The Solution To The Declining Middle Class: Destroy Fixed Costs And Debt

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The solution to the erosion of the middle class lifestyle is to destroy debt and other fixed costs and eliminate self-sabotaging discretionary consumption.

Last week I covered the structural dynamics causing the decline of the middle class. In general, the costs of untradable services (healthcare, higher education, government) and the rot of financialization have increased while wages have stagnated. The Federal Reserve's "solution" was to make everyone who owned a house a speculator who could only keep even with rising costs by riding the asset bubbles higher and then extracting the "free money" generated by these bubbles before they popped.
Let's take two representative households to understand the decline of the middle class and the solution. Let's say both households earn $81,000 annually, virtually all from wages and salaries. This puts the family at around the 70% mark of U.S. households, just within the top 30%. (For context, the 2011 median household income was $50,054.)
This income is solidly middle class: not low enough to qualify for much in the way of government subsidies but not high enough to avoid prioritizing and trade-offs.
Household A has a big mortgage on a house they bought near the top of the market with a minimal down payment, student loans, two auto loans and credit card balances. After making the loan payments and paying for utilities, transportation, groceries, employees' share of healthcare costs, eating out, mobile phone/broadband/TV service plans, there is little money left to save for emergencies, travel, college for the kids, home maintenance, etc.
How do we describe this family: middle class or debt-serfs? Actually, they're both:measured by what they superficially own (home, two vehicles, communication and entertainment devices, college degrees, etc.), this household is solidly middle class. But measured by how much income is spent servicing debt, how much is left to accumulate or invest, the family's net worth (their assets' market value minus debt) and generational wealththis household is mired in debt-serfdom: their debts will never be paid off.
The mortgage will never be paid off, and by the time the parents' student loan debt is reduced, the next generation's student loans are piling up. The auto loans may eventually be paid off, but it will look cheaper to buy a new vehicle with a modest monthly payment than to pay costly auto maintenance with scarce cash.
Debt anchors this household's fealty to the state and financial sector as securely as any medieval peasant household's bond to the noble's manor house. This is the basis of my characterization of the U.S. economy as a neofeudal arrangement based on debt.
Household B shares the family home that is owned free and clear (mortgage has been paid off) with other family members, owns debt-free vehicles and maintains the cars themselves, rarely eats out, has no student loans (either paid cash for college, used scholarships and grants or paid their loans off), buys cheap catastrophic medical insurance and invests money in staying healthy/preventative care, i.e. eating and preparing real food and enjoying regular fitness, lives close to work, invests some of the ample family savings in enrichment (lessons for the kids, etc.), occasional frugal travel and income-producing assets and retains the rest for emergencies such as vehicle breakdown, medical emergency, etc.
If this scenario seems "impossible," recall that 1/3 of all homes (roughly 26 million houses) in the U.S. are owned free and clear, i.e. there is no mortgage.
How do we describe this family: middle class or wealthy? Actually, they're both:this household has a solidly middle class income, but because they've eradicated fixed costs (most importantly, debt, costly "gold-plated" healthcare insurance, etc.) and discretionary luxuries such as eating out, costly entertainment plans, etc., but measured by their values, behaviors and net income saved and invested, this household is upper-middle class or wealthy, having achieved a level of prosperity that eludes free-spending households with double their annual income.
The solution to the erosion of the middle class lifestyle is to destroy debt and other fixed costs and eliminate self-sabotaging discretionary consumption that cripples the household's ability to accumulate capital that generates income. There is nothing magical about the values and behaviors that enable this; it boils down to choosing to leave the permanent adolescence of debt-based consumerism behind and move up to a more prosperous, productive way of living: doing more with less.
I am indebted to Paul C. for this graphic depiction of how instant-gratification consumption that appears "cheap" is actually horrendously expensive when the consequential costs and alternatives are considered:
This is but one example of many in which the lower-cost alternative is the better choice, not just in value but in opportunity costs. We assess the opportunity costs of every purchase or loan by asking one simple question: what else could we have done with this money?
It's a question that is scale-invariant, that is, it works as well for a nation as it does for an individual, and every organization between these two ends of the economic spectrum.
In the case of the debt-serf "middle class" household, the answer to the question, "what else could we have done with our money?" is slowly build productive assets and prosperity that is within your own control.

