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What does it mean to be Middle Class in 2010? – No College Degree, Massive Amounts of Debt, One Health Crisis from Bankruptcy, and Beholden to the Banking Elite.

Posted by mybudget360

Being middle class today does not carry the financial security that it once carried in the 1950s and 1960s.  Interestingly enough, many Americans at that time did not own stocks yet somehow they managed well because they had access to affordable housing without toxic mortgages and many had the ability to work with one company and have some kind of security from their company.  It was a mutual relationship as even Henry Ford shook the auto manufacturing world by upping wages for his workers.  Yet today, we are being fed distorted information from Wall Street that we need to have this system where workers are disposable entities only to increase the profits of the corporate class.  If people are hurting so much why are we paying billions in bonuses to a small group of people that really haven’t helped the country?  In fact, many of these are directly responsible for our current economic problems.  At the root, this has been the cancer that has eaten away at what it means to be middle class.  Social government welfare for Wall Street and Darwinian capitalism for the rest of us.

The middle class has it extremely tough today not because of random events but purposeful and directed robbery from Wall Street.  This was a methodical and planned dismantling of the system.  First, let us walk through some details of the middle class to create a profile:

Source:  Census

The most common household formation in the U.S. is a married couple.  Certainly this has changed over time but this is the most common arrangement in the U.S.  But this has also led to the two-income trap that we have heard about so often:

Even though nominal wages are much higher today, inflation has eroded the buying power of Americans so much that even two incomes today cannot compete with one income forty years ago.  After all, if you could buy a car with $200 then $1,000 would seem like a lot.  But what is a $50,000 household income when home prices cost $250,000?  This is really the essence of what has broken the middle class apart.  Prices rose to astronomical levels because Wall Street created speculative casino products and injected the virus into the system.  The middle class today is fearful of even having enough to retire.  But beyond even retiring, many people have very little saved:

Now Wall Street would lead you to believe that people should just pucker up and save more.  Bailouts are only for Wall Street folks yet average Americans need to resurrect the ghost of Horatio Alger and pull themselves up from their bootstraps or hope that a rich uncle leaves them a nice inheritance package.  Yet what they forget is that we have a large part of our population that don’t even qualify as middle class:

38,000,000 Americans are receiving some form of food assistance.  These people are living day to day so saving isn’t even in their equation.  They are just trying to get by.  These are the folks waiting at midnight at Wal-Mart waiting for their debit cards to reload just so they can buy food for their family.  Do you think they are interested in investing in the next hot stock?  Even as hard as it is to be middle class, poverty has been amplified in this recession:

10% of all U.S. families are in poverty.  Yet the rate is a bit higher if we actually go by food stamp data.  The average household size is 2.61 in the U.S. so many families are struggling with children as the above data reflects.  Yet you would expect the middle class to have a better chance at going forward but more and more middle class families are entering what is now being called the working poor.

Wall Street and the banking system is at the core of this mess.  They didn’t create poverty but they have amplified it by setting up a system that has now pushed millions of Americans into foreclosure.  Why all of a sudden did Americans start gambling with their homes only when Wall Street got involved?  They have created a new financial fiefdom where they can siphon off resources from the productive sector of the economy all from the comforts of their NY,NY offices.  Even the idea that all Americans own stocks is not exactly accurate:

The top 1 percent control 42 percent of all financial wealth in this country.  And wealth is the key here.  So what if you have a $500,000 home if you have a $600,000 mortgage.  You are not wealthy.  So what if you have a leased BMW but have $30,000 in credit card debt.  You are not wealthy.  This is what Wall Street sold to America in the disguise of wealth.  And people bought it up at the expense of the prudent.  But that veil is now gone.  And who has the wealth?  This is what happens when you make a pact with the financial devil.

We must educate ourselves in order to have any fighting chance to have a solid middle class:

The sad fact above is these stats come at a time when public education is falling by the wayside.  We’ve had some of the cheapest and best public universities the world has seen.  That era is coming to an end as banks run the student loan market and for profit education is charging ridiculous amounts of tuition that are crushing the middle class.  As of 2008 only 27 percent of Americans have a four year degree or higher.  Now how will this number increase in a time when educational costs are going up and wages are stagnant?  As long as you have a population that is unaware of what Wall Street is doing, they can keep doing their robbery in the open.

