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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Siggy's picture

Back in the sane days the Fed used to take away the punch bowl just when the party was going good. Now, if the party starts to flag Ben forces grain alcohol down your throat.

MachoMan's picture

It's not alcohol that's getting crammed down our throats (nor our asses or back and forth between).

gwar5's picture

As long as they never take my shit.  /s

Papasmurf's picture

They already took your shit.  Well half of it anyway.

Doyle Hargraves's picture

Bread crumbs and circuses  side shows while the elite take all you will ever have and make us all slaves on the continent our forefathers conquered.

Sudden Debt's picture

If you think that shit is bad, come live in Europe where taxes go through the roof already and where they want to increase them with 20% to pay for the eurocrats stupidities...

 

monopoly's picture

Sudden Debt, may I ask which country you reside in. Very colorful over there.

Thanks,

Confucious 222's picture

My guess is Belgique, Flemish side?

Can't imagine sudden debt is Walloonish.

But who knows? It's mayo-a-mayo fighting over the fries in the streets over there.

Steaming_Wookie_Doo's picture

With great quality fries, beer and chocolate, why would these people fight at all?

eureka's picture

Hi Sudden - have you ever been to Europe?

Everyone in Europe has five weeks paid vacation, easy and low cost access to health care, universities and retirement - you know why?

Because Europe doesn't spend most of its money on military. US does.

That, is your cost of hegemony & hard-nationalist pride. Still like your empire?

Why not become humble? Why not love your republic - and drop your empire?

Can you do it? Can any US citizen let go of the itch - the illusion of "ruling" the world?

Bitch Tits's picture

" 'ruling' the world"?

Most US citizens have had to let go of the itch to educate their children, live in a decent house, pay their mortgage, buy groceries, etc., etc..

Most US citizens are not into ruling the world, we'd just like to get through a day without gut-wrenching worry and stress over the fact that we can't seem to stay even, let alone get ahead.

Lednbrass's picture

And Europe will come apart even before we do. Yes we should get rid of the empire (even so, we will go broke due to the high parasite count in our society). However, the fact that the Eurozone is tottering after letting us pay for their defense for 40 years shows a level of stupidity and incompetence even worse then what we have.

 

Abiotic Oil's picture

"Everyone in Europe has five weeks paid vacation, easy and low cost access to health care, universities and retirement - you know why?"

 

Right, like all the folks in Greece, Italy, Spain and Ireland.  Living the good life on the ever-stable euro.  /s

smore's picture

Come to Europe, it's Paradise here!

 

We've enjoyed not spending money on our military for over 60 years now, the "stupid Americans" do that for us, so we can go on long holidays and feel endlessly superior.

 

Oh, sorry, that's about to end, cancel your ticket...

Raymond K Hessel's picture

Ehhh, I think you turned a corner here.  Europe doesn't spend on the military because the US does.  If Europe wants to avoid being a client state of Russia while giving the US a break on defense, then by all means, pay for NATO and leave us out of it.

Frankly, I agree with you that the US is too focused on being the world's police. 

Miss anthrope's picture

Eureka:

I want to officially unjunk you.  I didn't know there were 3 communists here on zerohedge but apparently i was wrong

 

Urban Redneck's picture

"Everyone in Europe has five weeks paid vacation, easy and low cost access to health care, universities and retirement"

"spend most of its money on military. US does"

It is rare to across a single post so wrong about both Europe and the US. 

TruthInSunshine's picture

This is why they made sure to essentially outlaw firearm ownership for the bulk of those nations in the EU.

I'm surprised they even let any nations into the EU (when it was fashionable to want to join) whose citizenry were even allowed to possess hunting rifles.

 

by Sudden Debt
on Wed, 07/13/2011 - 14:13
#1452839

If you think that shit is bad, come live in Europe where taxes go through the roof already and where they want to increase them with 20% to pay for the eurocrats stupidities...

 

monopoly's picture

Interesting that not one commentator, not one news person and not one govt. official has advised that the first step is for all in Washington to take at least a 10% pay cut and a 25% cut in expenses. Not one.

While it would not do much to trim this absurd debt, it would at least send a positive signal to the country that they care.

