Have Americans gone broke?

After years of trudging along, repaying debt and rebuilding credit, U.S. consumers are facing new headwinds.

By Anthony Mirhaydari Mar 1, 2013 3:49PM

Man holding out empty pockets. copyright Dougal Waters, Photodisc, Getty ImagesThe evidence is building that U.S. consumers are feeling the pinch once again. They may not want to admit it -- with measures of consumer sentiment remaining buoyant -- but the underlying data suggests otherwise.


None of this is surprising, given the headwinds we face from a combination of stalled job growth, stagnant wages, higher costs for fuel and other necessities, higher taxes, and now, the prospect of furloughs for federal employees as the sequester kicks in.


Households just absorbed their largest hit to income in 20 years as all those end-of-the-year bonuses and dividend payments, designed to get around 2013's higher tax rates, came to an end. The question is: Will the drop continue?


First, it's worth mentioning that American consumers have yet to fully reverse the fallout from the last boom-bust cycle. Household debt loads remain high, by historical standards, as shown in the chart below of the ratio of household debt to inflation-adjusted disposable personal income.



This is because while overall debt levels have been falling slightly (mainly due to mortgage defaults and foreclosures) real disposable incomes have stagnated, as shown below, and will likely get worse as taxes rise and job growth stalls in the midst of a weakening global economy.


Add in the fact gas prices recently set a record high for February, rental housing rates are moving steadily higher, and the relentless rise in health care costs, and consumers are being pinched from all sides.



For now, households are trying to maintain their current spending levels by tapping into savings (pulling down the savings rate to just 2.4%) and are turning to credit again. In fact, household debt increased $31 billion last quarter to $11.3 trillion -- which is only the second quarterly increase since the 2008 financial crisis as credit card balances turned higher.


Unless the job market improves and wages start growing again this is unsustainable. Consumers will soon have no choice but to cut spending and hurt retail sales, which was the one area that kept the economy out of the ditch in the fourth quarter.


I'm not at all confident. And while stocks seem to be in their own reality these days, commodities, currencies, and fixed-income markets are all suggesting trouble lies ahead.


Today's drop in crude oil is especially notable, with the U.S. Oil Fund (USO) gapping lower. I've recommended my clients take advantage via the ProShares UltraShort Oil & Gas (DUG) -- which is in my Edge Letter Sample Portfolio -- as well as the ProShares UltraShort Crude Oil (SCO).


Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

Mar 2, 2013 10:44AM

There are a lot of people who would be broke regardless of how much money they made.  I was fortunate to have a father who taught his four children the value of money and how important it was to save first and live below your means.  I was in banking for 36 years and can't tell you how many people who completed financial statements and who made $100,000 to $200,000 and more in income who had virtually nothing in savings or retirement but would have $30K tp $100K in credit card debt.  The sad thing is this debt was for things used like eating out, vacations, etc.


The worst thing that ever happened to the American middle class was the Tax Reform Act of 1986. - no more deducting interest on credit card debt, auto loans etc.  The advent of the Home Equity "ATM" loan.  Consumers felt rich using their home equity to live a lifestyle they really could not live.  A home use to be something a person purchased to actually own outright and retire in.  For many it has become a status symbol to live a fake lifestyle to impress their friends. 

Mar 1, 2013 8:32PM
I'm not broke yet, but I am getting there faster than I would like.

