Experts Tell Congress: To Consumers, It's a Recession

CNNMoney.com: U.S. Middle Class 'On the Edge' This article sounds vaguely familiar ;)

I'm glad the 'experts' are catching on and telling the leadership what it is really like for those not in the upper 3rd of the country. [Dec 8: Do the Bottom 80% of Americans Stand a Chance?] We used the first half of the decade using our homes to cover the shortfall [house ATM] that has been slowly growing (erosion of living standard) - now it's the credit cards. Once that goes - so will come the rise in personal bankruptcies (which Congress has also made much more difficult to declare on behest of lobbyists group of financial corporations - it's all quite circular).

I cannot stress enough, this is an era very similar to right before the Great Depression - the highest % of wealth in the upper 0.5% and the highest proportion of national output in form of corporate profits (versus workers wages). Not saying we will be entering a new Great Depression but simply saying it will be a struggle for the great many if trends stay intact - even if they continue sideways (they do not need to degrade). I always repeat this stat since blog readers, by virtue of having disposable income to invest, probably do not fall into this category but the MEDIAN income in America is roughly $38K. Meaning half live below that. That's $730 a week... gross; not net. So $20 more a week for gas and $30 more for groceries at that income level means everything. I continue to believe if trends persist, social acrimony will finally become a major factor in this country as it has in many others. The pressure is slowly filtering up the economic strata food chain and capturing more and more families. When it hits critical mass is anyone's guess.

• America's middle class is growing increasingly squeezed by sagging incomes and soaring expenses, experts told Congress on Wednesday.
• Adjusted for inflation, median household income dropped by $1,175 between 2000 and 2007, said Elizabeth Warren, professor at Harvard Law School
• At the same time, the average family is spending $4,655 more on basic expenses, such as gas, housing, food and health insurance.
• Families with children saw their child care costs soar. Those with children under age 5 spent an additional $1,508 a month, while after-school costs for older children rose $622.
• To cover these soaring expenses, many people have had to turn to credit cards. Nearly 10% of total disposable income in the United States goes to paying off such debt
• "There have never been since the Great Depression so many families standing right on the edge," Warren said. "Families have tightened their belts. They have cut down on every discretionary area they possible can."
• "These costs are tearing a hole in the family they simply can't make up," she added. "You can't cut out enough lattes to pay for health insurance in America."
• Increasing economic inequality is to blame, testified Jared Bernstein, senior economist with the liberal-leaning Economic Policy Institute. While the middle class is contributing to productivity, the rewards are increasingly going to the wealthy.
• Warren and Bernstein also called for more regulation and oversight of the financial markets, particularly the credit industry, to avoid abuses that lead to bubbles. The last two or three economic downturns were caused by such run-ups.
• These bubbles are "a major contributor to the middle class squeeze," Bernstein said. (There have been incredible transfers of wealth from the many to the few.)

Back off of soapbox...

Comments

[rufusmcbufus]

I don't understand what is wrong here. This is how it's supposed to be. The natural order of things. The plebes should be happy they can watch the good life on tv. I mean, geez, they get to look at all the cool toys I can accumulate from their toil and sweat. How is that not enough? If I had my druthers the middle classes would be imprisoned for even thinking they are allowed to encroach upon my exhaulted realm. Hear this, middlers (and you lowers that can read this), we in the upper echelons intend to keep what we have and will endeavor to take more of what you hold that is rightfully ours.

[zentl majes]

Why is it when we mention all of the costs to the middle class that are going up, we always fail to mention the cost of carrying the non-productive? Right before the "Great Depression", no one carried you but for family and church. Now before this Grating Ression, if you can't keep your zipper up, you can't say no to upside down financing
or you can't pass up looking like the JONES', we gotta bail you out.

[barnburner]

zentl majes, after Clinton and Bush gutted the so called 'social safety net' with welfare reform there are no mega-bucks going into helping the "non-productive&q... The trend for older children to move back in with their parents has been increasing for some time. But I read in the papers that the Banks "too big to fail" are getting some major hand-outs. Chrysler got the big Fed hand out some time back as did the S&Ls so don't give me that crap about the problem being the "non-productive&q... Bye the way, did you read that article or jsut wanted to make your Rush Limbaugh statement?

