Saturday, May 12, 2007

The End of the Middle Class

The stock market has reached an all time high. Total wages grew by 9% in 2005. But the party will soon end. Indeed it ended for all but a privileged few years ago. That 9% wage increase went entirely to the very rich, 90% of Americans saw their income decrease. The real US economy is going into the tank. And that fall is by design.

Consumer spending has been a way of life in the United States. It is the foundation of our economy.

It may not be for much longer.

Unfortunately there has been a war against the middle class over the last 30 years. The standard of living that used to be provided by a single income in the average home now requires two incomes - how many families do YOU know where only one spouse works? - when I was growing up it was about 90%. Unfortunately half of all children now live in single parent homes, many at poverty levels. The American Dream of each generation living better than their parents ended in 1973, today's kids can expect a lower standard of living than their parents.

Good union wages have slipped away as laws that previously protected the right to unionize have been turned against workers and are now used to bust unions and take rights away - union membership is at its lowest rate in nearly a century.

Refusal to punish companies who employ illegal workers at below market wages puts downward pressure on all wages. You won't see any immigration reform that doesn't allow the illegals to stay as "guest workers" of some sort at near slave wages - they are needed in order to keep the middle class poor.

Almost all the tax cuts have gone to the very richest Americans - those Americans who don't turn their extra income into consumer spending like the middle class and working poor do - instead the bulk of their tax cuts go into sheltered investments that provide little economic stimulus, or worse go to luxury goods and foreign investments - there is no "trickle down", only trickle up.

Real wages have fallen - 95% of Americans make less today than they did 6 years ago.

But since consumer spending IS the basis of the US economy, we have seen economic growth over the last 6 years. The big corporations have done well even as main street has had the lights turned off. The richest have never been richer, but 95% of us are not even keeping up.

We 95 percenters HAVE been sustaining the economy. How? By continuing to buy as if our incomes hadn't fallen. In 2005, for the first time since the Great Depression, private debt in the USA exceeded savings. How did we keep spending as if we weren't getting poorer? By borrowing on a spree fueled by the rising equity in our homes - the one economic bright spot in the majority of American's fortunes - our homes continued to increase in value far above the inflation rate due to a housing boom and low mortgage rates ensured by Chinese support of our national debt.

But that is all over now. The housing bubble has burst. Especially on the two coasts much of the equity rich middle class has suddenly discovered they owe more on their homes than they are now worth. No more consumer spending fueled by home equity.

New laws have allowed the credit card companies to rape consumers with usurious rates and fees that quickly force consumers into bankruptcies that, thanks to other new laws, no longer protect assets (unless you are very wealthy and can take advantage of an "Asset Protection Trust"). These are the waning days of the great American consumer driven market.

America is being transformed into a third world nation. Ultimately, when the middle class all but disappears we will be a source of cheap (but very productive) labor for multinational corporations that sell to Europe and Asian markets. We will only consume the very cheapest and tackiest of goods. From Walmart.

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