The destruction of the middle class will not be televised – 56 percent of American workers have less than $25,000 saved. Even worse 60 percent of retirees have less than $50,000 saved. 45 million on food stamps and the consequences of peak debt.
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The disappearance of the middle class will not be televised. Don’t expect your favorite talking head to relay this information to you. At the core of our economy we have become a consumption nation. This necessarily isn’t negative if we were to balance out the opposite side of the equation with adequate savings. It would be one thing if the working and middle class were consuming with money that they had earned. Instead for over a decade many Americans have used massive amounts of debt in mortgages, credit cards, and student loans to finance things they simply could not afford. Unfortunately this game is up and many are now feeling the financial pangs of a country where the working and middle class are marginalized and government policy is geared to exaggerating the inequality especially in the financial sector. Recent data shows that of current retirees, 60 percent have $49,999 or less saved up in retirement plans. This coincides with other data showing that the average per capita worker makes $25,000. You have those that can save and those that will rely purely on Social Security when they retire.
Debt built economy
The rather prosperous years of the 1950s and 1960s saw a burgeoning of the U.S. middle class. As the chart above shows, we were producing much more than we were taking on in debt. The above reflects housing debt divided by GDP. A lower ratio is powerful because it signifies more production than debt induced spending. This isn’t to say that all debt is bad because it isn’t but relying on debt as much as we have is financially irresponsible. Keep in mind this does not signify that people are spending less. It merely shows that households starting in the 1980s significantly started relying on debt to make up for the loss in overall production and actually spent more money than they really had. These macro trends take years to play out and we are now seeing the end result with our middle class slowly disappearing like a sunset over the mortgaged horizon.
The problem with this kind of economic model is that it produces a short-term high and a painful withdrawal. For example, you can go out and purchase a $30,000 automobile today with a loan. This will boost the economy in a variety of ways and you’ll get the pleasure of having a new car. Yet you have now committed $400 or more per month to a depreciating asset. With middle class incomes falling over the past decade more money has been locked away to future commitments in random items like this. There is nothing wrong with purchasing goods but the fact that we have relied so much on zero down to very low down financing signifies that we were merely using short-term boosts for performance. As things became progressively poorer we simply ramped up our debt and leverage. This is like a person losing their job and suddenly taking a two month trip around the world. Now the bill is coming due.
Gap between spending and revenues
The American consumer is tapped out like a WWF superstar. Just look at the outstanding debt count:
-over $10 trillion in mortgage debt
-$1 trillion in student loan debt
-over $750 billion in credit card debt
We also have billions more in automotive debt. This is simply unsustainable and we reached the apex reflected in our earlier chart where household debt equaled GDP at a near perfect one ratio. We were going into debt for every ounce of GDP we produced. Yet this sacrifice has come at the expense of the middle class since the top 1 percent have actually seen significant wealth gains over the last few decades:
When we look at retirement and worker data today the facts become even grimmer. Keep in mind that the following data only looks at those working (let us not even examine the over 23 million unemployed and underemployed Americans). Just like the media isn’t covering the shrinking middle class little is reported on the growing sector of flat out poor Americans.
Working and middle class feeling less confident with less money
Source:Â Employee Benefit Research Institute
The above is a recent report surveying working Americans. The data reflects what we already know. This so-called recovery really isn’t a recovery for working and middle class Americans. Those with less than $25,000 in household savings have ballooned and this figure has more than doubled in four short years. In 2007 at the peak of the debt bubble only 19 percent of these people felt not at all confident regarding their retirement. First, this reflects the psychological delusion that somehow the credit cards and home equity would keep flowing forever. However, this quickly reversed and now 43 percent in this group worry about retirement. Notice all the older workers at Wal-Mart? Mind you that one out of three Americans has no savings at all. The above data only looks at working Americans which excludes a large part of the population. Even those with $25,000 to $99,999 in savings are feeling less confident.
The only group that is feeling better are those with $100,000 or more compared to their 2007 cohort. The bottom line is that those at the bottom rung are growing and savings are being depleted.
Disappearing security
Now the above chart is troubling. Of current retirees surveyed 60 percent have $49,999 saved or less. Since home equity is disappearing because of the crashing housing market, many are seeing what little they have saved shrink away. Yet think about the pressure this will place on the Social Security system. Many more Americans are going to fully depend on the government for retirement. Life expectancies are also longer and with a younger and smaller workforce competing for fewer jobs, the balance of money coming in and out is not favorable and is guaranteed to bring future problems.
Yet look at the top group of those with $250,000 or more. This number is actually up from the 2007 crisis. So what you have is a larger number of Americans unable to save but those involved deeply in the stock market are growing at a healthy rate. This reflects favorable government policies and bailouts to institutions that favor the wealthy. The top 1 percent are benefitting from the banking graft being perpetrated on the working and middle class of America. Unlike the 1950s through 1960s the growth in wealth is not benefitting all groups. Nothing wrong with growing the financial base of a country. Yet in this slow growth market many in the financial sector need more and more and are looking for ways to gouge the working and middle class by:
-stripping any semblance of worker protection
-cramming down lower wages
-excessive banking fees and traps to rob the poor
-slamming savings rates to the floor creating negative returns for those trying to avoid the stock market casino
-inflation because of Federal Reserve generosity to banks
-kicking people out of their homes while banks receive handsome benefits
-stripping healthcare benefits from workers
-stirring up a student loan debt bubble to juice banking profits in another area
The list goes on and the data speaks for itself. The shrinking of the middle class will not be televised but all you need to do is look at your economic situation and you can figure it out rather quickly.
