Rent-To-Own Or Not To Rent-To-Own - Federal Reserve Bank Of St: Fill & Download for Free

Without constant means, most people will not have constant hearts and, lacking constant hearts, will go astray, fall into excess, and become desperate. Punishing them after they have broken the law is setting a trap for the people. So the government must take responsibility for both their material and moral wellbeing. The people’s interests must always come first; the rulers’ interests come last. Mencius⁠1.Though the concept of financial justice has been integral to Chinese thought for millennia it was Mao who first made it a national policy and Xi Jinping who made it the goal of the 2049 centennial. If it reaches that target, China will have accomplished the most complete economic transformation in world history–and the fastest. Great Britain took almost two centuries to double per capital industrial output, the US took fifty-three years, and China takes just twelve.Nor is this a recent phenomenon. In the midst of agrarian, industrial, and cultural revolutions, Mao grew the economy 6.3 percent (twice America’s rate⁠2), and increased productive capital stock⁠3 by nine percent annually for twenty-five years, an unequalled record. Then, in 1978, a new leader seemed to abandon Mao’s principles and forced capitalism on a society traditionally suspicious of it. Why?Planners told Deng⁠4 Xiaoping that, by maintaining 6.3 percent annual growth, China would remain vulnerable to foreign attack until 2040 but, by adding capitalism to the economic mix, it could be invulnerable by 2020. Willing to trade socialist principles for safety, Deng told the United Nations, “Unless we develop, China will be bullied. For us, development is the only hard truth.” Acknowledging that this would create great inequality among his countrymen, he told⁠5 told them, “We should allow some regions and people to get rich first and gradually push for common prosperity later.” Since ‘later’ will begin in 2021, this is an appropriate opportunity to examine how we got here.Following Deng’s announcement, Western governments lifted their embargoes. Corporate profits soared as CEOs shuttered corporate labs, transferred jobs and knowhow to China, and lobbied for legislation that would place them beyond the reach of national tax authorities, weaken domestic regulations, reduce taxes, and privatize potentially profitable social services. By underinvested in productivity during slumps and over-invested during booms, corporations created a series of bubbles and recessions, while governments borrowed to replace lost taxes, slashed R&D, and de-funded national laboratories. Employment stalled, wages stagnated, infrastructure decayed, and educational attainment, social trust, and social cohesion declined.China headed in the opposite direction. Invited to lecture China’s planners, Nobel economists James Tobin and Milton Friedman explained America’s early investment in free universities, research, and infrastructure and the technocrats liked what they heard.Instead withdrawing from the market, Beijing decided to retain macro-control of the economy by balancing long-term investment and consumption, setting international terms of trade, controlling inputs like energy and commodities, and regulating the cost and supply of labor, capital, land and raw materials. Using surpluses from rural areas to fund the industrialization that accumulated capital stock, they grew the economy by ten percent and capital stock by eleven percent annually. They doubled real wages every decade by increasing productivity, lowering the cost of living through investment, and organizing resources so as to make the whole greater than the sum of its parts. Infrastructure lowered living costs through urbanization and distribution, increasing consumption and raising equality and, thanks to the network⁠6 effect, the more infrastructure they built, the greater the benefit.They understood that maximizing corporate profits does not create an optimal economy and followed the advice of another famous economist, John Maynard Keynes⁠7, “I expect to see the State, which is in a position to calculate the marginal efficiency of capital goods on long views and on the basis of general social advantage, taking ever greater responsibility for directly organizing investment.” For forty years, they organized more national investment than the rest of the world combined while, says Nicholas Lardy⁠8, “China achieved extraordinarily rapid economic growth after 1978 primarily because market forces came to play an ever larger role in resource allocation.” In some instances, they created natural monopolies for social benefit rather than financial gain. In others, they used cross-subsidies. Elsewhere, they produced fiercely competitive markets, like