The Key to Understanding “Recession” and “Recovery”: The Wealth Pyramid

The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of “recovery” that masks the insecurity and decline of the bottom 80%.

There is statistical and anecdotal evidence supporting both a “we never left recession” and “the economy is recovering” interpretation. The key to making sense of the conflicting data is to understand that there are Two Americas.

Roughly speaking, we can divide the U.S. economy into “Wall Street”–the financialized part of the economy which encompasses the FIRE (finance, insurance and real estate) economy and its bloated partner in predation, the Federal government–and “Main Street,” the looted, overtaxed remainder of the “real economy” which isn’t a Federally supported corporate cartel (i.e. the military-industrial sector, the “healthcare”/sickcare sector, Big Agribusiness, etc.)

Main Street is small business, entrepreneurs, shopkeepers, small property owners (independent motels, vineyards, truck farms, etc.) and local service providers (dentists, accountants, etc.). This class of small business and their employees is in decline: Few Businesses Sprout, With Even Fewer Jobs (WSJ.com)

Needless to say, the Federal/financialized/corporate cartel tranch of the economy is doing very, very well, thank you. The number of Federal employees pulling down $150,000 annually is skyrocketing, hundreds of billions in revenues slosh into National Security and sickcare cartels, and Wall Street bonuses are in the tens of billions.

A thin, overhyped tranch of the tech economy is also doing well–Google employees just got a 10% raise, for example–but this overhyped tranch includes a razor-thin share of the 130 million person U.S. workforce. Google’s global workforce is about 23,000, Twitter has a staff of roughly 300 and Facebook employs about 1,500 people.

There are two Americas in terms of wealth and income: In terms of income, the top 10% earn about half the total income, and in wealth, the top 5% own roughly 70% of all financial wealth.

I have prepared a Wealth and Income Pyramid of the U.S. to illustrate this reality. Notice that the “middle class” is mostly a figment of nostalgia and/or political illusion. Only the top quintile (top 20%) are really doing well in terms of income, and only the top 5% are prospering in terms of assets and unearned income (non-wage income).

This goes a long way to explaining how “consumer spending” can be “recovering” even as the incomes of the bottom 80% stagnate or fall. The top 5% of Americans by income are responsible for 37% of all consumer spending– about the same as the entire bottom 80% by income (39.5%).

David Stockman, director of the Office of Management and Budget under President Reagan, recently noted in an editorial that the top 1% of Americans received two-thirds of the gain in national income from 2002 to 2006.

Over the past 25 years since 1985, the top 1 percent’s share of national income has doubled; in 2007, it netted 23 percent of the nation’s total income. The income of the wealthiest Americans–the top 0.1 percent—has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million people.

Out of 113 million households, 1/100 of 1% rake in $10 million or more annually. As consumers, the top 5% carry the same weight as the bottom 80%. The top 10% take in 50% of the income. (The sources are listed in Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens August 18, 2010.)

This explains how Nordstroms’ earnings can rise by a healthy 43% while Wal-Mart’s sales in the U.S. can decline. Frequent contributor Cheryl A. reported that on a trip to Wilmington, DE, the shopping mall was packed with shoppers and people dining out: “It’s like there never was a recession.”

Meanwhile, I took an old friend who was visiting the San Francisco Bay Area to a restaurant in San Francisco that has never failed to be busy in the past 10 years, and the place had more empty tables than customers. The sidewalks were crowded with people, but how many were spending money?

I think the answer is obvious: the top 20% are spending money lavishly, as per their consumerist lifestyle, while the bottom 80% are taking the kids to Costco for entertainment.

The top 20% pay the vast majority of the taxes: According to the Congressional Budget Office (CBO), the top 20% paid 86.3% of all Federal income taxes, 43.6% of Social Security, 87.8% of corporate taxes and 34.1% of Federal excise taxes. After including earned-income tax credits, the bottom 60% of households paid less than 1% of all Federal income taxes, and the households between 60% and 80% paid 13%.

But the top quintile’s share of national income rose despite th tax burden. In other words, income disparity has widened even though the wealthy pay the bulk of Federal taxes.

The notion that American households are paying down debt is simply unsupported by the facts. According to the Fed Flow of Funds report, consumer credit (credit cards, auto loans, etc.) has declined a paltry 0.7% from $2.59 trillion in 2008 to $2.4 trillion–and most of that was not debt paid off but uncollectible debt written off by banks.

In other words, the households with substantial incomes may not be adding to their debt load but they certainly aren’t paying it down much either–they’re spending freely in the malls and in “fine dining restaurants” just like they did in 2007.

The top 20% of U.S. households are spending, so “recovery” is in the air. Those with household incomes of $100,000 or more are buying new vehicles (which explains why vehicle sales are rising) and spending freely, while the bottom 80% scrape by.

That’s how you get a statistical “recovery” that masks the recessionary misery of the bottom 80%–the “real economy” left to rot as the Federal government channels the national income into politically powerful corporate cartels, Federal fiefdoms and Financial Elites.

