Since Donald Trump’s victory on election night we have seen the worst bond crash in 15 years. Global bond investors have seen trillions of dollars of wealth wiped out since November 8th, and analysts are warning of another tough week ahead. The general consensus in the investing community is that a Trump administration will mean much higher inflation, and as a result investors are already starting to demand higher interest rates. Unfortunately for all of us, history has shown that higher interest rates always cause an economic slowdown. And this makes perfect sense, because economic activity naturally slows down when it becomes more expensive to borrow money. The Obama administration had already set up the next president for a major recession anyway, but now this bond crash threatens to bring it on sooner rather than later.
For those that are not familiar with the bond market, when yields go up bond prices go down. And when bond prices go down, that is bad news for economic growth.
So we generally don’t want yields to go up.
Unfortunately, yields have been absolutely soaring over the past couple of weeks, and the yield on 10 year Treasury notes has now jumped “one full percentage point since July”…
The 10-year Treasury yield jumped to 2.36% in late trading on Friday, the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July!
The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%.
As I noted the other day, so many things in our financial system are tied to yields on U.S. Treasury notes. Just look at what is happening to mortgages. As Wolf Richter has noted, the average rate on 30 year mortgages is shooting into the stratosphere…
The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.”
If mortgage rates continue to shoot higher, there will be another housing crash.
Rates on auto loans, credit cards and student loans will also be affected. Throughout our economic system it will become much more costly to borrow money, and that will inevitably slow the overall economy down.
Why bond investors are so on edge these days is because of statements such as this one from Steve Bannon…
In a nascent administration that seems, at best, random in its beliefs, Bannon can seem to be not just a focused voice, but almost a messianic one:
“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”
Steve Bannon is going to be one of the most influential voices in the new Trump administration, and he is absolutely determined to get this “trillion dollar infrastructure plan” through Congress.
And that is going to mean a lot more borrowing and a lot more spending for a government that is already on pace to add 2.4 trillion dollars to the national debt this fiscal year.
Sadly, all of this comes at a time when the U.S. economy is already starting to show significant signs of slowing down. It is being projected that we will see a sixth straight decline in year-over-year earnings for the S&P 500, and industrial production has now contracted for 14 months in a row.
The truth is that the economy has been barely treading water for quite some time now, and it isn’t going to take much to push us over the edge. The following comes from Lance Roberts…
With an economy running at below 2%, consumers already heavily indebted, wage growth weak for the bulk of American’s, there is not a lot of wiggle room for policy mistakes.
Combine weak economics with higher interest rates, which negatively impacts consumption, and a stronger dollar, which weighs on exports, and you have a real potential of a recession occurring sooner rather than later.
Yes, the stock market soared immediately following Trump’s election, but it wasn’t because economic conditions actually improved.
If you look at history, a stock market crash almost always follows a major bond crash. So if bond prices keep declining rapidly that is going to be a very ominous sign for stock traders.
And history has also shown us that no bull market can survive a major recession. If the economy suffers a major downturn early in the Trump administration, it is inevitable that stock prices will follow.
The waning days of the Obama administration have set us up perfectly for higher interest rates, a major recession and a giant stock market crash.
Of course any problems that occur after January 20th, 2017 will be blamed on Trump, but the truth is that Obama will be far more responsible for what happens than Trump will be.
Right now so many people have been lulled into a sense of complacency because Donald Trump won the election.
That is an enormous mistake.
A shaking has already begun in the financial world, and this shaking could easily become an avalanche.
Now is not a time to party. Rather, it is time to batten down the hatches and to prepare for very rough seas ahead.
All of the things that so many experts warned were coming may have been delayed slightly, but without a doubt they are still on the way.
So get prepared while you still can, because time is running out.
