The Poor and Middle-Class are Being Destroyed

WHAT HAS DESTROYED AMERICA’S WEALTH?

by Don Hank, blogging at http://fedupusa.org/2010/10/07/the-poor-and-middle-class-are-being-destroyed/

(Oct. 7, 2010) — The poor and middle class are being FORCED to spend more on NON-discretionary items.  This is a direct result of monetary policy.  Here’s the proof.:

Proof Of My Thesis On Those Who Are Not Rich

This is why Bernanke’s attempts are doomed to fail in dramatic fashion, and ultimately, if he is not stopped, will destroy the nation:

Notice what’s going on here.

The lowest quintile – the poorest Americans – are spending 23% more on food, 8% more on housing, and 9% more on health insurance.

What’s worse, they’re not spending less on food away from home.

This is the key.  They’re not shifting spending (as you can see in the above table); they are being forced to spend more even as their income decreases.

That’s the lowest 20% of incomes in America, folks, and it is going to destroy the people who are not wealthy.

There is nothing that redistribution can do to fix this.  It is happening as a direct result of the following:

• Intentional debasement of the currency, leading to commodity price ramps. This immediately shows up in the price of things you have to buy.  When you’re strapped to begin with, you can’t shift around these requirements – you need the basic necessities.  That is, you can’t swap down to hamburger from steak – you’re already eating hamburger, rice and beans.  When they shoot the moon in price you’re screwed as there is no “trade down in quality” available to you.
• Intentional distortion and propping up of housing prices. Instead of forcing banks to take their medicine and losses, thereby allowing home prices to collapse (if that’s what is to come), we are instead trying to prevent that supply from coming onto the market at dramatically lower prices.  This in turn means that rents for the lower-income people go up because of supply constraints. And those people don’t have the ability to afford it.
• Health insurance costs are soaring. Obama claimed it wouldn’t happen.  He lied.  It not only was going to happen as I pointed out, we now have proof it did. And guess what – again, the lower class can’t afford it.

Bernanke is directly responsible for this, as is Obama for refusing to eject him when he came up for re-nomination.  I have been writing about this for more than three years, and sent a letter to all 535 members of Congress in the fall of 2007 over this exact issue.

They didn’t give a damn, because none of them are poor.  But those who are aren’t just losing ground, they’re being destroyed, with their cost-adjusted standard of living falling by more than 10% in two years.

Everyone else can in some fashion or form adjust to some degree, and as incomes fall so do brackets, to a point.  But in the lowest quintile there’s no bracket to drop down to, and no way to take advantage of more deductions, because when it comes to income tax you already pay zero (or close to it.)

To be blunt, this rots, and if we don’t stop it, the creep-up into the next bracket, the lower-middle class, will occur.

Once it hits there, we will be in a position where there will be no clean way to recover from what’s occurring.

Bluntly put, we must remove “The Bezzle” and force those who have bad debt to eat it. System liquidity must be normalized and the bad debt forced into the open where it defaults.  Housing prices must fall precipitously – to where the free and open market clears them, without government and banking system distortion.  And The Dollar must stop being attacked by our very own government and Federal Reserve – it will, if that ceases, rise back into balance, driving down commodities and thus input costs.

This will promote profits by domestic industry (for those who sell domestically) which will in turn promote employment.  A normalized interest system will promote capital formation.  And a collapse in housing prices will mean that homes will be able to be bought inexpensively by people who want to live in them, and treated as shelter, instead of being a speculative tool that ultimately cheats the people on the bottom of the economic ladder.

Unfortunately, this article just puts in stark relief exactly what I predicted back in 2007, and as such I must do it again:  I told you so!