Guest Post: Poverty In America, Part I

Tyler Durden's picture

Submitted by Charles High Smith from Of Two Minds

Poverty In America, Part I

Poverty is on the rise in America, and buying passivity with cheap bribes has limits when applied to a fraying middle class.

If jobs are not coming back, then we as a nation need a conversation about poverty in America. The Status Quo assumption is that this is just another garden-variety recession, and that employment will bounce back, along with the "animal spirits" that drive borrowing and spending.

As of August 2011, it will be three years since the global financial meltdown. In three years, the Savior State has borrowed and blown $6 trillion maintaining the Status Quo, and the Federal Reserve has printed almost $3 trillion and shoveled that vast sum into "risk assets" to keep housing on life support and the stock market rising. The Fed has also devalued and debased the dollar, stealing wealth from the citizenry and holders of U.S.-denominated debt in the process, to serve two goals: 1) spark inflation and thus avoid deflationary deleveraging of the nation's fast-growing mountain of debt, and 2) to enable servicing that debt with cheaper dollars.

None of these grandiose manipulations has healed the economy or fixed the structural problems which made the meltdown inevitable. The irony here (among many) is that so many people believe the Power Elites controlling the nation have some sort of god-like ability to maintain their grip on the levers of power.

While it's certainly true that the wealth of the Power Elites has increased as a result of the meltdown and Fed/Savior State response, ultimately the Financial and Political Elites' power depends on the passivity and complicity of the citizens. This means the Power Elites must buy off or co-opt the majority of citizens to keep them politically neutered and mallable.

The Status Quo has two basic methods of buying the citizen's complicity: a vibrant economy that supports a middle class that thus has a stake in maintaining the Status Quo, and cash bribes to everyone else to keep quiet, i.e. "social benefits" a.k.a. entitlements and welfare. This renders everyone either dependent on cash payments from the Savior State or a stakeholder in the Status Quo.

Corporate welfare is not a bribe but a mutually beneficial power grab. The Cartel Corporatocracy seeks to eliminate competition from below and guarantee low-risk profts via cartels and quasi-monopolies. It achieves these goals by purchasing the partnership of the Savior State, which smothers competition with thickets of regulations and greases the quasi-monopolies sought by the Corporatocracy. But it's hardly a one-way exchange; in extending its control over the economy and society to serve the Corporatocracy's interests, the Central State's own Elites gain more power, too.

Some observers see the middle class as the natural enemy of the State and Corporatocracy, but this misses the essential relationship of the Power Elites to their citizenry: the need of the Elites to buy complicity and passivity by the cheapest methods available.

It's certainly possible to use repression to keep a populace under control, but repression is expensive and it doesn't encourage productive "buy-in"; rather, it encourages opting out and resentful compliance. This leaves less for the Elites to skim off.

Over time, it's rather obvious that regimes that rely on heavy-handed repression tend to fall while those that offer a small, low-cost stake to citizens are much more profitable to the ruling Elites and also more stable.

The crumbling of the credit-bubble economy has mortally wounded the middle class, and this has created a serious problem for the Power Elites. In extending the credit-bubble economy--that is, "wealth" is created via exponential expansion of debt--to housing, the Power Elites undermined the multigenerational bedrock of middle class wealth.

With housing equity stripped away, the erosion of middle class income and non-housing wealth has now been exposed.

The Power Elites' other wealth technique, globalization, has also gutted the middle class below the top 10% level of technocrats, and decimated the working class that had aspirations of joining the middle class, i.e. the lower middle class.

We Don't Need No Stinkin' Jobs (in the U.S.) (February 9, 2011) Global Corporate America has decoupled from the American middle class; its interests are now international rather than domestic.