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LawsofPhysics's picture

How about prosecuting the fucking fraud?


The "middle class" is dead already.

GetZeeGold's picture




That.....and just stop spending money we don't have.


Yes....I'm aware that's gonna piss off the GOP.

LawsofPhysics's picture

Indeed, moreover, the middle class cannot "save or generate capital" if capital is not respected...  can you say ZIRP or NIRP?

Fucking morons.

Latina Lover's picture

Asking the average mindless american consumer to stop spending is akin to asking a pedophile to stop offending.

To be fair, ZIRP does destroy any incentive to save.

Stackers's picture

Ever want to see this put into practice ? Watch the reality show 19 kids and Counting about the Dugger family.

No debt, no jobs, 19 kids and a nice (if a bit crowded) home. All through frugal living and smart investing in income generating commercial real estate

knukles's picture

How's about less social engineering allowing robust job creation?

Shocker's picture

A Half way decent job market would help.

Layoff / Business Closing List:


Georgia_Boy's picture

The graphic again puts the lie to the liberals' excuse that the poor are fat because fast food is the cheap way to get enough calories.  Oh, and of course, because no one ever TOLD them that burgers are not as healthy as broccoli!

Creepy Lurker's picture

I could get more than one meal out of that chicken.

Oh regional Indian's picture

I think Humanity is in a phase of deeply masochistic decline. 

Part engineered, part cyclical, who knows...

The middle class is the soft underbelly of society, very dependent with very limited skill-sets.

Very expendable as a more aspirational poor push up and an ever more exploitative rich push down.

chumbawamba's picture

Indeed.  We're thinking along the same lines: how much of it is engineered vs. a normal phenomenon of the "human condition"?  The media is certainly filled with hypnotic suggestion, but then we choose to go along with it at a subconscious level.

I was just thinking today: if you were tasked with managing the world, how would you deal with billions of people who don't even know why they're here, let alone how to get by in this increasingly crazy world?

Today, I only have questions.

I am Chumbawamba.

MisterMousePotato's picture

Based on personal experience from a couple/few nights ago:

Dinner for four:

Eight medium baked potatos, split ($1.50);

In a skillet:

1/2 pound bacon cut in small pieces ($1.00);

One medium yellow onion, chopped small ($0.50);

1/2 pound white mushrooms, sliced ($2.00);

A bit of garlic, garlic leaves (homegrown), spices, and whatnot ($0.50);

Grated cheddar cheese ($0.50);

1/3 bunch brocolli ($0.50).


Now, I like rib eye steak, properly prepared and in unlimited quantities about as much as anybody, I think, but ... you know? For about $7.50, it wasn't a bad meal at all.

Save_America1st's picture

pay off debt.

get out of the banking system and get your cash out of the bank after each paycheck, leaving only minimun in the account to pay regular monthly online bills.  ***All cash goes in your pocket or hide it away.

***pay cash for everything else and save up all the change.  You'll be amazed how much change you can save up (this is important)

get a good running car with no car payment.

stop using credit cards...close them all out except best one with lowest interest rate and decent enough balance for emergencies, renting cars, hotels, etc. if necessary.  One with no monthly or annual fees (or as low as possible) is best.  DON'T USE THE DAMN THING FOR ANYTHING ELSE.

save cash away for random costs and emergencies such as fixing car issues, etc.  Don't leave it in the banking system

***Buy physical silver regularly...whatever you can get once a month and buy 5, 10, 20 ounces, etc. or whatever is comfortable that fits in your budget.  Just keep stacking it regularly.

Every few months take all that loose change you've been saving and use it to buy physical silver or to pay off debt until debt it gone. 

By not using a debit card for purchases and by using cash only since you are no longer keeping excess cash in the banking system you will be amazed how much change you can save up over a short amount of time. 

