I.O.U.’s Keeping U.S. Afloat

Dec. 26.  The recession isn’t here yet.  Amazon reported today that their sales were at a record and not affected by gloom on the stock market.  Stocks then zoomed.  Expect a super-smug Trump tweet.

We are near the top of the business cycle and the big capitalists are predicting a recession.  Wages are a little big higher than last year, but as I’ve written are really no higher than they were 40 years ago.   So, what’s keeping things afloat?  I.O.U.’s, that is debt.

Consumer debt is expected to rise to $4 trillion by the end of this year. Consumer debt is what you’re paying for credit cards, car loans and student loans.  It doesn’t include what homeowners are paying the bank for their houses (mortgages).

“American owe more than 26% of their income in debt  That’s up from 22% in 2010”  Lending Tree has a neat chart showing the percent.  Back in 1980 when Jimmy Carter was president personal debt was far less, about 15-16% of incomes.  To pay this off Americans are spending 1 out of every 10 bucks back to the moneylenders. 

Americans used to save money.  Between the 1960 and 80’s the savings rate never went below 8%.  Now it’s 2.4% as low as its been in 50 years.  The bankers want to blame this on the average Joe (or Mary) “living beyond their means”.  There’s some truth to that, but it’s kind of hard to resist when you’re bombarded with message to buy, buy, buy with every view on the internet or TV.  Mostly though it’s people trying to get buy, trying to commute to their jobs in cities where houses and apartments are far above their ability to pay.  For example about half of Americans are in hock to car loans.  The average monthly car payment for a used car in 2017 was $398.

Eventually when the average person can’t take on any more debt, spending starts to drop, companies don’t need to produce as much, people get fired and the big cycle of contraction called “recession” starts rolling.

Cheating Uncle Sam

Interesting piece in the New York Times.  Shows another way the powers that bill are letting the rich evade the tax law.   The scam is being run on the IRS, the part of government which collects taxes and make sure people pay taxes.  Here’s the trick.  You don’t have to pay if you cheat and no one catches you.

The IRS  is so underfunded that it “has about as many auditors now as it did 60 years ago, when there were half as many Americans.”  With less auditors there’s less checking of tax returns.  “New investigations of people who don’t file dropped to 362,000 last year, from 2.4 million in 2011.” Sometimes the auditors  can’t get to a tax return within 10 years.  Why is that important? After 10 years you see you get a “Get Out of Jail Card”, that is the “statue of limitations” runs out so you can open the window of your Rolls and thumb your nose at the IRS.

In the last 7 years the Times says the lack of enforcement has cost Uncle Sam a total of about $95 billion.  Mostly reach people are getting away with this stuff.  The average working stiff has taxes taken from his pay by the boss and so his/her chances of cheating are pretty limited.

There’s a 17th century rhyme that applies here:

“The law locks up the man or woman

Who steals the goose off the common

But leaves the greater villain loose

Who steals the common from the goose.”

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