Brace Yourself For The Coming Economic Transformation

Tyler Durden's picture

Authored by John Mauldin via,

If the average person in the US feels as though they are going nowhere fast, there is a real reason for it.

Federal Reserve data shows people are earning less than they did 17 years ago. But the real story is even worse than that.

The chart below shows that median income in the US is actually down over the last 17 years and is only 3% higher now than it was 30 years ago. Those are inflation-adjusted numbers.

But the reality is that, for the average person, inflation has been much higher than the average of 2% per year over that time. This is because the things that the average person actually buys—like housing and education and health care and all the other necessities of life—are rising at a much faster rate than 2%.

Source: FRED: St. Louis Federal Reserve

So this chart reflects the fact that life has gotten much more difficult for average Americans. If people’s incomes haven’t grown beyond what they were 30 years ago, they struggle just to make ends meet and to maintain the lifestyle they had.

Growth Is An Illusion For More Than Half Of Americans

The Census Bureau updates its income figures about once a year, and the last real update we had was last fall (taking us through 2015).

Doug Short did an analysis of those numbers. He breaks the country into quintiles, calculates the average household income for each quintile, and then also shows the top 5%. Notice that the average income for the top 5% is $350,000.

Source: Advisor Perspectives

It looks like everybody’s income is rising, especially those in the top 20% and 5%. But if we inflation-adjust those numbers, the illusion of growth goes away.

What we see now is that there has been almost no movement for the bottom 60%. The middle quintile has grown somewhat, and—this won’t surprise anyone—the top 20% and 5% have done very well.

Source: Advisor Perspectives

The next chart shows what that growth looks like in percentage terms. We find that the bottom quintile saw their income grow by only 25% over the last 49 years. That’s less than 0.5% per year.

Interestingly, the fourth quintile grew even less than the bottom one, at around 19%, mainly because of government programs that supported those in the lowest 20%.

Source: Advisor Perspectives

But what about the 1%, I hear you asking? Investopedia gives us that answer:

To be certified as a one-percenter, you needed to bring home an adjusted gross income of $465,626 or more for the 2014 tax year, according to data from the IRS. The Washington Center for Equitable Growth put the average household income for this group at $1,260,508 for 2014.

But as the saying goes, your mileage may vary. It turns out there is quite a lot of variation among counties around the US as to what it takes to qualify for the top 1%. The chart below illustrates this well.


People Worry About Sliding Down The Class Scale

Not only are people making less, more people are worried about staying where they are financially (or not sliding down) than are trying to figure out how to get up to the next level.

The possibility that we might slide down the class scale is the source of much angst. Upper-income people worry they will decline to mere upper-middle-class status, while the middle class doesn’t want to join the ranks of the lower class.

It’s not so much that those upper-income people are worried about being middle class. It’s that they have created expenses and lifestyles around a certain level of income. If that income falls, they will have to change the lifestyle they have become used to.

That is remarkably difficult for many of us to do. Our sense of self-esteem and emotional well-being are, it seems, tied to our lifestyle.

Whether your worries are groundless or real, those fears are greater if you know you’re at the lower end of your peer group. The wealthiest .001% don’t have to worry—they’ll be fine in just about any scenario. But people in the 85th–95th percentiles are in danger of taking a fall in the next big market and economic upheaval.

And of course, the lower middle in the 25th–50th percentiles are very vulnerable to downward mobility.

The Transformation Is Coming

Whatever our income or class, we all face challenges over which we have some influence, yet we may find ourselves subject to a fate that we can’t control. The challenge that we have today is to recognize that the political, economic, and investment forces that we have become used to dealing with over the last 70 years are getting ready to shift more radically than we can even imagine.

We will have to think more deeply and creatively than ever about how to prepare for the changes—the transformation—coming to our lives.

*  *  *

This wildly popular newsletter by celebrated economic commentator, John Mauldin, is a must-read for informed investors who want to go beyond the mainstream media hype and find out about the trends and traps to watch out for. Join hundreds of thousands of fans worldwide, as John uncovers macroeconomic truths in Thoughts from the Frontline. Get it free in your inbox every Monday.

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Sonny Brakes's picture

Every day is groundhog day.

BigFatUglyBubble's picture

you put your little hand in mine....

Boris Alatovkrap's picture

Article is only tell story of correlation of data with feeling of economic malaise, but Boris is attempt to explain CAUSE:

Bank is issue monetary token in excess of actual wealth, maybe 9:1, maybe 81:1, maybe 729:1 depending on time and periodic discharge. Only vehicle of transport is debt, so is lend out at interest. Because principle + interest is more than account by wealth, must issue more debt. This is ONLY reason why inflation is become inevitable, to pay for interest on vaporous wealth. If GDP is grow faster than rate of interest, however, there is no inflation.