We also have an aging population:

That 65 and over category is going to explode in the next decade as baby boomers enter retirement.  Many were betting on housing appreciation and unrealistic stock market returns for a long and prosperous retirement.  Instead, Wall Street has taken the money and many will have to work well into their retirement years.  One illness can wreck their entire financial nest egg (if they have one).  The notion that middle class meant a secure retirement is now gone.  And with health care costs rising more and more money will go to this category.  Education and health care are cornerstones of what we consider middle class living and this sector is enormous in terms of employment:

21% work in education services, and health care and social assistance.  This number is likely to increase given demographic trends.  Yet who are we really serving if students go into $40,000, $60,000, and even $100,000 in debt for degrees that don’t provide them adequate training to survive in a corporatist economy?  The banks don’t mind because they can saddle a young person with a stream of income for multiple years and have the government pay the bill.  How about we take banks out of the equation and require people to pay a sizeable portion of their education?  Ironically, this would lower costs.  It doesn’t have to all be upfront but allowing the current system to go on is criminal.  If you want proof look at the housing market.  Now that people have to document some income housing prices have collapsed.  The for profit schools only require 10% of funds to come from the students and then the government matches 90%.  In reality, these schools take that 10% on a credit card so this is really a zero down education.

The story of Wall Street is the story of putting Americans into debt.  If you really want to know where the middle class went you can look at the absurd amounts of debt.  And this idea that everyone is rich is pure propaganda:

Only 34% of U.S. households make more than $65,000 per year.  And that number is now much lower since this is based on 2008 data.  When we look at luxury auto sales they do not reflect the actual wealth in our country.  Much of it is pure debt financing.  All hat and no cattle as they say in Texas.

And we can see inflation eating away at purchasing power:

Just look at 1950.  The median household income could purchase the median home with twice their annual income.  In 2006 it required 4 times that income.  Even in 1980, the median household income could buy 3 cars with that salary.  Today, it is more like two.  And this is even more distorted because we have more two income households.

So the middle class is really facing a struggle in 2010.  But this just didn’t happen.  This was a forty year systematic robbery of the compact Americans had with government and the business community.  Where we go from here really depends on how much people value the middle class and coalesce to bring Wall Street in check.  So far things aren’t looking good.

How the Middle Class Slowly Evaporated in the Last 40 Years – Loss of Manufacturing, Bank Deregulation, Hyper Consumption, and Short-term Profit Seeking from Wall Street.

Posted by mybudget360

Some like to think that the middle class has always been a fixture of American society.  In fact, the rise of a steady and strong middle class didn’t happen until after World War II.  Clearly people can’t look at the economically painful Great Depression, which rampaged the nation from 1929 to 1939 as a good time for average Americans?  In fact, even a few years after World War II the nation hit a few rough patches with price controls and millions of Americans rushing back into the workforce.  But with many of the industrial economies in tatters in Europe and Asia, the U.S. had a well positioned spot for decades of strong growth.  But make no mistake by looking at history that we were producing and manufacturing goods for the world.  And things seemed to work out well for many Americans even with a robust manufacturing base.

The above chart is extremely telling.  There are many reasons and explanations for the Great Depression but World War II clearly got our employment machine going.  That is something that we are struggling with today.  After all, even with the two wars going on today, much of the warfare doesn’t require heavy machinery like fleets of tanks.  What use are thousands of tanks if someone with an improvised explosive can do just as much damage?  So simply saying war is what will drag an economy into production is not necessarily true especially in the modern era.

The middle class today has it very different from the same family in the 1950s.  Back then, one blue collar income was enough for the purchase of a modest house, a car, and a bit of money for savings without going into massive amounts of debt.  That is no longer the case.  Even though in the last year debt loads have fallen (because of bankruptcy and millions of foreclosures) American households are still highly over leveraged with debt:

Here is some stunning data for comparison:

1953 Household Debt (mortgages, auto loans, etc):         $106 billion

1953 GDP:                           $379 billion

2010 Household Debt:   $13.5 trillion

2009 GDP:           $13.1 trillion

*Real US GDP (2000 Constant Dollars)

So we went from household debt being 27 percent of GDP to where we are today where household debt is nearly 100 percent of GDP.  This is clearly unsupportable and as the chart above shows, we can expect more deleveraging in the years to come.  As Stein’s Law will have it “if something cannot go on forever, it will stop.”

Bank Deregulation (No Enforcement)

Since the 1970s, strong regulations that were in place to keep the banking industry in check have come off letting the wild hyena loose.  Those that argue today that we have too much regulation are right but it is weak regulation in agencies that have no power (obviously since this decade was a Wall Street Wild West).  Simple regulations like usury or even checking income before making a loan were all removed.  So in 50 years, we went from very little debt and high levels of production to massive consumption fueled by easy money.  But when things went bust the net was pulled for average Americans while Wall Street racked up trillions in taxpayer money.

