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How Household Debt Threatens the Recovery

How Household Debt Threatens the Recovery

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4 years ago

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The COVID-19 pandemic is having a disproportionate impact on the health of low-income Americans, but even those low-wage workers who avoid the disease itself are likely to suffer grave economic distress. 


In part, that is because workers with lower incomes have been more likely to lose their jobs than those who are better paid. The Pew Research Center reports that 32 percent of upper-income adults say that someone in their family has lost a job or taken a pay cut due to the outbreak. That compares with 42 percent of middle-income households who report lost jobs or pay cuts, and 52 percent of low-income households.


But pay is only part of the story. To fully understand the disparate economic impact of the pandemic, we need to look also at household wealth, or more exactly, net worth. The margin by which assets exceed household liabilities is crucial to a household’s ability to weather a job loss or a pay cut without catastrophic effects. And household net worth is not only less equally distributed than income — it is also frighteningly fragile for those in the bottom half of the population. That fragility is a major threat to hopes for a speedy economic recovery, as we will see.




Prosperity at the top, fragility at the bottom


Let’s look at some data. Figure 1 shows trends in the net worth of U.S. households from 1990 to the end of 2019, as reported by the Federal Reserve. All numbers are adjusted for inflation using the consumer price index. 




We see from the top line in Figure 1 that the top 1 percent of U.S. households have done very well, increasing their net worth by 167 percent over the past three decades. Those with middle incomes (51stto 90th percentile) and upper-middle incomes (91st to 99thpercentile) have not done badly, increasing their wealth by 52 and 91 percent, respectively. But those in the bottom half of the population have not done well at all. Their average real net worth has actually fallen by 24 percent since 1990. And keep in mind, we are not talking just about the 12 percent or so of the population who are officially poor. We are talking about the entire bottom half of the population.


In fact, you can’t really see what is going on with that group from Figure 1, since the blue line representing low-wealth households lies right flat along the horizontal axis. There’s an easy way to fix that. Figure 2 shows the same data replotted on a logarithmic scale to show more detail on changes in the net worth of the bottom 50 percent.




Consider, in particular, the effects of the downturn of 2008-2009 — a downturn popularly known as the “Great Recession,” although it may soon lose that title, since the one we are entering now is likely to be greater still. In the last recession, the top 1 percent lost 27 percent of their real wealth, as measured from the best quarter before the crisis to the worst one during it. Since that time, they have recovered all of their losses and then some. The middle and upper-middle groups lost about 20 percent of their wealth in the recession, and they, too, had more than regained their losses by the end of 2019. In contrast, households in the bottom half were hit much harder, losing 87 percent of their net worth. What is more, by late 2019, they were still more than 20 percent short of their position before the recession began.


Should we conclude that the rich picked their assets well while the less-well-off made bad investments? Not really. For the most part, the difference between the wealthy and the rest lay not in the quality of their assets but in the size of their debts.


It’s all a matter of leverage


In financial circles, the relationship of a firm’s or household’s debts to other items on its balance sheet is known as leverage.If you owe a lot relative to what you own, you are said to be highly leveraged. If your debts are relatively modest, your leverage is said to be low. Leverage can be measured in several ways, but however it is done, the greater your leverage, the greater the fragility of your financial position if the value of your assets fall or that of your debts increases. 


According to Monica Prasad, consumers tend to be more leveraged in countries that have relatively weak social safety nets and easy access to consumer credit. Figure 3 shows that is true for the United States, at least for those in the bottom half of the wealth distribution.




As we see, American households in the middle, upper-middle, and wealthiest groups have consistently maintained moderate leverage. However, in the bottom half have long  been more highly leveraged, and increasingly so over time.

Although the assets of middle- and upper-wealth households decreased in value during the last recession, their debt ratios remained well under control. Not so for the bottom 50 percent. As the value of their assets fell, their debt ratio, which was high to begin with, moved perilously close to the red line of insolvency. In the worst quarter of the Great Recession, the averagedebt ratio for the bottom half was 96 percent. Although the Fed’s data don’t allow us to calculate the number exactly, it is clear that a large fraction of the bottom half of the population were technically insolvent at the bottom of the last recession. 


To understand what is likely to happen during the recession that we are entering now, we should start with the fact that employment and output are dropping much more sharply this time than they did in 2008. What is more, the pattern of household assets and liabilities has changed, as shown in Figure 4.