[AlexS]

It's not at all clear that the squeeze on the middle class is in any sense caused by the more wealthy. Rather you can look at the problems: 1. Energy: Congress still refuses to let the oil companies drill in promising areas of the U.S. thereby restricting supply and predictably raising energy costs, 2. Housing: Congress used Freddie and Fannie to open the gates to the lower-middle class buying housing that was clearly outside the range of their income, ostensibly doing them a favor, with predictably disastrous results, 3. Food: Congress continues with it's dubious program of converting our food to "renewable" energy, all for avoiding more reasonable answers like oil drilling and nuclear energy, 4. Health: Congress works steadily to intensify federalization of health care, with seemingly unlimited borrowed funds going into Medicare and Medicaid, all competing for the same highly regulated medical assets, with a predictable rise in prices.

[iThinkBig]

My take as to why. Beginning of this was FDR who quickly figured our social programs buy votes and propogate party power.

1) Socialism, 45% of our population receives some form of government hand-out. In this form of government, gentle sounding politicians give you what don't wish to work for (albeit some programs are truly benevolent) so you keep voting them in. Meanwhile, the top echelon of government legislate funds into there personal pocketbooks. We saw this with the level of corruption at Freddie & Fannie, Enron, Countrywide, heck I could go on and on. Note the correlation of the laws passed or laws rescinded to a particular political party. to ban millions of acres just before Clinton left office. Think he went from $2 M to $100 M net worth by speaking engagements?!?! Republicans get there blame in 2000-2006 for lack of oversight and many economists warned them of housing in 2005&2006. So they don't get a pass on this. Energy? Blocked for 30 years by the Dems. Last Dem with any insight on energy was Jimmy Carter and it almost took economic collapse for the party to finally get it.
2) 50% of our citizens pay 97% of the taxes. The lower tax brackets don't add to the tax base, but they do receive the lions share of social programs and of course, these are the least productive of our society.
3) Failure to realize Efficient Market Hyposis has failed and government keeps right on spending as if we were still the only economic player on the planet. Yeah, maybe deficits didn't matter as much in 1987, now China and other nations expect us to live up to our obligations and service that public debt. Hence, our devaluation of our dollar and invisible tax on our citizens who can afford it the least pay that debt. That means the lower brackets need yet more hand-outs. The middle class get hit the worse with taxes after it's all said and done and the inflation keeps the middle class from adding productivity through wealth creation. Gods and clods society is now here, just like in the Great Depression.

How to fix it: Invest in infrastructure, vote in good leadership, expose corruption in Washington, fight money with money to make this change happen (Peter Peterson got it right), invest in innovation and that often means small cap companies and entrepenuars (ignored by billion+ deal-maker economy these last five years, but that is just general market).

A socialist government has always failed in 6,000 years of history. Because I mentioned politics, I will say I am voting Ron Paul. Republicans and Democrats more or less a hydra with two heads of socialistic flavors and most government officials gotten lazy and obtuse. No more public service, just a self-serving money machine.

[aoxomoxoa]

Why don't we just install a socialist as president? Then we can ALL be poor!

[GaryD]

aoxomoxoa, we already have a socialist president. The choice is between the corporate socialism of the republicans and the bureaucratic socialism of the democrats. The idea that anyone in government or big business has even a vague idea of free markets, self-sufficiency, competition, or innovation in laughable at this stage. For them, "self-sufficiency... means carving our a bigger piece of taxpayer pie, "innovation" means paying a lawyer to write legislation, "competition"... means bribing a bureaucrat to prevent your competitor from operating, and "free markets" mean bribing a politician to block competitors from bringing products to market.

[Alan vonAltendorf]

I think the point of Trader Mark's article (a very important point) is that we're at the tipping point. Doesn't matter how we got here or why. The Great Depression wasn't just a severe economic slump. It brought Hitler to power in Germany. And the conflict of WWII was primarily war for control of oil and shipping. Okay, we live in a new modern context. Russia and China are much stronger. Gulp.

[The hand]

our society is no stronger than the weakest person. it does not take socialism to help the weakest (look to singapore). we cannot afford to let them fail.

[redhotmedia]

Within the next 6-12 months, there will be a leveling out economically. Those who have many of the golden coins will find themselves very sad.

Those who have not enjoyed the benefit of the golden coins will find them, but not without change and a voice from "we the people."

Many will find themselves out of work.

How would you like your legacy to be when you leave this earthly plane? As someone who acculumlated many of the golden coins, or as someone who helped "lift up" the less fortunate to achieve greater dreams?

[MCHEAL]

We can identify and talk about causes forever...solutions are what is needed, and that means change, especially in responsibility and accountability...neith... of which to many companies and individuals don't want...Good Hunting...MM

[ksmithdc]

If you think Bush is a socialist, jut wait until you see what Obama has in store for you.

[iThinkBig]

Hear, hear Michael :) Happy Hunting to you as well!