Since you need an army for this kind of fraud, this is what has happened over the decades:

As the manufacturing base slowly drifted away starting in the late 1970s the financial and real estate part of the employment equation exploded.  With massive amounts of deregulation, capital flowed to any industry regardless of the long-term implications to the U.S.  We are seeing some of those longer term trends now hitting us.  At this point, it is like reversing the Queen Mary in the middle of the ocean.  This is actually an important debate to have yet few are exploring this at least at the national level.  Some use the price point argument.  They argue that it is fantastic that we can get cheap goods from other countries.  But they usually ignore the cost (see above).  In an ideal world, there would be a balance between exports and imports for any country.  These are usually your perfect case examples in economics.  But right now, if we look at our trade deficit with China for example it is anything but balanced.  Is it any wonder the U.S. Treasury walks on a fine line when discussing policies with China?

Many multi-national companies are doing well in this recession even though we have an underemployment rate of 20%:

If you would have asked someone if you could envision a 70 percent stock market rally while 20% of Americans were unemployed or underemployed people would have laughed.  But that is the new structure we currently have with the corporatacracy running the system especially when it comes to financial reform.

The Short-Term Fix

Think of all the horrible short-term policies that have led us to this mess.  What benefit did we get by offering zero down toxic adjustable rate no verification mortgages?  The only benefit came from mortgage brokers getting $10,000, $15,000, and even $20,000 commissions by putting Americans into toxic financial time bombs.  The other winner was Wall Street who then packaged this waste and sold it off to investors globally but also found its way into the funds of many American pensions and retirement accounts.  How did this help our economy?  What use did this serve?  Or what about the billions in overdraft fees usually pushed on the poorest in our country?  The notion that anything can go flies in the face of thousands of years of human history.  Wall Street made trillions gambling and making money on short-term instruments that really did not improve the overall economy.  In fact, they were parasites that have now created this deep financial mess we are in.  And here we are with no serious financial reform over two years into the crisis.

One thing that really isn’t talked about is whether we want to protect the middle class.  This is a legitimate debate we should be having and should be priority number one.  So far, the banking angle has been that without the enormous bailouts, the middle class would have suffered.  This was of course merely fear mongering to make sure the financial structure stayed in place.  If we continue on this current path, a Japan like scenario in terms of part-time employment is possible.  A population where a third of their workforce is employed part-time yet headline unemployment is at 4 or 5 percent.  And this notion that we have no money is absurd because that hasn’t stopped Wall Street from getting $13 trillion in bailout funds.  We may not have the money but somehow we were able to funnel that much there way while the middle class is feeling the pinch from every angle.

Middle Class Americans Losing Financial Ground on Retirement – As Stock Market Rebounds more Middle Class Americans Have Less Money and Fewer Jobs. How is Health Care Spending Boosting GDP a Good Thing?

Posted by mybudget360

As more and more data is released on this Great Recession it is becoming abundantly clear that we have two tracks people are following.  On one track where most travel, we have middle class Americans dealing with the highest unemployment in a generation while seeing their net worth dissolve.  On the other side of the road, the one lane highway for the tiny percent of the extremely wealthy, we see an extraordinary jump in wealth since the depth of the crisis in March of 2009 when the S&P 500 touched that unholy number of 666.  It must seem like a cruel joke that with the stock market being up nearly 70 percent since that low point in 2009, the vast majority of Americans are wondering why they don’t feel much of that rally when they open their wallets.  The reality is that most Americans are not invited to this resurgence and in fact, the destruction of the middle class is partly a reason for this stock market rally.

Take for example what Americans are saving.  A recent survey from the Employee Benefit Research Institute’s annual Retirement Confidence Survey found some startling data:

43% of workers in the survey stated they had less than $10,000 in savings while an amazing 27% of workers said they had $1,000 saved.  Many of these Americans are one illness or a job loss away from being broke (many are called the working poor).  It is no surprise that the survey found that only 16% of those who responded felt comfortable about retiring, the lowest rate in a generation.  What this survey highlights is that more and more middle class Americans are going to struggle in their retirement.  Thanks to the Federal Reserve artificially slamming interest rates lower, many Americans on fixed incomes or Social Security will see no cost of living adjustments even though their daily cost of living items will increase in price.  This is targeted destruction of the middle class.