the automotive sector, where excess returns⁠9 are almost zero.Public debate was fierce. Wu Jinglian, persecuted during the Cultural Revolution for advocating ‘compensation according to work’ and later a visiting professor at Yale whom the media dubbed ‘Market Wu,’ was accused of being an American spy when he publicly charged central planning advocates with seeking payoffs. He campaigned for membership in the World Trade Organization and then, distressed by the resultant crony capitalism and inequality, championed social justice and millions bought his book, China's Growth Model Choices. Millions more watched⁠10 economist Zhang Weiying label China’s industrial policies ‘reworked Soviet planning’ and former World Bank Chief Economist Justin Yifu Lin⁠11 defend them, “Only when the market and the government play their respective roles can technological innovation and industrial upgrading proceed smoothly.”WTO data consistently showed manufacturers taking global market share and lowering prices, making manufactured goods available to more people and raising living standards globally. Growth remained steady for forty years, productivity and wages doubled every decade, inflation stayed low, tax revenues skyrocketed.Beijing’s visible hand conducts the orchestra, says economist Pierre Landry⁠12, “Central reformers direct and local state agents improvise. It is this paradoxical mixture of top-down direction and bottom-up improvisation that lays the foundation for the coevolutionary processes of radical change… One would expect the PRC to be one of the most centralized countries. Instead, Central government intervenes through goals, grants, praise, and promotions and China's observed level of decentralization is consistent with the behavior of a federal democracy. An IMF study found that, in 1972-2000, this figure averaged twenty-five percent for liberal democracies and eighteen percent for non-democracies. But for China the average figure was fifty-four percent for 1958-2002 and, by 2014, had risen to a staggering 85 percent.”By providing strategic direction, organizational integration, and funding for ambitious developments, planners encourage local governments to solve social and economic problems through Trial Spots. In the 1980s Yiwu, a sleepy town in Zhejiang Province, started an ‘International Trade Trial Spot’ and soon became the world center for small commodities like stuffed animals. Encouraged by Yiwu’s success, townships ran Trial Spots on smart towns; schools run Trial Spots on academic quality; labor unions run labor rights Trial Spots; state-owned enterprises trial cash and stock compensation plans; China Customs has trade facilitation Trial Spots at border crossings; and maverick officials try wild ideas knowing that damage will be contained and successes replicated (it helps that ninety percent of top CEOs are Party members⁠13). Congresspeople visit, inspect, and audit Trial Spot statistics and cashflows, calculate budgetary impacts, and debate their scalability, national repercussions and political viability.At the micro level, entrepreneurs incorporate fourteen thousand new businesses every day and file their licenses, tax registration certificates, organization code certificates, social insurance and statistical registration in one visit. State-sponsored business incubators provide them with legal advice, rent-free space, finance, lab access, prototyping equipment, and management guidance.The national investment portfolio includes twenty percent of the world’s most profitable⁠14 corporations, though some SOEs forego profitability for social benefit. So-called ‘zombies⁠15’ serve as labor sinks, absorbing, hiring and retraining millions of workers displaced by the closure of of polluting industrial plants or reductions in army manpower. Others import, process and distribute immense quantities of oil, natural gas, iron ore and alumina and, by absorbing commodity price spikes provide them to industry at predictably low prices. Says Justin Lin Yifu, “The invisible hand of the market cannot resolve problems connected to information asymmetry, negative externalities or coordination, so the government must play an active role…Both government and the market are partners in the economic dance.”This partnership makes the economy immune to Western-style, debt-fueled financial crises, partly because the financial system is state-owned and integrated with debt incurred by state-owned institutions, and partly because the debt finances productive investment rather than consumption. A US Federal Reserve study⁠16 suggested that high quality government debt actually creates surplus capital.Here we must pause to acknowledge that the Chinese, with their uniformly Confucian upbringing that stresses collective rationality over individual