The three legged fiscal cliff: US middle and working class already facing their own fiscal cliff – 2 million Americans will lose unemployment insurance by January 1 and the debt ceiling limit being hit on December 31.
To most of America the fiscal cliff is some sort of fiscal enigma. Most realize that we are spending more than we are bringing in and also that taxes are part of our system. What most have a harder time understanding is the machine of the Fed and how it selects winners and losers at will by digitally bailing out an entire banking industry. Yet here we are counting down the days to a new year and we are no closer to solving this fiscal problem. Congress is full of millionaires and come what may with the negotiations, they will remain this way. This fiscal cliff is largely a reflection of our three legged fiscal problems; a shrinking middle class with a growing population in poverty, a ritualistic process of hiking up debt ceilings, and the taxes versus spending equation.
The most educated and indebted generation ever – Average student debt has tripled since 1990 while earnings have gone stagnant for college graduates. How much is the college rite of passage worth?
Most have very fond memories of their college going years. Going off to college is one of the few rites of passage that we have in the United States ushering future generations into official adulthood. Yet the cost to attend this passage has gotten astronomically expensive. College has now turned into a very large business funded by deep levels of student debt. In the past, the state took on a larger role with public universities but with state budgets in shambles these are now becoming much more expensive options. We speak of the student debt problem as a nationwide issue but this crisis is really a burden largely shouldered by our young. Poor Americans aspiring to go to college have to walk cautiously on this passage and avoid paper mill for-profits and going into massive student debt. This rite of passage is now turning into a debt filled nightmare.
Diving into the fiscal economic mess – Fiscal cliff a reckoning for decades of poor financial management and massive debt based spending.
The media is making it appear that the fiscal cliff is a sudden event. Like a countdown to a New Year’s party. Yet this cliff was as predictable more than a decade ago as we spent more than we took in as an economy. The challenge is real because our spending is so much more that what is coming in. Sure, we can go into deeper debt and allow the Fed to issue trillion dollar bailouts to the banking system yet what we have gotten in return over the last five years is now a low wage economy. We now bask in reports that show unemployment rates falling not because of substantial job growth but because people are dropping out of the economy like flies hitting the light. The fiscal cliff can really be summed up in one major chart.
The erosion of purchasing power via inflation – Federal Reserve and the permanent portfolio.
Inflation has a subtle and quite way of eroding your purchasing power. The process can unfold slowly and before you know it you suddenly wake up realizing your paycheck no longer stretches so far. This is happening across the US in many ways. Those on very tight budgets, especially those now on food stamps are feeling the pinch of higher food costs. Middle class Americans seeking to send their kids to college realize that it might be difficult to do so without going into deep student debt. Inflation as measured by the CPI understates the real change in purchasing power because our system is flooded with massive levels of debt. Access to debt is viewed as a vector in which you can pretend to have money and spend on things you are unable to afford. Yet debt and wealth are not the same. Inflation is creeping into the system and people are feeling it.