Posted by: John Gilmore | September 16, 2006

The Demise of the American Middle Class

If you are debating whether or not the American middle class is, in fact, under attack – this article by Tony Allison should answer some of your questions. Ever wonder why it’s getting harder and harder for us to make ends meet? It would be one thing if we were suffering as a result of the normal fluctuations of our economic system. It’s something else entirely if this happens to be a coordinated assault on the American middle class – which you’ve seen me say before – is exactly what is happening.

If you read about the objectives of the Council on Foreign Relations (CFR) – you’ll get some insight into the goals of the global elite. They cannot gain control of the world if the United States remains a superpower – which is why we read that one of the main goals of the global elite is to reduce the power and influence of the U.S. They have been accomplishing their goals via economic means. It’s been happening slowly over decades – and we’re now seeing the final all-out assault that will result in the financial destruction of our nation.

As I’ve said before – it’s easy to look at this from a worldly viewpoint and be fearful. I am well aware that most people in the world today are just like I was – spiritually immature with no Godly knowledge and wisdom. We see our wealth evaporating – and since we have placed our faith in money and not God – we are fearful. How can we survive without our wealth? The sky is falling and we don’t know what to do.

Now that I view things from God’s viewpoint – not the world’s – I can see clearly what is happening. The sky is not falling. We are seeing firsthand what happens when a nation rejects God’s warnings. Things get serious because they need to get serious. If we don’t turn this ship around and start focusing on what is important – God’s plan for us – our nation will follow its current path to destruction. God is getting our attention – to save us from ourselves.

There are many people sounding an alarm about the economy and what our government is doing to us. The question becomes – when the rubber meets the road – will we stand and fight or will we shrink from the challenge? It’s easy to write about these things – it’s much harder to actually do something about it. Actually doing something requires – faith. If we don’t draw near to our Creator – we will not have the faith to do what will be required. Some of us will be asked to stand in the face of the beasts and proclaim the truth. As a result, some of us will not die from natural causes. Each of must have the faith required to do what our Lord asks us to do – regardless of the consequences. We must stand and not be moved.

jg – Dec 8, 2008
_______________________________
The Demise of the Middle Class
Early 1970’s an historic turning point

BY TONY ALLISON
December 8, 2008

As the credit crisis deepens and morphs into uncharted waters, a little perspective is necessary on what it is costing, in both dollars and human terms. You may have seen the mind-numbing comparisons with other massive government expenditures of the past. These statistics were inflation-adjusted, courtesy of Jim Bianco of Bianco Research. The credit crisis, with $4.6 trillion committed (and perhaps just getting started) already has cost roughly one trillion dollars more than World War II ($3.6 trillion). The Marshall Plan to rebuild Europe after the war cost a mere $115 billion. The Louisiana Purchase was a ridiculous bargain at $217 billion ($15 billion originally). It appears that the piper has finally arrived to be paid for the unlimited debt creation since 1971 and the middle-class is already tapped out.

Keepers of the American Dream

The American middle-class, the hard-working keepers of the American Dream, has been in distress for 35 years, slowly losing ground and purchasing power. The current credit crisis may prove to be the greatest challenge to the middle-class way of life. Adding astronomical debt to existing debt will not solve our problems.

The first chart below, Median Household Income since 1945, is the one the public sees in the media. It shows household income marching ever upward, a symbol of unbridled American prosperity. The truth is that inflation has made prosperity, especially for middle-class Americans, far more elusive.

Desperation and necessity

The struggles of the American middle-class since 1970 become very clear when looking at the next two charts. Their buying power has plunged when you factor in the massive loss of buying power of the US dollar. Over this 35+ year period, both spouses were forced into the workplace to keep the family afloat. It also explains the massive growth in consumer debt and lack of personal savings. The middle-class was not necessarily acting irresponsibly. It was acting out of desperation and necessity.

Clearly many in the middle-class (and elsewhere) have added debt too recklessly. But prices have inexorably grown faster, year after year, than the growth of real middle-class income. In addition fixed costs for the American family (mortgage costs, insurance, child care, health care, etc.) are much higher as a percentage of income than they were 35 years ago.

Sources: Census Bureau.govThe Financial Help Center.com

Sources: CensusBureau.govMeasuringWorth.com

Sources: CensusBureau.comBarchart.com

Median Income devastated by inflation

Divided by the CPI (which has been understated for decades) the “adjusted” Median Household Income has barely grown at all since 1973. When measured in terms of ounces of gold instead of dollars, median income has plunged. This chart shows median income peaked in 1970, when it would buy 240 ounces of gold. The devastating inflation of the 1970’s sent real median income down to its low in 1980, where it could only buy 29 ounces of gold. One can see the current direction of “real” median income since 2001, and we haven’t even felt the eventual inflationary effects of the credit crisis. As we stand today, the Median Household Income can buy approximately 65 ounces of gold, one of the lower levels since 1945.

