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News Link • Economy - Economics USA

The Recognition of Reality "Reality Bites"

It would be a good idea to become grounded in it folks, because it's coming, and it's not going to be fun if you're not well-grounded in the facts. Let's take a few examples, some of them from the forum and some from my own personal experience, and flesh them out. Take many if not most allegedly "middle-class" and "upper middle-class" business owners and managers. They live in a nice 3,500 sq/ft house in the suburbs with a manicured lawn and the service that comes once a week. Their home is immaculate and full of granite counter tops and Viking appliances. There are two $50,000 automobiles in the driveway - and perhaps another one, or some sort of recreational vehicle (a boat or RV) in the garage or a nearby storage area. Now look at how much actual wealth they have, on a balance-sheet basis. Their home is likely underwater or has limited equity - 10 or 20% of the current market value at most. Their vehicles are not owned outright, they all have notes on them. There's $100,000 or less in their retirement accounts, but they're middle-aged - in their 40s. On the spending side they have a $200/month cellphone bill for themselves and their kids ($2,400 a year), spend $300/month on utilities ($3,600 a year) and pay $5,000 or more in property taxes and hazard insurance. Between these there's more than $10,000 that goes out the front door, plus their income tax burden. This family also eats out a couple of times a week ($200/month or $2,400 a year) and in general treats money and credit as though it's something they have access to and thus will use. This prototypical family manages to make it work predicated on being paid by the government for the use of leverage through the mortgage tax deduction. This has induced them to (among other things) refinance serially, since as a loan amortizes the interest percentage drops and so does the tax write-off. To keep that "extra" $3,000 a year in deduction the family has buried itself in debt - intentionally - through serial refinances, while stripping every dime of equity they could get their hands on to spend on their lifestyle. What they don't admit to is that they're simply pyramiding debt upon debt, goaded on by a tax system that has encouraged profligacy, immaturity and a mathematically-inevitable economic collapse. As they head toward "retirement age" their children have gone off on their own. They treated their kids as chattel during the time they were kids, smothering them and yet at the same time showering them with "things." A car at 16. An extravagant prom experience. Travel-team soccer at hundreds of dollars a month. New clothes from the latest trendy place - several times a year. A college that costs $20,000/year. None of this was earned by Junior, it was "deserved" because the little darlings "should have the best." These people will argue, to the last man and woman, that they've done "everything right all their lives."

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