This film investigates an industry that few people
truly understand, revealing techniques used by the
credit card companies to earn record profits and
to get consumers to take on more debt.

Do you get sick of hearing those fast pitches for “quick wealth” on
late night TV or seminars that those gurus speak of?   Well, you
should if you are not achieving the wealth they are talking about.  So
if you want to achieve the success and wealth that you desire you must
set yourself up for little victories. Those little victories will
amass into huge success, which in time will be the “Penthouse Suite,”
you dreamed about.

Everyone knows that there is the “Pie in the sky,” the riches and the
lifestyle we all desire but to be realistic before you dream about the
“Penthouse Suite” let’s get to the “Second Floor.”  Perhaps that is
the miscommunication in most real estate sales literature and the fact
is that you must understand the little steps you need to take to get
to the 2nd floor and once you get there then get to the 3rd floor and
then to the 4th floor and so on and so forth. You need a plan of
action that will get the “little successes” so that it will carry you
to the next level, once you learn how to do that, you will continue to
progress until you get to the Penthouse Suite.  Success is a journey.
That’s certainly the case when investing in real estate, so in your
travels to wealth let’s get over your initial hurdle. Any good guru,
teacher, mentor
will be honest with you and let you know what resources in time, team,
knowledge and money
is required to be successful in real estate.

Ask yourself these questions to see if you are doing the things
necessary to achieve your goals:

Am I getting enough leads from my marketing and advertising?

Don’t keep your business a ‘secret’ and unless you ‘put the word’ out
that you are a real estate investor and you are open for business, the
world will not know to call you to buy their houses.  Thus, to get
going as a real estate investor, you have to have potential houses to
buy in your ‘pipeline’ of business.  So focus on getting enough leads
through your marketing and advertising that will warrant appointments
to see homes and sellers. From those appointments, you’ll close a
certain percentage of those sellers. In today’s latest technologies, learn to
use those widgets/gadgets like social media networking to connect with
prospects and build a relationship to close the deal.

Am I closing enough deals?

The one thing that investors should focus on with any technique or
investing style is not the 10 deals a month fantasy that you think you
must have to be successful.  Just focus on getting the first deal
done.  There is magic in the number #1!
That one deal may take a month or it can take one year, but the
key is that you need to get this first deal in order to get the 2nd
deal.  All the successful investors started out just like you with the
first deal and they built on that.  Focus on getting the first deal and your
life starts to change. You can’t skip this first deal. If you can’t
get that first deal
focus on getting those appointments. Face it, no one is coming to you to
do a deal, you have to get out there to ‘Make it Happen’ and getting
appointments with
sellers, investors, agents, rehabbers, lenders, etc will lead you to more deals.

Am I making any money at this?

You aren’t going to make any money nor do you deserve to make any
money until you focus once again on getting that first deal completed.
Another mistake that investors make is that they quit too soon.  They
spend lots of time on one technique whether it be Lease Options,
Foreclosures, Notes, Short Sales, Rehabbing, or a number of different
methodologies
out in the marketplace and they then move on to the next fad or hot
craze simply because they see other investors who are successful at
it, while abandoning the one technique they started with because it
did not come soon enough.  It’s almost like the “flavor of the month”
club.  Focus is the key and once you become proficient at one
technique you are able to do it in your sleep.  And if you can do it
in your sleep and can do it with ease, you are then making lots of
money.  If you are making too much money then perhaps you may want to
diversify simply because you are bored with it. It is critical to
focus on the process and the results will be there, but don’t focus on
the money.  Money is just a by-product of your activities; the
activities will generate the desired results.

Is Real Estate investing too tough right now?

As an entrepreneur you must understand that you have to make money in
“up” and “down” markets.  The question is not “Is this the right time
to invest in real estate?”  You must understand that starting a
business is hard and your mind needs to know right away that starting
your own business is really hard. Anyone who tells you otherwise is
lying. You can’t go into business for yourself with false notions.
Investors need to realize and accept this right at day one.  This will
probably be one of the hardest things you will do in life.  Remember
the old saying, “if it were easy, everyone would be doing it.”  It is
also important to understand that you have to be optimistic and
believe in yourself and to have faith to know that you can be
successful.  Thinking that it’s too hard will possibly discourage you
from giving it a try.  On the flip side, some authors tout that it’s
easy and wealth is something that you can achieve with little money
and little time.  It’s not that way either. You have to understand
this.  Reality is somewhere in the middle, it takes a more time and a
more money to be successful. So know this fact and know what’s
involved to he successful and you won’t set yourself up for
unrealistic expectations.

I don’t know what I should be focusing on to achieve my goals?

When you set clear goals and become determined and purposeful, backing
those goals with unshakable self-confidence, you develop a game plan
or a task list which you must complete in the order of its importance
or priority. When you take complete responsibility and accept
ownership, without making excuses or blaming others, you experience a
sense of control that leads to the personal power that is the
foundation of goal achievement.

