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News Link • Economy - Economics USA

The Short Story of How We Lose

Many of us may be familiar with the painful/shameful process of losing significant sums of money invested in the "wrong" place at the "wrong" time, but it is much more difficult to imagine the negative reactions produced when an entire economy of millions is serving up losses which, in a few short years, will threaten to wipe out all of the financial gains accumulated over decades. After the most potent "winning streak" in human history, the majority of American society has been blindsided by equally potent losses, which continue to mount and show no signs of abatement: It is estimated by Zillow that average home prices in the US have declined ~27% from their peak in June 2007, effectively destroying $9.8 trillion worth of homeowner's equity (in an economy worth ~$14 trillion). [1] About 15.7 million homeowners have negative home equity (owe more on home than it is worth), representing a whopping 27% of all mortgaged single-family homes. Joseph Stiglitz infers that these trends will lead to a total of about 9 million people losing their homes through foreclosure between 2008-2011. [2]. According to officially under-stated statistics, the unemployment rate jumped from 5% in 2008 to ~9.6% in 2011, and the U-6 number puts it at ~16.5%. [3]. The official rate is only that "low" because millions of people have given up looking for jobs over the past few years (magically removing them from the official labor force), and millions of other people with part-time, low-paying jobs are counted as employed (26% of new private-sector hires are temporary [4]). Between 2006 and mid-2008, Americans had lost about 22% of total retirement assets or $2.3 trillion, and $2.5 trillion in savings and investment assets. [5]. Although a decent amount of this value has been recovered during 2009-10, it has mostly gone to a significantly smaller percentage of people who have held on to such assets and has only been achieved on the backs of taxpayers, who now owe interest on an additional $4 trillion+ in public debt (plus a few more trillion if we include the GSEs). [6]. When the markets crash again, that public debt will be money completely wasted for a large majority of Americans, if it is not considered to be already. Credit card defaults hit a near-record rate of 11.4% in 2010, more than double the rate in 2007, and the average late fee had risen almost 10% from $25.90 in 2008 to $28.19. [7].

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