rationality, are more oriented towards duty fulfillment than we Westerners, who are adapted towards claiming our rights⁠17. Though they may lament a policy’s negative consequences (like relocating) for themselves, they are more willing to accept the need for personal sacrifice for the common good and place a great trust in public authorities. They have much higher respect for recognized authorities and experts, too, and more reluctant to publicly express critical opinions that differ from theirs.These characteristics meet another of J. M. Keynes⁠18 criteria for collective action, “Planning should take place in a community in which as many people as possible, both leaders and followers, wholly share your own moral position. Moderate planning will be safe if those carrying it out are rightly orientated in their minds and hearts to the moral issue.”________________________________________________________________1 Mencius, Confucius’ principle disciple, was born a century after the Master’s death.2 The Enigma of China’s Growth. Zhiming Long and Rémy Herrera. Monthly Review, Dec 1, 20183 Productive capital stock measures the capital services provided by the capital stock like machinery, tools, industrial buildings, dams and railroads.4 Speech By Chairman of the Delegation of the People’s Republic of China, Teng Hsiao-Ping, At the Special Session of the U.N. General Assembly. April, 10, 1974, convened by Algeria to discuss Raw materials and Development.5 During his southern inspection tour in early 1992, Deng addressed common misgivings and confusions about China's reform and development.6 When a network effect is present, the value of a product or service increases according to the number of others using it–as we see with the Internet.7 The General Theory of Employment, Interest and Money (1935). Book 4, Chapter 12, Section 8, p. 1648 Economic Growth and Distribution in China . Cambridge University Press, 19789 The return earned by a stock above and the risk free rate of return–usually the return on short-term government treasury bills.10 Plan V. The Economist. Nov. 5, 201611 Demystifying the Chinese Economy. Justin Yifu Lin. Cambridge University Press12 Decentralized Authoritarianism in China. Pierre F Landry. Cambridge University Press.13 Beyond Ownership: State Capitalism and the Chinese Firm. Curtis Milhaupt, Wentong Zheng. Geo. L.J. 665, 671 (2015).,14 Top Five Banks Are in Asia. Financial News Asia, November 27, 2019. Forbes Global 500 201815 Companies with insufficient profits to cover interest payments and repeatedly refinance their loans:1,439 EU, 923 USA, 431 China. Nikkei.16 ”Is Government Spending a Free Lunch? -- Evidence from China.” Federal Reserve Bank of St. Louis Working Paper. Xin Wang and Yi Wen. Macroeconomic Effects of Government Spending in China17 The pros and cons of Confucian values in transport infrastructure development in China Martin de Jong. Policy and Society 31 (2012) 13–2418 J.M. Keynes letter to Friedrich A. von Hayek, June 28, 1944. In the Friedrich Hayek Collection at the Hoover Institution, Stanford University.

A good long-term investment: The Federal Reserve Bank of St. Louis reports that the average price of homes sold in the United States rose 28% in 10 years starting in 2009 and 10% from 2014 to 2019. Even if the value of the structure itself depreciates, the land on which it sits can become more valuable. You are investing in an asset for yourself rather than a property management company.Building equity: Your equity is the difference between what you can sell it for and what you owe. Your equity grows as you pay down your mortgage. Over time, more of what you pay each month goes to the balance on the loan rather than the interest, building more equity.Federal tax benefits: Mortgage interest is deductible, as is interest on home equity loans, property taxes and some closing costs when buying the home. However, Figgatt notes, tax law changes raising the standard deduction and capping deductions that can be taken on state and local taxes, make it less likely for younger people and those buying starter homes to enjoy those breaks.Greater privacy: Also, since you own the property, you can renovate it to your liking, a benefit of home ownership that renters don’t enjoy.Stable monthly payments: A fixed-rate mortgage means you’ll pay the same monthly amount for principal and interest until the mortgage is paid off. Rents can increase at every annual lease renewal. Fluctuating property taxes or homeowner’s insurance can change monthly payments, but that typically doesn’t happen as often as rent increases.Stability: People tend to stay longer in a home they buy, if only because buying, selling and moving frequently is difficult. Buying a home requires confidence you plan to stay there for several years.