The largest and most important bank in the largest and most important economy in Europe is imploding right in front of our eyes. Deutsche Bank is the 11th biggest bank on the entire planet, and due to the enormous exposure to derivatives that it has, it has been called “the world’s most dangerous bank“. Over the past year, I have repeatedly warned that Deutsche Bank is heading for disaster and is a likely candidate to be “the next Lehman Brothers”. If you would like to review, you can do so here, here and here. On September 16th, the Wall Street Journal reported that the U.S. Department of Justice wanted 14 billion dollars from Deutsche Bank to settle a case related to the mis-handling of mortgage-backed securities during the last financial crisis. As a result of that announcement, confidence in the bank has been greatly shaken, the stock price has fallen to record lows, and analysts are warning that Deutsche Bank may be facing a “liquidity event” unlike anything that we have seen since the collapse of Lehman Brothers back in 2008.
At one point on Friday, Deutsche Bank stock fell below the 10 euro mark for the first time ever before bouncing back a bit. A completely unverified rumor that was spreading on Twitter that claimed that Deutsche Bank would settle with the Department of Justice for only 5.4 billion dollars was the reason for the bounce.
But the size of the fine is not really the issue now. Shares of Deutsche Bank have fallen by more than half so far in 2016, and this latest episode seems to have been the final straw for the deeply troubled financial institution. Old sources of liquidity are being cut off, and nobody wants to be the idiot that offers Deutsche Bank a new source of liquidity at this point.
As a result, Deutsche Bank is potentially facing a “liquidity event” on a scale that we have not seen since the financial crisis of 2008. The following comes from Zero Hedge…
It is not solvency, or the lack of capital – a vague, synthetic, and usually quite arbitrary concept, determined by regulators – that kills a bank; it is – as Dick Fuld will tell anyone who bothers to listen – the loss of (access to) liquidity: cold, hard, fungible (something Jon Corzine knew all too well when he commingled and was caught) cash, that pushes a bank into its grave, usually quite rapidly: recall that it took Lehman just a few days for its stock to plunge from the high double digits to zero.
It is also liquidity, or rather concerns about it, that sent Deutsche Bank stock crashing to new all time lows earlier today: after all, the investing world already knew for nearly two weeks that its capitalization is insufficient. As we reported earlier this week, it was a report by Citigroup, among many other, that found how badly undercapitalized the German lender is, noting that DB’s “leverage ratio, at 3.4%, looks even worse relative to the 4.5% company target by 2018″ and calculated that while he only models €2.9bn in litigation charges over 2H16-2017 – far less than the $14 billion settlement figure proposed by the DOJ – and includes a successful disposal of a 70% stake in Postbank at end-2017 for 0.4x book he still only reaches a CET 1 ratio of 11.6% by end-2018, meaning the bank would have a Tier 1 capital €3bn shortfall to the company target of 12.5%, and a leverage ratio of 3.9%, resulting in an €8bn shortfall to the target of 4.5%.
The more the stock price drops, the faster other financial institutions, investors and regular banking clients are going to want to pull their money out of Deutsche Bank. And every time there is news about people pulling money out of the bank, that is just going to drive the stock price even lower.
In other words, Deutsche Bank may be entering a death spiral that may be impossible to stop without a government bailout, and the German government has already stated that there will be no bailout for Deutsche Bank.
Banking customers have a total of approximately 566 billion euros deposited with the bank, and even if a small fraction of those clients start demanding their money back it is going to cause a major, major crunch.
Deutsche Bank CEO John Cryan attempted to calm nerves on Friday by releasing a memo to employees that blamed “speculators” for the decline in the stock price…
Instead of doing what many have correctly suggested he should be doing, namely focusing on ways to raise more capital for the undercapitalized Deutsche Bank in order to stem the slow (at first) liquidity leak, first thing this morning CEO John Cryan issued another morale-boosting note to employees of Deustche Bank who have been watching their stock price crash to another record low, dipping under €10 in early trading for the first time ever. In the memo the embattled CEO worryingly did what Dick Fuld and other chief executives did when they felt the situation slipping out of control, namely blaming evil “rumor-spreading” shorts, saying “our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price. … Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.”