One of the easiest and most effective ways of ensuring the proper use
of your time is to block out each week’s calendar to concentrate on
critical activities. Start with the list of your essential tasks as
you plan each week, write them down and go over them often. Be sure
that you schedule the time for all of the vital tasks – those you
don’t enjoy as well as those you like doing – before turning to the
“nice to do” activities.  Those “nice to do” activities are activities
you enjoy but may not necessarily be the priorities.

You need to focus on the right priorities.  One of the universal
challenges for investors is managing the competing demands on their
time.  One common time trap is focusing on the things you like to do
and procrastinating about the activities that may be essential to your
success but aren’t in your comfort zone. For example, you could set
aside 10 to 11 a.m. each morning to call prospects and 11 to 12 p.m.
to contact referral sources. Then that’s what you must do because it’s
in your calendar. Remember, “plan your work and work your plan”.
What are your monthly, weekly, daily, hourly goals?

The key to achieving your goal in real estate is to set ‘SMALL GOALS.’ Too many
people make the mistake of setting ‘unrealistic’ goals and it becomes
discouraging after you realize you are way off your path. Even if it’s
to make 15 minutes
of phone calls per day. Start small and build on it.

What activities do you need to be doing to generate those results?

How many phone calls, signs placed, flyers passed out, referrals
given, letters sent, ads run, networking meetings attended, do you
make each day/week/month for the sole purpose of scheduling an
appointment with someone who has a need of your services?  Whether it
will be with sellers, buyers, investors, alliances (attorneys,
mortgage brokers, realtors, appraisals, contractors, etc.) or others
who can help you in your business? How many of those people want to
have more conversations with you?

How many people are you calling that say “Thank you very much. But
we’re not interested.” and the call ends in under 10 seconds? A thank
you note will make you stand out from the crowd and if you follow-up
with a meeting or phone call, you build that relationship further. You
know the #1 Rule in business.  “If they like you, they will do
business with you.”  It’s hard to do business with people that they
don’t like or know. So take the time to build relationships.

How many people are you calling on whom you’ve spoken to numerous
times before, but they never did business with you? Why continue
calling people who don’t do business with you?  Maybe it’s time to
stop playing the game: “the person who dies with the largest database
wins.” We live in the Information Age and it’s a smart business
decision to continue to update your database and send out mailers
(postcards, letters, etc.) to those prospects who are “on the fence”
and may use your services later on.  It’s also OK to throw away names
of people who don’t want to do business with you, or aren’t available
to take your calls. The lifeblood of a business is NEW customers, so
if you are not getting the calls you need to fill up your sales
pipeline perhaps you are not marketing effectively enough. It’s time
you evaluate what you need to do to get your phone ringing.

Anything worth doing, is worth doing well, and should be benchmarked.
Daily, weekly and monthly results should be recorded and tabulated. By
blocking out time this way, you can impose that extra bit of
discipline to increase the likelihood that essential activities take
place.

If you want to get organized and make your life and business
more efficient, there are many software programs out there that helps
you plan your
business and it keeps track of your sellers, buyers, and other key
business relationships.  You live in the technology age, so I HIGHLY
RECOMMEND YOU USE IT.
So if you want to be in the Penthouse Suite emulate Champions like
Michael Phelps.  His ability to concentrate is legendary. He knows what
he wants and he doesn’t stop until he gets it. Do you take the time to
study the business,
purchase and research real estate home study courses and seek out the
best advice from
mentors and advisors that can help you move forward?

Michael has a saying, “My Will Moves Mountains,” and he means

* Focus

* Dedication

* Commitment

* Persistence & Perseverance

Michael knows what he wants. He has a target. He sets goals, creates a
plan, and then accomplishes them. Michael believes he can do anything if
he puts his mind to it. Nothing is insurmountable. No mountain is too
high. No river too wide. No pool course is too tough.

What about you?
What are your goals, dreams and desires?

What do you want to do with your life? What do you want to accomplish?

There’s an old saying, “When a man knows what he wants, he will move
heaven and earth to get it.”

What mountains do you want to move?

Where is your focus? Your commitment?
When you do something, completely sell out and be totally committed to
it. Make a commitment to put forth honest effort by learning the trade
and skills needed to be excellent in this business. Don’t just be
good. Don’t be better. Be the BEST and the best will come out of you.

Some people say “You can be an overnight success in real estate
investing.” That’s flat out wrong!!! What they mean is “over many
nights.”

Remember that you need to keep telling your mind, especially when
times get tough, why you are doing this in the first place.  Remember,
you are creating a better future for you and your family.  Going back
to work for someone else is not an option for you.  Just visualizing
yourself at the mercy of others controlling your life, playing
corporate politics, driving 2 hours through traffic each day, asking
for a raise that you know you deserve but didn’t get, spending less
time with your loved ones, and reporting to incompetent bosses should
be sufficient motivation to keep your mind focused on your goals.

So in your pursuits of achieving all your real estate goals, let’s use those
“nightS” (and dayS) to do the daily tasks that will allow you to get
to the Second Floor and once you learn how to do that (the 3rd, 4th,
5th, etc.) then the Penthouse Suite can be reached in due time.