Mar 1, 2013 11:15PM
Most people are having a harder time, prices are going up, and putting a financial burden on people.  The economy is not doing to well either.
Mar 2, 2013 11:31AM
Don't you  think the many older consumers, Boomers, are just fed up with all the glam and hype of this that and the other. I mean just have many pixels do you really think you can see after the age of 50. Who really cares if your phone is 4, 5 or 6 inches? Just how many new look-a-like sedans do you really want to waste your money on to fill with $4 gallon gas.  Quite frankly we've gone from 4 to 6 free TV channels with nothing but dumb content to 76 TV channels that cost $80 month with nothing but dumb content. Same goes for malls full of disgusting pastel fashions and big box discount stores full or oriental plastic crap. Time to go get an In-N-Out double double cheeseburger without onions.
Mar 2, 2013 1:19AM
The bottom 80% or so is pretty much broke. 
Mar 2, 2013 12:10PM
Low interest rates have been supporting a false economy.  Consumers borrowed and expanded like never before.  The low interest rates are a product of a "poorly" manipulated economy.  Now those doing the manipulating are afraid of the consequences of stopping the manipulation.  Had free market practices been allowed to flourish the current government created financial crisis would not exist.  The problem was enhanced when it was decided that everyone should own a home regardless of ability to pay for one.  Ability to pay is not necessarily an income problem it more likely is a "money management" problem  No one benefits from free stuff and 99% of those that receive free stuff don't appreciate it.
Mar 2, 2013 2:30AM
My opinion is the goverment wants to suck all the money it can from the people , older seniors that saved money like they were taught and put it in bank cd's are getting a fabulous rate of .05% which may buy you a coffee not like the 15% of the 80's or 8% like the nineties. So people are looking for higher returns and go to the market , practically everone owned GM stock either indivually or in a mutual fund , retirement account . The goverment seen fit just to take the company owned by share holders and steel there money and give it to the auto. union , and give the company a loan and make new shares of stock with the origional share owners receiving $00..Now with the federal reserve keeping interest rates at .05% til 2016 where can you invest in ?
Mar 1, 2013 10:06PM
The mulitnational banksters (particularly our own illegal Federal Reserve) love debt and interest on that debt, whether it be corporate, private, consumer and governement debt.  And the banksters LOVE war and global conflicts.  And we taxpayers bailed them out at near 0% interest.  How are those bankster fees doing for you?  Pay off your debt, use local credit unions and put your money under the bank of Serta.  And make a drone.
Mar 2, 2013 6:50PM
The American people had a chance back in Nov to change the direction of the country, it was called the ELECTION. All the polls prior showed that the majority of people were dissatisfied with the direction of the country yet most still voted for the current administration or their Congressman.   Sorry people but if you voted for the current administration, or was one of  the 5 million so called GOP who didn't vote because you didn't get your perfect candidate,   NO CRYING about your wages, tax increases, increased cost of living, your $ 5.00 gas, you VOTED for this current economy, you brought it on yourselves,  YOU OWN IT. 
Mar 2, 2013 1:25PM
I was forced into early retirement, the government has made the interest rate on saving so low as it basically is nothing. Lost money in the down turn of the market, still am down 20% but that's much better than 35%, at the peak our investments were worth $100K now $80k will they fully recover, I doubt it .  As soon as I get close to breaking even, I will sell it all an invest it in repairs on my home, and emergency supplies. I am one of the 37% who say that the President, Republicans and Democrats are all to blame for our financial problems. Sure tax the rich more and see them move to other countries, which many have. The Government will only be happy when it gets all our money! And redistributes it, so many can continue not working, or even looking for jobs. I have had a  chance to work with young people, they are not working but can afford not just cellphones, but I-phones their parents are struggling why because they do not understand finance and saving. Cut the extras like our parents did. The basics are not that bad you still have a roof over your head and food on the table, that's how we have been surviving. We have internet, a cellphone with basic service no cable TV. But who really needs it with the internet now days.  We grow much of our own food, monitor our electric and water usage, when going to town we schedule shopping, doctors appointments, thus save gas.  Unfortunately they stopped teaching people common sense 30-50 years ago, I saw the trend in the 80's and 90's when ATM's really ruled and people started bouncing checks because they did not bother keeping track of their checks and atm withdrawals, and wondered how they could possibly be overdrawn.  We are hurting, but surviving, if we are lucky our investments will last us out for the next 10 years but after that who knows. 
Mar 2, 2013 7:16PM
You're only broke if you have no capital. The problem with people in America and their leaders is we still prefer to grow the rest of the world instead of ourselves. We want to protect everyone at our expense as well as worry about their workers. It's time to look at our own resources and capitalize when we can. We have to stop being everyone's best friend and start being a world leader. If you want to be the big boy on the block then act like it.
Mar 2, 2013 11:32AM
Old people don't spend as much as young people and America is getting older.
Mar 2, 2013 3:05PM
I just keep asking myself, "What the h*** has changed? One used to be able to buy a brand new car for $2000. A house for $16,000. And a tank of gas for .50 a gallon. What the h*** has changed?
Did we run short of metal to make cars? Did a house that was built and sold for 16K back in the 60's all of the sudden turn into gold? Are we out of gas for the cars? what the h*** has changed?
I used to rent a 4 seat cessna for $54 an hour wet, meaning with full tanks. Now it's $155 an hour.
What the h*** has changed? Seems like there's still plenty of plane gas available. Except that it used to be $2.10 a gallon, now it's $6.50 a gallon. What the h*** had changed to make the prices go up on everything? Nothing! Not a D*** thing. Except somebody is making a s***load of it while raping everyone else.

