How the Recession has Adversely Affected the Cost of Living in America

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Published: 25th November 2010
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Every American's standard of living continues to be affected by the current economic decline. Many economists believe this fiscal crisis to be the most powerful economic downturn since the Great Depression of the 1930s. According to the U.S. Census Bureau incomes are stagnant. An exceptionally high unemployment rate and rising medical costs both contribute toward the decline of America's middle class. Workers often lose health insurance coverage when they lose their jobs.

Stemming the growth of health care costs and creating jobs are key priorities of the government. Both are necessary to reach full economic recovery.

Family premiums for employer-sponsored health insurance have increased by 131% since 1999 according to the Kaiser Family Foundation. Driving these costs are new medical technologies and prescription drugs, chronic disease management, and the problems associated with an aging population.

In 2011, many of the baby boomers will go from private health insurance to Medicare. Medicare shifts the price of health care from the private sector to the government. The shift will increase the Federal deficit.

A complex 'perfect storm' of risky business transactions, an overvalued housing market and poor regulatory oversight name three of the various elements responsible for the current fiscal chaos. Easy credit and mounting federal debt put the nation on a course toward the meltdown.

In 2009 unemployment levels reached an unprecedented 9.3%. That translates to 14,265,000 people actively seeking employment. One out of every seven people was living in poverty in 2009.

A sign posted on a soup line speaks volumes. "No second serving until everyone has been served."
Unemployment numbers do not account for workers who give up the search for work. The numbers do not cover the underemployed or those with more than one part-time job to cover the cost of living.

The housing bubble's burst in 2006 adversely influenced every Americans standard of living. A housing bubble occurs when houses and land begin increasing in value at rapidly escalating dollar amounts. Incomes do not keep pace. At some point in time, the properties appraise at values buyers cannot pay. The price of housing begins to fall.

Often following a burst housing bubble is a period of negative-equity. The buyer owes more to the bank or the mortgage holder than the house and property are being appraised at. Evictions and foreclosures are common occurrences. Some homeowners defaulted, walking away from properties with negative-equity.
During the most active period of the housing bubble, the real estate industry created nearly 40% of new American jobs.

Housing values peaked in 2005 and began to decline. Household wealth fell by a record $5.1 trillion in the last three months of 2008 due the 2006 collapse of the housing market and the staggering stock market.

Housing sales remain sluggish in 2010 although real estate prices have declined and mortgage interest rates are at their lowest since the 1950s. Credit was difficult to find in the early recession. Banks and mortgage providers carried trillions of dollars in bad debt. They had no liquidity, no money to lend. In a stimulus package, the Federal government buys the debt from lending institutions. Banks and lending institutions then have money to provide for mortgages, new cars and to businesses.

Credit is not easy to get, and new regulations exist. Borrowers who have and maintain sterling credit ratings are eligible for loans in the still tight money markets.

On the opposite side of the same coin, consumers have curtailed spending. Paying off credit cards and saving money are the new priorities. The nation seems to have recovered from the luxury buying frenzy that helped fuel the economy. Sluggish demand keeps the lid on most prices. Goods and services are steeply discounted to attract customers.

The annual percentage change in the consumer price index (CPI) calculates the inflation rate. The inflation rate directly affects the cost of living. The Bureau of Labor Statistics defines CPI as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services." The CPI is a measure of the real value of wages, salaries, and pensions. The CPI reports fluctuations in prices.


More Cost of Living information available at www.costoflivingbystate.org

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