But by 2007, reserve to capital ratio is exceed reasonable 9:1 as exotic financial instrument and transaction is create by shifty banker class. Let us call this new realm, "Bank-o-Sphere™". Bank-o-Sphere is fill now with more wealth that is purely derivative without any pledge of collateral, just pledge of other derivative like credit default swap. Any detection of movement from Bank-o-Sphere (soft money) to hard asset is easily trigger run on bank, like Bear Stearns and Lehman Bros, or WAMU, or Country Wide. This is happen in Cyprus, Iceland, Ireland with regional bank that is without support of Federal Reserve.

Because of fractional reserve lending (Boris is more like to call "fictional reserve lending"), there is always to be more debt than asset, and in perpetuity, inflation and price instability. Because of Federal Reserve lending window exclusive to bank member, common man is only one ever to pay for much exceess in debt expansion.

… but what is Boris know?

philipat's picture

And if we apply the REAL inflation data (Shadowstats etc) to the charts above, they ALL point towards the lower right hand corner. But of course, that is less painful if you are in the top 1% INCOME and also have other passive carried (unrealised) investment returns.

otschelnik's picture

We live in a gilded age...  at least those in the bank-o-sphere!

undertow1141's picture

I explain it thusly, one US $ dollar in 1973 takes $5.55 in 2017 US dollars to have an equakl buying power. Every year due to 'fictional' money creation the dollar is worth less. Eventually it will be worth ZERO. Housing isn't more expensive it just takes more devalued dollars to equal the buying power.

medium giraffe's picture

Which is also interesting for the value of stocks.  Stocks are not gaining in value so much as being priced in a weakening currency.  I've yet to see anyone seriously consider this point, but Zimbabwe, as ever, provides us with a clear example of this.

BigFatUglyBubble's picture

Yea, lol, I don't bring it up because no one wants to hear it.  Here's a vid where he compares the market to gold and oil from years past.  It's actually down in value.

Eeyores Enigma's picture

So too much debt is the problem all around the globe but what nobody talks about is the handful of "folks" who are collecting those monthly payments to the tune of trillions thank you very much.

adanata's picture

Seems to me, what no one is talking about is there is no debt; not to the banks. All they "loaned" were worthless digits/fiat. That's the core of the con. As long as people think digits/paper are "money" then they work like money... for awhile but never forever. I say we write the BIS a check for the twenty trillion we "owe"; I'd be happy to write it; repay them in kind. It's only fair...

AnimalSpirits's picture

Ha ha!! Yah, a cheque to BIS from the people!

We can use a form of fictional reserve payment...the guarantor being: Peoples bank of Ritebachatya.

Perhaps that's the strategy...something ridiculously comical to reflect how ridiculously insane banking has become.

Bank notes can be printed (detailing banking system on one side) and distributed everywhere - educate people using humour....

TeethVillage88s's picture

I think wooden nickels and local currency like script is legal all over the USA. I understand Washington DC suburb has one. (old story) (Current story in Massachusetts)

AnimalSpirits's picture

Berk$hares! Very interesting...thanks for the links, TeethVillage!

Great to see creative ideas to stimulate local economies. 

AnimalSpirits's picture


Soon is sure, we make 'People-Spear' for break 'Bank-o-Sphere' ... soon, very soon!

HRClinton's picture

Boris is know more than most Amerikanski not in Big Klub.

Is-Be's picture

Which proves that wetware is obviously suited neither to drive nor to govern.

runnymede's picture

Outstandski !! Boris is give self raise. 

Boris is perhaps remember put good word in Putin ears for ZH Americanski friends when U.S. collapse and become Russia vassal?

PrayingMantis's picture


... in other words, it's a big club and we ain't in it (with apologies to George Carlin;)



This is it's picture

Ok, bracing.  Let me know when to relax again. 

SeuMadruga's picture

Like my old granpa always says: "life's tough, but only on the first hundread years..."

Bob's picture

Why does the first chart labeled Real Income not reflect the author's claim of a decrease?

I'm more than willing to believe, just wondering.

TeethVillage88s's picture

Because the middle quintile keeps tilting/slanting the data. They keep getting promotions (Shifting from 4th quintile to middle quintile... after the middle quintile gets canned from their jobs.

It also looks dated April 2015.

Bob's picture

+1 It was a dumb question.  Median is no more representative of today than the mean would be.  My bad. 

I should finish reading before I comment. 

GeezerGeek's picture

I didn

t did not listen to much of the video, but I was struck by the phrase on the whiteboard: "Weaponized Morons".

