U.S. Deflation, U.S. Rich Walk Away

U.S. Deflation, U.S. Rich Walk Away

U.S. Deflation

An article by Nobel Prize winner Paul Krugman titled 'Trending Toward Deflation' includes two 'trend-line charts' covering the past 30 months that suggest that by some measures - and not far off by others - the U.S. has just recently crossed the line between inflation and deflation. If there is any substance to Dr. Krugman's analysis, this will make 'real (i.e. inflation-excluded) U.S. interest rates' implicitly higher and will exacerbate the U.S. debt problems.  I think the commentary and charts in this article are worth reviewing - reading time, 4 minutes.

U.S. Rich Walk Away

A recent New York Times article 'The (U.S.) Rich Walk Away Too' says: "Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.  More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent".  This reports relies on information complied for The New York Times by CoreLogic, a New York based real estate analytics firm.

While the article uses the term 'Rich' several times, it does not define 'rich' - and so I attempted to determine what 'rich' means to an American.  Without looking very hard, I found the followings U.S. 'views' on the meaning of 'rich' (all U.S.$):

·        having annual earned income of under (but presumably close to) $200,000 (21%), between $200,000 - $500,000 (51%), between $500,000 - $1 million (21%), and over $1 million (7%);

·        owning or controlling net worth of $500,000, having no debt, and having an annual earned income of over $100,000;

·        having net assets that generate 'unearned income' of over $60,000.  In today's environment that might mean (say) owning or controlling between $1 - $4 million in debt-free investment assets;  and,

·        having net assets over $1 million (22%), over $5 million (45%), over $25 million (25%), and over $100 million (8%).

Irrespective of what one concludes the meaning of 'rich in America' to be, based on the foregoing a 'good number' seems to me to be at or north of U.S.$5 million, including residential real estate.  Consider focusing on that U.S.$5 million number or your own definition of rich as you read my commentary on a second article titled 'Thoughts on The Rich Strategically Defaulting and the Merits of Mortgage Cramdowns' that discusses the New York Times article.  I commented on this second article as follows:

Whatever happened to the underlying (and I think very important) value system fundamental of meeting one's obligations - financial or otherwise - irrespective of the difficulty one might face in doing such a thing.

It seems to me that a society based on a value system that it is OK to simply walk away from one's financial or other obligations because 'one can' isn't one to be trusted with much of anything - and isn't likely to prospectively do well.

In my experience many Americans hang their hats on the U.S. Constitution and spend time debating 'the meaning, intent, and values of the Founding Fathers'. I for one doubt the 'Founding Fathers' would have thought much of people who walk from their financial or other obligations and responsibilities in circumstances where they could satisfy them (albeit with some personal sacrifice) if they are able to.

I consider one's underlying value system and the trust or lack thereof that results from that to be of paramount importance.  It seems to me that if there are 'core faults' in a societal value system, that system de facto will become 'less and less trusted' over time.  I consider this highly relevant to one's thinking as to the best places in which to hold accumulated personal capital.  Differing views will be appreciated at info@stockresearchportal.com.

Post-Script:  As I write this mid-day Sunday, my 'article comment' is generating a number of 'thumbs-ups', and has generated only one 'thumbs-down'.  At the same time other people (I think likely Americans) are picking up on my comment and offering up similar comments on societal values.

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Best Regards,

Ian R. Campbell

President

StockResearchPortal.com

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