Just as important, Cryan confirms the Bloomberg report that “a few of our hedge fund clients have reduced some activities with us. That is causing unjustified concerns.” As we explained last night, the concerns are very much justified if they spread to the biggest risk-factor for the German bank: its depositors, which collectively hold over €550 billion in liquidity-providing instruments.
If you would like to ready the full memo, you can do so right here.
One of the reasons why Deutsche Bank is considered to be so systemically “dangerous” is because it has 42 trillion euros worth of exposure to derivatives. That is an amount of money that is 14 times larger than the GDP of the entire nation of Germany.
Some firms that were derivatives clients of the bank have already gotten spooked and have moved their business to other institutions. It was this report from Bloomberg that really helped drive down the stock price of Deutsche Bank earlier this week…
The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have shifted part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person with knowledge of the situation who declined to be identified talking about confidential client matters.
“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London.
So what comes next?
Monday is a banking holiday for Germany, so we may not see anything major happen until Tuesday.
An announcement of a major reduction in the Department of Justice fine may buy Deutsche Bank some time, but any reprieve would likely only be temporary.
What appears to be more likely is the scenario that Jeffrey Gundlach is suggesting…
But Jeffrey Gundlach, chief executive of DoubleLine Capital, said investors betting that Berlin would not rescue Deutsche could find themselves nursing big losses.
‘The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be,’ said Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine.
It will be very interesting to see how desperate things become before the German government finally gives in to the pressure.
The complete and total collapse of Deutsche Bank would be an event many times more significant for the global financial system than the collapse of Lehman Brothers was. Global leaders simply cannot afford for such a thing to happen, but without serious intervention it appears that is precisely where we are heading.
Personally, I don’t know exactly what will happen next, but it will be fascinating to watch.
Uh oh – here we go again. Do you remember the subprime mortgage meltdown during the last financial crisis? Well, now a similar thing is happening with auto loans. The auto industry has been doing better than many other areas of the economy in recent years, but this “mini-boom” was fueled in large part by customers with subprime credit. According to Equifax, an astounding 23.5 percent of all new auto loans were made to subprime borrowers in 2015. At this point, there is a total of somewhere around $200 billion in subprime auto loans floating around out there, and many of these loans have been “repackaged” and sold to investors. I know – all of this sounds a little too close for comfort to what happened with subprime mortgages the last time around. We never seem to learn from our mistakes, and a lot of investors are going to end up paying the price.
Everything would be fine if the number of subprime borrowers not making their payments was extremely low. And that was true for a while, but now delinquency rates and default rates are rising to levels that we haven’t seen since the last recession. The following comes from Time Magazine…
People, especially those with shaky credit, are having a tougher time than usual making their car payments.
According to Bloomberg, almost 5% of subprime car loans that were bundled into securities and sold to investors are delinquent, and the default rate is even higher than that. (Depending on who’s counting, delinquency is up to three or four months behind in payments; default is what happens after that). At just over 12% in January, the default rate jumped one entire percentage point in just a month. Both delinquency and default rates are now the highest they’ve been since 2010, when the ripple effects of the recession still weighed heavily on many Americans’ finances.
The chart below was posted by David Stockman, and it shows how the delinquency rate for subprime borrowers has hit the highest level since 2009. In fact, we are not too far away from totally smashing through the previous highs that were set during the last crisis…
It is quite foolish to try to sell expensive cars to people with bad credit. This is especially true now that the economy is slowing down significantly in many areas. But people are greedy and they are going to do what they are going to do.
The most disturbing thing to me is that many of these loans are being “repackaged” and sold off to investors as “solid investments”. The following description of what has been happening comes from Wolf Richter…
The business of “repackaging” these loans, including subprime and deep-subprime loans, into asset backed securities has also been booming. These ABS are structured with different tranches, so that the highest tranches – the last ones to absorb any losses – can be stamped with high credit ratings and offloaded to bond mutual funds designed for retail investors.
Deep-subprime borrowers are high-risk. Typically they have credit scores below 550. To make it worth everyone’s while, they get stuffed into loans often with interest rates above 20%. To make payments even remotely possible at these rates, terms are often stretched to 84 months. Borrowers are typically upside down in their vehicle: the negative equity of their trade-in, along with title, taxes, and license fees, and a hefty dealer profit are rolled into the loan. When the lender repossesses the vehicle, losses add up in a hurry.
