The middle-class trap

Dow off 167. Gold off $12. The beginning of a sell-off? We wait to find out.

We have reached the age where we have to resist the urge to give unwanted advice to younger people. Just this morning, a young woman was crossing the street:

“Hey… none of my business… but that’s a dangerous place to cross… the cars whip around the corner here… and they can’t see you because of the scaffolding…”

“Thanks”, came the polite brush-off.

And now we are about to give you, dear reader, some advice. Not a stock tip. Not a trade. Nope, this is advice about crossing the streets, circa 2014.

And this advice could be worth a fortune. Especially, if you are under the age of 40. If you’re over 40, you might know someone younger who could use it.

The stock market is at all-time highs. Unemployment is officially below 7%. A crazy man sits in the park carrying on a vigorous conversation with nobody. A fat woman begs for spare change on the street:

“Please, mister, can you spare some change? I’m hungry.”

It has been seven years since the first signs of the financial crisis, and now things are back to normal, right?

The poor are still poor. The rich are getting richer. And the middle class? What middle class?

Charles Hugh Smith reports that many people would like to have a middle-class lifestyle, but only the rich can afford it.

The ‘middle class’ has atrophied into the 10% of households just below the top 10%. The truth is painfully obvious: a middle-class lifestyle is unaffordable to all but the top 20%.
Mr Smith figures that there are ten key criteria for entry into the ‘middle class’.

Bill Bonner on markets, economics & the madness of crowds

To sign-up to Bill's free daily email just enter your email address below

Because these emails are completely free, we do have to fund them with advertising. Occasionally we will send you promotional emails, however we will never give, sell or rent your email address to any other companies.For more information, please see our Privacy policy.

1. Meaningful healthcare insurance (ie, not phantom ‘insurance’ with deductibles that cost thousands of dollars a year and that offers no non-catastrophic care at all).

2. Significant equity (25%-50%) in a home.

3. Income/expenses that enable the household to save at least 6% of its income.

4. Significant retirement funds: 401(K)s, IRAs, etc.

5. The ability to service all debt and expenses over the medium-term if one of the primary household wage earners loses their job.

6. Reliable vehicles for each wage earner.

7. The household does not rely on government transfers to maintain its lifestyle.

8. Non-paper, non-real estate assets such as family heirlooms, precious metals, tools, etc. that can be transferred to the next generation, ie, generational wealth.

9. Ability to invest in offspring (education, extracurricular clubs/training, etc.).

10. Leisure time devoted to the maintenance of physical/spiritual/mental fitness.

Who can afford all that? Smith added up the cost of these things. It came to $106,000. Trouble is, America’s ‘middle class’ doesn’t earn that much. Only those with the top 20% of household incomes qualify.

So, what happened to the middle class?

We’ll get to that on Monday. But first, we leave you some advice and a whole weekend to think about it: Want a middle-class lifestyle with middle-class finances and middle-class attitudes?

Forget it. Trying to enter the middle class is like trying to get a job as a galley slave. You get chained to an oar. You sit. You row until you drop dead.

The middle class, as Smith tells it, is desperate to continue its ‘aspirational consumption financed by debt’. It’s a trap set for you by the oligarchs and poligarchs [people whose votes can be bought cheaply], who control the American government and its major industries.

And if you’re young, you face a lifetime of backache, trying to keep up the pace. You will be forced to pay for the most expensive health care in the world, the most expensive military in the world and the most expensive education system in the world. All while your real income falls.

These heavy burdens didn’t ‘just happen’. They are the result of dirty dealing by America’s goons and poltroons, its oligarchs and poligarchs and all the company of modern crony democracy.

• Don't miss Bill's next Daily Reckoning. To receive the next article straight into your inbox as soon as he's written it, enter your email address below.

Because these emails are completely free, we do have to fund them with advertising. Occasionally we will send you promotional emails, however we will never give, sell or rent your email address to any other companies.For more information, please see our Privacy policy.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
China's cash problem

How to profit from it

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Bill Bonner: hold on to your cash, the real financial crisis is yet to come

Merryn Somerset Webb talks to Bill Bonner about economic cycles, and the 'catastrophic credit crisis' that will make 2008 look like a picnic.

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.

6 March 1899: Bayer trademarks Aspirin

Chemical company Bayer was awarded a patent for its pain-relieving acetylsalicylic acid powder, or 'Aspirin', on this day in 1899. It would soon be released in tablet form.