Tuesday, December 9, 2008


Tony Allison, Financial Sense - 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 middle-class has been under growing pressure for over 30 years, as its purchasing power has been steadily under attack. . .

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.

Divided by the CPI (which has been understated for decades) the "adjusted" Median Household Income has barely grown at all since 1973. . .

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. . .

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.


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