Sunday, March 9, 2008

The New Poor

The Misperception of Poor:
I was on work assignment in a southern city. I was riding along with a couple of friends I had met from other places around the US. One of them spotted a beggar in the middle of the medium. He made a comment like, “You mean to tell me that guy can stand on the medium all day but he can’t get a job?” I started slowing down to stop next to him. The cars occupants were ushering me on out of some form of embarrassment or anxiety. The one guy says to me, “were you really going to give that guys money?” I said “No way!” Confused I explained to them that I was going to ask him, “What are your financial secrets to success?”

Amazingly that didn’t get any one of them less confused. I explained, “That guy is much wealthier then I am.” There is no way that guy can get credit with no job. What he has is all his. Now me, I have a house mortgage the bank owns, School loan the government owns, two car loans the credit union owns, and $15,000 in credit card debt that I own. If the banks called in both of our accounts at the same time (mine and the street beggar), he would be around $180,000 richer then I am. Each day I slip a little further behind him. Each dollar puts him further ahead. I think the general consensus was that I was smoking something and should really share. I am used to that.

The Middle Class Is Dead And Don’t Even Know It:
Here is the truth nobody wants to admit. The poor people in this country are no longer the welfare recipients, beggars, and degenerate drunks on the street. With the advent of credit, the real poor are the people who consider themselves “upper lower” and/ or “middle class”. These people, me included, are living outside the realm of financial reality. We are not living the “middle class American dream”, but living something that more resembles a Hollywood nightmare. We cling to this term “middle class” like a camper clings to the security of his canvas tent. It is a situation, becoming unable to pay our bills, that always looms outside our campsite like a wild animal waiting to snatch the next of us away. We are all just a job, divorce, accident, or health breakdown away.

How Do You Know Your Poor?:
By economic and accounting definitions we are the poorest Americans. In accounting your “current ratio” is the result of value of your assets (things you own) divided by your liabilities (things that you owe money for). If the number is smaller then 1 then you is broke. If it is just a bit bigger then 1, congratulate yourself, you are officially middle class. You are in the same class as most doctors, lawyers, stock brokers, street corner bums, prostitutes, “exotic dancers”, and state level politicians. Another way to think about it, as I mentioned in the story, is to take all the things you own and determine the cash value. Then take all the current pay off for all your loans and credit lines. The remaining number is your actual “wealth” value. (Assets – debts = wealth).

How Did We Get Into This Mess?:
The problem started in late 1970's. This is when the “credit card” really started to takeoff. Individual companies learned that they could be more attractive to a customer if they offered a way to defer payment. Introduction of interest was first meant to be a way of punishment and persuasion to get the customers to square their accounts each month. Interest has now ballooned into a multi-billion dollar business. Credit cards lead to credit ratings. Credit ratings give you buying power that you really don't have. Here is where the trouble with our economy is defined. When you match your fake (inflated) buying power against so many other peoples fake buying power, you get an uncorrectable form of inflation.

That is where we are all now. I could easily point fingers at stupid policies like “the ownership society” but no good will be done. No stimulus package, business tax cuts, or cash infusion is going to correct our economic gluttony. We need to go on a diet, accounting for every calorie we financially consume. However, much like if everybody started eating healthy hostess and McDonald's would go broke, so it will have to be with the giant lending companies. These companies hold much governmental influence. It's not going to be easy.

“Foreclosure of a Dream”
There are so many problems caused by the existence of this situation that an entire book could be written about it. To sum it all up though, simply understand that credit had taken all that we hold dear as American values and rights. We are no longer free, hopeful, happy, or liberated in the sense that the founders meant it because of credit.

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