Sorry, what a dumb post. Forgive me.

Bitch Tits's picture

Hear, hear, monopoly.

Just goes to show you that rot starts at the top. There doesn't seem to be even one individual in government or big business who isn't a self-serving prick who just wants to steal your money and make it his own.

sgt_doom's picture

Not a dumb post, monopoly, but perhaps a bit fanciful.

I mean, after all, if the US Supreme Court's salaries, and the US Congress' salaries and those guys in the West Wing's salaries, were all performance-based, I believe they would all be earning ZERO!!!

r101958's picture

At least it might portray that they are serious....and not just posturing.

TruthInSunshine's picture

The elites understand all the cause and effect relationships happening.

They couldn't care less about sovereignty or nationality.

The entire world is their sandbox.

It matters not how they grow their wealth in their borderless world.

If you're American, Chinese, Mexican, or Indian, and their actions make you better or worse off, they gave no thought to your circumstances, so do not be narcissistic enough to think you were an intended beneficiary or someone singled out for punishment.

If they can grow their wealth as a result of a course of action that makes you and others like you princes or paupers, it will be done.

We are incidental or collateral in the game of global chess the elite play.

What did Greenspan say yesterday? Americans need to work as hard as 3 Chinese (and presumably for the same pay) if "economic growth" is to occur. Get it?

That "economic growth" is not so great for that American he speaks of, but it's massively beneficial to the elite.

And no, Goldman Sachs & JP Morgan executives and shareholders are not the elite. Some of them may feel this way, as they've 'incidentally benefitted' in terms of timing and other things, as the game of global chess is played out by the true elite, but they'll be decimated in a nanosecond, and as easily as slave workers, if this completely incidental process happens as a result of things that the elite can capitalize on.

 

cougar_w's picture

Goldman Sachs & JP Morgan executives and shareholders are not the elite.

Some very few might be, but no more than a handful.

The game you allude to does not have a lot of players. If I had to guess, this whole circus act is for the benefit of less than 100 individuals, from perhaps 20 countries, and mostly Europeans. They all know one another, and their families have known one another for going on 500 years.

Papasmurf's picture

Sounds like an inexpensive problem to solve.

cougar_w's picture

Strictly by the numbers, you'd think so. But these people operate in such a rare realm of anonymity and isolation that you wouldn't even know where to start looking for them, let alone get anywhere close. Nobody knows who these people are. They keep a very low profile, allowing (maybe even encouraging) clowns like Donald Trump and The Bushes to be the big swinging dicks. They have so much money, the armies of soveriegn states are at their personal summons.

Not even sure if it's a good thing or a bad thing. Maybe the world really is too complex to allow the whole thing to be run by whim of The Masses. But it's the way it is, and I really hope they know WTF they are doing.

LFMayor's picture

Maybe we could do it like they hunted the cannibals in Leningrad:  Look for the rosy complexions.

Bitch Tits's picture

"and I really hope they know WTF they are doing."

 

Ahem. Obviously they do not.

Urban Redneck's picture

 

Rich men's sons are like blue horses- they rarely win races.

 

RockyRacoon's picture

Your description of the "elite" would preclude your ability to tell us who they are.

All these pitchforks and ropes going idle....

Escapeclaws's picture

I don't know who these people you speak of are, either. However, I have met some Bilderbergers and Fortune 500 types, and I have a hard time thinking they are evil, as individuals. The ones I know are kind-hearted and concerned. That said, I eschew concentrated wealth and believe that the effects of concentrated wealth are pernicious for societies. Above all there should be a prosperous middle class in order to have a just society. This is what we are losing.

In terms of assets--yes, they have the money and the power that goes with that money.  However, we have the brains. We lose by being at each other's throats with these damn ideologies. In that respect, America has to be the most insane country in the world.

eureka's picture

Truth - you speak the truth. I would add though, that:

A) Hank Paulsen, Blankfein, Dimon and their peers are indeed part of the elite - and -

B) US Empire/Fed/PentaGun/Wall Street - is the still essential apparatus of the elite - which of course has full buy-in support from its pyramid of its henchmen and minion participants, with allegiance declining for every step lower in the pyramid.

