The African American Berry…. the “Sweet Spot” for Credit Card Companies

Economist Thorstein Veblen posits that credit card companies are purely parasitical, charging numerous fees and penalties amounting to over $90 billion in revenue each year. According to a BCS Alliance study, credit card companies rake in profits of $30 billion each year. Penalty fees alone added up to some $20.5 billion in 2009, according to industry consultant R.K. Hammer.[1]

Demand destruction (DD) can be applied to the issue of credit card (revolving) debt, where the cost of credit is the “interest rate”, and the supply of credit is tightened through the use of credit scores. DD can occur during a period of high prices or constrained supply, and results in decreased demand.[2]

The above graphic shows credit card debt from a peak of $973.6 billion in Aug. 2008.

The following points are highlighted in the 2011 study, CREDIT CARD ILLS: REDUCING RACIAL DISPARITIES IN DEBT, by Andrea Freeman.[3]

  • Over eighty percent of households now possess credit cards.
  • Fifty-four percent of white households carry a revolving balance on their credit cards, compared to 85% and 79% percent of African American and Latino households, respectively.
  • Fifteen percent of African Americans and 13% of Latinos pay over twenty percent in interest, while only 7% of whites pay that much.
  • In 2009, the median net worth of Latino households was $7,932, as compared to $88,651 for white households.
  • In 2006, the Boston Federal Reserve Bank published “Credit Card Redlining,” a study by Ethan Cohen- Cole comparing the terms of credit card agreements entered into by credit card owners with identical risk profiles and payment histories living in different areas. The study revealed significant differences in credit card terms based on the racial makeup of the users‟ neighborhoods.

From the study “The Rapid Growth of Credit Card Debt in America”, by Jose A. Garcia, 2007.[4]

  • In 2004, 46 % of very low-income (under $9,999 per year) credit card indebted households spent more than 40 % of their income to pay off debt.
  • On average, African Americans and Latinos earn 62 and 69 cents, respectively, for every dollar earned by their white counterparts.
  • African-American and Latino households carry about $2,000 less debt, on average, but their balance amounts on average to more than 60 percent of their total available credit card limit compared to 47 percent for white credit card holders.
  • Seventy-five percent (in 2004) of households lacking medical coverage for all their members carried debt on a credit card compared to 55 percent of families that had medical coverage for all members of the household.

The credit card problem is an issue that families have to address. What theoretically can be used to make ends meet, has been abused to the point where families become indebted for the long term. This recession may provide an opportunity to reverse this path and adopt less appealing (short term) measures like saving, and consumption deferral.

Japan, the Invisible Hand, & the Wealth of Nations.

 Adam Smith uses the metaphor in Book IV, chapter II, paragraph IX of The Wealth of Nations,

“By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” [1]

E1. National GDP 05-09

Similarly one can use the “invisible hand” analogy to identify a possible thread of action which can result in the greater good for society based on individual introspection, and action in the face of the earthquake and tsunami which hit Japan on March 11, 2011.

E2. National GDP Rankings, 2000 & 2011

The critical point on this path of redemption requires an implicit, but positive value association to be made between God and the individual. This is the tenuous root of the process. If a person can be pulled from the cliff of callousness, to the donation trough, to offer a prophylactic prayer in the middle of peril, to recognize his own mortality, or to simply see himself in the shoes of the unfortunate, then these individual actions which seek individual redemption can also be thought of as being led by an “invisible hand”. This hand, independent of race, class, or political affiliation is the true guiding force which will lead this country to fulfilling its’ brightest potential.

[1] http://en.wikipedia.org/wiki/Invisible_hand

E1http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=default
E2http://khalilurrahman.blogspot.com/

Unemployment, Housing, and Commodities

In his State of the Union speech, the President spoke of creating jobs, and cutting the deficit. To minorities, members of the second class, and others, there are other painful components that will ensure that this economy flounders well into next year.  Whether one is Republican or Democrat is of little matter since the big three are themselves speeding toward a head-on collision with a rocketing stock market.

High Unemployment with Low Housing Starts

 There is no short term housing boom to assist the unemployment rate. For minorities these rates are higher – with the result that these families will feel the coming pain to a greater extent on a proportional basis. The glut of foreclosures will ensure that this situation remains static for some time. Tragically the bad news doesn’t end here.

