Poverty Effect

[kent nickell]

http://www.bloomberg.com/apps/news?pid=20601039&sid=a6uOcALm_4BQ


Housing?s ?Poverty Effect? Fouls Up U.S. Rebound

Commentary by John F. Wasik

Sept. 2 (Bloomberg) -- The loss of some $7 trillion in household wealth is an albatross around the neck of the economy.

This dour effect is clipping a robust recovery. Millions who have little or negative home equity are shackled to houses they can?t sell and a debt burden that keeps them from moving ahead. They can?t save, either, although they desperately need to boost their cash reserves.

Not a week goes by when I don?t hear from a friend or neighbor who can?t sell their home or get a decent price for it. They were counting on the proceeds to fund retirement or simply get on with their lives and careers. They weren?t planning to go out and buy boats and big-screen TVs. Most Americans are suffering from the opposite of the wealth effect: a creeping sense of poverty.

The loss is about $54,000 per home if you average out the $7 trillion among 130 million U.S. housing units (including rentals), according to an estimate by the economic blog http://www.newobservations.net, based on Federal Reserve data.

Growing unemployment, stagnant wages and diminished home equity are weighing even more on those who may join the ranks of the foreclosed. The delinquency rate on U.S. mortgages -- those falling behind on payments -- reached a record in the first half of the year, according to the Mortgage Bankers Association, a trade group in Washington.

Debt Burden

The current deleveraging is paring consumer spending as buyers are borrowing less for everything. They don?t feel wealthy either since their retirement funds were clobbered during the last bear market.

Lost home equity not only represented diminished wealth, it hurt confidence in the future.

The house poor can?t borrow against their homes because they have tapped out the equity or don?t have enough of a stake to leverage against. Most of them can?t even refinance. That means they won?t be flocking to stores to buy new appliances, financing college educations or saving enough for retirement.

Regardless of the recent positive reports on housing and the economy, it?s not surprising that attitudes to traditional wealth creation have changed.

Buying a home is no longer the guaranteed way to save and invest. In a survey by the National Foundation for Credit Counseling, almost half of those polled ?no longer believe that the American dream of homeownership was a realistic way of building wealth.?

More Alarming Trends

The more alarming trend is that mortgage defaults are rising fastest for those holding prime, fixed-rate loans, the Mortgage Bankers Association says. These aren?t the dodgy subprime mortgages made to people with questionable credit and income histories. These folks were supposed to be the industry?s most creditworthy customers.

If unemployment grows and major industries continue to shrink, house poverty will ravage American households.

As many as 25 million homeowners may be better off walking away from ?underwater? mortgages that exceed home values.

Credit-card bills compound the misery. Anchored with more than $2.5 trillion in total consumer debt, Americans are working through a negative wealth whammy rivaled only by the 1930s.

Banks are pinching even more by tightening credit, even to qualified borrowers. While a new U.S. consumer credit protection law that went into effect Aug. 20 will give you 45 days? notice of a finance charge increase, banks are still free to make terms more restrictive and raise rates sky high.

Going Forward

Being credit-challenged isn?t such a bad thing, though. We have reached a turning point in this crisis that compels people to do some saving and curb unbridled consumption and debt.

Credit-averse Americans are building up their cash in vehicles such as government-insured certificates of deposit, money-market funds, and highly rated short-term corporate and municipal bonds.

Yet the U.S. government still doesn?t get the big picture and indirectly discourages savings, which can ultimately create a pool of capital for lending, infrastructure improvements and small business lending.

U.S. savings and non-municipal bond interest are still taxed as ordinary income at the highest personal rates.

What?s wrong with this policy? You can?t have a healthy economy without a wealth effect. In lieu of easily tapped credit, people won?t spend freely unless they have a cash -- or employment -- cushion.

Since we can?t depend on real estate as a prime wealth creator -- especially in an age of deleveraging -- Congress needs to promote tax-free savings and rebuilding home equity if it wants a meaningful economic rebound. Otherwise the poverty effect will continue to foul up the recovery.

(John F. Wasik, author of ?The Audacity of Help,? is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.

 

[Laidback Al]

Re: Poverty Effect

You can?t have a healthy economy without a wealth effect. In lieu of easily tapped credit, people won?t spend freely unless they have a cash -- or employment -- cushion.

We need to remember that there is strong psychological dimension to the "wealth effect". Even the wealthy have cut back on their discretionary spending based on psychological fears of the future unknown. Certainly, wealthy people do not have to worry about day-to-days costs and spending.

On the other hand, avevage citizens, with negative savings, underwater mortgages, and worn out cars, certainly feel the "poverty effect". And why shouldn't they, as the USA is facing the highest unemployment rate in 25 years. Consumer spending, along with rising home prices, will not return until the jobless rate starts to substantially decline.

 

[Roehl_JC]

Re: Poverty Effect

Even PNG's Health Minister says its system is 'bloody useless', reports Jo Chandler.

THE stream of blood running down the concrete path to the maternity wing of Papua New Guinea's main referral and teaching hospital tells the story.

It is easy to imagine the urgent response that would await a pregnant, hemorrhaging woman arriving in any Australian hospital. Harder to envisage the reality greeting this unknown woman, just a couple of hours' flight away, in PNG.

Pushing through the doors of the Port Moresby General Hospital, she takes her chances in the overcrowded, understaffed, dilapidated women's wing. But the 12,000 pregnant women who find their way here each year are among the luckiest in the country.