Consequently, anyone who cares for the US as a nation and republic, and for the working and middle classes, without whom the nation will sunder, must speak out for the full and complete and final dismantlement of US EMpire and all its institutions, i.e. The Fed, US overseas military bases and any and all bail-oyts and tax-evasion priviledges to US global corporations.

TruthInSunshine's picture

I'm not sure about who is connected, in reality, and who are just front men.

I do know that JP Morgan was assumed to be the wealthiest man in the history of the world for most of his adult life, yet the public reading of his last will & testament (in probate court, so as a matter of public record) revealed he owned a mere 19% of his own corporation, with a majority owned by...

...if you guessed the Rothchilds, you are today's big winner!

 

And as far as the Military Protection Racket for the Elite, you are accurate indeed.

Many people will claim we're 'conspiracy' driven, but I merely rely on facts and data when it's available.

When hard, quantifiable data is not available, I often defer, at least in part, to the opinions of people such as Smedley Butler:

War Is A Racket

 

sgt_doom's picture

Perfectly said, TruthInSunshine, perfectly said!

The government of Pakisant, in the control of the oligarchs over there, doesn't give a rat's ass about their people, just as the government of the USA, in thrall to the banksters, doesn't give a mouse's ass about the people here, ditto Mexico, probably China (although they have invested in their own economic growth, while receiving those offshored production assets and capital assets from Amerika and elsewhere, plus that American federal stimulus principally went to them, as well), .....

Raymond K Hessel's picture

Where the fuck is Pakisant?

Also, government spending is not "investing".  China didn't invest in their own economic growth. China spent a bunch of their people's wealth to build skyscrapers, train stations, and airports no one uses.   Then they spend some more to knock some of them down to put up new ones.

Urban Redneck's picture

Pakistan is a trip- Benazir's first cousin once removed, Mumtaz Ali Bhutto, is definitely one of the chief Pakistani TPTB, as well as a feudal lord and oligarch, the likes of which hasn't been seen in Europe in over a century.  He is also no fan of her uppity usurping widower and current President Mr. 10% Zadari, who since Pakistan doesn't have a sophisticated fiat banking system, skims his wealth from MIC contracts for tangible assets and services (and that before he got the big desk in Islamabad and Barry O. started spending like a drunken sailor on his Central Asian adventure).  Oligarchy and TPTB sound very menacing, conspiratorial, and tend imply control as opposed to influence.  The truth tends to be more nuanced... 

sgt_doom's picture

Perfectly said, TruthInSunshine, perfectly said!

The government of Pakisant, in the control of the oligarchs over there, doesn't give a rat's ass about their people, just as the government of the USA, in thrall to the banksters, doesn't give a mouse's ass about the people here, ditto Mexico, probably China (although they have invested in their own economic growth, while receiving those offshored production assets and capital assets from Amerika and elsewhere, plus that American federal stimulus principally went to them, as well), .....

sgt_doom's picture

Perfectly said, TruthInSunshine, perfectly said!

The government of Pakisant, in the control of the oligarchs over there, doesn't give a rat's ass about their people, just as the government of the USA, in thrall to the banksters, doesn't give a mouse's ass about the people here, ditto Mexico, probably China (although they have invested in their own economic growth, while receiving those offshored production assets and capital assets from Amerika and elsewhere, plus that American federal stimulus principally went to them, as well), .....

youngmanU2's picture

Phenomenal Post. Great links as well.

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

Indeed. 

youngmanU2's picture

Sorry for the Dup post. 

But to add to the former - hypocrisy knows no bounds! 

Traianus Augustus's picture

Clearly, this is all transitory. /s

cougar_w's picture

The Power Elites are slowly losing their grip on the middle class.

This is the crux of the matter, and points to the end-game.

The Power Elites are parasites. The middle-class is their host. Something bad happens to a parasite when the host has had enough of their blood sucking. And while the host may or may not die in the struggle, the parasite dies either way.

Mad Marv's picture

Prepare while you can; eliminate debt, reduce costs of living, invest in things that matter, and get the fuck out of any big city.