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Unemployment rate over 10% - but what about wages once you get a job?
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Banks have been bailed out, stimulus checks have been spent, foreclosure relief plans have been implemented, government spending is on the rise, and interest's rates have been cut to all time lows, but what about wages? The interesting thing about this recession is that it defies economic theory. The Fed cuts the Federal Funds Rate, banks borrow at low rates, and lend to the public at a higher rate. Without boring you with more economic rhetoric this is our monetary system in a nut shell.
When the fed cuts rates too low, fears about the "I" word arise (inflation), too many dollars chasing too few goods will cause prices to rise to unmanageable levels. Instead just the opposite has happened; goods and services are being discounted and money is not flowing. So what is the problem? Banks have actually figured it out; Americans can't afford to live in America. Think about that for a second. It's a fact that inflation out paced wages by almost five times since before the recession we are in. The cost of goods and services have increased by 111% since 1982, 50% of this increase happened in past 10 years. The average salary in the US has increase by 25% since the year 2000.
A local car dealer client said to me, "I had a guy in here to buy a car with a 750 credit score and couldn't get him financing because the bank didn't like his debt to income ratio." He made to little to justify his debts. Of course you can see this situation two ways, but based on the condition of the overall economy I would bet this person is underpaid. The fact is people borrow money or get credit cards when they can't afford to buy something with the money they have earned or saved.
You take the single mom who works as a receptionist making $25,000 with two children and do the math:
Total Income $2,000/month
AVG 3 Bed APT in KCMO: -$800/MO
AVG Child Care Exp: $100/wk x 2 = -800/MO
AVG Grocery Bill Family of 3: -$350
Transportation/GAS: -$200/MO (conservatively)
Utility (GAS, WATER, LIGHTS, and PHONE): $400
Balance by months end: -$350 (not enough)
You can break a scenario like this down in every socio-economic class and you will find many Americans either can't live off what they earn or just have poor discipline. Regardless, there has been huge discrepancy between what we earn on the job and what things cost. This serves as an explanation as to the reason money isn't moving in the economy as fast as we would like it to. We can't afford it and we can't borrow it anymore. I guess we'll have to learn how to earn cash again.
Data sources: Consumer Price Index, and SSA.gov.
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