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tyler said:
Man this is setting up for an epic failure. America is royally screwed. These statistics and facts are like a horror movie. Even if these people do get social security its not that much money at all. With the majority of workers making less than 25k a year their social security checks will be a few hundred dollars. Throw in all the long term unemployed and every day that passes without protests or riots proves the government has made us mush through the tap water. This is awful!
Somethings going on with your comment section. I’m gonna post an article that is in reference to your last piece about student loan debt. The article is from the mail but the swat team breaking down the door over student loan debt happened in America.
June 8th, 2011 at 11:27 am -
Doug Diggler said:
Want to save Medicare and Social Security? Raise the contribution cap for wealthy individuals! Want to fund the social welfare state at rates like the New Deal or Great Society? TAX DERIVATIVES!!!!!!!
Tax Wall Street and drive the fraudulent rating agencies into JAIL WHERE THEY BELONG!!!!!!!!!!!!!!!!!!!!!!!!!!!!!June 8th, 2011 at 12:44 pm -
Richard Fidler said:
No wonder there is no consumer spending. We are supporting the banks with interest payments. How come the Federal government has no problem bailing out Wall Street while it refuses to bail out students who can’t make student loan payments, homeowners who can’t pay their mortgages, and the sick who cannot pay exorbitant medical bills? If we are going to bail out anyone, let’s bail out the ordinary person–who has a better excuse for his indebtedness than the banks–with his joblessness, medical bills, and monthly mortgage payments he is forced to make on property worth a fraction of what he paid for it.
June 8th, 2011 at 2:08 pm -
makesenseofit said:
The worst is yet to come..
June 8th, 2011 at 6:14 pm -
Dumbfounded said:
Those who live by Debt shall perish by Debt.
June 8th, 2011 at 10:45 pm -
jack thomsen said:
A NYT opinion piece talked about a World that was Full — and over 300 people responded, agreeing that overpopulation was our doom.
Don’t expect much sympathy for the plight of mankind in the future. As we approach 10 billion, I know my sympathies lie with dolphins, tigers, and hippos…. to hell with people….here or anywhere.
But isn’t this just econ 101? the more you have of anything, the less value is attached to same? The racial implications for that universal law are daunting for much of the planet, as fewer and fewer whites, become hardened to the plight of a brown menace.
In the future, when bodies are swept up like the morning’s garbage, and news of a quarter million dead from a local disaster are no longer ‘news’, but signs of relief…. don’t expect grand gestures for the victims.
Thailand’s tsunami renewed the beach slums – and regular visitors now admit to a feeling of ‘good riddance’.
Now if we can just keep the casualties at a quarter million or MORE, there might be some hope for the rest of the world’s creatures.
So, no sympathies here mate.
June 9th, 2011 at 5:29 am -
Praedor said:
It’s all good in the end. The destruction of the middle class is guaranteed to destroy the economy. No middle class, no economy. The rich are not what sustains an economy with their piddly and ridiculous spending on a yacht or mansion.
Once these filthy criminal unproductive rich scum have smothered the middle class once and for all, game over for them. The economy and their entire house of cards collapses.
And who is more adpapted to live with little or nothing? The people at the bottom who have been doing it for years or the coddled, effete uber rich who never have had to scrounge or survive a day in their lives? Who comes out on top in the debris of society left by the depredations of the unproductive rich? The not rich. The “little people” survive while the rich whither and die because they don’t even know how to do their own nails.
June 9th, 2011 at 6:57 am -
OnSafari said:
The near zero-interest return on savings combined with the crashing housing market is going to make for a rough retirement for many.
Local communities relying on property taxes are suddenly finding themselves in a pickle as homeowners contest aged and bloated assesments. So – property taxes will rise, as will other state & local taxes.
Many will find out they cannot afford to sell/move and also cannot afford to stay.
It could get ugly.
June 9th, 2011 at 7:25 am -
ep3 said:
I agree with a lot of your analysis. But, for example, I recently purchased a new washing machine. I was offered 18 months free financing from the big electronics guy who provides the best buy, so he says. Isn’t it wiser for me to take the financing deal, stick my money in a savings account or other investment and draw 5% (if i could find such a deal) instead of giving the money up front to the business? Basically, the company is giving me a loan that i can invest and make interest off of. Why should I give the business the money to invest and make interest off of?
And I am not in the top 2%. I am on the lower rungs of your charts.June 9th, 2011 at 8:40 am -
They're Awakening said:
June 8, 2011
What are the chances the U.S. economy could eventually trigger violence in our country?
