The Middle Class Two Income Trap – Two Breadwinners plus Extra Money to support the Banking Industry. How Middle Class Americans are losing Ground by Supporting the Financial Sector.

If it isn’t enough that average Americans are contending with the rising cost of healthcare, education, and daily necessities like food now additional funds are going directly to the banking sector to keep them propped up like a money loving puppet.  Since the Great Depression the rise of the middle class has been the envy of many people around the globe.  The ability for hard working Americans to have access to an economy that supported them so long as they worked hard and followed an implicit guarantee with their nation.  With this implicit guarantee it was assumed that the government would also protect people to a certain degree especially when it came to their financial well being.  This did not assure a winning portfolio but it did mean we wouldn’t turn our stock market into a giant game of casino where the connected had a loaded deck.  Much of the strong regulatory arm that came from the Great Depression was because of the speculative gambling during the Roaring 1920s.  Yet as time went on slowly Wall Street took these structures away and now we are finding ourselves once again with the middle class largely at risk in the United States.  It isn’t by accident we are in the situation we are in today.

The first important thing to understand is that yes, the income of middle class families has gone up since the 1950s but a large part of this was the rise of the two income households with women entering the workforce:

The above chart is disturbing in many ways because it bucks the nearly 50 year long-term trend of employment.  Now, even with two income households many with rising job losses are finding they now have to make it with one income while inflation has eroded their buying power over the decades.  In this recession 3 out of 4 job losses have been men.  If you have any doubt regarding the insidious nature of inflation I put together a chart looking at various costs over the last few decades:

Part of this is due to the Federal Reserve and U.S. Treasury trashing the U.S. dollar over the decades.  For example, in 1950 it took the median household income (which was largely a one income household) about 2 times the annual household income to purchase the median priced home.  In 2008, it took the median household income (now largely a two income household) four times annual earnings to purchase the median priced home.  In fact, the two income household has hidden a large part of how much the middle class has fallen behind in this country.  Now with this recession, the deep cracks are now being exposed in the system.

Income inequality has also risen in this country and a large part of it is due to the financial sector.  1 percent of our population control 42 percent of all financial wealth.  In fact, in the last decade the only segment of our population that has seen any sizeable gains in true wealth is the top 1 percent.  Every other category has seen a loss of housing net worth, wage stagnation, and higher costs for daily items that consume a larger part of their budget.  Just take a look at the chart below showing this change:

Source:  CNN

The above is looking at a one income household in 1973 versus the two income household in the 2000s.  It is interesting to note that in the 1970s Nixon took the dollar into a purely fiat system and since that time, the dollar has lost much of its actual value.  This would be expected.  The Federal Reserve with its banking lieutenants has been able to put our country so deep into debt that realistically we are in a position of never paying back all our outstanding obligations.  The only way out is via inflation and with a fiat system that is the path we are heading down.  This is important because when you look at the charts above prices rise for various reasons and inflation is a hidden tax.  No need for higher taxes to bailout the banking sector when you can just destroy the purchasing power of middle class Americans by monetizing enormous amounts of debt as we have done.

That is why in the next decade, Americans are now working for someone else beyond their immediate household.  A large chunk of their money is now going to the banking sector.  This can be in absurd payments to credit card companies, loss of purchasing power because of the Fed, or other hidden methods of taxing the public.  We are really at a crossroads for the middle class.  If we dissect the data further we realize that even though things cost more, much of it has been financed through debt:

Ironically the family in the early 1970s had more discretionary income than the family in the early 2000s even with a dual income.  Yet if you look around, it isn’t immediately apparent because of the massive debt bubble financed by the banking sector.  Sure people bought bigger homes and newer cars but all this was under a phony veneer of success and was financed with debt.  All of it was built around a mountain of debt.  Yet here is where the big divide hits.  Middle class families are now losing their homes through foreclosure.  Many are having their cars repossessed because they can’t make their payments.  Bankruptcy filings are soaring because people cannot service their debt.  So middle class Americans are paying the price with the rules that are setup.  Yet banks are not.  They are sucking the American taxpayer for all their horrible bets and are not dealing with the ramifications of their actions.  In other words, the bill is going to the middle class as the middle class is dealing with their own bad decisions.  This is part of the system built around the corporatacracy model of government.  Losses are socialized while gains are privatized.

And don’t kid yourself, this entire game was financed on debt:

And the small group of banks at the top now control a large portion of all FDIC backed assets in our country:

Source:  FDIC, Bank Financial Statements

Forget about the Republican or Democrat parties, we are being governed by the financial sector of this economy.  It is amazing how hard it is to get sensible legislation even after this great calamity.  To prove this point, in California an insurance company announced they are hiking healthcare premiums by 30 percent in the midst of this recession even though they pulled in billions in profits.  The government will sit back and let the middle class get fleeced because they are part of the problem.  They speak a good game but are bought by the industry.  Prove us wrong if this isn’t the case.  Enough talk, time for action.  From now on we need to focus on who is delivering results.  If you can, take you money out of the big banks and put them in local regional banks.  Let your local representatives know that their number one priority should be focusing on protecting our struggling middle class.  Time to get some real reform or we really risk losing our middle class.

