We all know of the foreclosure crisis – 1.35 million foreclosed homes in 3rd quarter 08; 1 in 10 homeowners are either delinquent or in foreclosure; 1 in 5 with sub prime loans (Source: CNN Money, December 5, 2008). We all also know about the subprime crisis, the hedge fund crisis, the insurance crisis, credit swap crisis, the banking crisis, the Wall Street crisis and the international financial crisis. The crisis of consumer confidence. The gas crisis and the auto industry crisis. The looming Social Security crisis and the Medicare crisis. The looming pension fund crisis compounded with the 401K crisis. But all this talk about bankers and executives, leaves me worried that we aren’t talking about the right crisis. This collapse of jobs that leads to the collapse of credit that leads to the collapse of housing will lead to the collapse of our middle class.
The Middle Class Crisis:
This is the group we have to save. They drive our economy. The consumers who shop in malls, strip centers and on the internet. They buy the new cars, washer-dryers and clothes. This is the group who was sold the idea that the future will always be better, so buy as much house as you can afford a few years from now. The group with the 401Ks. This is the group with the gold and platinum credit cards. The group who studied, paid their student loans and invested in a career – or worked hard, consistently and modestly. Who had children and kept working. That define our moral fabric – our culture. Who pay most of the taxes, including the alternative minimum. This group is struggling mightily to keep it together. This is the group who is too big and too important to fail.
This is the group who was abused by the lack of government oversight, the fraud of Wall Street and the Œcopathy. This is the group who believed, kept the faith and has been betrayed, and is our hope to bring the America we knew back from the brink. The Middle Class, not the banks nor Wall Street, is the only group who can be, as JFK coined, “the rising tide to lift all boats.”
They aren’t necessarily who you think they are:
They vast majority of Americans consider themselves Middle Class. McCain guessed they made $5 million or less. Obama said about $250,000. But it is not about income.
It is about lifestyle and a belief that they have freedom and can have at least some control of their destiny. Sadly, in America, freedom is now mostly about financial freedom. Once, this might have been about savings or disposable income. For most, it is about room on our credit cards or equity lines. Imaginary money – the same type of money traded on Wall Street. It’s faith-based and our faith-based government has told us that they have lost theirs. That same government in a conspiracy of fear with cable news and the credit bureaus has now tested our faith to the limit. Those with jobs, have stopped spending. Those with credit cards have put them away. Those who have some financial freedom are living in self-imposed exile or confinement. But the vast majority of the vast majority are those not so fortunate. They have stopped believing they are Middle Class. It is so painful that they may never have their faith again.
The banker in the monopoly game we have been playing decided to put more currency in tray expecting the game would continue:
If being Middle Class is faith-based, do we just need cheerleading? I wish it were so. Perception has become an all too cruel reality and won’t change without real change. The first move by our government was an attempt to stabilize our financial markets and create liquidity so loans can be made again. Another way of looking at it is to say, our government wanted us to borrow more money, so we would spend more imaginary money, so everything would be alright. While history may prove them right, it looks right now as if the powers who lend realized that we are poor credit risks. That business won’t prosper until consumers consume. That housing and commercial real estate values won’t stabilize enough to be good collateral until someone wants to buy them. That individuals aren’t good bets for credit until their employment futures are better. Duh. Marketing 101 failed. Until which time we have stable jobs our Middle Class, and all of us will be in crisis.
Here are some aspects of the crisis you might have missed:
- The collapse of housing prices has hit the bottom third of the market hardest: The collapse of the housing bubble has affected virtually all categories of housing in every part of the country, but the bottom third of the market continues to be hardest hit. This is not surprising since this is the segment of the market in which adjustable rate mortgages where most highly concentrated, and therefore has been hit hardest by resets. (source: CEPR)
- Those with jobs are having their hours cut: In addition to cutting workers, firms are also cutting hours. The index of total hours for production workers fell by 0.9 percent in November and is down 2.0 percent over the last three months, the sharpest three-month decline in any period since 1964 when the series began. (source: CEPR)
- There a lot more unemployed than it appears: Since the start of the recession in December 2007, as recently announced by the National Bureau of Economic Research, the number of unemployed persons increased by 2.7 million. Over the time, the number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) continued to increase, reaching 7.3 million. (source: CEPR)
- The temps have it worse: The employment services sector was an even bigger job loser, shedding 100,700 jobs in the month of November 2008 (3.2 percent of its total employment). This sector has lost 213,500 jobs over the last three months. Employers are dumping temporary employees as a way to keep on permanent staff. (Source: Department of Labor/Bureau of Labor Statistics)
- The Shredded ‘Safety Net’: Employment insurance has highly restrictive rules and doesn’t help contract employees, the self-employed or many who worked in small business. John Clark of UppingTheAnti.org writes (formatting added), Welfare, in contrast, is a system of last resort that can only be accessed by those on the very edge of destitution. Those with any other sources of income are ineligible by reason of the welfare means test. In conditions of rapid economic downturn, that will translate into a whole mass of people who are without work but who cannot even apply for income support until they have exhausted their savings. Once they have reached the required level of poverty, those who were previously working for living wages will be expected to make do with the degrading pittance that welfare provides.
