Posts Tagged ‘cars’

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Darrin Bell Cartoon

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Sometimes you just have to sit back and admire capitalism’s ingenuity.

It’s able to make profits twice over. First, capitalists know that, when they keep workers’ wages down—even when there’s “full employment”—they can make spectacular profits. And, second, they can make additional profits by loaning money to those same workers, who are desperate to purchase goods and services and send their children to college, thereby financing the demand for the goods and services industrial capitalists need to sell to realize their profits.

Thus, as we can see in the chart at the top of the post, the amount of consumer credit is once again soaring to record highs. In relation to personal income, consumer credit fell after the Great Recession (to just under 20 percent in December 2012)—as households “deleveraged”—and then it began to rise once again, reaching 23.3 percent four years later.

Is there any wonder bank stocks are expected to show profit growth of 6 percent when the sector kicks off second-quarter earnings season later this week?

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Total consumer credit outstanding (which excludes loans secured by real estate, such as mortgages) can be divided into two categories: revolving and nonrevolving credit. Revolving credit (the blue parts of the bars in the chart above) consists of credit card credit and balances outstanding on unsecured revolving lines of credit, while nonrevolving credit (the red portion) comprises secured and unsecured credit for automobiles, durable goods, and higher education.

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Clearly, as workers’ wages have stagnated, both loans on cars and trucks (the dashed line in the chart) and student loans (the dotted line) have been rising dramatically, which have in turn fueled new vehicle sales and increases in tuition at colleges and universities.

As I say, capitalism is an ingenious system—until, of course, the house of cards comes tumbling down.

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The folks are Bankrate have calculated, for each of the fifty largest U.S. cities, the affordable price for a new car. Their analysis is based on median incomes, average insurance costs, payments on a new car loan, and sales tax data.

The chart above shows how those affordable price points compare. The lower a city appears on the list, the more difficult it would be for the typical car buyer to come up with the money for what Kelley Blue Book said was the average price for a new car or light truck at the time of their analysis: $33,865.

Thus, for example, the average buyer in San José can afford a new car that was priced close to the national average, while residents of Detroit can only afford a car worth just over $6,000, less than a fifth of the cost of the average new car.

Sure, the average price of a new car continues to rise. But the list tells us much more about what’s happened to incomes in the United States. From 2000 to 2014, the average income of the bottom 90 percent of Americans actually fell by $4561 (from $36,913 to $32,352).*

That’s the real reason why most of the residents of the fifty largest U.S. cities can’t afford to come up with the money to purchase a new car.

 

*The data, from the World Wealth and Income Database, are in real 2014 dollars.

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177819_600  April 7, 2016