The floors are crowded with women waiting and babies because there are not enough beds. They sometimes deliver on the floor because of a lack of staff and beds. The vinyl mattresses where they labour are worn through, soiled foam bursting through the cracks. The toilet is a bucket by the bed.

But at least they have access to doctors and midwives - albeit in chronically short supply - and lifesaving drugs. Many more of their sisters labour unaided at home. Of PNG's 200,000 births a year - and the figure is rising dramatically - 120,000 are unsupervised.

''Those 120,000 are taking their chances in a dirty house, on a dirt floor, with no skilled attendants, no equipment, no capacity to get somewhere if something bad happens. And they die,'' said Dr Glen Mola, professor of obstetrics and gynaecology at Port Moresby General Hospital.

The consequences are starkly laid out in the latest national figures analysing the country's maternal death rate, which doubled in the decade to 2006 - rising to 733 per 100,000 live births. The equivalent figure in Australia is about eight, unless you are indigenous; then it is 21.5.

Most of these women bleed to death or die from infections after delivery. Most of them were considered low-risk pregnancies.

At Port Moresby Hospital, overworked midwives and doctors ensure most women and babies survive. But it is a constant struggle - always more patients, but no more staff.

The deaths of mothers tell a story of an even broader tragedy, Dr Mola said. ''Maternal mortality is the most sensitive indicator of the functionality of the total health-care system. And the care system outside the towns and provincial centres has virtually collapsed.''

The PNG Health Minister, Sasa Zibe, was equally succinct in a recent summary of the crisis, describing the system as ''bloody useless'', and vowing to rebuild it from the floor up.

The man charged with restructuring the system, Health Department secretary Dr Clement Malau, said PNG's fragile systems are deteriorating for a range of reasons. A collision of culture, ethnic complexity, rapid modernisation, governance and geography have all contributed to the crisis, he said. ''We are a people in transition'' from the traditional to the modern.

Dr Mola, who has lived and practised in PNG his whole life, has strong views on what has gone wrong in the health system and what it might take to fix it. He attributes much of the blame to a shift to decentralised management of government departments in the mid-1990s. Areas such as health and agriculture, requiring specialist knowledge, suffered badly when they were put into the hands of political appointees without ''the slightest interest or any expertise in managing a health service''.

A critical shortage in midwives is also a key factor. Since nursing education moved into universities in 2000, not a single graduate has emerged with the skills to gain registration as a midwife. Meanwhile, the previous generation is retiring.

The system was further weakened by cultural factors. The lack of status of women. The power of clan loyalties, which keeps people in jobs even when they consistently fail to show up. Then comes the weight of population growth.

In the same 10 years that maternal deaths have doubled, Australia has poured more than $476 million into the PNG health system. Some of it has helped, but ''hundreds of millions are being wasted - I've watched it over 30 years,'' Dr Mola said.

His criticisms echo a report released last month by AusAID tracking the effectiveness of development in the Pacific. It concluded that the region is seriously off track in achieving critical targets on hunger, poverty, health, education, shelter and security by 2015. The report argued for a new development framework to prioritise and co-ordinate programs.

Dr Molan said it was easy to forget there are many people doing amazing things within the fractured system - holding things together through sheer force of will and personality. ''But it's very disappointing,'' he said, to consider that with centralised, expert management, all those AusAID millions could have built one of the best health services in the developing world

http://www.brisbanetimes.com.au/wor...and-understaffed-hospitals-20090906-fcuj.html

Comment:
Poverty and the loss of huge amounts of wealth are going to definitely impact both the wealthy nations, and alas, the poor ones. Too bad we can't learn to share the world, lift up all towards a united positive-goal oriented global village and stop worshipping idols and material things before we also get our priorities sorted so the have-nots no longer live at the edge of the cliff or fall in heaps to the bottom, where most resources are now spent, rather than holistic mutual-assistance in emergencies, only, how about spending the same amount up front to build the best hospitals and make universal public-pursed healthcare a human right, only second to the right to uncontaminated food and clean potable water.

 

[Roehl_JC]

Re: Poverty Effect

Housing?s ?Poverty Effect? Fouls Up U.S. Rebound

Commentary by John F. Wasik

Sept. 2 (Bloomberg) -- The loss of some $7 trillion in household wealth is an albatross around the neck of the economy.

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comment:

If you go to this link anytime http://www.usdebtclock.org/

one can quickly see the realtime figures.
Right now, it's not just $7 Trillion, but running at about $12.3 Trillion bucks and growing rapidly. This site also shows the credit card costs, the costs of the deleveraging upon future as yet unpaid for obligations like MediCare and MedicAid and Social Security. I'd suggest that one also takes a big gander at the worthless piles of derivatives known as Credit DEFAULT Swaps, as these worthless derivatives games are really piling up, now at $645 Trillion. That would mean every man woman and child is obligated for a pile of worthless tranacted paper swaps to the tune of ~more than a millin bucks. The only way forward is if the government directly serves as banker, insurer and guarantor of Main Street, closes Wall Street, seizes all the int. banks and multinational corporations and in the name of eminent domain RETURN TO EACH HOMEOWNER deeds of ownership WITH ZERO DEBTS, LIENS/TAXES, provide each worker with an earned share in the wealth of the companies the government could then give them, and insistence could be upon sharing the Earth, establishing the best practice sustainable products and homes and energy at the personal interfaced homes and green futures not traded, but shared. We're all in this together.....or not.