Posted: 05:00 PM ETFROM CNN’s Jack Cafferty:
For the first time maybe since the Vietnam War or certainly since the civil rights movement, there are some darkening storm clouds on the civility horizon. A growing number of voices are continuing to suggest that if this economy doesn’t turn around, and people can’t start feeling optimistic about their futures again, we could be headed for some ugly scenarios. A new CNN poll says 48 percent of Americans think the country is headed for another Great Depression in the next twelve months. That is a stunning number.
June 9th, 2011 at 9:00 am -
The Cash Flow Is King said:
Great post. What I think is most horrifying about the amount of savings and retirement accounts that the average American has is that these dismal numbers aren’t taking into account that their dollars are being inflated to the moon, thanks to the federal reserve printing press.
The middle and lower class get destroyed by inflation as they do not have any assets that increase in value with inflation. Unlike the upper class, whose benefitted greatly from a weakening dollar and a 90% rise in the stock market from the March 2009 lows, the middle class is stuck getting burned on food and gas prices.
June 9th, 2011 at 10:08 am -
JP HAYES said:
Even if middle class pay stabilizes or increases, the value we take home is decresing, mainly due to Wall Street’s profiteering on the downside of our economy. That activityaddsno net vlue, but does eat up trillions of liquidity that would be available to help small businesses borrow to meet payroll, to help consumers borrow to buy durable goods, and to help government borrow more affordably to repair our crumbling infrastructure, and thereby put more consumers bakc to work. I believe in calling it as I truly see it— it is filching, plain and simple. If Geithner is too gutless and too much Wallstreet’s Bagman to preotect our rightsand our faltering economy, we the People must replacehim,for posterity’s sake. Even one more massive giveaway of our national treasure to speculative bankers to “bail them out” can’t be tolerated. PAwlenty needs to Google up “Ask MR Bad Advice— it can replace him!”
June 9th, 2011 at 10:31 am -
i n, dell said:
= see ” c. m’ ar ten sen ‘too much total debts + i . o . u ‘ s”
av. for 14 big 10 countries 260% of gdp.,
adding retire.mt benefits =worse, up to 7x gdp.”June 9th, 2011 at 12:12 pm -
ted Kramedas said:
Like parasites, when the bankers have drained their hosts dry [the working and middle class], they too will die.
June 9th, 2011 at 5:36 pm -
major said:
We have an arrogant, effette, indifferent elite that has infiltrated the halls of governmental power primarily through the ivy league system, which itself has become a pipe to justify giving the kids of the elite powerfull positions in government and industry. Thereby to maintain control of everything, within certain blood lines.
Its the rebirth of a new age feudal or patronage system, where a few maintain control of all the means of wealth while enslaving the majority of society.
The lure of an socialist utopia is a false one, proven over and over again in the past. Bernanke is one of the point men, hence the haughty indifference on his part.
June 9th, 2011 at 7:39 pm -
Richard Yates said:
CNN: 48% of Americans Believe We Are Heading Into Another Great Depression In The Next 12 Months: Violence Is A Possibility
http://rocktrueblood.blogspot.com/2011/06/cnn-48-of-americans-believe-we-are.html
June 10th, 2011 at 6:09 am -
karl said:
There are really two things going on here:
1. Stagnant middle class wages; and
2. People choosing to spend more than they earn.The first point isn’t addressed extensively in the article. Real median incomes for full time white male workers, i.e. Joe Six Pack, have been stagnant since 1973. This was masked by rising real median household income until about 2000. But the gain in household income came from two factors: 1. More women working; and 2. reduced discrimination against women and minorities. Joe wasn’t making any more money than decades earlier. We felt richer, but it was primarily because of the increased hours women were working.
After 2000, household incomes stopped going up. In order to feel richer, too many people continued to consume at higher levels by increasing their debt, either by using their home equity as an ATM, by running up a lot of credit card debt, or by spending down any savings they might have had. The flat screen TV, the fancy car, and/or the phone with full internet access was more important than the IRA or 401(k) contribution. In other words, the failure of many in the middle class to live within their means was to a great extent self-inflicted.
Then the recession hit and many people lost their jobs. Since they didn’t have adequate savings, these people were in trouble if they couldn’t find another job quickly. And many didn’t.
Yes, people were unlucky. This is the biggest downturn since the Great Depression, with over three times the jobs losses of any other recession. But more people could have and should have been better prepared. That failure was a result of their choices.
June 11th, 2011 at 6:11 pm -
Sean Stehura said:
Climate change will be the great equalizer. The economy will crash along with the planet’s eco-system. Everything we produce comes from OUR planet. Everything. Energy, food, air, water, soil, minerals, fisheries etc… Look around at the climate and what is happening around the world. It’s right in front of our eyes to see. It will get worse as the planet heats up.
We cannot keep the economy growing because it is not sustainable and has not been for a long time. Growth will mean greater consequences from the changing climate. I don’t know where we go from here but first we have to wake up from our dreaming and face reality. It won’t be easy for any of us and it won’t be televised.
June 14th, 2011 at 8:46 am