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Rich Middle Class, Poor Middle Class
Submitted by Charles Hugh Smith from Of Two Minds
Rich Middle Class, Poor Middle Class
This great generational injustice is the direct consequence of central banks lowering interest rates to zero and inflating asset bubbles.
How can middle class households have similar incomes but some are asset-rich and others are asset-poor?
Spending and saving habits matter, of course; some households spend virtually all their net income while others "pay themselves first" and scrimp to do so.
But the really big differences in wealth are the result of what assets the household bought and when they were bought.
Those who bought assets at the top of bubbles may still be underwater once inflation is factored in; those who bought long before the Federal Reserve and other central banks inflated credit bubbles every few years have substantial equity even after the bubbles inevitably crash to Earth (revert to the mean).
For example, a household that bought $25,000 of 30-year Treasury bonds paying 12% in the early 1980s and reinvested the $3,000 annual interest (at much lower yields) ended up with over $100,000 by 2012.
Those who bought Apple stock shortly after Steve Jobs took the reins in 1997 did even better.
But few of us are blessed with the insight and courage to make big bets at just the right moment, and hold the bets for decades. Most of us buy homes when we scrape up the down payment, or upon getting married, having children, moving to a new locale, etc. Few of us have the years or willingness to attempt to time long real estate cycles.
Few of us acquire substantial amounts of stock in a corporation unless we work for the company and are granted stock options.
Thus it is no surprise that relatively few households below the top 5% hold substantial financial assets such as stocks and bonds.
Stagnating wages for the lower 90% haven't made it any easier to save up capital to invest. As noted yesterday in Neofeudalism 101: Strip-Mining the Upper Middle Class, most of the income gains of the past 40 years have flowed to the very top of the income pyramid.
For all these reasons, the family home remains the foundation of most middle class households' wealth. Unfortunately, the Federal Reserve's policies have generated one credit bubble after another, destroying the old paradigm that buying a house was a reliable way to build equity.
As we can see in the chart of the Case-Shiller Index for the nation and the San Francisco Bay Area, those who bought in the bubble years have little to no equity despite their large monthly mortgage payments.
Buying a house in the bubble years was an unmitigated disaster in terms of building wealth. Only those who bought in the pre-bubble years of 1987 to 1998 built substantial equity--equity that didn't vanish even when the bubble popped.
Many households that bought modest homes in the early 1970s and held onto them now have $1 million+ in equity if they happened to live in highly desirable locales such as San Francisco, West Los Angeles, Honolulu, pricey boroughs in New York City, etc.
These households were not any different that the other 60% of households that owned homes. Their great fortune (pun intended) resulted from two unexpected bits of luck: buying before asset bubbles inflated, and buying property in areas that became extremely desirable to buyers on a global scale.
Based on multiples of inflation-adjusted income, housing in highly desirable areas is now more expensive than it was at the top of the 2007 bubble. Viewed from the metric of multiples of annual median income, housing in the San Francisco Bay Area has been unaffordable to all but very high-income households for the past 17 years.
Where does this leave us? With the unsettling reality that the generations that reached home-buying status in the 25-year era of 1973 - 1998 and happened to buy homes in locales that would one day become extremely desirable (and who didn't extract all their equity in the bubble years) are now Rich Middle Class Households.
Those who bought homes in the bubble years are Poor Middle Class Households with little or no asset wealth.
Is this just or fair? Of course not. This great generational injustice is the direct consequence of central banks lowering interest rates to zero and inflating asset bubbles in a corrosive (and vain) attempt to generate a wealth effect of households borrowing and blowing their newly created asset wealth.
In an economy that isn't whipsawed by central bank manipulation, the difference between middle class households' asset wealth is largely behavioral, not the random luck of coming of age before central banks began blowing destructive asset bubbles as a matter of policy.
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Tragic.
Rich? If you bought a house to live in 1985 for $200K and now it's worth $1.3M it's still the same old house. The difference is that you now have to pay five times the property taxes.
"They are taxing their inflation. It's theivery!"
The American Dream remains one of my favorite tools for explaining the situation we find ourselves in.
Must Have Lower-er Interest Rates!!!