Mar 2, 2013 10:08AM
I say 2 things at work here.......#1 is that the economic forecast says things actually haven't gotten as bad as they're going to.  The "eye of the storm" hasen't even hit us yet.  But #2, is that.....who wants to sit on their soon-to-be-devalued dollars when they can buy something that will eventually inflate......when all the other dollar-holders (globally) start panicking to get their hands on something somewhat tangible.  I'm sort of predicting a mad rush at some point here......
Mar 2, 2013 2:38PM
Americans have arrived at an interesting place. Forty years ago,the number one problem,  identified by the members of the brain trust, was, poor communication.  Now we have info overload with no verification. We also have had more jobs replaced by machines in the last 10 years,than ever before ,in history. There was a revolt in the 1700's when machines that wove cloth were introduced. They displaced many workers who were already working for less than a living wage.
Mar 2, 2013 10:27AM
The evidence we have that so many folks are broke are rising new car sales and a stock market reaching new records. Did we mention people are fatter than ever from over eating. Funny how broke folks are also are buying I-pads in record numbers and or luxury items in record numbers.
Mar 2, 2013 11:44AM

A little history!!!!


Between 1776 and 1912 we had a deflationary economy. If you had a dollar in 1776 that dollar would buy 4 times more stuff in 1912 as it did in 1776. 140 years.

Today it takes 2 dollars plus to buy what 1 dollar would buy in 1912. 100 years.

What happened in 1912 to cause this change?  The federal income tax and the federal reserve were created.

Real inflation is about 15% and that is eating up consumer spending. Inflation is the same as a tax.

Mar 2, 2013 1:01PM
The first chart, the ratio of household debt to disposable income is the scary one.  While the very low debt of the 60's represents people not being able to get credit they could handle and which would improve their overall lifestyle, we've surely surpassed a rational level.  But we've gotten to the point where we believe "normal" living includes frequent restaurant/fast food/delivered food eating, a gym membership even if your income doesn't support it, a high-priced smart phone, a large new car even if you seldom carry more than two people in it, etc.
As a high school sports coach in my 40's, I met another coach in his 60's who had been a well-paid electrical engineer at Westinghouse (now Northrup).  He remembered me from my teenage years in the the late 60's when I was working my way through college working at a fast-food restaurant.  He would bring his family there every other Friday.  THAT was their typical restaurant eating - and the meal was typically a 1/8th pound cheeseburger, small fries and a 12 oz Coke.
A return to that kind of thinking wouldn't be kind to the economy, but we need to start realizing that the current system is contributing to draining the middle and lower classes of their wealth: both because of spending and increasing income inequality unique to the the advanced nations ( for a shocker see: http://www.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph).  Perhaps if the average citizen stops spending, the powers that be will realize the current unbalanced sharing of wealth has redistributed things far too much in the wealthy's favor.

Mar 3, 2013 10:10AM
What has changed:(Planet of Idiots). Agreement by Prophet264, then thoughts of AEE2001.

My Response:
In a society where many care not to be informed, things have changed. Not always how and why we are told. We use to have a National Debt of under a Trillion, now it's well over 16 trillion. We once had news you could somewhat trust, now it's hard to trust any of them. It can cost just as much to buy a used car of the same make an model of a new one because of higher interest cost. The more crude we produce, the more we export it overseas and the less we refine it here via refiner shutdowns to keep supply tighter. Asia is building a ton of refining capacity while our guys are starting to get out of the refining business quoting profit issues. A lot has changed, people just don't seem to want to take the time to find out why.

Mar 2, 2013 8:37PM
This is what I think is the main issue.

1.  Bankruptcy should only be granted once.  People make mistakes, ok give them one chance.
2.  A contract is a contract,  honor it.
3.  Make a budget, stick to your budget, balance your budget.
4.  Get the government out of the public sector.  Do not pick winners or losers.
5.  Don't tell me how to live.  
6.  Stick to the constitution.  Nothing more, nothing less.
7.  Be a proud American, serve your country and respect your elders.

If anyone has a issue with what I said, then VOTE and make your voice heard.  Take control of YOUR own life.  

Believe in yourself, you are in charge of your future!

Thumbs down people, here is a wake up call.  Get a life!

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