Economies, like ocean tides, rise and fall. So, too, they fall and rise. Sometimes a rising tide floats up all boats…even those captained by freeloaders. Other times a falling tide pulls down vessels crewed by even the most industrious deckhands.
There are times when just showing up to work each day is rewarded with abundance. Conversely, there are times when showing up and working like a mule earns you a kick in the teeth. No doubt, most anecdotes of recent years have been of an economy yielding few rewards and plenty of hard knocks. On Monday the Fed confirmed such anecdotes…and it’s worse than we thought…
According to the Fed’s Survey of Consumer Finances, U.S. wealth fell nearly 40 percent between 2007 and 2010…erasing 18 years of gains for median U.S. household net worth. Specifically, median net worth declined to $77,300 in 2010 from $126,400 in 2007. The last time median net worth was at this level was 1992.
Obviously, the housing crash – and the disappearance of illusory wealth – was the main contributor to the decline in middleclass net worth. But incomes are falling too. In fact, according to the Fed, the median family income fell from $49,600 in 2007 to $45,800 in 2010, which amounts to a 7.7 percent decline.
For some, however, losses have been much greater…
Meet the Smith Family
Take the Smith family of Morris County, New Jersey. “Four years ago, Mr. Smith lost his six-figure job of twenty years at a telecom company and ended up selling shoes for $10 an hour,” reports CNNMoney.com.
“He quickly depleted his 401(k) as the family went from $130,000 a year in income to just $15,000. In this area of New Jersey, the United Way says it takes at least $60,000 a year for a family of four just to get by.
“The $250 in food stamps his family gets could come to an end soon because he has a new job selling janitorial supplies, putting him over the threshold for aid. He’s now making about $15 an hour, while his wife works part-time at a local bakery, for $9 an hour. That’s raised their yearly income to about $18,000.
“Unable to sell their home, the Smiths stopped making mortgage payments in 2009 and expect to be foreclosed on any day now. At that point, they hope they’ll be able to move in with friends.”
We don’t doubt that the Smiths are decent people. They just happened to be in the wrong place at the wrong time. Through no fault of their own they’ve been whipsawed by the reverse of the debt super cycle. How could they’ve known that this has been bearing down on them for the last 60-years?
Of course, this was a situation well beyond their control…but they must live with its effects.
Faux Capitalism and the Great Middle Class Debt Anchor
Regrettably, there are millions of other families just like the Smiths. Despite years of hard work and diligence their finances have been thoroughly destroyed over the last five years. Some of these families, unfortunately, will never fully recover.
Since 2008, the Fed’s put policies into practice that had only before been uttered during the most harebrained of academic thought experiments. For example, they pushed the federal funds rate down to practically zero. Next they created $2.3 trillion from nothing and loaned it to the treasury. Nonetheless, the unemployment rate’s still above 8 percent…and that’s not counting all the souls who’ve dropped out of the labor participation rate.
Moreover, apart from encouraging massive government debt, these crackpot actions by the Fed have only hurt the middle class. In this respect, the massive debt that the Fed provided will be an anchor chained to the middle classes ankle forever. Children who’ve yet to be born will be working their entire lives just to service the debt on the phony money created to bailout the banks.
Quite frankly, we don’t like it one bit. Yet, sadly, this is the current state of faux capitalism that’s practiced across the western world. Profits flow to the rich and powerful. Losses are socialized at the expense of the middle class.
The middle class, for sure, are a resilient group. They’ll get repeatedly kicked in the teeth for the small hope that their lives will improve. In the face of being dealt a bad hand they somehow manage, through scrap and perseverance, to rise again. But add another five years like the five years that have just passed and they may finally fold and walk away.
Alas, that’ll give the government the opportunity they need to put in place the next great program – and next great power grab – to save us all by making things worse.
Sincerely,
MN Gordon
for Economic Prism
Return from Faux Capitalism and the Great MIddle Class Debt Anchor of All to Economic Prism