The Power Elites' response--borrow and blow trillions to prop up the engine of their own wealth, the banks, borrow trillions from future taxpayers to maintain the current Status Quo, and devalue the U.S. dollar--have all failed to reflate housing or middle class incomes. Rather, these actions only succeeded in enriching the top 10% who own the majority of stocks. The prop-job in stocks has yielded a propaganda coup, as the Status Quo has successfully identified a rising stock market as "proof the recovery is here," but this propaganda is starting to wear thin as 90% of the populace are realizing they are still poorer than they were three years ago.

Buying Off Washington To Kill Financial "Reform".

The Power Elites cannot understand why making credit cheap isn't creating jobs. Like decrepit generals fighting the last war, they keep sending waves of credit into the system to overpower deflation and reignite "animal spirits," but the waves of credit are being mowed down by deleveraging and the exhaustion of credit as a stimulus.

In other words, they are clueless to the reality that conventional economics has failed. They have no Plan B. Their only plan, such as it is, is to borrow more money and spend it propping up the current Status Quo. Unfortunately for them, the middle class is unraveling at the edges, and the surest evidence of that is the loss of middle class jobs.

Without good-paying jobs with benefits and rising housing equity, then the citizens have no stake left in the Status Quo.

That leaves entitlements and welfare as the cash bribes for keeping quiet. What's remarkable about the current pastiche of social benefits is how cheap it is to the Power Elites; extended unemployment ($158 billion), food stamps ($68 billion), Section 8 housing ($20 billion), and Veterans Administration medical care for vets ($47 billion)--all together that's $293 billion, a mere 7.7% of Federal spending.

(These statistics are drawn from
Is the Recovery "Self-Sustaining"? Here's a Test (March 22, 2011)
Social Welfare, Socialism and Healthcare (May 19, 2009)
Can We Please Stop Pretending the GDP Is "Growing"? (June 2, 2011)

And of course it's the taxpayers who will foot the bill for the deficit spending, not the Elites.

The ideological political-theater stages faux "combat" over welfare, but this is for show: outside the circus, cash bribes for complicity and silence work equally well for both flavors of the Status Quo political Elite.

The "Left's" concern for the poor is transparently phony; the "Left's" only concern is to keep the underclass fat, dumb and distracted while enriching its own private fiefdoms such as education: public school fiasco in Atlanta. What terrifies the "Left" is the same thing that terrifies the "Right"--that the citizenry might break free of the bonds of dependency on the Savior State and start demanding a real stake in the economy rather than just a cash bribe to keep quiet.

This is why welfare and middle class entitlements (in various flavors) have continued growing for decades, under both "Left" and "Right" regimes.

It's been quite a scam: the Savior State borrows immense sums from future taxpayers to bribe the current crop of citizenry, and these same citizenry pay the rising interest on that growing debt via their taxes.

In other words, the debt-serfs pay for the bribes that keep them complicit.

The problem is that the Status Quo has overshot systemic equilibrium. To keep the game going, the debt load is rising at almost $2 trillion a year at the Federal Level, and the Fed's manipulations are requiring a cool trillion a year in printed money shoveled into risk assets.

The interest on that skyrocketing debt will eventually crimp the borrowing binge, and the Fed's games are igniting not job growth but inflation, which further saps what's left of middle class purchasing power.

The Fed's manic manipulations are losing their effectiveness. Like insulin in a pre-diabetic patient, the Fed's massive injections of money are not stimulating jobs or productive investment; each new announcement of "easing" generates a smaller jolt of ever-shorter duration. At some point the economy will respond to the Fed's "easing" injection by going straight into diabetic shock.

There are two cultural issues in play as well. One of the key characteristics of the middle class is high expectations for future power and prosperity. The poor have lower expectations and so it's relatively easy to buy them off with small sums.

The middle class, however, is less satisfied with crumbs, and getting paid to stay home and watch TV does not appeal to their values or expectations of life in America.

The other issue is the destructive nature of dependence on the Savior State, a dynamic I explored in The Cycle of Dependency and the Atrophy of Self-Reliance (July 2, 2011).