It almost makes you want to tear your hair out.
This is exactly the kind of thing that caused so much chaos with subprime mortgages.
When will we ever learn?
Meanwhile, we continue to get even more numbers that indicate that a substantial economic slowdown has already begun…
We just got the clearest sign yet that something is wrong with the US economy.
Markit Economics’ monthly flash services purchasing manager’s index, a preliminary reading on the sector, fell into contraction for the first time in over two years.
The tentative February index was reported Wednesday at 49.8.
Statistic after statistic is telling us that a new recession is already here. And of course some would argue that the last recession never actually ended. According to John Williams of shadowstats.com, the U.S. economy has continually been in contraction mode since 2005.
If we do not learn from history, we are doomed to repeat it. All over the world, “non-performing loans” are starting to become a major problem, and already some financial institutions are starting to get tighter with credit.
As credit conditions tighten up, this is going to cause economic activity to slow down even more. And as economic activity slows down, it is going to become even harder for ordinary people to make their debt payments.
Deflationary forces are on the rise, and most global central banks are just about out of ammunition at this point.
Everyone knew that the global debt bubble could not keep expanding much faster than the overall rate of economic growth forever.
It was only a matter of time until the bubble burst.
Now we can see signs of crisis popping up all around us, and things are only going to get worse in the months ahead…
We just learned that the homeownership rate in the United States has fallen to the lowest level in 19 years. But of course this is not a new trend. As you will see in this article, the homeownership rate in the United States has been in a continual decline for more than 7 years. Obviously this is not a sign of a healthy economy. Traditionally, homeownership has been one of the key indicators that you belong to the middle class. When people define “the American Dream”, it is usually one of the first things mentioned. So if the percentage of Americans that own a home has been steadily going down for 7 years in a row, what does that tell us about the health of the middle class in this country?
The chart that you are about to view is clear evidence that we are in the midst of a long-term economic decline. It shows what has happened to the homeownership rate in the U.S. since the year 2000, and as you can see it has been collapsing since the peak of the housing market back in 2007. Does this look like a housing recovery to you?…
So many people get caught up in what is happening on Wall Street, but this is the “real economy” that affects people on a day to day basis.
Most Americans just want to be able to buy a home and provide a solid middle class living for their families.
The fact that the percentage of people that are able to achieve this “American Dream” is falling rapidly is very troubling.
There are some that blame this stunning decline in the homeownership rate on the Millennials.
And without a doubt, they are a significant part of the story. They are moving back home with their parents at record rates, and many that are striking out on their own are renting apartments in the big cities.
This is one area where the decline of marriage in America is really hitting the economy. Back in 1968, well over 50 percent of Americans in the 18 to 31-year-old age bracket were already married and living on their own. Today, that number is below 25 percent.
But that is not all there is to this story.
In fact, the homeownership rate for Americans in the 35 to 44-year-old age bracket has been falling even faster than it has for Millennials…
In the first quarter of 2008, nearly 67% of people aged 35-44 owned homes. Now the number is barely above 59%. The percentage of people under 35 owning homes only fell five percentage points, to 36% from 41%.
So why is this happening?
Well, it is fairly simple actually.
In order to buy homes, people need to have good jobs. And at this point, the percentage of Americans that are employed is still about where it was during the depths of the last recession.
In addition, wages in the United States have stagnated and the quality of our jobs continues to go down. As I wrote about the other day, half of all American workers make less than $28,031 a year. Needless to say, if you make less than $28,031 a year, you are going to have a really hard time getting approved for a home loan or making mortgage payments.
Things have been changing for a long time in this country, and not for the better. Our economic problems have taken decades to develop, and the underlying causes of these problems is still not being addressed.