What this tells me is that... even though I studied harder than my father, got 2 more degrees than my father, got a good corporate job unlike my father, didn't spend all his income on 5 kids like my father, and have 3-times the net worth that my father did at my age, I am still about 5X poorer than my father based on what my better "net worth" and income can now purchase in terms of assets.
Yeah, fuck you central banks.
Different set of rules than what your father had. Everything that our society once valued has been replaced by this "grab all you can and fuck everybody else" world that has been pushed for the last 50 years. Changes are coming and they won't be pleasant...
For 400 years, each generation in the American colonies and then the United States lived better that the generation before it. My elderly father has preached since I was a kid that it is set in stone that each American generation lives better than the one that preceeded it. It has always been so, therefore it must continue to be so, was (still is) his thinking.
Well, congratulations, you are a member of the first American generation that will have a lower standard of living than the one that preceded it. But hey, you almost nailed the top! Being one generation too late still ain't bad. Your kids and grandkids will envy you, since they'll have it even harder as America continues its decline.
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
So how will continuing to grift the top 1% with even more cheap money (ZIRP) improve this situation?
would just one fucking reporter ask this of the Fed at the next press conference... my god motherfuckers...
Trickle down.
Trickle on.
+1000
ROFL
Dude, that was too funny.
Low interest rates kill employment. In the classic Capital/Labor trade-off, cheap money buys technology to replace labor and guys like Buffet buy companies with cheap money and put more money in their pocket by chopping the labor force.
Free Market interest rates, not the Crony Communist Fed imposed rates, will put people back to work. Kill the Fed and all its' ilk. Lying criminals enriching their friends.
So long as money is lent into existence by unaccountable private bankers and their central banking allies it matters not what the interest rate is and who creates it. At whatever interest rate, banks create money at interest which must be paid by the general public by taking on more debt. Our government lacks the inclination to create true, debt-free sovereign money, i. e. by a trillion dollar coin, because it is banker-controlled.
Indeed, secular reduction of interest rates has been required to maintain the corrupt edifice that debt-backed money, which has substituted for the lawful power of a state to coin money, has created. Raising interest rates today would merely hasten the day of this system's inevitable end.
This system is so perfect that everyone screwed looks at the wrong people when it comes to figuring out who screwed them.
It will be the old people, the young people. Watch, there will be comments about this.
All the while, they sit back and earn the skim. Growing fatter with ill gotten wealth.
pods
"Few of us acquire substantial amounts of stock in a corporation unless we work for the company and are granted stock options."
My Enron stock will come roaring back any day now.
"Buying a house in the bubble years was an unmitigated disaster in terms of building wealth. Only those who bought in the pre-bubble years of 1987 to 1998 built substantial equity--equity that didn't vanish even when the bubble popped."
1997. Made it by the skin of my teeth. Wish I had bought a palace back then instead of a hovel. But I own that pile of sticks (and the substantial plot underneath it) outright, so no complaints here.
"But I own that pile of sticks (and the substantial plot underneath it) outright, so no complaints here."
Do you pay property taxes? Have full mineral rights?
I lease my property from the county each year. Payed the mortgage off years ago,,, but am a firm believer that if for any reason someone else can take 'your property' than you don't own it. Ownership means it is unequivocally yours.
JMO
Too bad we live in a system that's founded upon mass theft.
'Ownership means it is unequivocally yours."
try telling that to the government if you don't pay your property taxes. Even when they say you own it you still pay rent to the government.
The alternative being that you rent a place to live. In which case you are paying somebody else's property tax inside your monthly rent payment.
Government, and the rich people who own it, have shadow title to everything. Including the shirt on your back and your personal freedom.
"Ask not what the 2% can do for you. Ask what you can do for the 2%." - The 2%
Rich man's Panic 2.0 coming
Time for a major transfer of wealth from very rich to middle class. Options are taxes or revolution. It will happen and the US will probably disintegrate as a federal state. Time is coming when the dynamic willnot be stopped and the insiders in the military and security apparatus will decide to go with the flow as in any system where the tidal wave starts to move
my thoughts exactly as that which cannot be sustained, won't be. America will be the Soviet Union 2.0...
