How inflation is purposely underreported as a justification to maintain low interest rates: Two specific examples with housing and college tuition.
Inflation is largely misunderstood by the public at large. People for the most part think that inflation is the natural economic order and that prices go up naturally. Official inflation figures play a much bigger role influencing cost-of-living adjustments for things like Social Security but also serve as cover to maintain low interest rates. The CPI is largely underreporting inflation. For many young Americans the cost of college tuition is a big part of their budget yet the CPI allocates a small percentage to college tuition and fees. Another big problem with the measurement is how it looks at housing costs. You would think that the biggest expense for Americans would be reflected accurately in the official measurement of inflation but it isn’t. This is how you end up with the middle class becoming a minority yet in some way, we had continual reports that inflation was nicely controlled.
The Middle Class in America has just become a minority: For the first time in over 50 years low-income and high-income Americans outnumber the middle class.
It was only a matter of time but we can now officially say that the middle class in America has reached minority status designation. Recent figures show that there are more low-income and high-income Americans versus those in the middle class. Most of the growth has been fueled by the trend in adding low wage jobs. At the other end you have a small pool of Americans that are controlling a larger piece of the economic pie. It used to be the case that Americans for the most part were proud about our robust middle class. Now there is this temporarily embarrassed millionaire attitude flooding the nation all the while the system becomes more of a corporatocracy. Half of Congress is made up of millionaires so don’t expect them to have any idea what is happening in the lives of paycheck to paycheck Americans. Does losing the middle class matter?
We have traded building cars for mixing drinks: This year the US added nearly 300,000 waiters and bartenders, and zero manufacturing workers. Manufacturing was once 33 percent of all jobs and now it is below 10 percent.
While the Federal Reserve now looks to have the green light on raising interest rates after many head fakes, the employment report isn’t so clear. Sure, we are adding jobs but we are adding a large number of jobs in the low wage segment of our economy. Case and point? Since the start of the year we have added nearly 300,000 waiters and bartenders and have added zero net manufacturing jobs. These service sector jobs provide little in the way of benefits and job security and many young Americans are trapped in these low wage jobs with incredibly high levels of debt. The media is tone deaf on why Americans are so frustrated this year and one reason for this is their lack of basic economic knowledge or empathy for the regular working family. For example, half the country is living paycheck to paycheck. For most Americans, their retirement plan is work until you die. This all makes perfect sense when a large portion of Americans work in low paying jobs. We have traded building cars for mixing drinks.
Unable to afford homes, Americans dive into subprime auto debt to purchase cars: Auto debt getting riskier with extended terms and chasing borrowers with lower credit scores.
The word “subprime†was synonymous with the toxic loans that were made during the credit bubble. Some tend to think that those days are long gone but we simply have shifted the form in which toxic debt is filtered into the system. Instead of making no-doc no-income loans on houses, we are now offering no-income loans to college students and also, a large number of subprime loans to purchase cars. This is problematic for a variety of reasons. First, Millennials and younger Americans are carrying the disproportionate amount of debt in college loans and auto loans. College debt is causing major problems including forcing many young people to live at home with their parents well into older adulthood. At least with college if done correctly, you are getting a degree that should boost your earnings power. Of course you need to be weary of how much debt you take on and the quality of the institution you attend. But with auto loans, you are basically financing a purchase that is losing value the moment you take it off the lot. We now have over $1 trillion in auto debt outstanding and a large portion of this growth is coming because of subprime loans to riskier borrowers.