Meanwhile, middle class families continue to suffer. One very surprising new survey discovered that more than half of all Americans now consider themselves to be “lower-middle class or working class with low economic security”. While Wall Street has been celebrating in recent years, economic pessimism has become deeply ingrained on Main Street…
Optimism may be harder to come by these days. More than half of Americans surveyed in a Harris poll released Tuesday identified themselves as being lower-middle class or working class with low economic security. And 75 percent said they’re being held back financially by roadblocks like the cost of housing (24 percent), health care (21 percent) and credit-card debt (20 percent).
And that’s not the kicker.
“The most disappointing aspect is that 45 percent think they’ll never get their finances back to where they were before the financial crisis,” said Ken Rees, CEO of the Elevate credit service company, which commissioned the survey. “And a third are losing sleep over it.”
The only “recovery” that we have experienced since the last recession has been a temporary recovery on Wall Street.
For the rest of the country, our long-term economic decline has continued.
When I was growing up, my father was serving in the U.S. Navy and we lived in a fairly typical middle class neighborhood. Everyone that I went to school with lived in a nice home and I never heard of any parent struggling to find work. Of course life was not perfect, but it seemed to me like living a middle class lifestyle was “normal” for most people.
How times have changed since then.
Today, it seems like we are all part of a giant reality show where people are constantly being removed from the middle class and everyone is wondering who will be next.
So what do you think?
Is there hope for the middle class, or are the economic problems that we are facing just beginning?
Please feel free to share your opinion by posting a comment below…
Did you know that a major event just happened in the financial markets that we have not seen since the financial crisis of 2008? If you rely on the mainstream media for your news, you probably didn’t even hear about it. Just prior to the last stock market crash, a massive amount of money was pulled out of junk bonds. Now it is happening again. In fact, as you will read about below, the market for high yield bonds just experienced “a 6-sigma event”. But this is not the only indication that the U.S. economy could be on the verge of very hard times. Retail sales are extremely disappointing, mortgage applications are at a 14 year low and growing geopolitical storms around the world have investors spooked. For a long time now, we have been enjoying a period of relative economic stability even though our underlying economic fundamentals continue to get even worse. Unfortunately, there are now a bunch of signs that this period of relative stability is about to end. The following are 14 reasons why the U.S. economy’s bubble of false prosperity may be about to burst…
#1 The U.S. junk bond market just experienced “a 6-sigma event” earlier this month. In other words, it is an event that is only supposed to have a chance of 1 in 500 million of happening. Billions of dollars are being pulled out of junk bonds right now, and that has some analysts wondering if a financial crash is right around the corner.
#2 The last time that we saw a junk bond rout of this magnitude was back during the financial crash of 2008. In fact, as the Telegraph recently explained, bonds usually crash before stocks do…
The credit market usually leads the equity market during turning points, as happened when credit markets cracked first in 2008.
Will the same thing happen this time around?
#3 Retail sales have missed expectations for three months in a row and we just had the worst reading since January.
#4 Things have gotten so bad that even Wal-Mart is really struggling. Same-store sales at Wal-Mart have declined for five quarters in a row and the outlook for the future is not particularly promising.
#5 The four week moving average for mortgage applications just hit a 14 year low. It is now even lower than it was during the worst moments of the financial crisis of 2008.
#6 The tech industry is supposed to be booming, but mass layoffs in the tech industry are actually 68 percent ahead of last year’s pace.
#7 According to the Federal Reserve, 40 percent of all households in the United States are currently showing signs of financial stress.
#8 The U.S. homeownership rate has fallen to the lowest level since 1995.
#9 According to one survey, 76 percent of Americans do not have enough money saved to cover six months of expenses.
#10 Rumblings of a stock market correction have become so loud that even the mainstream media is reporting on it. For example, just check out this CNN headline from earlier this month: “Is a correction near? Wall Street on edge“.
#11 The civil war in Iraq is spiraling out of control, and Barack Obama has just announced that he is going to send 130 troops to the country in a “humanitarian” capacity. Iraq is the 7th largest oil producing nation on the entire planet, and if the flow of oil is disrupted that could have serious consequences.
