The middle class has it extremely tough today not because of random events but purposeful and directed robbery from Wall Street.  This was a methodical and planned dismantling of the system.  First, let us walk through some details of the middle class to create a profile:

Source:  Census

The most common household formation in the U.S. is a married couple.  Certainly this has changed over time but this is the most common arrangement in the U.S.  But this has also led to the two-income trap that we have heard about so often:

Even though nominal wages are much higher today, inflation has eroded the buying power of Americans so much that even two incomes today cannot compete with one income forty years ago.  After all, if you could buy a car with $200 then $1,000 would seem like a lot.  But what is a $50,000 household income when home prices cost $250,000?  This is really the essence of what has broken the middle class apart.  Prices rose to astronomical levels because Wall Street created speculative casino products and injected the virus into the system.  The middle class today is fearful of even having enough to retire.  But beyond even retiring, many people have very little saved:

Now Wall Street would lead you to believe that people should just pucker up and save more.  Bailouts are only for Wall Street folks yet average Americans need to resurrect the ghost of Horatio Alger and pull themselves up from their bootstraps or hope that a rich uncle leaves them a nice inheritance package.  Yet what they forget is that we have a large part of our population that don’t even qualify as middle class:

38,000,000 Americans are receiving some form of food assistance.  These people are living day to day so saving isn’t even in their equation.  They are just trying to get by.  These are the folks waiting at midnight at Wal-Mart waiting for their debit cards to reload just so they can buy food for their family.  Do you think they are interested in investing in the next hot stock?  Even as hard as it is to be middle class, poverty has been amplified in this recession:

10% of all U.S. families are in poverty.  Yet the rate is a bit higher if we actually go by food stamp data.  The average household size is 2.61 in the U.S. so many families are struggling with children as the above data reflects.  Yet you would expect the middle class to have a better chance at going forward but more and more middle class families are entering what is now being called the working poor.

Wall Street and the banking system is at the core of this mess.  They didn’t create poverty but they have amplified it by setting up a system that has now pushed millions of Americans into foreclosure.  Why all of a sudden did Americans start gambling with their homes only when Wall Street got involved?  They have created a new financial fiefdom where they can siphon off resources from the productive sector of the economy all from the comforts of their NY,NY offices.  Even the idea that all Americans own stocks is not exactly accurate:

The top 1 percent control 42 percent of all financial wealth in this country.  And wealth is the key here.  So what if you have a $500,000 home if you have a $600,000 mortgage.  You are not wealthy.  So what if you have a leased BMW but have $30,000 in credit card debt.  You are not wealthy.  This is what Wall Street sold to America in the disguise of wealth.  And people bought it up at the expense of the prudent.  But that veil is now gone.  And who has the wealth?  This is what happens when you make a pact with the financial devil.

We must educate ourselves in order to have any fighting chance to have a solid middle class:

The sad fact above is these stats come at a time when public education is falling by the wayside.  We’ve had some of the cheapest and best public universities the world has seen.  That era is coming to an end as banks run the student loan market and for profit education is charging ridiculous amounts of tuition that are crushing the middle class.  As of 2008 only 27 percent of Americans have a four year degree or higher.  Now how will this number increase in a time when educational costs are going up and wages are stagnant?  As long as you have a population that is unaware of what Wall Street is doing, they can keep doing their robbery in the open.

We also have an aging population:

That 65 and over category is going to explode in the next decade as baby boomers enter retirement.  Many were betting on housing appreciation and unrealistic stock market returns for a long and prosperous retirement.  Instead, Wall Street has taken the money and many will have to work well into their retirement years.  One illness can wreck their entire financial nest egg (if they have one).  The notion that middle class meant a secure retirement is now gone.  And with health care costs rising more and more money will go to this category.  Education and health care are cornerstones of what we consider middle class living and this sector is enormous in terms of employment:

21% work in education services, and health care and social assistance.  This number is likely to increase given demographic trends.  Yet who are we really serving if students go into $40,000, $60,000, and even $100,000 in debt for degrees that don’t provide them adequate training to survive in a corporatist economy?  The banks don’t mind because they can saddle a young person with a stream of income for multiple years and have the government pay the bill.  How about we take banks out of the equation and require people to pay a sizeable portion of their education?  Ironically, this would lower costs.  It doesn’t have to all be upfront but allowing the current system to go on is criminal.  If you want proof look at the housing market.  Now that people have to document some income housing prices have collapsed.  The for profit schools only require 10% of funds to come from the students and then the government matches 90%.  In reality, these schools take that 10% on a credit card so this is really a zero down education.