How apt.

quesnay's picture

I remember hearing stories that in the 1950's,  only one person per household needed to work to supply enough income for food, shelter and entertainment for the entire family. Insane giberrish, surely.

Well maybe Millenials can't afford a house anymore, but at least they've got their iPhone 7. Who needs food and shelter when you can have a supercomputer in your pocket, am I right? :-)

TeethVillage88s's picture

We've been learning to live on the street since the 1960s.

Just look at California.

Bob's picture

There was no internet, there were no cell phones, no cable tv; typically, what there were is employer paid healthcare and retirement plans, a healthcare industry that swallowed much less of the economy, as did also the banks.  

Different world, apples, oranges. 

Most people don't want to go back, they just want to go back with today's advantages.  And it can't be done. 

quesnay's picture

"Most people don't want to go back, they just want to go back with today's advantages. And it can't be done."

Why not? I don't see the connection between technology and people not being able to buy a house. If anything technology should make houses cheaper not more expensive.

I don't think the high cost of living has anything to do with technology (why would technology raise the cost of living? It should lower it). I think it has everything to do with globalization. On the whole the world is richer. Indian's are richer, Chinese are richer, the rich in the US are richer, the rich in Europe are richer, but unfortunately the average US citizen is poorer. Just look at the state of old manufacturing cities. They are now on par with third-world shit holes. Technology didn't cause that. Economics is not a zero-sum game, but there is no denying that globalization took away earning power from the middle and lower classes as jobs shifted to Asia and Mexico. Globalization is what made houses unaffordable. The world-wide rich buy real-estate as a store of wealth, but the lower and middle class didn't benefit to the same degree, except of course for their shiny new iPhone from China.

Bob's picture

Why it can't be done, was my thought, is that the corporatocry/New World Order has us by the throat and the last thing they're going to allow us is way more.  Of anything, whatever it might be. 

Not the nature of the beast. 

On second thought, they will allow us more of less.  They're very generous that way. 

People in the West will fold, it seems to me.  Like they've been doing since the 70's.  Over the years, it has looked like a progressive corruption of character in the US.  I don't think Americans are going to work their way out of this one, regardless of their own best interests. 

Americans are pwned. 

American corporate fronts and the US military control the planet. 

So if we don't stand up, it ain't changing.  Not for the better. 

I think we're divided and conquered. 

bloofer's picture

"Most people don't want to go back, they just want to go back with today's advantages. And it can't be done."

That former time quesnay describes was far more secure. The job was secure because most breadwinners went to work for one company when they finished high school (or the military) and continued to work at the same place until retirement. Hence, your family would probably not need to relocate, which made for stable communities.

Your home was secure--partly because you had job security that ensured you could pay your mortgage. But many men (like my own father) built the family home single-handedly and never had a mortgage, or any debt other than the current balance owed to the lumber yard, or Sear Roebuck for other building materials, furniture, and appliances. Building codes in most places now make this impossible.

While people did not enjoy the modern diversions of cable TV, comuters, I phones, Netflix, etc., life still afforded people equal, if not greater, pleasures, much of it in the form of actual social interaction. Much more has been lost than gained, in most ways. The biggest gain technology offers the average person is the availability of information on every conceivable subject: how to fix your car, how to make soap, how to doctor your goat's ear infection, how to wire in a new electrical circuit, and so on.

Security and social interaction (including a feeling of belonging) are probably the biggest factors in happiness. The main reason for the modern addiction to technology is that it offers escape from very unhappy lives.


Bob's picture

Complete agreement from me, bloofer. 

SeuMadruga's picture

And back then, I bet people were also nostalgic about the "good ol days..."

Donnie Duvanie's picture

The 'good ole days' for the most part had stability, community, and intregrity. We had to save our money to get something nice (a foreign concept to today's generation), or put it in layaway. When something innovative came along along (shake-n-bake, super balls, blow driers, cassette players and eight tracks), everyone shared in the awe. Today, we are so inundated with newness, that when something new comes along, we yawn. Yes, this era has technolgy that is on the cusp of curing cancer with a pill, scanning the neurons in your brain (in color), and thousands of other things to make our lives better. It also has endless wars, a government that has turned into a mafia - break down the door wearing hooded masks to arrest soemone for a misdemaner, or shoot first, then say the BB gun might have been real, carnival like duck shoots - just drive down many a neighorhood street and pick off a kid sitting in the front yard, contract prisons where a person can go to for life on the third strike for having pot, widespread government fortfeitures to steal your money and your property, where the government charges your posessions, not the person (and guilty until proven innocent), strip searches to board a jet, $150 a visit doctor fees, and designer pills that the doctors prescribe in mass, that turn ordinary human beings into pscytoic killing machines. If I had a choice, I'd take the 'good ole' days, any time, not because I'm nostalgic, but because, compared to today's, there was real value in that lifestyle, and without the likelihood that something would, sooner or later, go completely wrong for no good reason.


cherry picker's picture

They aren't "stories", it really happened.  My father did it in the fifties, sixties and in the 70's.