The focus of the 2008 recession was the housing market. The big drop in the net worth of the bottom 50 percent, and the run-up in their debt ratios, was largely due to a decrease in home equity, to the point that it left many homeowners completely under water. After 2015, the value of housing increased, and mortgage debt rose also as households borrowed more against their increasingly valuable homes. However, neither real estate assets nor mortgage debt returned to their prerecession peaks. Going into the COVID pandemic, total mortgage debt owed by the bottom half was about 81 percent of their total real estate assets, leaving a reasonable cushion of equity.


Meanwhile, though, the recovery of household net worth has been undermined by a 25 percent increase in real consumer debt per household over the past decade. Such debt, which includes car loans, credit card balances, and student debt, constituted just 28 percent of all household debt in 2010. By the end of 2019, that had grown to 38 percent.


As the unemployment rate rises toward 20 percent and beyond, both household assets and liabilities will undergo further changes. On the asset side, it is likely that home prices will fall, although probably not by as much as during the last recession. Low mortgage rates will help sustain demand for homes and ease the pain for people with adjustable-rate mortgages. Also, most lenders are offering at least some degree of forbearance on missed mortgage payments, and there has been a moratorium on foreclosures for most mortgages. Those actions should reduce the number of forced home sales. 


Meanwhile, unemployed workers will be forced to run down their liquid savings (part of “other assets” in Figure 4b). Some may take advantage of a temporary reduction in penalties and make early withdrawals from pension plans. As of 2019, pension plans and other assets accounted for 20 percent of all household assets for those in the bottom 50 percent. People who are really pinched may resort to selling consumer durables such as furniture, boats, or sports equipment to make ends meet.

On the liabilities side, one of the first things people will do is max out their credit cards (part of “consumer debt” in Figure 4a). Many will take advantage of forbearance on mortgage payments and deferrals of rents, but although those will help their cash flows, they do not constitute debt forgiveness; the missed payments will still represent liabilities. Homeowners with federally insured mortgages are being allowed to let missed payments ride until they sell their homes or until their mortgages are paid off, but some private lenders are insisting that missed payments will have to be paid in a lump sum after only a few months. Much the same is true of student loans and car loans — the first- and second-fastest growing categories of consumer debt. Even if lenders agree to a delay in payments, the result will be a greater burden of liabilities.


Taking the impacts on assets and liabilities together, and considering that the peak unemployment rate in the COVID crisis is likely to reach twice the peak of 10 percent reached in October 2009, it is entirely possible that the average debt ratio for the entire bottom half of American households will exceed 100 percent before the economy fully recovers. 


Implications for the recovery


The COVID recession has had an unusually strong supply-side component. Output has been constrained by disruptions in global supply chains; by workers too ill or too fearful to report to their jobs; and most of all, by widespread stay-at-home orders. (See “The Coronavirus and the Economy” for details.) 


In recent weeks, much of the controversy over reopening the economy has focused on the supply side. Optimists hope that once stay-at-home orders are eased, the economy will bounce back quickly. As White House economic adviser Kevin Hassett put it, commenting on a mid-May uptick in the stock market, "I've been really positively impressed by how quickly things are turning around."

But the downturn also has an important demand-side component. Consumers have cut back sharply on their spending, not only because stores have been shuttered and restaurants closed, but also because their incomes have suffered. The optimists seem to assume that once regular paychecks are restored, consumers will go back to their free-spending ways. Skeptics have cast doubt on that, noting that many people will be fearful of riding on airplanes or sitting in restaurants while the virus is still circulating. Fear is certainly a concern, but it is not the whole story. A look at the balance sheets of households in the lower 50 percent suggests that it will be some time before even the most fearless of them are willing and able to spend freely.


Even when income starts coming in again, those households are going to place a higher priority on paying down debts and rebuilding savings than on discretionary spending. With maxed-out credit cards, they are going to be less tempted to drop in for a $5.25 venti salted caramel mocha latte on their way to the office, even if the office is open. They are going to think twice about a new car when the old one is still running well, and when there are missed payments to make up on the loan or lease. They are going to trailer their boat to the local lake for some fishing rather than rebook the cruise on which they luckily managed to get a refund when it was cancelled due to the virus. 


The result could be that stores and factories optimistically reopen, only to be forced into a new round of layoffs when customers fail to show up. If so, the result could be a W-shaped recovery, even if there is no second round of COVID cases as social distancing eases. A slow recovery is all too real a real risk for an economy in which half the population lives on the brink of insolvency even when times are good.

