The Death of the Middle Class?

News&Views
The Armchair Curmudgeon
March 32, 2007-03-31




Housing, Credit and Jobs: The Dangers
Facing America’s Middle Class

In the past, it was a fairly safe assumption that if the middle class was doing alright, the government would be doing alright, too, and vice versa. But as we now know, such assumptions were naïve and simplistic in view of the last three republican administrations.

Today, the Middle Class is squeezed beyond recognition and the top 5% accrue wealth out of proportion to their numbers so that the top 5% of the population now hold more than 60% of the nation’s wealth. And that executives may be earning as much as 400 times the earnings of someone on the assembly line. These and the results of policies of mergers and acquisitions that sidestepped Anti-Trust regulations and the growing tendency of relying on “off-shoring” and licensing to overseas assets has seen the Middle Class’ stability decline, especially as a result of policies implemented in the last six years.

What that all means may be hard to grasp with all its implications but the nitty gritty is that the Middle Class is considerably worse off than it was ten or twenty years ago and unless remedial solutions are discovered now and promoted, it’s likely that we will become a nation of the rich and poor within our lifetimes.

Consider what has happened to credit, the Middle Class’ lifeline at a time of eroding assets.

For those who experienced credit in the late sixties or early seventies, it was understood that credit was easy to come by and there were very few restrictions. Banks were seeking customers. But the tide has turned. In the last several years, we’ve seen lending banks tighten their restrictions and raise rates.

Despite the increasing costs of borrowing money, borrowers have only increased their demands on the banks. And for a variety of reasons, the credit card company in a growing number of cases has become the lender of last resort.

As jobs travel elsewhere and wages have weakened, middle class homeowner has found himself between a rock and a hard place. For example, in the last decade, average household costs have risen nearly 80% while real wages have declined something like an average of $800 dollars per household since the early eighties.

There is no question that costs that cannot be deferred or postponed have risen in areas like food and energy, while wages for the most part have been stagnant. Consequently, the average homeowner finds that he has to run harder to stay even with where he was ten or twenty years ago.

One of the key factors is the state of the housing industry. For many, household equity was always there to draw on; however, in a much tighter market with equity mainly drained from real estate assets, there are fewer and fewer places for the Middle Class to turn. .

Today, consumers are finding that the credit card, previously viewed as a life preserver, is no longer the source of credit that it was. In fact, many accounts have been maxed out by creditors having few, if any, options. Also, thanks to Congress and a compliant industry, the old usury laws have been tossed out the window to attract banking clients to states having compliant regulations and the result has been that some borrowers could be borrowing at unconscionably high rates in the 19 to 21% range.

In addition, Congress has allowed the banks to demand a larger portion of their principal back from loans extended on credit creating even more pressure on the home owner; nor are debtors facing bankruptcy able to free themselves of recently approved programs that require loans to be paid back.. As a result, more than one in seven people using credit are now in negotiations with credit companies for help. And more than 40% of the population has at least one of their cards maxed out.

This is not a healthy barometer considering that levels of savings in the US by the middle class are virtually nonexistent.

Due to the turn-around in the housing market where there is little remaining equity in a home and credit lenders tightening their standards, there is the prospect of continued home loss and a growing climate for foreclosures; yet the government has lagged in remediation, a problem to the long term economic health of this great nation..

What we are facing is a declining home market, a growing number of illegal aliens, the continued and widespread practice of off-shoring, the growing impact of NAFTA and new economic agreements where Mexico may be expected to be the beneficiary of new jobs from the new economic juggernaut forming at the expense of the Unions and America’s middle class.

In the longer term, what is happening in this segment of the population may influence what happens in the upcoming election more than the Iraq war. Nevertheless, at this stage of the game, very few candidates seem to have the problem in their cross-hairs.

Les Aaron
The Armchair Curmudgeon