The story of Wall Street is the story of putting Americans into debt.  If you really want to know where the middle class went you can look at the absurd amounts of debt.  And this idea that everyone is rich is pure propaganda:

Only 34% of U.S. households make more than $65,000 per year.  And that number is now much lower since this is based on 2008 data.  When we look at luxury auto sales they do not reflect the actual wealth in our country.  Much of it is pure debt financing.  All hat and no cattle as they say in Texas.

And we can see inflation eating away at purchasing power:

Just look at 1950.  The median household income could purchase the median home with twice their annual income.  In 2006 it required 4 times that income.  Even in 1980, the median household income could buy 3 cars with that salary.  Today, it is more like two.  And this is even more distorted because we have more two income households.

So the middle class is really facing a struggle in 2010.  But this just didn’t happen.  This was a forty year systematic robbery of the compact Americans had with government and the business community.  Where we go from here really depends on how much people value the middle class and coalesce to bring Wall Street in check.  So far things aren’t looking good.

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But we are at an inflexion point and the middle class is largely being squeezed out.  A recent study from the Commerce Department shed some light on an issue that we already know.  Over the past 20 years the middle class has been falling behind:

Everything is relative in this world.  Incomes have gone up during this time but the cost of housing, healthcare, and access to education have outpaced income gains in some cases by four to one.  Money is only worth what you can buy with it.  The grand housing bubble of this decade lured many into buying homes that they simply could not afford.  Banks and Wall Street were more than willing to provide access to this dream since they knew if all bets crashed, and they did, that they would call on their connected politicians to bail them out and send the bill to taxpayers for their adventures in finance.  Take a look at the chart above closely.  Housing price changes have wiped out any gains in income.  The relative amount of income needed to buy a home has put many two income households on the brink of bankruptcy.  And the 4 million foreclosure filings in 2009 alone tell us that many Americans are unable to hold onto one cornerstone of the American Dream.

The middle class is absolutely vital to having a sustainable and flourishing economy.  The massive debt machine coming from the big banks has created a new form of debt servitude.  Some would argue that this is a personal responsibility issue and I will be the first to agree with that.  People should live within their means.  But think of the FICO score that has become like a permanent financial report card.  Some employers actually screen for credit scores before hiring applicants.  Want to rent a home because you don’t want to over extend and buy a home?  You better hope that FICO is up to par.  And many insurance companies base their analysis on this score.  So even if you never had a credit card or any debt, you would be in a bad spot because so many people rely on this number.  This is only one example of how people are actually forced to use debt simply to pursue the avenues of the middle class.

In fact, we have many more people simply trying to stay afloat let alone pursuing the middle class ideal.  Over 37 million Americans are now part of the food stamp program, not only is this the highest number ever but also the highest percentage of Americans ever to be on food assistance:

I sometimes read gut wrenching stories from the Great Depression where people would wash and reuse paper towels or have soup for weeks on end just to keep their families fed.  37 million Americans would be one step away from that existence if it weren’t for some basic safety nets.  It is troubling to say the least that this patch is what is keeping this great recession from being a profound depression.  Yet I think the 27 million underemployed Americans are already in that state of mind.  The idea of a middle class life is slowly drifting away as each and every day we realize that our nation is becoming more of a corporatacracy.

The housing nightmare really played on both ends of this middle class dream.  Banks were more than willing to lend trillions of dollars to people that really could not afford the homes they were buying.  This created the biggest housing bubble the world has ever witnessed and the bursting ramifications are being felt throughout the economy.  Yet if you look at the equation, who is really being punished?  Average Americans are being punished as they have their homes foreclosed on.  Yet banks who are in the supposed position of financial experts, have not only garnered trillions in bailouts but are now back to their speculative ways.  This is disturbing because it is highlighting a marked shift and a near game over for the middle class.

Think of the rise of our economy in the 1940s and 1950s.  Many returning GIs had access to affordable education through new programs and grants.  It is the least you can offer to someone defending this country.  Next, it was possible to support a family with one income because we had a strong and sustainable manufacturing base.  Now, we have families with two incomes in the service sector trying to piece things together.  Throw in a child, and that second income evaporates through childcare costs and educational fees.  In other words, just because people have more income their buying power has collapsed.

And this fact is revealed in the data that two-income households are more of an economic necessity:

So of married couples with two children 76 percent have two earners.  The average American is simply working to stay on track or face being thrown off the treadmill.  Jobs are so important to keeping a solid middle class.  This should be obvious but current policy being driven by the corporatacracy is simply focusing on keeping prices inflated for the big ticket items (i.e., housing and healthcare).  At this point in the game, housing values have gone up to points that are clearly unsupportable:

This being the biggest budget item for most households, you would assume that lower prices would be welcomed from the government seeing that many Americans are underemployed and those with jobs have seen stagnant wages.