Millennials born in the 1980’s are considered to be part of the Lost Generation. At risk of accumulating less relative wealth than generations before. If you are a millennial born in the ’80s you have likely faced plenty of financial obstacles. By no choice of our own, we came to age during the Great Recession.I’ve been saying it for years, millennials may never be as rich as our parents. Unfortunately, the Federal Reserve Bank of St. Louis agrees with me. Their claim is actually based on statistical analysis…as opposed to my gut feeling. This confirms a lot of my frustrations!The study concluded that millennials, particularly those born in the 1980’s, are at risk of piling up debt and ultimately accumulating less wealth in a lifetime than any other generation. We’ve been deemed the “Lost Generation”.For us living in expensive cities, many of us have little hope of ever becoming more wealthy than our parents. Or so it seems…Remember that the Millennial Generation consists of those born between 1982 and 2004. The years differ based on who is defining it, so for the purpose of our community, millennials are everyone who reached adulthood in the 21st century.But there’s a distinction. For those of us born in the 1980’s, we finished college in the mid to late 2000s, and attempted to enter into the workforce. Right during the Great Recession.The Great RecessionThe magnitude and impact of the Great Recession varied by region. For those who might not remember, the Great Recession was a time of general worldwide economic decline during the late 2000s and early 2010s. Many of us millennials entered the work force during this time period! Or at least tried, often with defeat.Due to the decrease in job availability, many millennials decided to go back to school for a graduate degrees, with the hope that the economy would strengthen by the time we finished. This only increased our student loan debt.The Great Recession significantly widened the economic gap between the young and old.Unique Financial Struggles Of The Lost GenerationDebtI mentioned student loan payments above. This high cost of eduction did not lead to higher salaries for many millennials. The Lost Generation carries more student loan debt than all previous generations. An investment in education did not pay off for many, unfortunately (yet).Furthermore, this generation also carries car and credit car debts that are extremely unproductive.We are swimming in bad debt.UnemployementI’m repeating myself here for effect. The Lost Generation began their working life during a time of massive unemployment. In 2009, the unemployment rate was at 10%. By comparison, in April 2018, the U.S. unemployment rate was at 3.9%.The Great Recession was also a time of shaky investment markets and weak wage gains.This underemployment, coupled with expensive living costs in cities, student loan payments, and bad debt, make it hard for millennials to get ahead.Cost of LivingOlder generations always try to compare their woes with ours. “Back in my day, I worked twice as hard for half as much”. Ok, fair, millennials have benefited from nearly a 70% wage increase since the 70s.That said, this salary increase has not kept up with cost of living inflation.Rents and home prices, nearly everywhere in the U.S., increased faster that wages. That goes with school tuition, child and healthcare costs, and entertainment!Real EstateOwning real estate, and building equity, can be beneficial to financial stability.Unfortunately, the Lost Generation were generally too young to have purchased a house before the Great Recession hit. Those that did own homes prior to the recession recovered from the recession more quickly. Home values have seen an explosion in recent years.Due to the struggles listed above, it will take the Lost Generation much longer to save for a down payment compared with other generations. Furthermore, only 45% of millennials from the Lost Generation currently own real estate, which is considerably less than expected and less than other generations.How Do Millennials Avoid Being Poorer Than Our Parents?I’m an optimist at heart, and believe that with hard work, the lost generation is going to be ok. We have higher educational levels than other generations, which may turn out to be a benefit…in the long run.Most importantly, we have the gift of time. Time to focus on budgets, saving, and investing for the future. It’s time to get serious and focus on finances.How are you going to spend your time?These are not ground breaking recommendations, but I truly believe they will help you become more financially secure in the long run.1. Prove the Millennial Stereotype Wrong:People think millennials are entitled and lazy. I think millennials are creative, outside the box thinkers who like to have fun. Let’s leverage these positive attributes and find ways to fun while making more and saving more money. Prove the naysayers wrong by working hard and thinking big.Did you know that one in two millennials have a side hustle to bring in a second stream of income? Perhaps this is a survival technique to dig ourselves out of the Lost Generation hole. It is definitely not an example of laziness.RELATED PAGE: Are you looking for a guide to help plan an effective side hustle?2. Get Serious:As you read above, the odds are against us. Let this motivate you to focus personal finance. Take a deep breath and make your intentions known. Write out your goals.3. Educate yourself:Did you know that two thirds of Americans routinely fail a simple financial literacy test? This may be because we are not taught the basics of budgeting, saving, or investing in our primary or secondary eduction. See if you can answer them correctly.Read: There are so many resources out there. A must read book is Your Money or Your Life by Vicki Robin. She presents “9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence”Create a budget: You’d be surprised at how few people actually create a budget and track their cash flow. I use Personal Capital to help. It’s free and easy to use.Save and Invest: Do you have a cash safety net saved up to cover your expenses for 6 months? Do you contribute to an employer sponsored 401(k)? Do you have an after tax investment account? Focus on this.4. Get Rid of Your Credit Card for a Few MonthsEvery now and again, see try giving up your credit card for a month or two. Millennials use credit cards as a payment safety net way too often. This will force you to only buy what you can afford.5. Student Loan EliminationThe average millennial leaves college and enters the professional world with an average $27,000 of student loan debt. If you finished school in 2016, the average student loans debt was a whopping $37,172! Over 70% of students leave school owing money for their eduction. I call this the curse of the millennial student loan syndrome.I developed a Student Loan Elimination Guide and worksheet to help pay down those student loans.RESOURCES: Get these resources sent straight to your inbox.5 Money Mistakes Millennials Make When Living in CitiesAre you a Millennial Living in an Expensive City?Financial Literacy For Millennials