It May Affect The Election Outcome More Than Iraq...

In the past, it was a fairly safe assumption that if your middle class was doing alright, the government would be doing alright also and vice versa.
But those assumptions no longer hold up as 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.
What that all means may be hard to grasp with all its implications but the nitty gritty is that the Middle Class is tangibly worse off than it was ten or twenty years ago.

One of the best barometers of where credit is going is exemplified by the credit card. When credit was first made available, there were virtually no restrictions. Credit was embarrassingly easy to get and use. But 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, the homeowner has found himself between a rock and a hard place. For example, in the last twenty years, average household costs have risen nearly 80% while real wages have declined something like an average of $800 dollars over the same period.

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 turn their back on repayment programs. 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.

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—an excellent barometer of where the Middle Class stands today.

Despite these challenges to the Middle Class, the government has been loath to make accommodations and the failure rate as a result is on the increase with nearly one million five homes in foreclosure. What this will spell out for the economic health of the middle class is not encouraging—especially in view of the fact numbers of jobs are down and those that are available are part=time and low paying…

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