States like Texas and Utah, cannot wait...
Exactly what's going to happen: http://www.allnewspipeline.com/Deagel_US_2025_Forecast_Breakdown.php?hc_...
10 oz. Sunshine Silver bars are 0.69 over spot at Silver.com right now.
Make ready for what's to come.
Excellent point Sandman, just pls no more taxes, they end up funding the gov't twhich is nice for the EBT cardholders. In reality though, that gov't works for the .01%, not us.
"Time for a major transfer of wealth from very rich to middle class. Options are taxes or revolution. It will happen and the US will probably disintegrate as a federal state"
Never happen. The Middle class is going bye-bye: 1. Middle class jobs are disappearing, Outsourced, obsolete, or being replaced by machines. Rich will continue to offshore weath and income if the taxes go up. Although Taxes will also go up on the remains of the middle class, but they won't be able to offshore their income.
As I see it:
1. 2015 Is global peak Oil. It's all down hill after 2015. Declining energy resources (or more expensive energy) means a shrinking economy. We'll likely see gas north of $5/Gallon before 2020.
2. Number of occupants per home will increase. Less money means people will be forced to share. Currently there is a boom in apartments (quasi shared living space). Kids and parents will live together to share costs (already happening). Single family homes will be converted to multi-family homes.
3. The number of people "not in labor" force will continue to rise, and begin to soar when the next market correction hits. It will easily surpase the 100M mark after the next major market correction.
4. Full time jobs will vanish for many. Most employers will switch employees to part time work (avoid Obamacare and other "future" regulations applied to full time jobs)
5. Machines will take a bigger role in labor reducing the number of workers needs. Fast food restaurants will replace cashiers with kiosks, and machines will have a great role in preparing meals. Manufacturing automation will increase significantly. New products will ether become disposable or modular to simpifiy maintenance and repair.
6. The Healthcare industry will shrink. New drugs development in the US will disappear as Insurance/gov't only pays for generics. Healthcare will be "rationed" do to rising premiums and higher deductible, reducing the number of healthcare workers. Healthcare paper work will become more automated and electronic, eliminating healthcare clerks
7. Electricity the the US will soar as new Carbon regulations make Coal fired plants illegal the US is expected to loose about 150 GW of production by 2022 and another 100GW by 2025. Businesses and industries that depend of cheap electricity will either move operations overseas or shutdown. Air conditioning will become very expensive.
8. The US will continue its relentless drive towards WW3. One day someone will be pushed to the breaking point and modern civilization will end in a day.
AGuy, excellent well written summary!
All of those things are a sign that the system of slavery imposed by the government and its owners is coming to an end. The "middle class" as defined by the owners of the country were just the favored debt slaves at the top of their imposed food chain.
Destruction of their system is not to be feared.
The term "Peak Oil" was coined by a cat by the name of M. King Hubbert back in the 50s. In fact, Hubbert predicted "Peak Everything," but oil was the resource he felt would be used up soonest. Given his employment by Shell, this shouldn't be surprisng.
What you may not know is Hubbert's history as an all-around Globalist goon. He served as an adviser to both the Board of Economic Warfare as well as the Trilateral Commission. He received the Rockefeller Foundation Public Service Award in 1977. He was also a devout technocrat, going so far as to found Technocracy Incorporated.
Technocracy = The control and management of all resources (of which humans qualify as) by a scientific elite... is the "Peak Resource THEORY" starting to make a bit more sense now?
Enjoy your Smart Meters, Amerika... aside from that, brilliant post.
Everything turned out just the way the rich wanted it to in the class war that they waged on we, the people. Of course, they had their paid shills tell us there was no class war - just a liberal consipiracy against the wealthy. That's all.
"Don't piss down my back and tell me it's raining."
All I need to know is that the "markets" will be up by the end of the day and there is no volatility!
All is well.....wake me up when something really happens!
My parents retirement community is loaded with 40 year olds living with their parents. Hope and Change indeed. Well done Obozo.
Looks like Moochelle finally got it's own potty........
http://www.politico.com/story/2015/04/white-house-gender-neutral-bathroo...