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6 Comments on this post


  1. Jon McIntyre said:

    How about this to break the grip of the financial sector over congress.

    NEW RULE: For the forseable future, vote out all encumbents in every election cycle. Do this every single election for two decades or more. This will kill the power of the lobbyists.

    If you like the idea, pass it along, post the same idea everywhere you go on the internet. Email your friends, coworkers, etc.. Put up flyers.

    Citizens united for mandated term limits.

    Power to the people.

    February 19th, 2010 at 8:21 am
  2. JeremiadJones said:

    It’s commonplace to blame fiat money and the Fed for all America’s economic woes. (Used to do it myself.) But can we please move beyond that. As your statistics show, the primary difference in family discretionary funds since 1973 is taxes. America has been at war for 70 years — war on communism, war on Vietnamese, war on drug users, war on pissed-off foreigners some of whom are Muslims. …. Everyone meanwhile complains about fiat money, but no one can offer a plausible alternative. Gold? Long before the wave of financial commonsense which resulted in Glass-Steagall, progressive Americans realized the desirability of an elastic money supply to accommodate a growing population and an expanding economy. Ignorance has led us to repeat history, and now Glass-Steagall is back in vogue. Rightly so. Do we have to go back to the gold standard to realize the wisdom of William Jennings Bryan and others who argued the gold standard rewards only the owners of the gold at the expense of the working middle class? … As to the Fed, to whom would you delegate responsibility for money supply regulation if not the bankers, whose primary concern is a stable, loan-repaying economy? Mild inflation is mildly salutary to a capitalist economy. (And inflationary comparisons are difficult over long periods of time: in 1950, one breadwinner families lived in tiny un-airconditioned houses and drove cranky cars that lasted maybe 50,000 miles.) … The problem is not with the institutions per se, but the men who run them.

    February 20th, 2010 at 5:09 am
  3. OC Hunter said:

    It is time for action! We need grass roots uprising. I have been thinking of voting independent from now on, but maybe it is better to vote out the incumbents as Jon suggests – this would allow action within a party at primaries, and between parties. Since it seems we are loath to desert our two party system, maybe this work better.
    Also, it is a great idea to pull money from the big four. We have to take action, or nothing will change!

    February 20th, 2010 at 12:33 pm
  4. BS Footprint said:

    > NEW RULE: For the forseable future, vote out all encumbents in every
    > election cycle. Do this every single election for two decades or more.
    > This will kill the power of the lobbyists.

    But beware: that could put even more power in the hands of unelected bureaucrats.

    You need to unwind the bureaucratic state at the same time.

    Difficult to do. By design.

    February 20th, 2010 at 1:02 pm
  5. JP Merzetti said:

    I think a big part of the problem is the lack of stability in the job market. How many hundreds of thousands are now in trouble – forclosure, unpayable debt…because the decent employment that they built their future on flew south never to return.

    Some kind of weird system expects working people to close their eyes, hold their noses, and take the plunge (which used to be based on solid employment.)
    That employment is no longer solid. Somehow every single worker caught in that trap, is a deadbeat? Bad planner? Gambler? Or pick any one of the smorgasbord of lame excuses offered up by the system, instead of the obvious one – the system is broken.

    But you know – we must admit that the two-income model at first, was quite breathlessly lucractive (through the latter seventies and into the early eighties.)
    I think part of the problem there was the ramp up in consumption as a consequence of the extra income.
    Picture a time when there were still lots of affordable modest homes around, able to be purchased for not much more than one income. Likewise, lots of smart economical choices….late model but not necessarily new or high-end cars…
    Gradually, this all changed into some weird societal zombified paralysis of reason. Everyone had to have 2 Infinity FX 35’s, and 3600 square feet to house a family of 3.

    I wonder – is this another treat served up by the banks (and the advertisers and media as well) that suddenly it was ok for those earning relatively modest incomes – to start living like they earned twice as much?

    Make no mistake – for many, that decent employment they based decisions on WAS decent, at one time. Only fools would have taken such risks otherwise….and really, a McJob would not have begun to finance such lifestyles. The income to debt ratio wouldn’t have qualified.
    Perhaps the cautious few decided to wait it out, hedge their bets, see if that career ladder was indeed sustainable for ten years or so…
    But let’s face it: in today’s “fast food” economy, results are measured in yearly quarters, not years. Who was going to wait?

    March 12th, 2010 at 8:40 pm
  6. Jason Frerichs said:

    I think the solution is multifaceted. To start with we need congressional term limits, publicly funded elections and fairly drawn congressional districts. This gerrymandering bullshit has got to stop. In the past to win a congressional seat you had to win votes of both Republicans and Democrats. The people who won those elections were more likely to compromise to get things down. Being a congress-person was never meant to be a career. The original intent was that you would serve a couple terms and then go home to work. This would also break the power of lobbyists. End the tax loop holes that allow corporations to get a break for shipping jobs overseas and make these organizations pay their fair share. Invest in infrastructure and the middle class. The middle class have always been the “job creators”.

    February 9th, 2013 at 8:36 am


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