The middle class dream is at risk.  This is a question of what we want out of our country.  Are we simply obsessed on keeping home values inflated so banking giants could keep gaming accounting rules and claim billion dollar profits?  If we want to prosper in the next decade, there will need to be a radical change to preserve what once was envied by the world.  Otherwise, you can expect banks and their political allies to keep selling away the middle class of America.  On the path we are traveling on the middle class is largely at risk for a big game over in the next decade.

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With the recent unemployment rate hitting 9.7 percent officially, the wider ranging U-6 rate hit a record of 16.8 percent.  The market took the 216,000 job losses as good news but the recession is much deeper than the headlines are showing.  If you dig deep into the report, you will find a few curious observations.  First, the teenage unemployment rate is the highest in nearly half a century coming in at over 24.2 percent.  Now this rate is always high but only in August of 2008, it was at 17.8 percent.  Another observation in the report that we find is those with college degrees are facing the highest unemployment in two decades since records started being kept.

With college costs going through the roof and in many cases, costing nearly $50,000 a year at private schools many are asking whether some college degrees are even worth pursuing.  Or more importantly, potential students are seeking answers regarding value.  Let us look at this trend more closely:

You’ll find a curious trend here.  Without a doubt, those with a college degree do better in the marketplace.  Take a look at the recession in the early 1990s.  A college degree seemed to be a better buffer at that time than our current recession.  For the first time in record keeping history, the unemployment rate for those with 4-year degrees or higher has passed the 4 percent mark.  Keep in mind that in the United States, only one in four has a bachelor’s degree or higher.  We tend to think of this group as largely immune but in deep recessions like this one, a college degree no longer protects you from the fluctuations of the market.  An education through online schools will not protect your career either.

The massive increase in college tuition needs to be explored.  If you think about someone going to school to pursue a career in say social work, a noble career, is it really worth it to go into $100,000 to $150,000 in debt for a career that pays $30,000 to $40,000 a year?  In a situation like this, a student may benefit by going to a lower priced state school instead of a private institution.  Certainly many will go to top schools simply because of the implied pedigree of an institution especially if they want to enter into the top law firms or seek higher positions in certain corporate sectors.  Yet many are realizing that too much college debt is not a good thing.

If you think this isn’t the case, just look at how many people are having trouble paying their student loan debt.  Red means conditions have worsened and this is for 90+ days late year over year:

If you look at the population centers of California, Florida, Texas, and New York student loan debt has worsened practically in the entire state.  Clearly the current economic recession has much to do with it but also, the fact that those with college degrees are losing jobs in large numbers as well.  Many are no longer able to service their own debt.  As we have mentioned, a college degree does not protect your job nor does it assure you in getting one.  Some are even suing because of this:

“NEW YORK (CNN) – A recent college graduate is suing her alma mater for $72,000 — the full cost of her tuition and then some — because she cannot find a job.

Trina Thompson, 27, of the Bronx, graduated from New York’s Monroe College in April with a bachelor of business administration degree in information technology.

On July 24, she filed suit against the college in Bronx Supreme Court, alleging that Monroe’s “Office of Career Advancement did not help me with a full-time job placement. I am also suing them because of the stress I have been going through.”

What I find troubling is the idea that simply attending college is the ticket to a job.  Also, what is more disturbing is many of the for profit institutions with no pedigree try to push people through to continue getting those nice loan checks each semester:

“In her complaint, Thompson says she seeks $70,000 in reimbursement for her tuition and $2,000 to compensate for the stress of her three-month job search.

As Thompson sees it, any reasonable employer would pounce on an applicant with her academic credentials, which include a 2.7 grade-point average and a solid attendance record. But Monroe’s career-services department has put forth insufficient effort to help her secure employment, she claims.

“They’re supposed to say, ‘I got this student, her attendance is good, her GPA is all right — can you interview this person?’ They’re not doing that,” she said.”

Good attendance?  A disciplined worker with no college degree can be punctual  2.7 is not an “all right” GPA.  The problem now is that we have someone with “subprime college debt” of $70,000 and no viable job prospects.  It would be different if they had only say $10,000 in debt but $70,000 is simply incredible.  And how many people are graduating like this into a terrible recession where employers have their pick of potential applicants?

The U.S. Treasury and Federal Reserve seem willing to bailout any mistake so it should be no surprise that students expect bailouts as well.  They are simply following the lead of our central bank.  It is also a question of what degrees are being awarded.  While we had many chasing degrees in finance to pump out paper to increase the housing bubble, globally other nations focused on making actual things:

Source:  CSMonitor, 2005

Even after adjusting lower, we can see why things will remain tough.  The globe is hyper competitive now.  Many entering college now face the challenge of examining what they want to do with their lives but also, dealing with the economics of a new financial age.  A college degree was never a guarantee of a job or career security and this will only become a stronger rule in the future.

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