And keep in mind this survey is comparing 2009 and 2010.  What happened to the rally here?  Workers clearly did not participate in the stock market rally.  Why?  Because a large part of the rally also hinged on “productivity gains” which is a nice euphemism for laying off people and making current workers juice out more production.  So this translates to great profits for the Wall Street elite while unemployment in the last year has done this:

Source:  BLS

It might be hard to save for retirement if you are getting fired.  And that is what millions of Americans experienced in 2009 as the stock market went on a massive rampage as Wall Street was fueled by taxpayer bailout money and decided to load into stocks.  Keep in mind that many of the large multinational companies are making a boatload of their profits internationally.  This is great for those companies but as most Americans know, small business is the juice of the American economy and most small businesses sell to domestic clientele.  A clientele that is increasingly poorer and unemployed.  We used to call this group the middle class.  This isn’t lost on some:

“(RR) Companies in the Standard&Poor 500 stock index had sales of $2.18 trillion in the fourth quarter, up from $2.02 trillion last year, and their earnings tripled. Why? Mainly because they’re global, and selling into fast-growing markets in places like India, China, and Brazil.

America’s biggest companies are also showing fat profits and productivity gains because they continue to slash payrolls and cut expenditures. Alcoa, for example, had $1.5 billion in cash at the end of last year, double what it had on hand at the end of 2008. Sounds terrific until you realize how it did it. By cutting 28,000 jobs – 32 percent of workforce – and slashed capital expenditures 43 percent.

The picture on Main Street is quite the opposite. Small businesses aren’t selling much because they have to rely on American – rather than foreign – consumers, and Americans still aren’t buying much.”

One of the disturbing trends especially when it comes to retirement is the massive increase in health care costs.  It is absurd to use health care costs (i.e., premiums, etc) to inflate GDP but that is exactly what is happening:

Source:  BEA

It is absurd that in 2008, as the economy was flying off a cliff and other service industries were contracting health care still managed to pull in 0.31 of the 0.32 gain in the entire year for this sector.  Take a look at 2009.  What service sector did the best in another troubled year?  Health care.  So to say that gouging Americans like the 39% hike in premiums in California is good for GDP is nonsense:

“(ABC) Reports that Anthem Blue Cross is raising premiums on some customers by 39 percent on March 1, have prompted the Secretary of the Department of Health and Human Services, Kathleen Sebelius, to write a letter to the company, Golden State’s largest private insurer, asking the company to “provide a detailed justification for these rate increases to the public.”

“Additionally, you should make public information on the percent of your individual market premiums that is used for medical care versus the percent that is used for administrative costs,” Sebelius wrote, noting that the profits of Anthem Blue Cross’s parent company, WellPoint Incorporated, have soared.”

Ask any middle class American about their health care costs and the likely story is that prices have gone up consistently over the last decade as incomes have gone stagnant.  How is this good especially when many baby boomers are now reaching retirement age with little savings as we have seen and are now going to shift a larger portion of their income to health care?

In many ways the health care industry is much in line with how Wall Street banks have operated for the last forty years.  They’ll gouge and exploit the middle class until every dollar you earn is either yanked by bank bailouts, health care costs, or taxes.  Let us run the numbers on a hypothetical family in California to see how this plays out.  We’ll use a family making $61,000 a year (Census 2008 data):

Now the above is merely a hypothetical budget.  I welcome people to comment on different items one way or another.  The above is a two adult household with no children with two cars.  This is very typical for California but I’m sure for other states as well.  But as you can see from the above, given that this household is at the median there isn’t much room for large amounts of flat screen TVs, expensive nights out on the town, or leased BMWs.  Yet many across the country lived like this and clearly that was on borrowed time and was all a ruse usually magnified by credit cards.  Now as many near retirement they are realizing that the only game in town is Wall Street and that has now become a large casino.

I know many people scream personal responsibility.  I’m the first to agree.  But there is this massive amount of cognitive dissonance when people blame the middle class and working class for this mess when Wall Street who created the financial instruments of destruction, not only got away with the biggest transfer of wealth in history, they are actually getting richer because of bailouts.  This is like putting a bank robber in prison for stealing $100 to feed his family while letting that same banker go to Wall Street and rob millions of Americans for billions of dollars and not only letting him go, but putting structures in place to make him richer!  Is it any wonder why there is so much anger festering in America?

Retirement is getting harder and harder for many middle class Americans.  What use is $1,000 a month in Social Security when your out of pocket costs for medicine is going to cost you $300 to $500 per month?  How did we do it before?  Stable banking that allowed people to pay off their mortgages and allowed people to live securely in their homes once they retired even with a small Social Security check.  But now, many have tapped out their equity and mortgaged their future.  Unlike Wall Street Americans don’t have access to the Federal Reserve.  Massive part-time employment, weak worker protection, a corporatocracy raiding the workers, and a disappearing middle class.  Get ready to work longer America because Wall Street needs that money to fund their bailouts and billion dollar bonuses for wrecking the economy.

