The Middle Class Trap of America

To the middle class: sauve qui peut! It’s every man for Himself!

Everybody’s worried about America’s middle class. Some say they’re hurtin’. Others say they’re disappearing. Most want to help them out.

Today, we do our civic duty. We stretch out a hand to America’s vast…suffering…holding on by their fingertips…middle class. We offer help…

But first…

On Friday, the markets took another step in a familiar direction. Stocks went up. Gold went down.

Analysts think it is just the beginning of a major move to the upside for stocks. The newspapers say so. The commentators agree.

‘Big boom ahead,’ they say.

Why? Because every major central bank in the country is pumping new money and easy credit into the tank. When that happens, even trash floats.

But what’s with the falling price of gold? People don’t need it, say the experts. The crisis is over. Clear skies, smooth sailing ahead.

Maybe. But the gold market is special. The serious players are buying gold. They know that gold – not dollars – will be ‘the last man standing’ when this print-fest finally comes to an end. They don’t ‘bet’ on gold. They don’t speculate on the yellow metal. They don’t invest in it either. Instead, they just quietly accumulate it.

But the trend-followers are dropping gold for more go-go assets. They bought gold because they were afraid. Now that things are quiet…and the central banks seem to have the situation in hand…they’re moving to riskier bets.

Will it work? Maybe for a while.

Central banks may even manage to create a hyper-bubble in some asset classes. That should be exciting. A thriller. But every bubble blows up. And this one will be no exception. And that is when everyone will wish he had gold.

But last week, we promised some advice… about how to avoid getting caught in the collateral damage. We’ll begin with the basics.

Here’s how we see it:

Back in the post-war period – the ’50s, ’60s, and ’70s – an ordinary family could make decent financial progress by doing ordinary things. Get a good education and a good job. Work hard. Save money.

‘Saving money’ got to be a little tricky in the ’70s, because inflation rates shot up to 13%. Putting dollars in your mattress was a losing proposition.

Still, jobs were generally plentiful. And wages were going up, especially for people with college degrees.

People were told to send their children to college…

They were urged to ‘get in the stock market‘.

Then, they were told get on the ‘housing escalator’.

The Joneses wanted to keep up with the Smiths, who wanted to at least stay even with the Jonkowskis. And so, the middle class took the bait…hook, line, and sinker.

They got bum advice. If you measure inflation properly – looking at what people spend their money on, without resorting to sleazy adjustments and substitutions – you find that the rate of consumer price increases has been much higher than advertised. Independent analysts, such as John Williams and Chapwood Finance, put today’s real inflation rate at around 10% – five times more than the official rate, which is near 2%.

If these analysts are right, much of the gains that people think they’ve gotten disappear. Even for college graduates, there have been no real wage gains in the last 40 years. And stocksbonds…and housing…have all lost value, when adjusted to real inflation.

And now, the middle classes are stuck. Little or no wage gains in sight. No stock market gains in the pipe. Not much equity in their houses (they traded up… many are now underwater). Both spouses working. Debt up the kazoo – they’re even on the hook for their children’s student loans!

To make matters worse, middle class Americans are getting older…facing retirement with little capital saved up. That makes them reliant on the feds’ pension and healthcare systems.

And what’s this? The feds say they have to cut back!

Well, let’s not exaggerate the problem. Few middle class families are desperate. Most live better – thanks to bigger houses, better appliances, and more gadgets – than their parents.

And the feds, if they had their wits about them, could save their health and pension systems by cutting back in reasonable ways. Push retirement age to 67. Make old people pay more for their tests, pills, and health treatments. Stop invading foreign nations. Piece of cake.

Still, we feel sorry for the trapped middle class.

We feel sorry for them because they are trapped in a tough situation. Bills to pay. Retirement to prepare for. And no way to bring in more money.

Plus, they’re depending on the feds to keep the ship afloat for a few more years so they can live off Social Security and Medicare. But the feds are untrustworthy. It wouldn’t surprise us if they made a huge mess of things…forcing huge cuts in the real value of health and pension benefits.

So, herewith, we offer some advice: get out! Escape the middle class trap. How?

More to come… tomorrow…

Regards,

Bill Bonner
for Markets and Money

From the Archives…

Shale the Conquering Hero!
25-01-13 – Dan Denning

The Nobel Prize for Quack Economists Like Stiglitz
24-01-13 – Bill Bonner

The Real Story Behind Germany’s Gold Recall
23-01-13 – Byron King

At the Mercy of Financial Repressionists
22-01-13 – Dan Denning

Walter Russell Hall: From Rebellion to Bullion
21-01-13 – Kris Sayce

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Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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2 Comments on "The Middle Class Trap of America"

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Mark
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I have for a long time, enjoyed reading Mr. Bonner. Perhaps someday his views will make someone, somewhere – money. S&P 1500. Of course it will go down. The world is ending, certainly. Gold may in fact, someday, be the play of the millennium. Like ZeroHedge, you can only polish the knob so many times…..And this, with all due respect.

Lachlan
Guest

Mark you have to give credit to Bill. He told people to sell stocks and buy gold twelve years ago.

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