If you have a 401k stop contributing to're just throwing money away, especially since it's going to be inflated away, destroyed in a market crash, devalued due to dollar printing and loss of world reserve currency status in the future, and/or stolen by the government.  If you're not close to retiring yet then just stop contributing.

Instead, take the 50% loan that you're allowed to take and use it to pay off debt or buy physical silver.  Extend the payments out to the longest possible...I think it's up to 72 months, could be wrong.

You'll be paying yourself back via paycheck withdrawals at a low interest rate, like 4.5%.  So you're paying yourself back plus don't need to contribute anything else.  Consider that money gone anyway.  If you used it to pay off a large credit card you'll have eliminated a large higher interest minimum monthly payment to the credit card while also paying yourself back plus a low interest rate at the smallest payment plan possible.  You'll come out ahead on this and you will have used that money now while you could to pay off debt or stack some silver and other supplies and you're still contributing to the 401k with your payments just in case you actually do get to retire one day and start using it.  You will have paid yourself back in like 6 years anyway.

And that's all a very good start to turning shit around for yourself.  Stacking guns, ammo, food, water, other supplies doesn't hurt either.  Especially food storage.  Buy up a bunch now of Mt. House or other dehydrated or freeze dried long term storage food.  Food inflation is going to go off the charts in the future, so getting long term storage food now while it's affordable can then be used in the years ahead to supplement your food costs so that you don't have to buy as much in the future.  Most of it is good for up to 20 to 30+ years, so it'll help you save a lot of $$$ for sure down the road.


sleigher's picture

How come all the christians don't say "that is against my religion" when offered credit or to buy things on credit?  I was offered credit on a purchase the other day and said that is against my religion even though I don't really think of myself as a christian.  I got a really weird stare.  Maybe that's why...

New World Chaos's picture

Excellent cheap recipie to try tonight!  Here's my version of it:

Garlic and spices:  $0.50

All the other ingredients and more, which I got on my last dumpster dive:  ~$2.00 in gas


Fuck the Man

P.S.  I only get away with this because I am single.

ncdirtdigger's picture

Sorry MMP, but your price for a half pound of bacon is right out of a Leave it to Beaver episode. That chit be costing $8 a half lb these days. You be lucky to get a half slice for a buck.

MisterMousePotato's picture

I buy a three-pound bag of bacon at a place called the Grocery Outlet (big on the west coast) for $5.99. That is the today, current price. To be sure, was $4.99 not too long ago. Ends and pieces, not slices (usually). Thick cut. Really pretty good bacon. I compared it to the expensive in the case stuff from a couple grocery stores as well as the then ten-dollar 20-ounce package, and it was just as good. Just not pretty slices, which I don't care about at all. First off, I cut full slices in halves or thirds anyway 'cause I find it easier to cook. Besides, I'm just gonna chew it all up anyway, so who cares what it looks like? Not like I'm running a restaurant.

ebworthen's picture

Yes to Shocker and Kunkles.

Yes to LawsOfPhysics.

This isn't about being frugal.

This is about fucking jobs and pay!

Not enough jobs, not enough pay!

It's about the fucking FED!

It's about parasitic cronyism!

It's about banks and the corporatocracy!

It's about the death of the rule of law!

Kill the parasites!

It's not about burger vs. broccoli!

I hate articles like this, it's bullshit!

"Be frugal, buy and hold a diversified portfolio..."

FUCK ME!  I can't take it anymore!


The problem is not us, it's THEM!!!

Oh regional Indian's picture

I read " Be Frugal, burn a well fried potato".

That sounded pretty frugal to me. In a burnt out sort of way.


ebworthen's picture

Every penny of frugality will be STOLEN by TPTB.

Frugality ALLOWS them to TAKE MORE.

People just don't get it.

chumbawamba's picture

Pardon me for saying this, but I think you don't get it.  Your rant isn't going to change reality.