Reposted from NiskanenCenter.org

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The…

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4 hours ago

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March 9, 2024

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Department of Veterans Affairs (VA) reviewed no data when deciding in 2023 to keep its COVID-19 vaccine mandate in place.

Doses of a COVID-19 vaccine in Washington in a file image. (Jacquelyn Martin/Pool/AFP via Getty Images)

VA Secretary Denis McDonough said on May 1, 2023, that the end of many other federal mandates “will not impact current policies at the Department of Veterans Affairs.”

He said the mandate was remaining for VA health care personnel “to ensure the safety of veterans and our colleagues.”

Mr. McDonough did not cite any studies or other data. A VA spokesperson declined to provide any data that was reviewed when deciding not to rescind the mandate. The Epoch Times submitted a Freedom of Information Act for “all documents outlining which data was relied upon when establishing the mandate when deciding to keep the mandate in place.”

The agency searched for such data and did not find any.

“The VA does not even attempt to justify its policies with science, because it can’t,” Leslie Manookian, president and founder of the Health Freedom Defense Fund, told The Epoch Times.

“The VA just trusts that the process and cost of challenging its unfounded policies is so onerous, most people are dissuaded from even trying,” she added.

The VA’s mandate remains in place to this day.

The VA’s website claims that vaccines “help protect you from getting severe illness” and “offer good protection against most COVID-19 variants,” pointing in part to observational data from the U.S. Centers for Disease Control and Prevention (CDC) that estimate the vaccines provide poor protection against symptomatic infection and transient shielding against hospitalization.

There have also been increasing concerns among outside scientists about confirmed side effects like heart inflammation—the VA hid a safety signal it detected for the inflammation—and possible side effects such as tinnitus, which shift the benefit-risk calculus.

President Joe Biden imposed a slate of COVID-19 vaccine mandates in 2021. The VA was the first federal agency to implement a mandate.

President Biden rescinded the mandates in May 2023, citing a drop in COVID-19 cases and hospitalizations. His administration maintains the choice to require vaccines was the right one and saved lives.

“Our administration’s vaccination requirements helped ensure the safety of workers in critical workforces including those in the healthcare and education sectors, protecting themselves and the populations they serve, and strengthening their ability to provide services without disruptions to operations,” the White House said.

Some experts said requiring vaccination meant many younger people were forced to get a vaccine despite the risks potentially outweighing the benefits, leaving fewer doses for older adults.

“By mandating the vaccines to younger people and those with natural immunity from having had COVID, older people in the U.S. and other countries did not have access to them, and many people might have died because of that,” Martin Kulldorff, a professor of medicine on leave from Harvard Medical School, told The Epoch Times previously.

The VA was one of just a handful of agencies to keep its mandate in place following the removal of many federal mandates.

“At this time, the vaccine requirement will remain in effect for VA health care personnel, including VA psychologists, pharmacists, social workers, nursing assistants, physical therapists, respiratory therapists, peer specialists, medical support assistants, engineers, housekeepers, and other clinical, administrative, and infrastructure support employees,” Mr. McDonough wrote to VA employees at the time.

“This also includes VA volunteers and contractors. Effectively, this means that any Veterans Health Administration (VHA) employee, volunteer, or contractor who works in VHA facilities, visits VHA facilities, or provides direct care to those we serve will still be subject to the vaccine requirement at this time,” he said. “We continue to monitor and discuss this requirement, and we will provide more information about the vaccination requirements for VA health care employees soon. As always, we will process requests for vaccination exceptions in accordance with applicable laws, regulations, and policies.”

The version of the shots cleared in the fall of 2022, and available through the fall of 2023, did not have any clinical trial data supporting them.

A new version was approved in the fall of 2023 because there were indications that the shots not only offered temporary protection but also that the level of protection was lower than what was observed during earlier stages of the pandemic.

Ms. Manookian, whose group has challenged several of the federal mandates, said that the mandate “illustrates the dangers of the administrative state and how these federal agencies have become a law unto themselves.”

Tyler Durden Sat, 03/09/2024 - 22:10

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Are Voters Recoiling Against Disorder?

Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super…

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4 hours ago

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March 9, 2024

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Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super Tuesday primaries have got it right. Barring cataclysmic changes, Donald Trump and Joe Biden will be the Republican and Democratic nominees for president in 2024.

