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Wonkette Learns About the Balance Sheet Recession

Wonkette:

Study: Americans Poor Now Because They Don’t Have Any Money: A startling new study proves that America’s Middle Class has been utterly, completely wiped out.... Apparently, wages have been declining for thirty or forty years and pensions have vanished and the one asset 90% of middle class people owned is no longer worth anything. (That asset is “their house,” and many have also lost the actual house, in addition to its supposed value before the crash.)

Rex Nutting writes at Marketwatch: "On average, American homeowners lost 55% of the wealth in their home."... Whoa, why such a Negative Nancy? Didn’t we also have a recovery since then? Yes we did: “The rich recovered; the rest of us didn’t.”...

But how did we, uh, even manage to survive during the first decade of this awful century? Experts say it’s because the Middle Class took out home equity loans to make up for all the raises they weren’t getting. That’s how America kept spending money (and charging more on those high-limit credit cards everybody got the week after they signed a fraudulent mortgage document) from 9/11 onward....

Rex Nutting:

How the bubble destroyed the middle class: WASHINGTON (MarketWatch) — A lot of people say they are deeply puzzled by the slow recovery in the U.S. economy. They look at the 9+% unemployment rate and the mediocre growth in national output, and they scratch their heads and wonder: Where is the boom that inevitably follows a deep bust, such as we experienced in 2008 and 2009. But there is no mystery. What other result would you expect from the financial ruin of the once-great American middle class? And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn’t even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms. But that progress has been halted and even reversed. In some respects, the middle class has made no progress in a generation, or two.

This isn’t just a sad story about a few losers. The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn’t have any money. There are a hundred different ways of looking at the economy, and a million different statistics. But if you wanted to focus on just one number that explains why the economy can’t really recover, this is the one: $7.38 trillion. That’s the amount of wealth that’s been lost from the bursting of housing bubble.... Leverage is an amazing thing: When prices go up, the borrower gets all the gains. And when prices go down, the borrower takes all the losses. Some families lost everything when the bubble collapsed, others lost very little. But, on average, American homeowners lost 55% of the wealth in their home.

Most middle-class families didn’t have much wealth to begin with — about $100,000. For the 22 million families right in the middle of the income distribution (those making between $39,000 and $62,000 before taxes), about 90% of their assets was in the house. Now half of their wealth is gone and it will never come back as long as they live. Of course, rich folk lost lots of wealth during the panic as well. Their wealth is mostly in paper not bricks -– stocks, bonds, mutual funds, life insurance. The market value of those assets fell further than home prices did during the crash, but they’ve mostly recovered their value now. The S&P 500 SPX -1.81%  lost 56% of its value when it crashed, but it’s doubled since then. Stocks are down about 13% from peak.

The rich recovered; the rest of us didn’t.

If losing half your meager life savings weren’t bad enough, the middle class has also been falling behind in terms of income for decades. Families in the middle make most of their money the old-fashioned way: Working their fingers to the bone for 40 years for wages and a modest pension. The middle class has been getting a smaller and smaller share of the pie over the past 40 years. Their wages have been flat after adjusting for inflation. In the late 1960s, the 20% of families right in the middle were earning almost their full share of the pie: they had 17.5% of total income. Their share has been falling steadily ever since. Now, that 20% is earning just 14.6% of all income. Meanwhile, the top 5% captured a growing share, going from 17% in the late 1960s to 22% today...

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