Making people dependent on the Savior State is not "ending poverty"--it is creating a deeper, more pervasively destructive poverty of lost opportunity and shriveled enterprise. People naturally want to contribute to something meaningful and to be respected, and being paid to sit home watching TV does neither. What it does do is fuel a low-intensity resentment against dependency and a pathological incentive for victimhood, neither of which are healthy for the society or those reduced to dependency on the Savior State.

The Power Elites are slowly losing their grip on the middle class. Once people no longer have a stake in the Status Quo, then they might become dissatisifed with the cheap bribes to stay home and rot away, consuming Pringles and "entertainment" on the telly.

Those citizens who are paying the tab for the Power Elites' debt excesses are also seeing their stake in the Status Quo slip in value: being reduced to a tax donkey does not fulfill their expectations.

The bottom line is poverty on several levels is rising in America, and cash bribes are not a stable "solution," though they certainly are a cheap one to the Power Elites.

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eureka's picture

Anyone who thinks they can separate social entitlements from rich-banker-military entitlements is an idiot - so don't blame bureaucrats and the poor.

toady's picture

But thats what they continue to do...

I'm starting to think that they won't figure it out.

eureka's picture

Seems Mr. Charles H. Smith hasn't even figured it out.

I repeat, all money printing, bail-outs and ponzi exists solely for the sake of US Empire - that is to say: for the sole sake of the rich and their goons at the Fed & PentaGun. Everything else is trickle-down shut-up-money - and consequently it is moronic and irrelevant what the motives of "the left" might be etc etc etc  scape-goating ad nauseam.

Libertarians - including all zerohedge bloggers, readers and commentators must realize that the only solution to all US problems is complete dismantlement of US Empire.

mayhem_korner's picture

I hope you're not insinuating that all ZHers are libertarians.  That'd be a large miss.

Braindonor1's picture

You should have read the article before commenting. The writers is addressing the 'shut up money' issue.

eureka's picture

My comments go way beyond the "shut up money" issue; that is, if one reads contextually.

Unlike I, Mr Smith, does not address the root cause issue: US Empire - because that, is taboo.

Most US citizens of any stripe love US empire, which is an expression of vacarious living; a collectivist, tribal substitute for individual, creative living.

All Empire, is an instinctive attempt to fill the void of an empty soul - subconsciously hoping to escape one's own individual ignorance, provicialism and anti-intellectual materialism, in a grand collectivist display of supremacy over other tribes/nations.

Just completing an incomplete analysis. That's all.

LFMayor's picture

you're damn right I love refridgeration, medical care and motorized transport.  Without this empire you decry the goddamn boots would have been on our throats generations ago.  You'd be hoeing arugula for the elites instead of pontificating on this electronic communication marvel.

The Empire, like any other bureaocracy, has ossified and is about to collapse under it's own weight.  Such developments are inevitable, because fucking weaklings get into the system and like termites erode it from within.  It's just he way it is, as natural as jacking off.

What we need to do now is set up another Empire.  Maybe we'll get another 150 or 200 year run out of it before it too collapses.  The reason the Romans took a 1000 years was the fact that their communication and transportation systems were more primitive.  Given the internet the Romans would have buckled within 300.  They get the 100 year punt because they didn't worry much about political correctness.

SWRichmond's picture

This comment, and the one above it from eureka, move the discussion in an interesting direction.  I agree and disagree with parts of both.  Empire is not the problem; empire is merely a symptom of the problem.  Central banking is the problem.  And the problem with central banking is that it appears to work for awhile.  First, by providing funding of last resort, it introduces moral hazard into the financial system and starts the expansionist "bad decision making" ball rolling.  It enables the welfare / warfare state by directly and indirectly financing it.  Further, it allows, through credit, an economy to grow beyond its ordinary means and commandeer more resources than it otherwise would be able to.  And so, people like it, at first, and as long as the inherent problems with it can be effectively blamed on someone / something else.  People like it because it brings home the goods.  It necessitates empire, and funds it as well.

