The swan song of stagflation – Gas prices up over 100 percent from 2005 and incomes are stagnant. Ignoring a $16 trillion debt headline and repackaging food to hide stagnant incomes.

If you look around your daily life you realize that your purchasing power is losing value.  For a few decades now the middle class in the United States has demonstrably shrunken like clever food packaging.  Over the last forty years we have lost 10 percent of our middle class.  Most have fallen into the lower income bracket and now with a record 46.5 million Americans on food stamps, you have to wonder what kind of new economy we are entering into.  Since household incomes have gone stagnant for well over a decade, any increase in price on one item will definitely impact the cost of other goods.  In the end the purchasing power of Americans is falling.  Did you notice that in the last few days our federal government debt went over $16 trillion?  The media ignored this milestone assuming the public just doesn’t pay attention to headlines with the word trillion in it.

A rise here and a clever package there

As many of you know American household incomes have gone stagnant for over a decade.  When the cost of something goes up and disposable income goes sideways, many will need to make the choice to substitute goods or companies will get creative.  In a certain degree we are dealing with a modern stagflation.  Take a look at this:

smaller packaging

The top contains about 15 percent fewer crackers.  So it isn’t necessarily that people are not buying these items anymore but are shifting their preferences.  Without a doubt some categories like health insurance and college tuition have gone into a bubble like price rise while incomes stagger along.  The cost of fueling up in our car addicted nation?  Take a look at what has occurred since 2005:

gas prices

Gas prices are up over 100 percent in this short timeframe.  That household making $50,000 per year in 2005 is still making $50,000 in 2012 but is seeing a larger chunk of their disposable income being sucked into fueling their automobiles.

But stagnant wages means less money for other items and some other items have seen prices cuts like Folgers Coffee for example and Procter & Gamble Company rolled back $400 million in price increases made in the last year.  These are simply examples of companies responding to the current marketplace.  You also have places like Family Dollar that have done exceptionally well catering to the now massive 46 million customers that receive monthly food assistance.  Is this really the definition of success?

Paying more for less

Probably in no other category is the destruction of purchasing power being seen than in higher education.  There is no doubt higher education is in a bubble:

 “(BusinessWeek) If student loans are good debt, how do you account for the reaction of Christina Mills, 30, of Minneapolis, when she found out her payment on college and law school loans would be $1,400 a month? “I just went into the car and started sobbing,” says Mills, who works for a nonprofit.”

A couple of points.  First, when you come out with massive loans by default you are unable to afford your education especially when your initial income can’t even service the monthly minimum payment.  The question then becomes, where does this money come from?  Since the government and banks are tied at the hip, similar to what occurred in the housing bubble, loans are being made without the thought of how these borrowers are going to pay the money back.  The banking industry doesn’t care since this money is federally backed.  This is the same formula used in the housing market.  What happened to prices there?

 “Then there’s Michael DiPietro, 25, of Brooklyn, who accumulated about $100,000 in debt while getting a bachelor’s degree in fashion, sculpture, and performance, and spent the next two years waiting tables. He has since landed a fundraising job in the arts but still has no idea how he will pay back all that money. “I’ve come to the conclusion that it’s an obsolete idea that a college education is like your golden ticket,” DiPietro says. “It’s an idea that an older generation holds on to.”

How is it even possible to get $100,000 in loans for a fashion, sculpture, and performance degree?  It is possible because banks, schools, and the government are all part of this giant machine that is essentially allowing young Americans to go into massive debt for degrees that have little merit in the economy.  This is no free market but a crony based system that extracts rents from the working and middle class and makes the CEO/Presidents of these schools wealthy while banks skim cash paying out million dollar bonuses and the government (that is the public) serves as the sucker when things go bust.

“So maybe the real problem is that credentialism has trumped learning. That drives people to get degrees simply to displace others who don’t have degrees, says Richard Vedder, who directs the Center for College Affordability and Productivity. He notes that the U.S. has more than 100,000 janitors with college degrees and 16,000 degree-holding parking lot attendants”

So we continue down this path of inflating our way out of the massive debt we now find ourselves in.  The markets are now back to levels last seen in 2007 yet we now have 46 million people on food stamps and our overall workforce participation rate looks dismal:

employment ratio

Do you hear that sound?  It is the Federal Reserve gearing up to go into QE3 to inflate our way out of this mess and help their banking buddies.  Don’t be confused this political season with the massive number of millionaires in Congress.  They work for big money and all you need to do is examine the data to find out what is really going on.

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9 Comments on this post

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  1. stephen said:

    Can you adjust the graph for the boomers that are leaving the workforce permanently? The boomer bumpout may be at work as well.