(Left) President Joe Biden delivers remarks on canceling student debt at Culver City Julian Dixon Library in Culver City, Calif., on Feb. 21, 2024. (Right) Republican presidential candidate and former U.S. President Donald Trump stands on stage during a campaign event at Big League Dreams Las Vegas in Las Vegas, Nev., on Jan. 27, 2024. (Mario Tama/Getty Images; David Becker/Getty Images)

With Nikki Haley’s withdrawal, there will be no more significantly contested primaries or caucuses—the earliest both parties’ races have been over since something like the current primary-dominated system was put in place in 1972.

The primary results have spotlighted some of both nominees’ weaknesses.

Donald Trump lost high-income, high-educated constituencies, including the entire metro area—aka the Swamp. Many but by no means all Haley votes there were cast by Biden Democrats. Mr. Trump can’t afford to lose too many of the others in target states like Pennsylvania and Michigan.

Majorities and large minorities of voters in overwhelmingly Latino counties in Texas’s Rio Grande Valley and some in Houston voted against Joe Biden, and even more against Senate nominee Rep. Colin Allred (D-Texas).

Returns from Hispanic precincts in New Hampshire and Massachusetts show the same thing. Mr. Biden can’t afford to lose too many Latino votes in target states like Arizona and Georgia.

When Mr. Trump rode down that escalator in 2015, commentators assumed he’d repel Latinos. Instead, Latino voters nationally, and especially the closest eyewitnesses of Biden’s open-border policy, have been trending heavily Republican.

High-income liberal Democrats may sport lawn signs proclaiming, “In this house, we believe ... no human is illegal.” The logical consequence of that belief is an open border. But modest-income folks in border counties know that flows of illegal immigrants result in disorder, disease, and crime.

There is plenty of impatience with increased disorder in election returns below the presidential level. Consider Los Angeles County, America’s largest county, with nearly 10 million people, more people than 40 of the 50 states. It voted 71 percent for Mr. Biden in 2020.

Current returns show county District Attorney George Gascon winning only 21 percent of the vote in the nonpartisan primary. He’ll apparently face Republican Nathan Hochman, a critic of his liberal policies, in November.

Gascon, elected after the May 2020 death of counterfeit-passing suspect George Floyd in Minneapolis, is one of many county prosecutors supported by billionaire George Soros. His policies include not charging juveniles as adults, not seeking higher penalties for gang membership or use of firearms, and bringing fewer misdemeanor cases.

The predictable result has been increased car thefts, burglaries, and personal robberies. Some 120 assistant district attorneys have left the office, and there’s a backlog of 10,000 unprosecuted cases.

More than a dozen other Soros-backed and similarly liberal prosecutors have faced strong opposition or have left office.

St. Louis prosecutor Kim Gardner resigned last May amid lawsuits seeking her removal, Milwaukee’s John Chisholm retired in January, and Baltimore’s Marilyn Mosby was defeated in July 2022 and convicted of perjury in September 2023. Last November, Loudoun County, Virginia, voters (62 percent Biden) ousted liberal Buta Biberaj, who declined to prosecute a transgender student for assault, and in June 2022 voters in San Francisco (85 percent Biden) recalled famed radical Chesa Boudin.

Similarly, this Tuesday, voters in San Francisco passed ballot measures strengthening police powers and requiring treatment of drug-addicted welfare recipients.

In retrospect, it appears the Floyd video, appearing after three months of COVID-19 confinement, sparked a frenzied, even crazed reaction, especially among the highly educated and articulate. One fatal incident was seen as proof that America’s “systemic racism” was worse than ever and that police forces should be defunded and perhaps abolished.

2020 was “the year America went crazy,” I wrote in January 2021, a year in which police funding was actually cut by Democrats in New York, Los Angeles, San Francisco, Seattle, and Denver. A year in which young New York Times (NYT) staffers claimed they were endangered by the publication of Sen. Tom Cotton’s (R-Ark.) opinion article advocating calling in military forces if necessary to stop rioting, as had been done in Detroit in 1967 and Los Angeles in 1992. A craven NYT publisher even fired the editorial page editor for running the article.

Evidence of visible and tangible discontent with increasing violence and its consequences—barren and locked shelves in Manhattan chain drugstores, skyrocketing carjackings in Washington, D.C.—is as unmistakable in polls and election results as it is in daily life in large metropolitan areas. Maybe 2024 will turn out to be the year even liberal America stopped acting crazy.

Chaos and disorder work against incumbents, as they did in 1968 when Democrats saw their party’s popular vote fall from 61 percent to 43 percent.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Sat, 03/09/2024 - 23:20

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

Published

15 hours ago

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March 9, 2024

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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