.

"In many ways, lots of middle-income families compensated for their lack of good, old-fashioned income growth by taking on more debt," Bernstein says.

With Americans borrowing and spending so freely, they were saving less than ever, government data show. Personal savings as a percentage of disposable income has dwindled to less than 1% today from nearly 8% in the early 1990s.

With incomes stagnating and using debt to keep up, many Americans placed themselves in a position where any unexpected setback could send household finances into a tailspin.

"We all know that the expenses that really hurt you financially aren't necessarily the predictable ones," Howard says. "Obviously gas and food have gone crazy, but you have the transmission that goes or the $1,200 deductible on your health insurance when your kid has an appendix rupture."

Credit card crunch
Veronica Smith, a debt counselor with the nonprofit GreenPath Debt Solutions office in Roseville, says it's common for people who come to her office to have credit card debt equal to a year's salary at a job they lost.

Howard agrees.

"It's a very predictable pattern," she says. "You're going along and then somebody loses a job or somebody has surgery or someone loses their overtime, but you still have all your typical expenses that your income went to. So what do you do? You prop up your household with credit cards and you do that as long as you can."

Howard adds that debt-fueled problems are moving up the income chain.

"I'm seeing a different kind of client now than I've seen before. It's hitting the upper middle class," she says. One client, a real estate professional, saw his annual earnings drop from more than $200,000 a couple of years ago to less than $15,000 today, Howard says.

The consumer advocacy Web site www.cardratings.com reports that there are now more than 600 million credit cards in circulation, with the average American carrying four cards. About 60% of cardholders carry over a balance from month to month, often totaling in the thousands of dollars.

This debt has helped generate billions of dollars in profits for the credit-card industry, and every dollar of that ultimately came out of consumers' pockets.

The psychic toll on Americans who see their lives disrupted by excess debt can be enormous, Howard says.

"They're overwhelmed, they're completely stressed out, they're depressed, they're tired," she says of clients who come to her office.

Lap's Comment:

Again, I'm just as guilty as the next middle class American of buying crap I cannot afford. BUT....
Most of the way our life is, is the result of choices we've made somewhere down the line.
In this last story, well, dude, you're a FATHER, and you'd better support those kids. You'll probably have to rent.
U of M Couple: Uh, I know babies don't know timetables, and certainly do not ask to be born, but this will be an incredible challenge. Maybe not have a big splashy wedding and do something for your 5th or 10th anniversary?

I for one am a lot more aware of spending habits within the recent year. It's been an eye-opener!

And we wonder why so many people are falling for Nobama's socialism BS.


Like that is the answer!


I tell ya what would get things going


Another World War!


Think About it; We had the depression in the 30's; World War 2 in the 40's; in which the United States became the most powerful nation in the world- economics wise and military wise

Which led to the Baby Boom Generation and the highest standard of living in the world.





I don't like war. But it is either that or socialism/communism! Which I am against! Rather have a World War than that! Or even worse; under Obama leadership; the United States becomes a Shia Republic; Which I would rather die than see them bug eyed Islamic ragheads control us

Nations like China, India and Japan have prospered at our expense; A World War would destroy them economically;

If those nations all collapsed because of one; it would benefit the U.S greatly

That was the ONLY thing that got us out of the Depression.

laprimamirala wrote:

That was the ONLY thing that got us out of the Depression.

And I tell you another thing

We need to stop letting so many immigrants into this country


We can't feed the world's poor

You don't see people by the masses immigrating to China, Japan and India

But you sure have all them Asians coming here


Along with Africans; Latinos, Russians and Europeans


Enough is Enough


Our nation is overcrowded!

We tried limiting it in the 1920s! didn't go over that well!

laprimamirala wrote:

We tried limiting it in the 1920s! didn't go over that well!

True


But we can't continue to have an open door policy in regards to immigration

We can't afford it any longer

I agree! but the ACLU and liberals would leap on that one!

laprimamirala wrote:

I agree! but the ACLU and liberals would leap on that one!