    September 9th, 2012 at 12:24 am
  2. clarence swinney said:

    Paul Ryan says we are overtaxed–Fourth least taxed in Oecd nations—-Federal-State-Local taxes take 28% of top incomes and 27% of middle class income—-We have 14,000B Income and can afford our budgets—We just will not tax to pay our way
    Cannot afford 3800 of 14,.000= Ridiculous

    One family Walton-Own Wal-Mart–have more net wealth than 90% of families
     
    Raise dividend cap gains–dividends tax to 28% like workers pay.
    Transaction tax on wall street—Est %-$500,000B in Transactions
    a small tax will raise huge revenue—UK has done it for decades-no bad effects

    revenue to   gain
    150B–eliminate Bush Tax Cut on top 5% 
    450B–17% of taxes owed not collected
    250B–No exemptions for top 1%
    109B–make corp pay 26%
    337B–Get tax haven taxes
    TOTAL–1387B
    Pays off projected 900B Deficit for 2013 and 487 against debt

    September 9th, 2012 at 9:55 am
  3. clarence swinney said:

    1980-2013=Refusal to tax wealth =`14000 of debt
    UK has tax on financial transactions for decades. It works.
    Rich will not allow us to do it. Do it. Pay our way

    September 9th, 2012 at 9:57 am
  4. clarence swinney said:

    Mill worker here pays at 28% tax rate. Produces our clothing.
    Hedge Fund Gambler pays at 15%. Produces nothig. One-on- one Gambling in derivatives.

    September 9th, 2012 at 9:59 am
  5. Nononono said:

    —“Then there’s Michael DiPietro, 25, of Brooklyn, who accumulated about $100,000 in debt while getting a bachelor’s degree in fashion, sculpture, and performance, and spent the next two years waiting tables.”

    Uhhh….I’m sorry, but Michael certainly should have picked a degree with a BIT more common sense. Fashion/sculpture? Seriously? Seriously?
    As well, how many “actors” and “fashion” people are there in NY, ALREADY????

    Sorry Michael, baaaaaaaaaad plan brother….

    —“I’ve come to the conclusion that it’s an obsolete idea that a college education is like your golden ticket”

    Not necessarily an obsolete idea.
    The “conclusion” you should consider, is whether or not you move forward after having practically wasted 4 years on a degree that would have…..sigh………nevermind.
    Oh, and lastly, having looked at your FB page, I would never hire you, ever. Change your page Michael, and update your life and choices.
    http://www.facebook.com/#!/michael.dipietro.1044

    That’ll be 135 dollars….; )

    September 10th, 2012 at 9:32 am
  6. clarence swinney said:

    I can not say it enough you guys are the greatest
    Give that Staff a Pay Increase.
    clarence swinney political historian Lifeaholics of America since 1991
    burlington nc

    September 10th, 2012 at 11:53 am
  7. clarence swinney said:

    How can any but Rich vote a R into washington?

    GOOD OLD DAYS CLINTON 8
    BAD OLD DAYS 3 REPUBLICAN 1980-2009
    took 600B budget to 3500B
    took 1000B debt to 10,000B
    took surplus to 1400B Deficit
    took Carter 218,000 jobs per month to 99,000
    took us into 10 foreign conflicts
    took us into recession in all or part of 7 of 20 years
    took us into Great Recession
    took us into Smashing s&l—housing industry—banking industry-
    took us into third lowest taxed in oecd via debt

    September 11th, 2012 at 9:46 am
  8. clarence swinney said:

    MIDDLE CLASS BROKE BROKE
    Burdened with record debt
    Wages not keeping up with costs
    OWNED by Top 10%–who own 73% Net Wealth—83% Financial Wealth-Take 50% Individual Income
    We must get Spending down but just as important get Revenues up to eliminate deficits and start paying down Debt.
    It will take real Leadership to do it. Obama cannot do it with a Republican House or Filibustering
    Senate.
    Obama American Jobs Program was killed by Republicans for no other reason than not let Obama have any success. It was a disgrace. When will these people start Putting People First.

    We must go back taxing wealth. We did it 1945-1980 to pay off WWII Debt. We can do it again
    to pay off Reagan + Bush II created Debt.

    The goal must be fair and more economically just and equitable for all the people.
    It will never get done as long as Wealth controls our Congress
    TAKE BACK OUR GOVERNMENT

    September 12th, 2012 at 12:48 pm
  9. clarence swinney said:

    1980-2009 3 Republican presidents for 20 years took 600B budget to 3500B (less wjc itsy)–1000B of Debt to 10,000–surplus to 1400B deficit–Carter 218,000 jobs per month down to 99,000-
    initiated our involvement in 10 foreign conflcits–Great Recession but had a recession in all or part of 7 of 20 years–smashed s&l–Housing-banking

    Want More of that I do not

    September 12th, 2012 at 12:51 pm

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