I supported a family of four, had a new home, vehicles, etc. in the seventies.  It was possible and in the fifties was still the "norm"

May not have had a 3,000 sq foot McMansion, but most of that is not used space anyway.

I saw an ad for a home today, $247,000, 1,700 sq ft, 2.5 baths.  Looked nice.  Property taxes $3,600 a year.  What a joke.  $300 a month to pay .gov for the priviledge of living in a home on your own property.

This era of stealing has to stop.  Tax is theft.  They may use all kinds of justifications, but it doesn't take away the fact the government is taking your earned money and giving back next to nothing.

I recognize that government makes a few things possible, but for the most part it is an aberration.  I thought Trump would have a chance to show the world it is possible to regain a little freedom and independence and save a few dollars, but the SOB is another Obama, they must come from the same place, back track alley.

serotonindumptruck's picture

"This era of stealing has to stop.  Tax is theft."

It won't stop until enough homeowners/landowners choose to withhold their property tax payments and take on their local SWAT team, with extreme prejudice.

quesnay's picture

Ya I know they aren't stories. Just being sarcastic. I remember talking to some old farmers once. They were reminiscing about how in the 70s (I think it was) about how you didn't have to 'look for work', or do job interviews or anything like that. You just walked into a place a business, asked if they were hiring, and half the time there was a job there for you if you wanted it. Now maybe they got caught up in nostalgia a little and are exaggerating, but somehow I felt what they said was mostly true. There was a time when finding a job, buying a house, having a family, was as simple as just going out and doing it. No 'plan'. No 8 years of college first. No begging and pleading with 50 different employers to start off as an unpaid intern. No settling for a 2 hour work commute because that's the only house you can afford.

TuPhat's picture

I graduated from High School in 1970.  I can't count how many times I was told that I would be hired if I was black.  Affirmative action was just getting off to a start and white guys need not bother applying.  I joined the Army and volunteered for viet nam.  Not much else I could do without money for college.  Those old farmers must have been talking about the 1870s.

how_this_stuff_works's picture

" Now maybe they got caught up in nostalgia a little and are exaggerating, but somehow I felt what they said was mostly true."

Nope, they're telling you the truth. Nobody even considered that their college major wouldn't earn them a job, particularly the professions. Of course, I can't remember there being Women's Studies back then. There weren't any background checks, no drug screening. Professionals had an interview; it wasn't much.

I'd say things began to change in the 80s when the trades began off-shoring leather production and textiles. Companies began going bankrupt and turning pension plans over to the PBGC. Happened to my dad. Forty-three years working in a sweatbox in the summer as a millwright and some guy bought the company, raped it of its patents, and gave the retirees a 50% haircut on their pensions. May he rot in hell.

man from glad's picture

True stuff. Heck back then a lot of the basic jobs didn't even require an application to be filled out. There weren't all these labor laws and regs for employers to deal with - if you didn't work out you got the Trump "Your'e Fired" and bye-bye you went. Ask me how I know. Life was much simpler back then, (not easy) simpler, and by God I sure miss it. Todays' world is soo choked down with laws, rules and regs and political correctness and rampant corruption... just so tiresome.

CJgipper's picture

The simpler was FAR less stressful, and therefore, easier.

ky8's picture

They also did'nt piss on your on your 4th amendment rights and force you to piss  in a goddamned cup so you can stack boxes in a warehouse for 10 dollars a hour. Merica fuk ya!

brushhog's picture

That is literally the way the CPI is calculated. Hedonic revision. Prices may go up but since new technologies accompany the increased prices, they dont count the higher price in the inflation statistic.

quesnay's picture

The absurdity of it begs for a satirical cartoon or something. Maybe a bum living in a cardboard box holding an old Obama phone and something about how since the old phone he has is as powerful as a multi-million dollar 1980's computer, he's actually rich thanks to hedonic adjustments.

roddy6667's picture

Is that a supercomputer in your pants or are you just glad to see me?

Lost in translation's picture

I'm always glad to see you. ^_^

Hope the wife and family are well...

Truthseeker20's picture

Read book called planned destruction of the US.

man from glad's picture

That's right, back then the man went to work and the wife stayed at home and managed the household and raised the kids. Then came the liberal women's movement where all that became evil and mysoginistic, (barefoot and pregnant in the kitchen meme) so the women went out and diluted the work pool by 50% and the state became the kids nanny and thus (in a nutshell) ensued the destruction of the household.