Home equity on the decline

One key source to fill the gap of falling wage growth was home equity. Quite simply, Americans have been slowly transferring ownership of their homes to the banking system over the last 50+ years. These figures would look much worse if the roughly 1/3 of homes owned “free and clear” (mostly by seniors) were removed from the data, but you can see the trend is toward less equity and more debt. This is not a sign of a prospering middle-class.


Historic turning point

The availability of easy credit the last two decades was a key mechanism to keep the middle-class above water. Now the easy and available credit is going away, and with it much of the quality of life of the middle-class. The early 1970’s was clearly an historic turning point for millions of Americans. With the 1971 severing of the gold-backed dollar by the Nixon Administration, the fate of the middle class was sealed. Unlimited fiat money creation led to unlimited debt and a rapidly depreciating dollar. Middle-class “real” wage growth would never again keep up with “real” inflation, especially in key areas such as health care and college tuition, which have greatly exceeded the stated rate of inflation.


Do you think the strapped middle-class family feels better when hearing that inflation is “only” 4%, instead of 11.6%, as measured prior to 1983? Not likely. Understated inflation does not help remove the sting of declining purchasing power. It just adds to the confusion and desperation. The pain is still real, even as trust in government continues to decline. With the current world-wide deleveraging, inflation rates are coming down, for the short to medium term. With trillions upon trillions of government debt soon to flood the financial system, inflation will not be gone for long.

Inflation or deflation- middle class loses

Be it a hyperinflationary or deflationary scenario in the coming years, the middle-class will suffer. Either from a massive loss of buying power (hyperinflation) or explosive debt burdens (deflation). Eventually, foreign creditors will likely bolt the dollar for something with more enduring value; i.e. gold. It would be a good idea, whether you are middle class or not, to prepare by accumulating some gold while it is still relatively cheap and somewhat available.

The US dollar has been the global monetary standard since the Bretton Woods Agreement in 1944. Unfortunately, the dollar has not been a good store of value since Nixon severed the dollar’s link to gold in 1971. The Federal Reserve has always functioned as the lender of last resort, and is now becoming the “spender of last resort.” Unprecedented debasing of the US currency could be on our horizon.

Pawns in a chess game

While fulfilling its classic role as the backbone of the American economy, the middle-class also is the unwitting pawn in the complex chess game of global finance and government excess. The problem with being a pawn is that one has no control of the game, or its outcome. Historically, the middle-class is always the group to feel the greatest pain and reap the fewest rewards from the machinations of Wall Street and Washington. The period dead ahead will be no exception. The extraordinary debt levels will only make matters worse.

The middle-class has been under growing pressure for over 30 years, as its purchasing power has been steadily under attack. Things will very likely get worse before we see any light. The middle-class must retrench even further. But it must also search for a store of value as its dollars buy less and less. It is my belief that once the severe de-leveraging is finished, the commodity sector, particularly gold, will serve as that life raft. The struggling middle-class, and everyone else for that matter, will need something to stay afloat if the USS dollar slowly sinks in the murky seas of the global currency markets.

The way forward

Historically, one great quality of America is resilience. It is my sincere hope that out of this crisis will emerge a more rational way forward. I believe the best way forward for our country would be a system of honest money; a new currency backed by gold that would enforce discipline on government spending and allow families to plan and save for their futures. And it might just provide our children and generations unborn their own shot at the American Dream. We owe them that much.

Today’s Markets

The stock markets shot higher for a second straight session Monday as investors bet that President-elect Barack Obama’s plans to increase infrastructure spending will help lift the economy back to health. The major market indexes jumped more than 3 percent, and the Dow Jones industrials’ nearly 300 point advance gave the blue chips their highest close in a month.
The Dow Jones Industrial Average rose 298.76, or 3.46 percent, to 8,934.18, its highest close since it finished at 9,139.27 on Nov. 5th. The Standard & Poor’s 500 index advanced 33.63, or 3.84 percent, to 909.70; and the Nasdaq composite index jumped 62.43, or 4.14 percent, to 1,571.74. It was the ninth advance in 11 sessions for the Dow and the S&P 500.

Oil futures surged 7% Monday, buoyed by expectations that the OPEC oil cartel may deliver a substantial cut in production as well as by U.S. President-elect Barack Obama’s pledge of massive new infrastructure investment to revive the economy. Crude oil for January delivery surged $2.90, or 7.1%, to end at $43.71 a barrel on the New York Mercantile Exchange. Earlier, the contract hit an intraday high of $44.70 a barrel.

Gold and other metals futures rallied Monday, getting a boost from soaring oil prices, weakness in the U.S. dollar and President-elect Barack Obama’s pledge of a massive new infrastructure investment to buoy the U.S. economy. Gold for February delivery rose $17.10 to end at $769.30 an ounce on the New York Mercantile Exchange.

Wishing you a good evening,

Tony Allison
Registered Representative

Copyright © 2008 All rights reserved.
CONTACT INFORMATIONAnthony Allison, Registered RepresentativePFS Group

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