FDIC and Federal Reserve Protector of the Big Banks – Four Institutions with Bank of America, JP Morgan Chase, Wells Fargo, and Citibank make up 55 Percent of all FDIC Backed Assets. Big Banks Pillaging the Middle Class.

Posted by mybudget360

The FDIC provides deposit insurance at 8,099 institutions.  Collectively the FDIC overlooks $13.247 trillion in assets at these institutions.  Instead of feeling protected you should feel weary because the FDIC deposit insurance fund is insolvent.  Now the assets at these institutions range from softer side financial instruments like CDs and regular deposits but keep in mind that saving accounts are actually viewed as liabilities on the balance sheet of banks.  This is money owed to you, the typical American saver.  What is more nefarious is that these banks label high flying “assets” like commercial real estate loans and home equity lines as assets.  In other words banks are optimistically pretending that many of their toxic assets are worth more than they claim they are really worth.  And what is even more disturbing is the too big to fail banks make up the bulk of the FDIC total asset pool.  Out of 8,099 institutions 4 banks in Bank of America, JP Morgan Chase, Wells Fargo, and Citibank make up 55 percent of that total asset pool:

Source:  FDIC, Bank Financial Statements

In the last couple of weeks, there has been much scolding being thrown at Greece for their spendthrift ways.  Yet has anyone really even looked at the balance sheet of our banks and country?  In fact, Americans are carrying nearly as much household debt as our annual GDP.  This is the so-called assets on the banks balance sheet:

The big four banks have been pushing households for over three decades at a blistering pace to go deeper into debt.  The middle class has been sold a bill of goods with the faux prosperity of the last few decades.  Certainly we have been able to consume more and purchase more goods but where has this led us?  We are now witnessing the highest foreclosure rate since the Great Depression.  Unemployment and underemployment has now pushed the rate up to levels unseen in generations.  Banks have become pushers of debt to the middle class and in reality, it was all a front to consolidate power in their corporatacracy.  The fact that only four banks control 55 percent of all banking assets is simply amazing.  It is an oligarchy in the banking sector.  And the troubled bank list keeps growing but the bigger banks will have no chance of failing (their risk is now transferred to the public):

Now why would there be a growing number of problem banks if the economy were truly recovering?  Your typical banks has to deal with the real world just like most businesses.  They don’t have the luxury of expecting bailouts for every misstep that they take.  They also interface with the middle class of America that are seeing their ability to keep up become harder and harder.  Everyone is being sold that “we need to tighten our belts” while these big banks are dolling out billions in taxpayer bonuses and somehow are adding no actual benefit to the real economy.  This is the conclusion of 40 years of irresponsible growth in the banking sector.  Finance was never intended to be a big part of our economy but that is what we have gotten over the years:

The trend is rather unmistakable.  Manufacturing topped out in the 1970s and the financial sector has grown nonstop and only this gigantic financial mess has slowed its growth.  Yet keep in mind where this slow down has occurred.  There are many more efficient and better run smaller banks and they have had to tighten their belts like everyone else but the too big to fail have gone on shopping sprees acquiring toxic mortgage outfits and investment firms like Bear Stearns or Merrill Lynch.  How is this part of the cutting back plan?  It is more of a coup from the corporatacracy to cement their concentrated power.

The big four are also part of the biggest issuers of credit cards.  As you may have noticed these banks while speculating on Wall Street and turning enormous profits in their investment units have done very little in advancing the cause of the middle class.  Instead, they have now gone after good credit standing customers to ring out every penny in absurd fees and gimmicks.  Some argue that people should simply not spend.  Well, if the American public had the same access to the U.S. Treasury and Federal Reserve I assure you that the playing field would be very different yet some of these people have the inability to see the macro picture of what is occurring.  You can’t tell the public to act one way while so much money is funneled back to the top.

The biggest propaganda fraud is how big banks try to confuse the public that they have actual choice in the various credit cards they have to offer.  Just because you can put a puppy on your card doesn’t mean a big bank won’t gouge you for every penny you have.  Take a look at the top credit card issuers:

*In Billions of $USD

The big four banks show up in the top six institutions.  As you can see our banking system is largely concentrated in a few hands and the Federal Reserve is merely concerned in protecting these gigantic institutions even if it means using middle class Americans as cannon fodder in this economic battle.  Even with mortgage rates, we keep hearing how wonderful rates are.  Well of course because we are destroying our U.S. dollar to allow banks to borrow at near zero percent!  And this is sold to the public as good?  Why not let the average American borrow directly from the Federal Reserve and get the same terms at near zero percent?   We are then told that banks need to verify the actual data.  How well did that turn out in this massive housing bubble decade?