Let Em

They one of the reasons why this country is so fucked up


And another thing;

In regards to Credit Cards; This nation is becoming a cash less society;

People are using credit cards to buy a Big Mac and Fries!

Amazing how so many people don't use cash anymore for the smallest of purchases

No wonder we are drowning in debt!

Credit is too easy!
People bought houses they couldn't afford
cars they couldn't afford
trips they couldn't afford
like I'd mentioned, our selfish spending ways are coming home to roost!

laprimamirala wrote:

Credit is too easy!
People bought houses they couldn't afford
cars they couldn't afford
trips they couldn't afford
like I'd mentioned, our selfish spending ways are coming home to roost!

What makes me laugh is those Free Credit Report Commercials;


You can get a free credit report with an enrollment in their programs

By purchasing with your credit card

Not Dave Ramsey's site! He will only take a debit card as payment!

That works!

laprimamirala wrote:

Credit is too easy!
People bought houses they couldn't afford
cars they couldn't afford
trips they couldn't afford
like I'd mentioned, our selfish spending ways are coming home to roost!

Exactly!!! People need to be responsible to PAY OFF THEIR OWN DEBT!!! No declaring bankruptcy because you went to the mall everyday and racked up debt!!! The only time I can see assisting people is when they have health insurance that refuses to pay their high hospital bills, that's not someone's fault if they are trying to be responsible. Otherwise, too bad!!
In my early twenties I got into debt because I was an idiot and racked up several thousand dollars in credit card debt by shopping too much!!! Because I was taught to be responsible for MY OWN ACTIONS, I had to work 2 jobs for a long time to pay it off and I did!!! And because of that I am VERY CAREFUL with money to this day...LESSON LEARNED. People get away with ridiculous behavior too much, therefore learning nothing!!!

gs78 wrote:

In regards to Credit Cards; This nation is becoming a cash less society;

People are using credit cards to buy a Big Mac and Fries!

Amazing how so many people don't use cash anymore for the smallest of purchases

No wonder we are drowning in debt!

You'll pay more in interest than the actual item!

laprimamirala wrote:

Credit is too easy!
People bought houses they couldn't afford
cars they couldn't afford
trips they couldn't afford
like I'd mentioned, our selfish spending ways are coming home to roost!

I'll have to disagree a little bit on this one. People buy things expecting to get raises to keep up with inflation. 8-10 years ago, some people COULD afford these houses. Then all of a sudden they stop getting pay raises and/or taking pay cuts, losing hours, or losing their jobs altogether.

I've seen first hand. My dad hasn't gotten a raise since 1999 and is working less hours, and my mom had to take a $4/hour pay cut. The combined paychecks of my parents are less now then they were in 1999. And that's not taking into account the time value of money.

iluvpudge7 wrote:

laprimamirala wrote:

Credit is too easy!
People bought houses they couldn't afford
cars they couldn't afford
trips they couldn't afford
like I'd mentioned, our selfish spending ways are coming home to roost!

Exactly!!! People need to be responsible to PAY OFF THEIR OWN DEBT!!! No declaring bankruptcy because you went to the mall everyday and racked up debt!!! The only time I can see assisting people is when they have health insurance that refuses to pay their high hospital bills, that's not someone's fault if they are trying to be responsible. Otherwise, too bad!!
In my early twenties I got into debt because I was an idiot and racked up several thousand dollars in credit card debt by shopping too much!!! Because I was taught to be responsible for MY OWN ACTIONS, I had to work 2 jobs for a long time to pay it off and I did!!! And because of that I am VERY CAREFUL with money to this day...LESSON LEARNED. People get away with ridiculous behavior too much, therefore learning nothing!!!

They have changed bankrupcy laws.

It is not as easy to declare as it was before.


But I agree

bobrob2004 wrote:

gs78 wrote:

In regards to Credit Cards; This nation is becoming a cash less society;

People are using credit cards to buy a Big Mac and Fries!

Amazing how so many people don't use cash anymore for the smallest of purchases

No wonder we are drowning in debt!

You'll pay more in interest than the actual item!