So, here's the problem as I see it: what happens to us if we delete central banking, but our enemies do not?  Will their economies grow faster than ours, enabling them to spend us into oblivion before they themselves blow up in a giant fractional-reserve leveraged printed-money credit derivative mushroom cloud?


It's the blow up part that people don't like.  They like everything else.  And if they can be induced merely to not understand it just enough, then it is here to stay.

Raymond K Hessel's picture

All this bickering about what is actually the real problem reminds me of the scene in Braveheart where the nobles are in a hall and they just won their first fight against the British and all the nobles cared about was who would ascend to the throne of Scotland.


Central banking, empire, welfare,'s like picking the king of Scotland.... who gives a fucking shit?


We should figure out a better way of living, a better way of organizing ourselves as a country.

Dugald's picture

I just had a vision of Benanke being "Hung - Drawn - and Quartered.....what nice thought........

Rhodin's picture

He may deserve it,  but it is not a nice thought.  If there was still a position to fill, it might lower applications though.

MacGruber's picture

People often say that it's the fault of central banking but I think that too can be a scapegoat as much as any other. It does play a role in feeding the inequalities but mostly as an excellerant - speeding you down a path you are already on. The main cause is the capitalist system; a system that already tends towards concentration of money and power.

The basic concept of capitalism make the rise of monopolies, oligarcy and economic inequity preordained. Money begets more money and less money begets even less, it's a natural force. Just an example: if I have $1 million dollars and invest it at 5% and pay 15% capital gains, I have $42k to live off of if I choose to, this frees me or my money to do other things. If I have 2 million, I can compound the earnings of the 2nd and become even richer through time with zero productive labor of my own.

If on the other hand I MAKE $42k per year, I must work and I will never have any appreciable free money or time(a week vacation to FL to see your in-laws doesn't count) unless I save some of my current spending for the future (in essence a self tax). Through time my wealth will stay the same or progressively decline. Now you can say that the Fed giving the Elites leverage at 0% makes this incrementally more unfair, but the premise is still the same - capitalism creates the condition under which this inequity can breed.

I'm no pinko commie, I believe capitalism is the best we have. However, the only thing that can save this cascade of wealth inequity are purposeful controls on wealth. I know it's not popular here but regulation and taxation are the only countervail forces against the natural progression of capitalism. That said, I feel currently we are too far down the road, and a "reset" is needed to resolve the inequity that has already been created.

PaperBugsBurn's picture


That's why it's gonna be sumpin to see when it all blows up!

blunderdog's picture

Most of the self-proclaimed "libertarians" who post here don't really believe in the libertarian core tenets.  Kinda like Ron Paul and his pro-life view.  If you don't go all in, you're not much of a libertarian. 

The real libertarian is committed to some pretty simple principles: open the borders, dismantle the welfare state, ditch all policies of government enforcement of social norms, and end aggressive militaristic policy.

Raymond K Hessel's picture

I junked you because pro-life and libertarianism aren't mutually exclusive.

In fact, holding abortion out to be murder is supported by the tenets of non-aggression.

blunderdog's picture

It's pretty hard to make any case that unborn babies can be viewed as moral agents, thus cannot be citizens, thus government has no legitimate authority to grant them "rights," thus pro-life LEGISLATION is unsupportable as a libertarian policy.

As a social norm, or desired moral imperative, or whatever, it's all fine.  But not as a legislated policy.  It all hinges on crafting an argument which makes unborn babies "people" in the eyes of the law.  And unless they can own property, good luck with that.

Raymond K Hessel's picture

That makes absolutely no sense.  It's a human being.  Don't kill human beings.  What the fuck are you talking about???

blunderdog's picture

You're not prepared to have a legitimate conversation on the subject.  Disregard.

eureka's picture

Blunderdog wins this argument handily.

A merely weeks old brainless fetus is neither a human being nor a moral agent.