All that you say may be true, but it's your problem, not the PTB.  Whining about it will not fix things.  Being more clever than them will, and if that means sacrificing in the interim then that will ultimately make you the better of mankind.

Or did you not get the memo?  The meek shall inherit the earth.

I am Chumbawamba.

ebworthen's picture

Thanks chumba.  I get it, I'm just tired of getting it.

chumbawamba's picture

The corollary being: take care of yourself first, brother, and the world will follow.


ebworthen's picture

That too.

Charles Hugh-Smith is jumping the shark.

A 21st Century version of "A Modest Proposal" would have been better:

Milestones's picture

Ah yes, the eternal parasites. it is way past time to  address this problem. the people have all but run out of time. The game is going to be decided in the next 90 days I'm afraid.         Milestones  

DeltaDawn's picture

They are paid a pretty penny to start in a reality show. Their digs would not be quite as nice, but it seems like they are the debt-avoidance types and would buckle down.

Almost Solvent's picture

19 kids - fuck that shit.


They have mental problems to have 19 kids.



Lmo Mutton's picture

Sir, with all due respect, making the kids was not a mental problem.

The mental problem came AFTER the 19 kids.

11b40's picture

That sounds cute, but any couple who would have 19 kids DOES have a mental problem.

Stackers's picture

1 and 2 children families are not the hisoric norms. my parents had 5 and 6 siblings, their parents had 12 and 13 each. Wanting and having a large family is not abnormal.

11b40's picture

Sorry, but I just tend to be argumentative, and we are talking about contemporary people right here in the good ole USA, not historic family sizes.

In the modern world, large families are not normal.  Otherwise, they would be common.  They are not common, nor are they normal.  They are abnormal.

In more agrarian societies, family size tends to be larger, and in poor, underdeveloped, backwards societies, the same is true.  Where lack of birth control, opression of women, poverty, and ignorance are the norm, larger families are, too.

If it works for you and your wife, go for it.  However, we would all appreciate it if you would kindly make sure you can afford to raise all those kids without our subsidies.  Also try to raise them right so we don't have to support them later in life if they are not properly educated and socialized.  The welfare rolls are busting at the seams, and the prisons are full enough.  Good luck.

TimmyB's picture

They are religious fundamentalists, same as the Taliban.

sylviasays's picture

They are religious fundamentalists, same as the Taliban.

Says a self-absorbed progressive eunuch.

boogerbently's picture

"eliminate self-sabotaging discretionary consumption."


I thought that's what they were doing FOR us.

Oh regional Indian's picture

Yeah, I thought that was a pretty 2 legs good, four legs bad line right out of the box.

Is this guy supposed to be some sort of libertarian voice?


mayhem_korner's picture



ZIRP destroys any incentive to save...paper "assets."  There are alternatives forms of wealth - I thought that was pretty well understood here at the hedge.

Pure Evil's picture

Being the mindless bleating sheep that we are, we need daily constant reminders.

Totentänzerlied's picture

You are assuming too much. Check out this article:

Relevant portion:

In Russia, 96 percent of those surveyed could not answer the three questions correctly. While that might be expected of a post-communist nation, the mecca of capitalism [sic] didn’t exactly yield glowing results—only 30 percent of Americans aced the quiz. The best-performing respondents were the Germans (53 percent got a perfect score) and the Swiss (50 percent), but this still leaves almost half of each country’s population without a basic understanding of financial matters. In countries with relatively strong economies, the numbers are sobering: 79 percent of Swedes, 75 percent of Italians, 73 percent of Japanese, and 69 percent of French could not respond correctly to all three questions.

Only 30 percent of Americans. Less than one in three. Anyone who cannot correctly answer the first two questions has roughly zero chance of understanding what things like ZIRP and negative real returns mean, let alone how they're relevant. Somehow I doubt that in the few years since savings accounts and CD rates were crushed, that many people simple forgot how interest and saving works and inverted their attitudes toward it. It's all about the culture. If everyone you know routinely spends 99% of their disposable income on trinkets, you probably will too, and you won't find it strange or wrong in the least, either. Cultures of saving don't become cultures of spending overnight, whenever interest rates aren't "good". How many people even save in the form of non-paper wealth? That's the difference. In saver cultures, you save whatever you can, whenever you can.

