Where did the middle class go?
According to Jack Cafferty of CNN “Middle class households generally means those folks making between $21,000 and $100,000 a year.” In England they refer to their middle class as the “working class.” We could do that to in the USA if we didn’t have a 9% un-employment rate. In this country not all middle class people are working. 1 in every 10 people does not have a job or are under-employed, working below their educational level or potential. We all know that the middle-class is vital to the economic success of any country. The middle class is important for the nation’s stability as well as its future growth. The bulk of America’s middle class wealth was tied up in their homes. When the real-estate market wiped all of this net worth out. The middle class was essentially decimated. Worse than this, the faith in the American economy has been shattered and even Fitch (a bond rating agency) is talking about downgrading our debt. Unfortunately, in today’s world going to college, owning a house and finding a job are no longer a guarantee for long-term financial security. A college diploma is equivalent to a high school diploma of yesteryear and if you are unfortunate enough to not even make it through high school. You are probably looking at a minimum wage job for the rest of your life if a college degree’ed middle classer doesn’t beat you out for the position.
Expansion in the US:
According to Rex Nutting of Marketwatch “During the last expansion from 2003 to 2007, according to an analysis by Fed economists, American homeowners took $2.3 trillion in equity out of their homes through cash-out refinancing and home-equity loans, and they spent about $1.3 trillion of it on cars, boats, vacations, flat-screen televisions and shoes for the kids.
All that spending circulated through the economy, creating millions of jobs here and in China, where they make those TVs and shoes.” Many baby boomers and others were essentially using their homes as an ATM machine and now the party is over.
Contraction in the US:
Clearly contraction is an economic cycle that must follow an expansion. Wikipedia describes it as a period of economic decline marked by a falling gross domestic product number. Stock markets, real estate markets, bond markets and good economies don’t go on forever. They take a breather and contract. The central bank policies affect how long and how deep these contractions last in every case. Some say that the printing of the money by the Federal Reserve prevented a complete collapse of our financial system as we know it.
Places with no middle class:
Let’s stop for a second and analyze countries that have no middle class. Only very rich and very poor. First who are they?
Argentina comes to mind, Brazil, India, China (although this is changing for the Chinese), According to David Rohde of Reuters “by 2020 more than half of the worlds middle class will be in Asia.” There are inherent risks involved in visiting these countries doing business with these countries. One risk is being kidnapped for ransom. Theft, murder, rape and violence are only a few of the problems when in a country with no middle class.
Who are the countries with a strong middle class?
According to Chris Ferrell on marketplace.org “Denmark, Sweden, Switzerland, Germany — they’re doing it right, have a healthy middle class. And then there’s Canada, Australia, New Zealand — they also have a much more vibrant middle class compared to the U.S.” In Canada for instance they did not participate in the no down payment loans on houses or questionable lending practices that went on here in the US. Even though they are going through an economic downturn just like us, the housing market was not hit as hard as the market in the United States.
What can we learn from all of this? We must stop the outsourcing of jobs to other countries, stop the government regulation that burdens our businesses to outsource in the first place. We must stop the printing of money by the Fed and stop the government waste and spending. We may also want to consider only buying goods and services made in the USA. Our intellectual capital is the best in the whole world. We need to strengthen our economy and rebuild a thriving middle class.