Mainly because six years of land bubble gone
Seven years of so-called wealth gains, gone
The latest numbers make you hope government can help us out. But didn’t they help us in? We trim, blend, and append five 2009 articles from: (1) MarketWatch, Feb 12, on lost savings by Rex Nutting; (2) Reuters, Feb 12, on home prices by Julie Haviv; (3) Los Angeles Times, Jan 30, on GDP by Maura Reynolds; (4) Reuters, Feb 3, on auto sales by Kevin Krolicki; and (5) Reuters, Feb 15, on Japan by Yuzo Saeki.
by Nutting, by Haviv, by Reynolds, by Krolicki, and by Saeki
Over seven years of wealth gains gone
The inflation-adjusted net worth of the typical family increased 17.7% to $120,300 from 2004 through 2007. Since the end of 2007, as of October, median net worth had fallen to $98,900, down 3.2% from the end of 2007 and 2% below the 2001 amount after the dot.com bubble burst. Since last October, stock prices have fallen another 15%, while home prices have fallen at least 2%.
The typical family owed $67,300 in debts in 2007, up from $60,700 in 2004. The big increase came from debt on second homes.
Median household income growth was relatively flat from 2004 to 2007 after adjusting for inflation. Median household income stood at $47,300 per year at the end of 2007.
However, mean income (or the simple average) rose 8.5% during that time to $84,300, suggesting big income gains at the high end of the income distribution. Indeed, the average income for those in the top tenth of the income scale increased nearly 20% to $398,000, while those in the bottom fifth saw their income rise by an average of 3% ($400) to $12,300. For those in the middle, average incomes decreased $400 to $47,300 after adjusting for inflation.
In 2007, 14.7% of households were paying more than 40% of their income on debt service (including rent) up from 12.2% in 2004. Among the poorest households, more than a quarter were paying more than 40%. The biggest increases in debt-service levels, however, occurred among those making more than median income, especially those at the very top.
JJS: The so-called “wealth” that households had “saved” really was no more than a number, an ink stain on paper, an unsustainable price that people could not afford but tried to.
Foreclosures push US home prices to 5-year low
The national median price of existing US single-family homes dropped to $180,100, a record 12.4% in the fourth quarter from a year earlier to the lowest level since 2003 when it was $177,900. Distressed sales, which includes foreclosures, accounted for 45% of transactions in that quarter, up from 38% in Q3.
JJS: Because housing bubbles absorb most credit and spending, when they pop, it takes a year or more to restock the larder, and that lag time is what we call “recession”. And like they say, “the bigger they are, the harder they fall.” This bubble of the 18-year business cycle was bigger than 18 years ago, so the slowdown must be steeper, too.
US economy shrinks 3.8% in 4th quarter
The GDP declined 3.8% in the last three months of 2008, far greater than the third quarter of 2008, when the economy contracted by 0.5%, and the largest since 1982, when it posted a 6.4% decline. Much of the decline came in two areas: residential construction and car manufacturing, together accounting for 2 percentage points of the 3.8% decline.
Auto sales near 27-year low
In America in January sales, overall car sales are near 27-year lows, extending a stretch of 15 months of consecutive auto sales declines.
Ford Motor Co posted a 40% drop
Toyota, the world's largest automaker, down 34%
Nissan dropped almost 30%.
European automakers also reported double-digit sales drops for January: Mercedes-Benz maker Daimler AG and Porsche down 36 percent, and Volkswagen AG off 12%.
US auto sales fell 18% in 2008 to about 13.2 million vehicles. Although the US auto industry is entering its fourth year of declining sales, European and Asian markets only slowed in the final months of 2008.
JJS: Speaking of major Japanese multi-nationals … Looks like if the enormous public spending the Japanese did in the 1990s, giving them the heaviest ratio of debt to GDP in the developed world, did any good at all, it didn’t stick.
Japan economy in biggest dive since 1974
Japan's economy shrank in the last quarter by its most since the first oil crisis in 1974. GDP shrank 3.3%, or an annualized 12.7% in 2008 Q4 -- three times the slowdown in America, lagging only a 3.4% contraction in 1974.
Since Japanese consume more moderately and rely heavily on exports, their contraction was greater than other major economies. The eurozone GDP shrank 1.5%, its deepest contraction on record, while the US economy shrank just under 1% in the quarter (an annual rate of 3.8%).
Wary of mounting problems for Japan's economy, the Bank Of Japan has nudged interest rates down near zero (again), taken some unconventional steps including buying of commercial paper, and set up a new funding scheme using corporate debt as collateral. Economics Minister Kaoru Yosano said the government, too, had to pursue all options but on large-scale spending warned it could not get "addicted to pain killers."
JJS: What would really be telling would be land prices related to income and commercial vacancy rates, where both were before Japan’s economy receded. To make their economy work for them, it may be a matter of no more than down-taxing labor and capital while up-taxing land. Some research funding would sure come handy about now.
Jeffery J. Smith runs the Forum on Geonomics.
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Don’t leave socially-generated values on the table
Conventional authorities admit to land’s role in recession
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