Our house has had a gender neutral bathroom since 1963.
Well now, I'm not sure I'd call it "unfair'. There are always going to be people who 'luck out' in buying some thing or another. It so happens that the generation who bought houses prior to the bubble made out like bandits. Like the generation able to buy Apple stock at the beginning made out, and like the folks who bought or already owned desert property in Nevada made out after Vegas was built...it happens. One generation's 'lucky stiff' doesn't mean all the other generations got shorted. Every generation gets its opportunities, as what may have been available to your grandfather may not be available to you, you must seek out your own opportunities.
What IS unfair in all this is that this situation was deliberately created. Real estate was TARGETED for pumping and dumping. A few benefitted big time, many benefitted in smaller ways, and many others got shafted. But the bubble didn't just 'happen' like so many other lucky breaks, it was CREATED with a specific goal in mind. THAT is the unfairness.
"In an economy that isn't whipsawed by central bank manipulation, the difference between middle class households' asset wealth is largely behavioral, not the random luck of coming of age before central banks began blowing destructive asset bubbles as a matter of policy."
In the economy we have now, those behavioral differences will account for survival, in the beginning of the collapse. As it progresses, the prepared will be the survivors, obviously. Those who do the best will be those who have been prudent for the past three decades - and who have a solid SHTF plan for when the systemic collapse renders the suburbs entirely too dangerous to stay in.
So far as the timeline of that progression, its unknowable until the collapse is upon us. You might have a few months, a few weeks or (maybe) a few days. The more slowly you can make your transition, the better off you'll be. (I do think the odds of a catastrophic "get-the-fuck-out-of-Dodge!" event are relatively small, in a country as big as America. Collective disbelief will keep things running for a certain amount of time after Banksterland implodes unter the weight of its own psychopathic parasitism.)
Multiple ways to interpret data, eg the poor re-create and over-populate themselves by unregulated breeding far beyond their means.
You say EBT, I say TARP. The poor are victims, not perpetrators.
Those who cannot properly and adequately support themselves must not be allowed to condemn newly-created people to the same fate = common sense, morality, compassion for the children.
if one is middle class then they aren't rich. not really.
if one is poor then they aren't really middle class.
freedumb's lamb. sheeple poser country.
There is more than one way to skin a cat. In bought a very modest house in 1992 that I still live in. Instead of big house payments I put the difference into the stock market. I did well enough I was able to retire early in 2005.
The first reason for buying a very modest house was property taxes were going through the roof in 1992 and did not want a huge tax bill. The second reason for this is I did not have a pension so I maxed out the 401K and put the remaining cash in the market.
I think this worked out better. I am not fighting now to get equity out of my house to live on. I just tap my 401Ks when I need to. My 1992 house is still worth more that I paid for it.
What helped me the most of all was to define “trend” in the equity markets and have a plan to go slowly to cash in equity markets downturns and reinvest in up turns. So got out in 2001 and 2008 (missed both tops) and reinvested as the markets came back. Now I am about 87% in the market and going slowly into cash …
Newsflash - it's not the 'Top 1%' benefitting, it's the 'Top 0.01%'
The top 1/100 of 1% are the ones getting damn near all of it.
The curve is EXPONENTIAL and EXPONENTIAL within the 'Top 1%' as well.
If you're at the border of the 'Top 1%' you're a hell of a lot closer to the absolute bottom than you are to even the top 1/2 of 1%.
A good number of the 'Top 1%' are upper middle class wage slaves living in the more expensive areas (because that's where the jobs are). ENTRY level houses are a half million - with $25,000 a year property taxes and high stte income taxes as well. This group is getting bled dry because they are paying maximum rateson everything - unlike the really wealthy who shelter damn near everythign and have accountants and lawyers dedicated to doing so.
The 'Top 1%' meme is forcing a lot of people who are even more pissed than those at the very bottom into defacto alliances with the wrong people.
You're a LOT better off focusing on the EVEN SMALLER NUMBER OF PEOPLE AT THE VERY TOP
The 7 Walmart heirs - by themselves - are worth more than 40% of the rest of the US.