The bottom line is the big banks are getting bigger in this current structure. This is unhealthy for the system.  Why?  Banks that ran inefficiently and took on too much risk should fail.  That is the nature of business.  If you run a horrible restaurant you will lose customers and ultimately fail.  With banking, as long as you serve enough crap throughout the system you will eventually rise to the top and then become part of the corporatacracy that is somehow unable to fail.  To the contrary, they have expanded and grown while every other business has to compete with tougher restrictions.  Even a basic definition of capitalism is sufficient to show us that banking is operating in a socialistic handout from D.C. to Wall Street.  In the end it is the middle class that suffers from this concentration of power in a few banks.

The Devaluation and Fight for Survival of the American Middle Class – How Three Decades has Shifted the Concentration of Financial Wealth to the top 1 Percent.

Posted by mybudget360

The American middle class ideal is lionized around the world.  It is the core of what has made this country great.  The land of opportunity and endless wealth so long as people worked hard enough.  It was an implicit contract workers made with this country.  Well that vision is now quickly coming under attack by the corporate structure with banks being the main culprits leading the American middle class to the edge of financial ruin.  The average American is looking at their current economy and wondering what ever happened to the security that was once provided to the “greatest generation” era.  The Wall Street crowd after devouring their bailouts is telling Americans that this is simply how the market corrects.  Yet at the same time, they are offering record bonuses to their elite.  The same banking crowd that led this country to the financial edge is now rewarding itself with massive bonuses (taxpayer funded) while jobs are being lost and no industry is emerging to provide work to the middle class.  As tough as it may be for many to swallow we are in a class warfare struggle.  That is why you are seeing populist rage growing in both of our entrenchment political parties.

If you are wondering why those on Wall Street have a hop to their step, it is because the stock market wealth is concentrated in the hands of very few:

The top 1 percent control 42 percent of financial wealth in the United States.  Now think about that fact.  Let us assume you have saved diligently for a few years into your 401k.  Before the crisis hit, you had amassed $100,000 (much higher than the median amount for Americans but we’ll just use this to highlight our point).  At the low, that $100,000 was probably down to $50,000 even being diversified.  With the major run up, the amount might now be back to $75,000 to $80,000.  Has the life of the average American really changed?  This money is actually retirement funds and this amount is not going to make a big difference in the way people live on a day to day basis.  Yet those in the top 1 percent with the current shift have seen billions go their way and this does make a big difference since many draw off capital gains on a yearly basis.

The 401k structure is problematic in many ways.  It is a method to lure in money from people to give them a taste of the Wall Street money machine.  Most of these funds are designed for retirement.  And with massive baby boomers retiring in the next few years, billions of dollars in funds will be sold into the market (which ironically will add pressure on prices because of demographic shifts).  This will push prices down right when people will start drawing from their nest egg.  The notion that you can garner 7 percent each year into infinity is a fallacy that has been exposed in this market crash.

We have been getting richer as a nation overall.  This is true.  But why is it so hard for average Americans to now get by with two incomes when one income seemed adequate 40 years ago?  The income gains have largely gone to the top 1 percent from 1979 to 2005:

Source:  Wikipedia

The above gains are inflation adjusted over three decades.  While income did increase across categories this distribution was not even.  It was largely shifted to the top of the pile.  Now it would be one thing if the top was being run by companies that actually provided jobs for a large part of America.  But it isn’t.  You have CEOs of Manhattan banks that are trading derivatives on toxic mortgages and betting up oil futures all so they can skim the system for money.  How has that added value to our country?  It hasn’t.  All it has done is transformed part of our economy into one subsidized taxpayer casino at the expense of the working middle class.

If you want to visualize this class division, it would roughly break down like this:

But even here, the top 1 percent isn’t even reflected.  Even working families with say a nurse and an engineer can bring in $100,000 to $150,000 a year.  But with things like the AMT even this tranche is feeling the burden.  The big transfer of wealth is going to the top 1 percent:

“(Wikipedia) As of 2005 there are approximately 146,000 (0.1%) households with incomes exceeding $1,500,000, while the top 0.01% or 11,000 households had incomes exceeding $5,500,000. The 400 highest tax payers in the nation had gross annual household incomes exceeding $87,000,000. Household incomes for this group have risen more dramatically than for any other. As a result the gap between those who make less than one and half million dollars annually (99.9% of households) and those who make more (0.1%) has been steadily increasing, prompting The New York Times to proclaim that the “Richest Are Leaving Even the Rich Far Behind.” Indeed the income disparities within the top 1.5% are quite drastic. While households in the top 1.5% of households had incomes exceeding $250,000, 443% above the national median, their incomes were still 2200% lower than those of the top .01% of households. One can therefore conclude that almost any household, even those with incomes of $250,000 annually are poor when compared to the top .1%, who in turn are poor compared to the top 0.000267%, the top 400 taxpaying households.”