It's just that some pseudo Libertarians and some anti-Fed'ians still LOVE to tell other people and other countries what to do - and therein lies the rub of all US misery, empire and decay.

sgt_doom's picture

Thanks to eureka for stating the obvious, and what should be obvious to anyone who understands the facts, the arithmetic, and especially the math!

I mean, Smith makes this assertion:

"The Power Elites cannot understand why making credit cheap isn't creating jobs."

Along with some others, which makes one wonder if he was born just yesterday???

I can't really improve upon eureka's comments, except to restate the obvious:

They (the Transnational Capitalist Class, power eiltes, senior dark pool owners, etc.) have offshored the production assets (factories, jobs, etc.), and offshored the capital assets (investments, federal stimulus, QE-up-the-wazoo, etc.).

End of story.

This is a really silly post of the ignorant for the ignorant.

Urban Redneck's picture

How and why have they moved production assets and capital assets? 

For the answer see the previous -

Claiming transnational capitalist class, power eiltes, senior dark pool owners, etc. (TBTF, MIC) are the entire US economy is rather large oversimplification.  

AnAnonymous's picture

Libertarians - including all zerohedge bloggers, readers and commentators must realize that the only solution to all US problems is complete dismantlement of US Empire.


As I stated many times, the US is not the solution. The US is the problem.

Rhodin's picture

the US is not the solution. The US is the problem


Yes and no. 

The banksters and cartels run well over 3/4 of the world now.  The US is the problem in about the way that muscle and assassins are problems, if you have a beef with a mafia.  US is chief enforcer.  If/when US collapses before a successor is prepared, likely a war will decide who is the next enforcer.  If we (humans) are very lucky, (worldwide financial collapse, jailed bankers, PM or commodity money, etc) there may not be a war or a successor, but no bet there. 

rufusbird's picture

If Congress addressed and responded the issues of their constituency instead of the bloated Lobby industry we would not have most of these unresolved issues we are discussing.

Raymond K Hessel's picture

I agree with Eureka, not Rufusbird.  He, I junked.

oddjob's picture


They are the worst of the lot, chronic enablers of the current system, just receiving a larger welfare cheque.

eureka's picture

Perhaps, but they are only in place to serve the rich. You must learn to hate the rich and the empire - or - accept the bureaucracy they control.

You must go to the root of evil: the rich - the originators of empire.

mayhem_korner's picture

Why can't one be rich without being corrupt?  Too many here like to pigeon-hole everyone irrevocably into classes.  That's not reality.

Vergeltung's picture

(psst! don't confuse him with reality. he won't like that)

Almost Solvent's picture

When he says rich, I think he means uber-wealthy, the types that make billionaires look like chump-change.


And you might not see their names listed in Forbes every year . . .

toady's picture

I like to make a distinction about the rich. There are many who create valuable things and get rich selling them: Bill Gates, Henry Ford, etc. Sure, they aren't saints, but they created something that made alot of money for them, and others.

Then there are 'the masters of the universe', the ones that push paper from point a to point b, all while ratholing percentages and saying how inovative thier scams are... These are the rich that have destroyed the world.

earnulf's picture

The truth is that there are some who are well off, even rich by standards, who do give a damn about others and make an attempt to be a responsible human being.    That's about the same percentage as the top income earners in the US (about 1%).

It is far too easy to be seduced by the power of fiat money, it opens doors, it makes people do things for you and if you are rich enough, you can live better than 99.999% of the planetary population.    People who hit the lottery, or sign the sports contract/movie contract/etc, find themselves suddenly "rich and famous" without the grounding necessary to deal with wealth.   It's the old "I can't be overdrawn, I still have checks" syndrome where you party hearty until the money runs out, then wonder what happened.

Those who have either "gotten religion" or just come to their senses, can even be a strong positive force in the world, at least when it comes to their "pet" projects.   Our elected leaders on the other hand, haven't found the bottom of the (pork) barrell and don't realize that we ran out of money 14.3 Trillion and counting ago.