Most people don't understand ZIRP or QE, have never heard of ZIRP or QE, and if you were to patiently explain ZIRP and QE, they would not be able to make the practical, logical connection between them and their financial behaviour (saving, spending, investing) - they would walk away without having learned a damned thing.

The most you can say is, they see a lower interest rate percentage and the desire to save is easily overpowered by the burning deeply ingrained desire to spend (on something that provides only a momentary emotional return, if any - it's not wealth-generating or even wealth-preserving, it's wealth-destroying and often, being purchased on credit, incurs interest).

Any recommendation to save rather than spend, in this consumerist culture, is just trading multiple smaller purchases sooner, for fewer larger purchases later. Actual saving is an anachronism and an anathema, and it's all but impossible when you combine narcissism, covetousness, and pride - the "I deserve whatever I want (which is whatever I'm told I want)" mentality.

malek's picture

Actually I would like to see breakdowns on which question(s) the participants failed.

I believe the term "mutual fund", at least for people outside the US, is generally more confusing than enlightening and might have caused an overly large part of failures.

stacking12321's picture

i agree.

the problem with mutual fund risk is that you're dealing with the fund (sometimes the fund is front and/or back-loaded), "management fees", etc.

and also that it holds crappy companies together with good ones.

whereas if you pick one company and do it well, it will be a better choice than a mutual fund, lower risk.

so, i wouldn't even necessarily agree that the answer to #3 is false, even though it's clear they are testing for whether you know about "risk diversification".



NotAMathWhiz's picture

Both of my kids have gone / are going through the public school system in the states.  Granted, we intentionally moved into a specific school district to make sure they went to one of the better systems available.  They we taught all kinds of 'stuff', some usefull, some not so much.  But even in one of the best school systems in the state, neither of them ever got any training on how to balance a checkbook, create a budget or calculate compound interest.

Now, for my kids it wasn't a problem, because we hammered that into them.  However, for the vast majority of kids this is a huge problem.  Schools don't do it, and parents don't know how.  We have generational financial ignorance built into the system.

Schools need to prepare kids with basic financial skills, if nothing else the evils of paying compound interest.  However, there are powerful vested interests that absolutely do not want to see that happen.  

We can bitch about this until we're blue in the face, but as long as the State has control over the public school system agenda this absolutely will not be fixed.

RKDS's picture

Yes, the state has control over the schools, but who has control over the state?  Power financial interests that prey on the working American each and every day while morons blame their tools.

green888's picture

In 2008 when we were first advised to buy silver, similar to todays price, what is your calculation of how much money you have lost, due to the reduced purchasing power of todays money

Kirk2NCC1701's picture

"...ZIRP does destroy any incentive to save."

Disagree.  Although almost everything turns to shit that the Fed touches, I think they are on to something with ZIRP.

What ZIRP says in effect, is: "Money does not beget money.  You may borrow money and do something with it, if you qualify.  Else, 'No money for you!' "

Which is as it should be.  If you want to "save" (preserve wealth), buy bullion.  If you want to invest (get an ROI), buy real assets or shares in a profitable business.  Just make sure that you hold the stock shares issued by the company, not the investment company that your CFP works for.

LawsofPhysics's picture

Money is not capital moron.  You need capital to get shit done and ZIRP/NIRP destroys capital, savings or not..

icanhasbailout's picture

ZIRP and QE are required to sustain the government's debt, which the formerly middle class ironically demanded. My solution is "not one more dime":

Stuck on Zero's picture

A fair comparison of the families should include a family that earns $81K from a government job.  This family is truly rich.  They can spend every last penny on vacations, cars, dining, entertainment, and the latest gadgets.  They don't need to save for a rainy day, retirement, medical, or anything else.  They truly live the American dream.


LawsofPhysics's picture

Does that include families working for the MIC? It fucking should.