The grand financial shift: Rich own assets while poor and working class deep in debt. 70 percent of wealth for the bottom 80 percent locked up in principal residence.

A core reason for the financial crisis was because too much debt was given to those with very little ability to pay it back.  From the wealthiest banks to those scrimping by on minimum wage.  The irony of this is that many for-profit colleges for example use government aid to finance the education of those that least can pay it back (plus the value of the degrees are virtually worthless in many cases).  One distinct factor between the rich and poor is that the rich own assets while the poor and working class are owned by whatever little assets they have (most have relatively little).  A new report shows this dramatic divide in wealth.  What is also problematic is the recent rise in real estate values spurred by Wall Street buying because most of the gains are now going to those with an already large portion of US wealth.  For Americans with stagnant incomes, this means more money is going to be consumed on real estate and less on other spending.  Not a positive trend in an economy that depends on over 70 percent consumption.  The big shift that has occurred in the last couple of decades is that poor and working class Americans are deep in debt while the wealthy are able to control a larger portion of assets in the country.

The grand divide

This new chart sums up the difference across US wealth:

Rich vs Poor

The top 1 percent only have about 40 percent debt-to-income and hold onto a large portion of assets.  This group also controls most stock wealth in the US and helps to explain why the recent bull market in the country has done very little for the rest of Americans:

stock-market-us-ownership

Source: Pew

The above data highlights that most Americans don’t even own one piece of stock.  The first chart also highlights how deeply in debt many Americans are.  Take for example a young college graduate with $50,000 in debt and earning $25,000 per year. This is common for those that can actually land a job.  This person assuming no other assets is already starting out life with a debt-to-income ratio of 200 percent.  Some are in more financially poor positions since many young Americans are unable to find work in this part-time employment environment.

The first chart also highlights that the top 1 percent largely own a good portion of non-real estate assets in the US.  For those in the bottom 80 percent their home is the largest source of financial wealth.  This is why the recent trend of mega investor buying in residential real estate is problematic.  Big money is essentially going after the one final outlet for wealth storage for most Americans.

Incomes going back in time

US household incomes continue to retreat in inflation adjusted terms:

real-household-income1

Adjusting for inflation US household incomes are back to levels last seen in the 1980s.  At the same time, prices are up for housing, cars, college, food, and health care.  So more disposable income is getting eaten up by basic life necessities.  In the early 2000s Americans tried keeping up by accessing cheap debt and pretending the middle class lifestyle was not being ushered out into the sunset.  That cheap debt market has slammed shut once household debt hit a peak:

household debt gdp

What is stunning is that while households are forced to deleverage via austerity, big banks continue to leverage into positions that resemble those to the pre-crisis days.  No wonder then the massive movement of big banks into residential real estate.  The stock market side is already played out and now the residential trade is the next one up thanks to the Fed’s easy money policy.  The end result is that what little assets the bottom 80 percent control are now being diverted to the top 1 percent.

It can be summed up that the rich own assets and the poor and working class are owned by debt.  The data is telling and highlights an unfortunate situation in the US.  The middle class is dramatically shrinking.  It also helps to explain why many non-coastal states are apt to allow their representatives to take such dramatic measures when it comes to the government.  In their perspective, they are being left behind plus they feel that they have nothing to lose (many don’t).  The country is divided but I’m not sure if people are focusing on the true issues at hand.  The debate is about a dwindling middle class.  Are people okay with a US with no middle class?  Seems like this is the true battle for the next decade although the above data makes it clear as to who is coming out ahead.

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2 Comments on this post

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  1. Gringo Bush Pilot said:

    After reading several of the posts here, I have to agree with almost every writer. The American government is a de facto banking / corporate machine. This reversion to an every-man for himself view of the American worker and citizen has been a conscious act on the part of the elite.
    Sadly, the reason for this subversion of the American way is not what these people of greed have accomplished it so easily, it’s the calm and blind apathy of the American public that permitted it. I’d venture a guess that at least 80% of the voting American public have never read a blog, or for that matter, a book on the corruption of our democracy.
    No, if there be a change – a charismatic man with a vision needs to come forth from the masses. A leader who will be able to capture men’s minds and move the country toward a new vision. In this, President Obama has failed. Sadly, he misjudged the lingering conservative fears and the embedded racism still thriving in the ranks of the so called Tea Bag cultists.
    America, the country of my birth, is becoming a very unpleasant place to live. There is a reason that almost all of the law enforcement agencies and police departments refer to Americans, not as citizens, but civilians. The semantic difference (in this context) is enormous.
    Friends – you are living in a real time video game where the loser starves. The name? America, “The Realm of Fear.”

    October 5th, 2013 at 4:42 am
  2. Scout's Trident said:

    Gringo Bush Pilot-Oh my gosh, not enough folks are reading a blog? What has the world come to? Twenty five years ago, no one was reading blogs and yet we managed to stimulate an economy and the message that government was not the answer helped do it.

    Your blaming the prophet Obama’s failure on “racist Tea Party” members is a wonderful continuation of your own very racist president’s blame game. “If I had a son”….. Democrats have had the majority for years now and what have they done with it? One American is now working to support 1.7 others on gov. aid.

    How is this the fault of “racist tea party” Americans? Have you ever been to any kind of a meeting with tea party folks? Because I have, and guess who else was there? Blacks and Hispanics and every color and nationality you can drag up to sling mud with. Guess what else?
    I have never heard a single racist comment at any of the events, the closest thing to a racial comment I have heard, was by a black person who walked into a meeting in Texas by mistake, was told they were welcome, she made some racist comments and left.

    America has become the most upside down country in the world. The left and democrat party, because it is not the “democratic” party, it is the democrat party, calls everyone else racists and yet they are the folks who call Tea Party members “Tea Baggers”, a slur not only against Tea Party members, but against the gay community the left espouses to love. The same party that stood in the school and university doors and blocked blacks from going to school on an equal basis, the same party that lynched blacks by the thousands during reconstruction all the way to today, is the party that now shouts out “Racist!” at every opportunity, or just simply makes it up( Sharpton and Tawana Brawley).

    While the Republican Party sent troops to guard and defend the blacks that wanted to go to those schools. What a bizarre place we have come to, where the left can just make up any story and shove it down the throats of Americans.Don’t like the history of your party? Just ignore it and rewrite it… What a disgusting joke you are.

    You would know that folks in the Tea Parties just want a government that represents them, and you would probably know this if you had ever read a blog. I mean, one that wasn’t your own that used it’s space to lament the poor failings of Obama due to…always someone else

    October 30th, 2013 at 11:53 pm

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