So we see where the money is really going.  Even if we break down a family in California earning $100,000 you can see what was once considered rich is no longer the case:

And for those out in high cost states they will realize that a $350,000 home does not buy you much even after the tremendous crash in housing values.  The cost of healthcare is rising and college costs are going up so with one child, they will want to set aside some money if they want to see their child have a decent college education when they are ready to go.  And keep in mind that making $100,000 puts you in the top 17 percent of households in the U.S.:

So in reality, we should look at household that brings in $65,000 per year to get a more accurate feel of what the middle class is going through:

So after taxes, this family is taking home $4,240 a month.  With rising taxes, higher food costs, healthcare rising, and wages stagnant you can see how the middle class is falling behind on a daily basis.  We can further breakdown the class distribution as follows:

We do have class in our system and the biggest misnomer that has been perpetrated is that somehow, our goals are aligned with those of the banking Wall Street elite.  How much longer do people need to realize that both political parties seem to serve one master and it has an address on Wall Street?  The debates and battles seem to amount to this charade because once it comes time for policy, nothing gets done.  Even Elizabeth Warren who is fighting for basic consumer rights is finding it even hard to get through because of banking lobbyist:

“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street — and the mortgage won’t even carry a disclosure of that fact to the homeowner.”

The battle has gotten intense.  Credit card companies have been doing criminal activities by jacking fees up and setting up traps for consumers before simple regulations come into effect.  Banks have pulled back on lending to average Americans while profits from stock speculation have soared.  They don’t call it speculation but label it as hedge funds, proprietary trading, or some other Orwellian language that hides the true nature of the system.

With the underemployment rate at over 17 percent and bankruptcies, foreclosures, and other financial distress rising for average Americans one small chunk of our population is benefitting on the backs of bailout funding.  This has been characterized as it “taking a plunder” to rip off the village:

So what you do is take from the public:

Source:  It Takes a Pillage

And give to the people that created this crisis:

I completely agree with Elizabeth Warren who is adamantly arguing that we are at a cross-road in terms of defending the middle class of this country.  Instead, Wall Street enjoys the fact that Americans are split down the middle on issues and fighting over petty things while trillions keep rolling into their coffers.  Time to wake up and see what is really happening to our nation.

The Rise of the Cashier and Retail Salesperson Economy – Employment and the Evolving Job Market of the United States – 8 Million Jobs Lost in this Recession but Deeper Financial Changes are Coming.

Posted by mybudget360

The recession that started in December of 2007 is still causing jobs losses even after 25 long and agonizing months.  Most Americans still feel that the economy is deep in the midst of a serious correction.  Since the recession started non-farm employment has shrunk from 138.152 million to 130.91 million.  Officially over 7.2 million jobs have been lost but a coming revision next month will show that 8 million people have fallen off the non-farm payroll figure.  Many are trying to figure out how the bailout of Wall Street and the banking sector has improved the underlying system holding up the economy.  Recent political movements show that Americans are still not satisfied with how the economy is being handled.  One thing not being covered by the media is that anger among the population is coming from the poor state of the economy.  Other factors are important but the economy is the number one topic on the minds of most Americans.

If we look at where the jobs losses are coming, we will see that manufacturing has taken another major hit in this contraction:

Every industry has seen significant job cuts.  It is interesting to look at the financial sector and see how well it has done in comparison to other sectors.  No wonder why Wall Street since March of 2009 has been on a historic rally.  Fascinating how in the last few days when mention of breaking up the too big to fail banks was brought about that we had our first major correction in nearly a year.  Could it be that the only way banks are making money in this current economy is by gambling in the stock market?  Absolutely.  In fact, most of their profits aren’t coming from making loans to average Americans but by trading and acting like pseudo-hedge funds except the banks are using taxpayer money as their safety net.  If you truly believe in capitalism then you understand that too big to fail should not even exist.  Creative destruction is part of a capitalistic system.  Right now banks are operating in a system that offers them different rules from typical Americans who are seeing their jobs disappear.  It is a two-tiered system.

It may also be the case that the system is learning to make do with part-time employment:

You rarely here that employment is a lagging indicator from reputable sources because of the cynical nature of this old economic mantra.  This line is as old as saying real estate prices never go down.  Sure, in previous recessions you would see the economy bounce right back up after a correction but this isn’t one of those typical recessions.  This is a generational correction and old rules of economics don’t play anymore.  Temporary help hiring has increased but the system isn’t hiring any full-time workers either on a net-basis.  In other words, we are still losing full-time jobs.  Businesses have learned to tweak their employment base to a much finer degree so the need for full-time workers with all additional benefits and compensation may not make financial sense.  In the end it is the average American that is thrown under the bus.