Just as you can't say all Republicans are conservative and all Democrats are Liberal, one can't lump everyone in with a label, although that tends to be the best way to separate opinions....But like someone said, Opinions are like a--holes, everyone has one.

Bitch Tits's picture

Hahahahahahaha. Rich, but not corrupt? Hahahahahahaha. Who is confused about reality?

fallout11's picture

Because with wealth comes power, economic (and often political and social) power.

And power, as we know from Lord Acton's famous quote, corrupts.

Sociopaths crave power. Lots of sociopaths and would-be sociopaths in the upper echelon.  Plato discussed plutocracy (and the tendency for nation states to become one)some 2500 years ago. Not much changes, unfortunately.

Isotope's picture

"In order to get power and retain it, it is necessary to love power. Love of power is not connected with goodness, but with qualities that are opposite of goodness, such as pride, cunning and cruelty."
- Leo Tolstoy

"Power intoxicates men. When a man is intoxicated by alcohol, he can recover. But when intoxicated by power, he seldom recovers."
- James F. Byrnes

smore's picture

Eureka, you seem to be in the grip of some black and white dogma which I can't identify.


Rich = Bad = Originators of Empire?


Is this teenage Marxism, or are you just a huge George Lucas fan?


Urban Redneck's picture

Hatred is born of fear.

You present a false dichotomy.  Is it because of a sense of envy or inferiority to those you would have others hate, or because you are their loyal servant seeking to maintain their dominance.

Tsukato's picture

Are you for real?! Are you a woman? Why not blame all the parasites which also include bureaucrats and the poor? You're a real piece of work. A product of leftie uni propaganda at its finest. Do you also lose sleep over the plight of blacks and hispanics?

max2205's picture

Didn't you hear Ben said he didn't spend one dime to pump the markets.....

baby_BLYTHE's picture

definitionally he is correct since the FED doesn't have real capital to 'spend', they create it out of nothing.

kito's picture

as reported on zh, import prices does that jive with this?

The Axe's picture

Ben has made a profit on every trade, every purchase, every sale...not one loss....he is fucking amazing....not even the giant squid can approach his greatness..... 

eureka's picture

Who do you think Ben works for? He takes orders from Blankfein - his ex-roomie at Ivy-Ilk - who takes orders from the Rockefellers et al.

TruthInSunshine's picture
by The Axe
on Wed, 07/13/2011 - 13:56


Ben has made a profit on every trade, every purchase, every sale...not one loss....he is fucking amazing....not even the giant squid can approach his greatness.....


Give me license to mark my assets to whatever value I damn well please, and then give me a printing press to complete the process, and I can do a HELLUVA lot better than The Bernank!

Prepare to be amazed!

I only kill chickens and wheat's picture


You are receiving This As ur final warning congress To Obey the Debt ceiling increase& Thisis your last warning You Embecille,s.Sam The dOG

Vic Vinegar's picture

Great stuff as always.

The Power Elites are slowly losing their grip on the middle class. Once people no longer have a stake in the Status Quo, then they might become dissatisifed with the cheap bribes to stay home and rot away, consuming Pringles and "entertainment" on the telly.

Cheap bribes, Pringles and the telly aren't so bad, however.  They really aren't.

Elliott Eldrich's picture

I'm starting to have a real problem with the term "elites" being used to describe those on the very top of this system. Their short-sightedness, their craven greed, their endless crimes of force and fraud, their utter refusal to admit to any error whatsoever, their complete inability to recognize or admit to any harm done by them and their reflexive willingness to blame the victims whenever possible makes me to want to come up with a better, more accurate term to describe them.

The best one I've come up with is "spoiled brats." I'm open to suggestions.

fallout11's picture

Clinical psychology used to calls them sociopaths, although that term is now out (with the IV classifications)