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Yachtie -> RE: the poor are eating their bottom line....oh noes (2/3/2014 7:34:43 AM)
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Look, folks, it's not that complicated, though I'm amazed so many do not understand.
For the past few decades, some saying, and I agree here to a point, it began with Nixon (R) going completely off the gold standard, credit has been made easier. Access to cheap credit, mostly done as an aid to the ~middle class and the poor. It was said such would help them raise their standard of living over time. For a while, it did. (note: one of the later iterations in the scheme was the low interest, zero down mortgage. Everyone can own their own home)
For quite some time that accessed credit was serviceable. Slowly it began eating up discretionary spending. That would not have happened had the USD been stable in its purchasing power. Had that been the case however, there could not also have been the dramatic increase in the living standard accross the board. Just as an aside here, my opinion for wanting the dramatic increase was sociological in nature; coming out of the 60s.
Eventually, beginning with the poor, many needed help as their debt limits were reached. Programs were developed to do just that, allowing their funds to service the debt while also, and being trite here, letting them eat. Why was that happening? Simple. As the econonmy expanded by increasing consumption, more dollars (made available by easy credit) were passing through the economy (increasing velocity) as the standard of living increased. The country was on a consumption binge. This put pressure on purchasing power as inflation was slowly increasing (more dollars, rising prices).
For the past few decades, since Reagan (he did us no good service economically), there has been virtually no real growth, it being illusion. The poor and middle class have slowly been falling behind, their debt being harder and harder to service. None of this happens overnight. One answer has been to increase the available cheap credit. Keep the economy pumped up. It's all coming home to roost now as the debt is no longer serviceable. The poor, being first, followed by the middle class, have not seen any real purchasing power increase as to service the debt. Wages (incomes) have not kept up. (In the environment that has been created, they can't) Consumption is falling. Wages are falling, for many seen as an increase in their hours worked for the same pay as before. Others are having their hours reduced, and that includes other reasons. Many have been laid off, and so many have dropped out of the workforce. The pressures on government services are immense. How can anyone not see it? The gnashing of teeth as some program is cut (serviceability) while also clamoring how it hurts people (damages their ability to consume). It's demanding a win in a no win situation.
The brick wall has been reached.
In this environment, raising the minimum wage is not an answer. Yes, it can, for a short time reduce some of the pressure on the poor and middle class. But to what end? Soon we shall be right back where we are. All the while the poor and middle class shall fall behind even more as those short term increases shall not be capable of again raising the stand of living which has been falling but only allow them to increase servicing their debt, for a little while. Some may even try taking on more debt, adding fuel to the problem.
The one thing that is running through it all is this - Cheap Credit. Cheap credit benefits no one except... and drum roll please... the banks, insurance companies, The Big Boys (as in Corporate) and even the 1%. All the discussion about taxes (paying one's fair share), pointing at the 1%, how evil Capitalism is, Obamacare as a fix of the medical problems, ... all miss the central problem. Cheap Credit. Every FIX that is out there, or contemplated, sucks more from the poor and middle class through inflation, taxation, increasing costs, etc.
What the FED has been fighting is the first part of the cure - deflation. As long as it does, income inequality, to the extent being experienced, shall not only continue but get worse. Deflation hurts the banks, insurance companies, government revenues (all programs), the Davos attendees, etc as it chugs along destroying debt created by cheap credit. Bankruptcies will explode, as they should. The country has been drunk on cheap credit for quite some time. The headache shall be immense when it sets in. The poor and middle class will suffer it no matter. It will be devastating.
Politically, both R and D are to blame. Each for their own failures and the mistakes they shall continue to make.
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