Our employment base has also shifted to a major focus on service orientation.  If we rewind to the 1940s and 1950s a large part of our economy revolved around manufacturing.  This isn’t to say that having a large manufacturing base is necessarily good or bad but a large part of Americans had a job that was stable and also provided an income that would make it easy to pursue the American dream.  What did this mean?  Being able to buy a home and support a family without going into massive debt that would put you at risk for bankruptcy and foreclosure down the road.  The rise of the two income household is a positive but it is also an economic necessity for many.  The typical American household brings in $52,000 per year.  Considering this is the median for a household, you can see how quickly losing one job can send a family into a financial tailspin.

And if we look at the top jobs in our country, we realize that we have replaced manufacturing with a near obsession with service oriented jobs:

Source:  BLS

I find it amazing that the two biggest occupations include retail salespersons and cashiers.  If you consider that a family might have one worker in each of these fields, they wouldn’t even come close to meeting the median annual household income of $52,000.  And go down the list.  The vast majority of the jobs above pay slightly above the federal poverty level if someone were to have a family.  It is no wonder that many households went into debt using toxic credit cards that change fees at the drop of a hat.  I find it amazing how quickly some people are to judge these people for financially mismanaging their budgets but at the same time, remain silent on the financial shenanigans of the banking sector that is largely responsible for this financial mess.  The cognitive dissonance is palatable but it is clear that the vast majority of Americans see this distinction and are lashing out at Wall Street and rightfully so.

And when we say Wall Street, we mean the financial sector.  Keep in mind that what I would view as core capitalistic companies like Google or Apple actually provide a service and added value products and these companies aren’t even asking for a government handout.  In fact, they are adding real wealth back into the economy instead of siphoning it off.  How many companies failed trying to be like Google or Apple?  Remember the search engine Alta Vista?  It once reigned supreme and is no longer here.  Companies come and go and that is part of our system.  The idea that banking is somehow immune to this is troubling.  And that is exactly what we did.  Well, not exactly “we” per se because the vast majority of American don’t support the bailouts but this is what was done by those representing us.  What we have now is a full functioning corporatocracy.  The recent Supreme Court ruling allowing corporations to contribute to candidates unlimited sums of money only cements this structure further.

If we look at the S&P 500 and compare it to companies back in the 1950s, approximately 50 companies still remain on the top 500 list.  Many have failed or dropped out or have simply been surpassed by companies that are fairly new (i.e., Google, Apple, Microsoft, etc).  This is the beauty of our system.  Ideally we wouldn’t favor one industry over another.  Yet our slow process into favoring the banking sector is disturbing because we are allowing the financial sector to govern our country.  And clearly we are seeing that what is best for Wall Street isn’t best for Main Street.  Even Henry Ford despised Wall Street and it should be clear to most Americans why.  Wall Street has its place but when it starts becoming a revolving door to D.C. and has Congress on speed-dial we have bigger issues.

44 states recorded increases in their unemployment rates last month.  And what is even more troubling is the length of time people are remaining unemployed:

Nearly 6 million Americans have been unemployed for over 27 weeks, the highest number we have ever seen on a percentage basis.  But on the other side of the coin, we have seen part-time employment for economic reasons spike to over 9 million during this recession.  This group is made up of people looking for full-time work but only being able to find part-time employment.  Add these two together and you start getting a sense of where our economy is heading if things don’t change.  Japan during their lost decade(s) followed a similar path to the one we are going down.  They bailed out their banking sector allowing zombie banks to remain and slowly over a grueling generation, one-third of their population was classified as part-time workers.  Japan also had major fiscal programs but nothing has helped.  Just look at the Nikkei average over this time:

The Nikkei is down 71 percent over 20+years.  So the banks are still there in spirit but what about the overall economy?  Japan has been lagging over the past two decades and bailing out the banks had a lot to do with this.  It is no coincidence that their part-time employment sector makes up one-third of their employment base.

And tying this all together including with the commercial real estate bust, we see that demand for commercial space is absolutely at the bottom:

Source:  Atlanta Fed

And why would you expect this number to be anything else?  Banks needed more and more demand even if the market didn’t demand it so they could keep on expanding and making further and further bad bets.  What did they care?  Ultimately they were bailed out by the taxpayers and government.  Yet we are now seeing deep anger in our country because nothing infuriates a society more than having a large unemployed population especially when aid was given to the banking sector that actually created this employment disaster in the first place.  Apparently Americans are still hungry for change.