#12 As a result of the conflict in Ukraine, the United States, Canada and the European Union have slapped sanctions on Russia. In return, Russia has slapped sanctions on them. Will this slowdown in global trade significantly harm the U.S. economy?
#13 The three day cease-fire between Hamas and Israel is about to end, and Hamas officials are saying that they are preparing for a “long battle“. If a resolution is not found soon, we could potentially see a full-blown regional war erupt in the Middle East.
#14 The number of Ebola deaths continues to grow at an exponential rate, and if the virus starts spreading inside the United States it has the potential to pretty much shut down our entire economy.
Meanwhile, things look even more dire in much of the rest of the globe.
For example, the economic slowdown has gotten so bad in some nations over in Europe that they are actually experiencing deflation…
Portugal has crashed into deep deflation and Italy’s inflation rate has fallen to zero as the eurozone flirts with recession, automatically pushing these countries further towards a debt compound spiral.
The slide comes amid signs of a deepening slowdown in the eurozone core, with even Germany flirting with possible recession. Germany’s ZEW index of investor confidence plunged from 27.1 to 8.6 in July, the sharpest fall since June 2012, during the European sovereign debt crisis. “The European Central Bank has to act now,” said Andrew Roberts, credit chief at RBS.
And in Japan, GDP just contracted at a 6.8 percent annual rate during the second quarter…
Japan’s economy suffered its worst contraction since 2011 in the second quarter as consumer spending on big items slumped in the wake of a sales tax rise.
Gross domestic product shrunk by an annualized 6.8% in the three months ended June, Japan’s Cabinet Office said Wednesday. The result was actually better than the 7% contraction expected by economists.
On a quarterly basis, Japan’s GDP dropped by 1.7% as business and housing investment declined. Japan’s economy last suffered a hit of this magnitude after the 2011 tsunami and nuclear disaster.
There is no way that this bubble of false prosperity was going to last forever. It was never real to begin with. It was just based on a pyramid of debt and false promises. In fact, the condition of the global financial system is now far worse than it was just prior to the financial crisis of 2008.
Sadly, most people do not understand these things. Most people just assume that our leaders have fixed whatever caused the problems last time. And when the next crisis arrives, they will be totally blindsided by it.
According to stunning new numbers just released by the federal government, nine of the top ten most commonly held jobs in the United States pay an average wage of less than $35,000 a year. When you break that down, that means that most of these workers are making less than $3,000 a month before taxes. And once you consider how we are being taxed into oblivion, things become even more frightening. Can you pay a mortgage and support a family on just a couple grand a month? Of course not. In the old days, a single income would enable a family to live a very comfortable middle class lifestyle in most cases. But now those days are long gone. In 2014, both parents are expected to work, and in many cases both of them have to get multiple jobs just in order to break even at the end of the month. The decline in the quality of our jobs is a huge reason for the implosion of the middle class in this country. You can’t have a middle class without middle class jobs, and we have witnessed a multi-decade decline in middle class jobs in the United States. As long as this trend continues, the middle class is going to continue to shrink.
The following is a list of the most commonly held jobs in America according to the federal government. As you can see, 9 of the top 10 most commonly held occupations pay an average wage of less than $35,000 a year…
- Retail salespersons, 4.48 million workers earning $25,370
- Cashiers 3.34 million workers earning $20,420
- Food prep and serving staff, 3.02 million workers earning $18,880
- General office clerk, 2.83 million working earning $29,990
- Registered nurses, 2.66 million workers earning $68,910
- Waiters and waitresses, 2.40 million workers earning $20,880
- Customer service representatives, 2.39 million workers earning $33,370
- Laborers, and freight and material movers, 2.28 million workers earning $26,690
- Secretaries and admins (not legal or medical), 2.16 million workers earning $34,000
- Janitors and cleaners (not maids), 2.10 million workers earning, $25,140
Overall, an astounding 59 percent of all American workers bring home less than $35,000 a year in wages.
So if you are going to make more than $35,000 this year, you are solidly in the upper half.