Rising Commodity Prices - Oil, Cotton, Wheat

 

Although interest rates are low and inflation seemingly in a benign state, the simple fact is that the prices of commodities are slowly filtering through to the lower classes.  Oil especially affects everything along the supply chain. For all the future glorified expectations of clean energy it is clear that the calvery will not arrive in time. To add insult to injury soon sugar, the sweetener, may also play the role of the unaffordable villian.

Commodity Prices - Sugar & Salmon

 This is not rocket science. Hard times are here, and harder times are coming. The little advice i can give is to encourage people to save… but then everyone knows saving cuts the consumer spend, which doesn’t help the economy. Be scared… I know I am.

Killing The Dream – Four easy Steps

 If you feel like the Dream is taking its time to develop into a happy reality, you would be definitely on point. There’s not much to this. I guess people expect to wake up one day, burst into smiles, and find a better America. It’s not going to happen. African Americans and other minorities may want to avoid being part and parcel of the following surefire Dream sinkers.

Step 1 Maintain the status quo… less school, more spending, less saving, less entrepreneurial efforts.

Step 2 Get Arrested…

Step 3 Find a reason to stay unemployed….

Step 4 Repeat Steps 1 through 3 as necessary.

Almost fifty years have passed since the “I have a Dream” speech …. Clearly we are heading in the wrong direction.

From: Top 5% To: The rest (plebes included) :)

Thanks for putting pressure on Obama to concede on the Bush Tax cuts.

Thanks for not supporting the Democrats in the 2010 midterms.

Thanks for two more years of unfettered “Trickle Up Economics”.

We can’t thank you enough. OXOXOXOXOX

Trickle Up Economics

Source : census.gov

Obama, Robin Hood, Little Bernanke, and the Republican Sheriff of Washington.

This is my favorite bedtime story.

Cue the main characters,

  1. Robin Hood was really a brilliant economist who engaged in short term wealth redistribution strategies when unemployment swept the landscape and the costs of the Wall Street (subprime) wars threatened to ruin the economy.
  2. Little John (alias Big Ben Bernanke) was the Fed chief, Robin’s hit man, who as the precursor to the underrated enforcer type will always be saddled with the “lack of good timing”, and “enough is enough” bias.
  3. The Sheriff of Washington is the villain of the piece who plays a pivotal role in securing the assets of the rich and protecting the status quo.

 

Flow of Aggregate Income

 

The main point of the plot is wealth redistribution.[1] The top 20% of households pull in close to 50% of the Aggregate Income. Robin and his band of merry Democrats can’t butcher the wagon trains and spread money willy nilly throughout the countryside.  The disadvantage of this extreme, (while reducing red tape), is that the poor folk lack incentive to keep working and the working folk lack incentive to keep working. Thankfully, a lot of bloodshed is averted by having a progressive tax system. The beauty is that the wagon-trains get hit even before the money gets comfortable in the coffers of the wealthy.

 

Cue Isaac Newton and the apple.[2] The simple truth is that the rules for keeping a bounded system in equilibrium (static) does not apply to a system in motion (dynamic).  This is a perfect segway into the subplot. How can the sinister Sheriff convince the world that gravity works both ways and that “trickle down” economics really works.

Trickle Up Economics

 

The truth is that it doesn’t. The sucking sound you hear is the sound of wealth being continually transferred from the lowest 60 percentile to the top 5 percent of households.  Through good times and bad (shown in red)[3], the spigot keeps flowing.

Cue the Happy Ending…..  are you insane??? There is neither a happy ending nor a soft landing… that is unless you’re part and parcel of the “Top 5%”. Robin and Ben never get the gravity reversing “economic” plot right, (read as unemployed people have no patience) , the Sheriff wins (and in spectacular fashion binds one of Big Ben’s arms), and the people go back to dreaming of venison, while munching on Mickey Dees fries, with tea.