- So where else can they turn: Not the nonprofits. At least 100,000 nonprofits nationwide will be forced to close their doors in the next two years as a result of the financial crisis, according to Paul Light, professor of public service at New York University. (source: Crain’s New York Business)
- Not to the states: Tom Eley writes, “The states confront a cascading fiscal crisis. Including cuts already made in the current fiscal year, it is anticipated that the collective 2009-2010 budget deficit for US states will be a minimum of $140 billion. This figure could run higher than $200 billion by the middle of 2010, threatening infrastructure spending, unemployment benefits, public education at all levels, and social assistance programs such as Medicaid – the health insurance program for low-income people. (source: Interdaily.com)
- Nobody knows how many are homeless or about to be: They don’t report in. We can’t count them well and don’t do it often. While foreclosures are reported, there are no good stats on evictions or people giving up and sleeping on the couches of friends and familes. The National Law Center on Homelessness & Poverty says there are 3.5 million of them, 1.35 million of them children. It is believed 23% are families with children and that 33% are veterans (source: National Coalition for Homeless Veterans).
- Tent Cities: According to CNN and other sources, communities throughout the U.S. have tent cities springing up because of the increase of foreclosures and evictions. Encampments have formed in or near large urban areas including Reno, Los Angeles, San Diego, Chattanooga, Columbus, St. Petersburg, Seattle and Portland.
Here’s a slice of a great piece on imaginary money by Kim Pollock, (the full text can be read or downloaded at http://www.socialistproject.ca/inthenews/meltdown_chronicles.pdf)
“How can money be imaginary? To answer that, we have to go right back to the beginning. First, nothing exists without labour. You can’t have food on the table, clothes on your back, a roof over your head, put your kids through school, buy a car or save for your retirement unless you or someone goes to work and actually makes all those things. In our society, most people get those things by working at a job where they get a paycheque, which they exchange for money to buy things (just like the song A Hard Day’s Night!) Most of us work in places where we either make things or sell things and services to people who make things.
“But some people live not on work but on profits, the returns from hiring workers to make things, which again, they exchange for money. With their money they can either invest in hiring more workers and buying equipment to make more things to make more money – or they can save it. When they save it, what they are actually doing is lending it to banks or other financial institutions, which in turn lend it to other people who invest it again or lend it to another institution to hopefully make more money.
“That too might mean investment but it might also mean the sort of speculation we just saw Joe Bloggs, Jane Doe and their friends engaging in. These folks essentially take an amount equivalent to what has been loaned to the banks and trade it around among themselves, so that a growing amount of US economic activity is bypassing the hiring- workers-and-making-things world and being directed instead straight into the buying-and-selling-money world, as the following graph shows:
“Unfortunately, though, there can’t actually be any more real wealth than the amount of stuff workers have produced or the amount that they can realistically be expected to produce. Any apparent additions beyond that are based on simply inflating the prices people are prepared to pay for something in the hopes of selling it for even more. It’s actual value hasn’t gone up, just its price.
“You can certainly speculate up the price of money, then, but only to a point. And that point is sooner or later likely to be reached because the wealth needed to actually cover the value of all that money is still in the last instance based on real stuff workers have made. Beyond the point at which each dollar covers real stuff and the wages of people hired to make it, in other words, its value is more or less imaginary or speculative; you might get away with selling it to someone else and make a profit doing it; but the risk remains that someone will get burned, since at some point someone else will likely call in some of the money they lent and if the last person holding the potato doesn’t have the money or real assets to cover their inflated or suddenly diminished imaginary assets, the bubble is likely to burst.”