But that doesn’t mean that you will always be there.
More Americans are falling out of the middle class with each passing day.
Just consider the case of a 47-year-old woman named Kristina Feldotte. Together with her husband, they used to make about $80,000 a year. But since she lost her job three years ago, their combined income has fallen to about $36,000 a year…
Three years ago, Kristina Feldotte, 47, and her husband earned a combined $80,000. She considered herself solidly middle class. The couple and their four children regularly vacationed at a lake near their home in Saginaw, Michigan.
But in August 2012, Feldotte was laid off from her job as a special education teacher. She’s since managed to find only part-time teaching work. Though her husband still works as a truck salesman, their income has sunk by more than half to $36,000.
“Now we’re on the upper end of lower class,” Feldotte said.
There is a common assumption out there that if you “have a job” that you must be doing “okay”.
But that is not even close to the truth.
The reality of the matter is that you can even have two or three jobs and still be living in poverty. In fact, you can even be working for the government or the military and still need food stamps…
Since the start of the Recession, the dollar amount of food stamps used at military commissaries, special stores that can be used by active-duty, retired, and some veterans of the armed forces has quadrupled, hitting $103 million last year. Food banks around the country have also reported a rise in the number of military families they serve, numbers that swelled during the Recession and haven’t, or have barely, abated.
There are so many people that are really hurting out there.
Today, someone wrote to me about one of my recent articles about food price increases and told me about how produce prices were going through the roof in that particular area. This individual wondered how ordinary families were going to be able to survive in this environment.
That is a very good question.
I don’t know how they are going to survive.
In some cases, the suffering that is going on behind closed doors is far greater than any of us would ever imagine.
And often, it is children that suffer the most…
A Texas couple kept their bruised, malnourished 5-year-old son in a diaper and locked in a closet of their Spring home, police said in a horrifying case of abuse.
The tiny, blond-haired boy was severely underweight, his shoulder blades, ribs and vertebrae showing through his skin, when officers found him late last week.
You can see some photos of that poor little boy right here.
I hope that those abusive parents are put away for a very long time.
Sadly, there are lots of kids that are really suffering right now. There are more than a million homeless schoolchildren in America, and there are countless numbers that will go to bed hungry tonight.
But if you live in wealthy enclaves on the east or west coasts, all of this may sound truly bizarre to you. Where you live, you may look around and not see any poverty at all. That is because America has become increasingly segregated by wealth. Some are even calling this the “skyboxification of America”…
The richest Americans—the much-talked about 1 percent—are a cloistered class. As the Nobel Prize-winning economist Joseph Stiglitz scathingly put it, they “have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live.” The Harvard political philosopher Michael Sandel has similarly lamented the “skyboxification” of American life, in which “people of affluence and people of modest means lead increasingly separate lives.”
The substantial and growing gap between the rich and everyone else is increasingly inscribed on our geography. There have always been affluent neighborhoods, gated enclaves, and fabled bastions of wealth like Greenwich, Connecticut; Grosse Pointe, Michigan; Potomac, Maryland; and Beverly Hills, California. But America’s bankers, lawyers, and doctors didn’t always live so far apart from teachers, accountants, and small business owners, who themselves weren’t always so segregated from the poorest, most struggling Americans.
Nobody should talk about an “economic recovery” until the middle class starts growing again.
Even as the stock market has soared to unprecedented heights over the past year, the decline of middle class America has continued unabated.
And most Americans know deep inside that something is deeply broken. For example, a recent CNBC All-America Economic Survey found that over 80 percent of all Americans consider the economy to be “fair” or “poor”.
Yes, for the moment things are going quite well for the top 10 percent of the nation, but that won’t last long either. None of the problems that caused the last great financial crisis have been fixed. In fact, they have gotten even worse. We are steamrolling toward another great financial crisis and our leaders are absolutely clueless.
When the next crisis strikes, the economic suffering in this nation is going to get even worse.
As bad as things are now, they are not even worth comparing to what is coming.
So I hope that you are getting prepared. Time is running out.