 

 

 

 

 

 

CARBOHYDRATES , SALT, and the 825 lb OBESITY GORILLA

In the US the difference between the Prevalence of Obesity (POB)[1], in Black men and Black women (just taking the statistics at face value) is a full 7.6 percentage points (pps). In Whites the men are ahead by 3.6 pps, while in Hispanics the women are ahead by some 1.6 pps.  There is absolutely no good news here for the African American Community.  The POB for Blacks (M & F) outstrip Whites by 12 pps and Hispanics by 7 pps.  A cultural distinction is that some Black women tend toward the Mende ideal of feminine beauty, while some White males tend toward the benevolent Marlon Brando (Godfather) extreme.

Obesity Prevalence by Race

Adverse Impact of Obesity

  • Increased Healthcare costs
  • Increased risk for heart disease, diabetes, stroke, pulmonary embolism[2]
  • Lower quality of life (insomnia, chronic fatigue)

CHANGING HABITS

To combat obesity, and its associated chronic diseases, the Expert Report[3] advises,

  • fewer foods high in saturated fat,
  • less sugar,
  • less salt,
  • more fresh fruit and vegetables,
  • one hour of moderate-intensity activity each day.

Recommended  Diet

  • 55 – 75 % carbohydrates
  • Less than 10% sugar
  • 10 – 15% protein
  • 400 g of fruit and veggies
  • between 10 – 30 % of fat (saturated fat less than 10% of this)

Sowo-wui (Ndoli Jowei) : "The Sande woman is not a child!!"

The many reasons for avoidable obesity lie in a mix of poverty, lack of education regarding cause and effect, and the higher cost and lack of availability of healthy food groups. One of the most difficult problems however in combating the obesity fight is the mindset of the individual.  The cultural norms regarding food groups – for example diets high in carbohydrates and salt, set early patterns for increased obesity in later years.  In some cultures a more rotund figure is seen as a mark of prosperity, and good living. The onus is on society to improve the communication of the dangers of an above average sedentary lifestyle, and the myriad disadvantages posed to the individual, especially the children.

Booker T , Du Bois, and those revealing Unemployment Numbers

In the African American community , while the Black male population struggles with the stigma of high poverty rates, incarceration rates, and HIV rates, the Black females have  clearly outpaced their counterparts in the field of higher education.  The latest data shows staggering differences in the numbers of   participants in “cap and gown” ceremonies past the High School level.

African American Education Breakout by Gender

This chart[1] by itself would be bad enough, but when one connects the Unemployment dot, and the Earnings dot, the picture becomes much clearer, and dire.

 

This is not rocket science by any stretch of the imagination. People in the aggregate who have lower levels of education form a greater proportion of the unemployed ranks, and also earn less.[2]

Serious thought has to be given to the curriculum followed by African American males through High School. The real decision to further one’s academic career is not made in the Senior year of High School but is one which is developed several years beforehand.

Lest I sound too anal, let me be clear. A certificate in and of itself can do little; little for society and even less for the individual. What one should learn is a problem solving process, implement solutions with feedback loops, and develop technical (qualitative and quantitative) expertise in specific subject areas. Even with the cost of tertiary education spiraling higher each year, there are community colleges which can confer an Associate degree, and give a good foundation towards a future Bachelor’s degree.

Booker T. Washington, educator, reformer and the most influentional black leader of his time (1856-1915) preached a philosophy of self-help, racial solidarity and accomodation. He urged blacks to accept discrimination for the time being and concentrate on elevating themselves through hard work and material prosperity. He believed in education in the crafts, industrial and farming skills and the cultivation of the virtues of patience, enterprise and thrift. This, he said, would win the respect of whites and lead to African Americans being fully accepted as citizens and integrated into all strata of society.

W.E.B. Du Bois, a towering black intellectual, scholar and political thinker (1868-1963) said no–Washington’s strategy would serve only to perpetuate white oppression. Du Bois advocated political action and a civil rights agenda (he helped found the NAACP). In addition, he argued that social change could be accomplished by developing the small group of college-educated blacks he called “the Talented Tenth:” [3]

For far too long these two opposing philosophies have polarized the African American thinking. Thankfully improvements in industrial technology and equal access to educational resources have brought the differences into fuzzy relief. The war for a single cultural American identity is not a war to be fought in the foxholes of either religion, or political conservatism…. The frontline for this war sits squarely in the classroom, and equally in the economic arena.

Follow

Get every new post delivered to your Inbox.

Join 1,022 other followers

%d bloggers like this: