Tag Archives: middle class

The Great Exedous From California By Conservative Middle Class Is In Full Swing

California conservatives are fleeing the state in droves over what the LA Times describes as their “disenchantment with deep-blue California’s liberal political culture,” not to mention “high taxes, lukewarm support for local law enforcement, and policies they believe have thrown open the doors to illegal immigration.

Just over half of California’s registered voters have considered leaving the state, according to a UC Berkeley Institute of Governmental Studies poll conducted for the Los Angeles Times. Republicans and conservative voters were nearly three times as likely as their Democratic or liberal counterparts to seriously have considered moving — 40% compared with 14%, the poll found. Conservatives mentioned taxes and California’s political culture as a reason for leaving more frequently than they cited the state’s soaring housing costs. LA Times

Former Californians Richard and Judy Stark had no regrets as they left their Modesto home, towing a U-Haul trailer with their Volkswagen SUV 1,300 miles to Amarillo, Texas. After finding the website Conservative Move, the Starks put their home up for sale around six months ago and bought a newly constructed three-bedroom home in the suburb of McKinney for around $300,000. According to Stark, a similar home in California would cost around twice as much.

We’re moving to redder pastures,” said the 71-year-old. “We’re getting with people who believe in the same political agenda that we do: America first, Americans first, law and order.

According to new Census Bureau migration data for 2018, 691,145 Californians left for other states last year, according to the San Jose Mercury News.

Where they’re going (via the Mercury News)

• Top destinations: In raw terms of people moving, the top spot for Californians is Texas, which got 86,164 Californians in 2018. Next came Arizona (68,516), Washington (55,467), Nevada (50,707), and Oregon (43,058). All told, California had the most exits among the state and that wave grew by 4% in a year.

• Largest net gain: Texas also had the largest “net gain” from California — more ins than outs — with 48,354. Next was Arizona (34,846), Nevada (28,274), Oregon (19,008), and Washington (17,460).

• Greatest ratio of ins to outs: Or look at the comings and goings as a ratio of ins to outs.  Idaho wins this race with 497 arrivals from the Golden State for every 100 former Potato State residents who moved to California. Next was South Carolina (247 ins per 100 out); Texas (228); Nevada (226); and Arizona (203).

 

That said, the LA Times also notes that California is gaining people with higher incomes – most of whom have migrated to the Bay Area.

Over the last decade, the Legislative Analyst’s Office report said, the state added about 100,000 residents with household incomes of $120,000 or higher. About 85% of these higher-income earners moved to the Bay Area counties of Alameda, Contra Costa, San Francisco, San Mateo and Santa Clara. –LA Times

The three-member Bailey family moved from California to Prosper, Texas in 2017 to get away from Southern California’s steep housing prices. Bailey and her husband Scott owned a home in Orange County, while renting in El Segundo to be closer to Scott’s work in Santa Monica.

“To buy a house there [El Segundo] is insane,” said Marie. “It’s like $1 million. Why are we working our butts off for a fixer-upper in El Segundo? We’re just working, working, working — and for what?”

Bailey launched a Facebook group for people struggling with the same problems –Move to Texas From California!“, which boasts over 14,000 members. She says that most members are conservatives like her, though not all. As such, one of her rules is “no insulting or going overboard with political conversations.”

“I wouldn’t be one to put up a Trump sign, even here,” said the 40-year-old Bailey. “But in your town Facebook, people would be like, ‘We know who the Trump supporters are.’ I had friends who voted for Trump and went to work the next day and pretended they didn’t.”

Bailey says she helped around 40 families migrate to Texas over the last year.

“There are hundreds more who made the move who didn’t use my real estate services but are in the group,” she said. “Tons and tons of families are moving all the time. People are posting photos of their families waving goodbye.”

Nicole Rivers and her husband put their Clovis home on the market in April, and hope to close escrow soon. They plan on flying to Texas to look for a place to rent in the eastern part of the state, near Tyler, coming back to California and then driving to their new home.

Rivers, who recently quit her job as a medical assistant and phlebotomist, said the cost of living is so much lower in the Tyler area that she can afford to stop working and dedicate herself to being a stay-at-home mom.

Her husband works in the oil fields, she said, and was already splitting his time between his job in Pennsylvania and family in California. When he had the chance to transfer to Texas full time, they jumped on it.

The 37-year-old said she wants to live in a town where the family can save money and her husband can retire sooner.

It’s just too expensive here in California,” said Rivers, a California native. The state’s politics have “really gotten out of hand,” she added. She doesn’t support the state’s restrictive gun laws, she said, or the controversial sex education framework California approved despite protests earlier this year.LA Times

Between earthquakes, seasonal fires, high taxes, poo-covered streets, the worst homeless crisis in the nation, and transgender summer camp for children as young as four, what’s not to love?

… and, sentiment expressed in this article is not alone…

‘Get Your Act Together’: Trump Threatens To Pull Federal Support As California Fires Rage

California Governor Asks AG To Investigate High Gas Prices, But Not ‘Mystery State Surcharges’

California Is Teetering On The Edge Of Financial Ruin Again

Nearly Half Of America’s Homeless People Live In California

Large Swaths Of California Now Too Wildfire Prone To Insure

Courts Finally Force California To Repay $331 Million Stolen From Mortgage Relief For Homeowners

“California Is Being Overrun By Rodents” – And We’re Not Talking About The Politicians

Orange County California Q1 Home Sales Off To Coldest Start Since Great Recession

California’s Housing Bubble’s So Bad, 100s Forced To Live On Boats

Federal Railroad Administration Cancels $929 Million In California High Speed Rail Funds

Millions Of Californians Will “Plunge Into Darkness” As PG&E Commits To Cut Power During Wildfire Season

What Happened To The $1 Billion Tax Revenue Expected From Licensed Marijuana Sales In California?

Proposition 13 Is No Longer Off-Limits In California

Southern California Home Sales Plunge 12% In November As Prices Peak

California Faces Pension Showdown

C.A.R. Report: California Housing Market Sputtered In November

Home Builder Toll Brothers Shocks With 13% Plunge In Orders As California Falls A Staggering 39%

Yet Another Unfunded Trillion Dollar Liability, California Wildfire Damage

California Tops National Poverty Rate As Prime Tax Donkey Demographic Plans “Exodus” From State

Crisis Level: California’s Housing Affordability Plummets To 10-Year Low

California Gained Just 800 Jobs In June; Unemployment Remains At Record Low

Cesium-137 From Fukushima Found In California Wine

California Become 3rd Largest State with More People leaving than Migrating to the State

California Officials Avoid ‘p-word’ When Selling Higher Taxes to Voters

It’s Now Against The Law In California To Shower And Do Laundry On The Same Day

California Residents Flee, Chased Away By Soaring Home Prices And Cost Of Living

California University Tuition Going Up For Everyone EXCEPT Illegal Alien Students

Californians Flee The State In Droves Over Taxation And Housing Costs

California Law Makers Want Businesses To Hand Over Half Their Federal Tax Cut Savings

California Cities Spiking Taxes to Pay Spiking Pension Costs

California Moves One Step Closer To “Mileage Tax”; Could Require Tracking Your Cell Phone Movements

Required Pension Contributions of California Cities Will Double in Five Years says Policy Institute: Quadruple is More Likely

California Renter Apocalypse

Affordable Housing Plan Slaps Fee on California Property Owners

California Senate Bill 1: Expand Eminent Domain to Create “Sustainable Communities”.

CA Governor Newsom Blames Texas For CA Policies That Caused CA’s Homeless Crisis

Chief Investment Officer of Largest US Public Pension Fund Has Deep Ties to Chinese Regime

‘They Waited For Failure’: Report Exposes PG&E’s Inability To Replace Equipment That Sparked Deadly Wildfire

CA Voters Not Happy With Free Medical For Illegals

Developers Are Pulling Out All The Stops Amid Los Angeles’ Mega-Mansion Glut

Young Real Estate Flippers Get Their First Taste of Losing

Mapped: The Salary Needed To Buy A Home In 50 U.S. Metro Areas

Americans Can’t Afford To Buy A Home In 70% Of The Country

Guess How Much Americans Spend Drunk Shopping Online?

Source: ZeroHedge

Trump Wants Middle Class To Bail Out Banks With Zero And Negative Interest Rates

(Volfefe begins today) One day before the ECB is expected to cut rates further into negative territory and restart sovereign debt QE, moments ago president Trump resumed his feud with the Fed piling more pressure on Powell to cut rates “to ZERO or less” because the US apparently has “no inflation”, while also crashing the conversation over whether the US should issue ultra-long maturity debt (50, 100 years), saying the US “should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term.” 

At least we now know who is urging Mnuchin to launch 50 and 100 year Treasuries. What we don’t know is just what school of monetary thought Trump belongs to – aside from Erdoganism of course – because while on one hand Trump claims that “we have the great currency, power, and balance sheet” on the other the US president also claims that “the USA should always be paying the lowest rate.” In a normal world, the strongest economy tends to pay the highest interest rate, but in this upside down world, who knows anymore, so maybe the Fed has just itself to blame.

Trump’s conclusion: “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads.”

Expect even more badgering of the Fed once the ECB cuts rates tomorrow.

One parting thought: if Bolton was fired for disagreeing with Trump over the Taliban, we wonder just how stable Powell’s job will be once the market actually does drop.

Source: ZeroHedge

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JPMorgan Launches “Volfefe Index” To Track Impact Of Trump’s Tweets On Market Volatility

Six Charts Showing How The American Middle Class Drowned In Debt To Maintain Their Lifestyle

New data suggests that the U.S. is doing everything possible to repeat the 2008 financial crisis. 

America’s middle class is sinking further into debt simply to maintain its middle class lifestyle, according to a new report from the WSJ, and its enabler has been none other than the Federal Reserve Bank, which has continued to make borrowing extremely easy thanks to artificially low interest rates that are once again sliding lower. 

Meanwhile, as incomes have remained stagnant for nearly two decades, the price of cars, colleges, houses and healthcare have all risen. In order to fill the gap, the middle class is turning to more debt.

Consumer debt ex-mortgages – which comprises of credit card debt, as well as auto and student loans – is now at an astonishing $4 trillion, its highest level ever adjusted for inflation, while mortgage debt is rebounding after its post-financial crisis slide. More notably, student debt now totals about $1.5 trillion, exceeding credit card and all other types of debt except for mortgages. 

Adjusting for inflation, auto debt is up about 40% to $1.3 trillion and the average loan for new cars is up an inflation-adjusted 11% in a decade, to $32,187. Due to peer to peer lending and tech based banks, unsecured personal loans are also popular yet again. 

Amusingly the WSJ describes the rising debt levels as a “vote of confidence in the future”, instead of what it is – a desperate scramble to keep up appearances “for the Joneses” and to be perceived as well off, even if it means having a soaring credit card balance to show for it:

In one sense, the growing consumer debt is a vote of confidence in the future. People borrowing money today expect to have the income tomorrow to pay it back. Consumer debt tends to rise when borrowers feel secure in their jobs.

Of course, if job losses start to occur, the debt load could easily become unsustainable for many borrowers, which would then result in missed payments, delinquent loans and lenders writing off balances.

Some perspective: the median U.S. household income was $61,372 at the end of 2017, which is barely above the 1999 level when adjusted for inflation.  Not adjusted for inflation, this number rose 135% over the last three decades – but over the same period, average tuition was up 549% over the same period of time. Healthcare expenditures were up about 276% between 1990 to 2017. Average housing prices were up 188% over those same three decades. 

Adam Levitin, a Georgetown Law professor who studies bankruptcy, financial regulation and consumer finance said: “The costs of staying in the middle class are going up.”

U.S. households with credit card debt owed $8,390 in Q1 2019, which is up 9% from 2015 adjusted for inflation. 

And while borrowing to fund a degree or a house, which could both provide an eventual return on investment, can sometimes be smart decisions, borrowing for everyday consumption or for assets that depreciate (like cars) makes its harder to save and invest. 

Despite the U.S. economy nearly doubling in size from 1989 to 2016, the gains in assets owned were “heavily skewed” toward the highest earners, according to the report.

The median net worth of households in the middle 20% of income rose 4% in inflation-adjusted terms to $81,900 between 1989 and 2016, the latest available data. For households in the top 20%, median net worth more than doubled to $811,860. And for the top 1%, the increase was 178% to $11,206,000.

Put differently, the value of assets for all U.S. households increased from 1989 through 2016 by an inflation-adjusted $58 trillion. A third of the gain—$19 trillion—went to the wealthiest 1%, according to a Journal analysis of Fed data.

Cris DeRitis, deputy chief economist at Moody’s Analytics said: “On the surface things look pretty good, but if you dig a little deeper you see different sub-populations are not performing as well.”

And while consumers still aren’t as burdened by debt as they were in Q4 of 2017, they’re heading in the wrong direction. In Q4 2017 households devoted 13.2% of their disposable income to debt service – that number is about 9.9% now, mostly due to lower interest rates.  Other debt, including auto and student loans, consumed about 5.7% of disposable income in Q1 versus 4.9% at the end of 2012.  

Of course, while rates can always go even lower, the overarching problem is that instead of deleveraging, US consumers are instead adding on more and more debt in the hopes that rates never go up. Come to think of it, that precisely what corporations and sovereign nations are doing as well. 

Finally, for for those that have an problem visualizing the inequality gap, those who don’t realize that the quarterly net worth exercise is meaningless and the result of averaging data when in reality only the top 10% benefit, and those that argue that the US society, not just its financial elites, is far better off than 2008, here’s the one chart that will set you straight:

Source: ZeroHedge

62% Of All US Jobs Don’t Pay Enough To Support A Middle-Class Life

We just got more evidence that the middle class in America is rapidly disappearing...

https://www.zerohedge.com/sites/default/files/inline-images/image%20%281%29.jpg?itok=lDA8IBhjAuthored by Michael Snyder via The American Dream blog,

According to a shocking new study that was just released, 62 percent of all jobs in the United States do not pay enough to support a middle class life.  That means that “the American Dream” is truly out of reach for most of the country at this point.  Today, Americans are working harder than ever but the cost of living continues to rise much faster than our paychecks are increasing.  Earlier this month, I went and looked at the latest numbers from the Social Security Administration, and I discovered that 50 percent of all American workers make less than $30,533 a year. But that is just above poverty level.  In fact, the federal poverty level for a family of five is currently $29,420. Most families are just barely scraping by from month to month, and most U.S. workers are just one major setback away from falling out of the middle class.

It wasn’t always this way.  At one time, America had the strongest and most vibrant middle class in the history of the world.  But now this latest study has discovered that “it’s only 38 percent of people who get the middle class life or better”

When wages are weighed against the cost of living in the largest 204 metropolitan regions across the nation, 62 percent of jobs don’t pay enough for a dual-income household with children to meet the definition of ‘middle class,’ according to a new ‘Opportunity Indexdeveloped by Third Way, a Washington D.C.-based think tank.

‘We were shocked to find out it’s only 38 percent of people who get the middle class life or better,’ said Ryan Bhandari, a policy advisor for Third Way, in an interview with DailyMail.com.

It is no wonder why so many people are shopping at Wal-Mart and the Dollar Tree these days.

For many Americans, those are the literally the only places they can afford to shop.

https://www.zerohedge.com/sites/default/files/inline-images/636764278871163810-103018-Jobs-ONLINE.png?itok=rsASigOC

When I was growing up, it seemed like literally everyone else around me was “middle class”, but now those days are long gone.  Here is a breakdown of some more of the numbers from this latest study

  • 30 percent of jobs are “hardship jobs,” meaning they don’t allow a single adult to make ends meet.
  • 32 percent are “living wage” jobs, enough to get by but not to take vacations, save for retirement or live in a moderately priced home.
  • 23 percent are middle-class jobs, allowing for dining out, modest vacations and putting some money away for retirement.
  • 15 percent are “professional jobs,” paving the way for a more comfortable life that includes more elaborate vacations and entertainment and a more expensive home.

It sure must be nice to be in that top 15 percent, if you have the right connections.

https://www.zerohedge.com/sites/default/files/inline-images/5614126-6335063-image-a-20_1540993019737.jpg?itok=zWjxAJYw

And the definition of a “middle class income” changes based on where you live.  As the study noted, it is much cheaper to live a middle class lifestyle in the middle of the country than it is to do so on the west coast.  The following comes from the Daily Mail

For example, a worker in San Francisco – one of the most expensive housing markets in the country – must make a minimum of $82,142 to achieve a middle class lifestyle.

By comparison, workers in Cedar Rapids, Iowa can achieve middle class status in a job paying $40,046 or more per year.

So many of us have run ourselves ragged doing the things that we were “supposed” to do, and we assumed that a middle class life would be the reward at the end of the trail.

Unfortunately, that reward has never materialized for millions of hard working Americans. USA Today profiled one of those deeply frustrated workers in a recent article…

Esther Akutekha, who lives in Brooklyn, New York, has a good job as a public relations specialist that pays more than $50,000 a year.

But because of the $1,440 a month rent on her studio apartment in the Prospect-Lefferts Gardens neighborhood, she never takes vacations, dines out just once a month and scrapes together dinner leftovers for lunch the next day.

Can you identify with Esther?

I sure can.

It can be soul crushing to work as hard as you can only to realize that your goals are now farther away than ever.  At this point, Esther is not even sure that she will ever be able to afford to have children

“I’m frustrated with the fact that I’m not going to be able to save anything because my rent is so high,” says Akutekha, who says she’s 30ish. “I don’t even know if I can afford” to have children.

We have been told that the economy has been “booming” in recent years, but the truth is that it has only been booming for people at the very top of the pyramid.

For most Americans it is as if the last recession never ended, and things just seem to keep getting worse

“There’s an opportunity crisis in the country,” says Jim Kessler, vice president of policy for Third Way and editor of the report. “It explains some of the economic uneasiness and, frankly, the political uneasiness” even amid the most robust U.S. economy and labor market since before the Great Recession of 2007 to 2009. But is the economy robust? Or are we being fed a line by the mainstream media? The middle class is not thriving, and increased regulations and higher taxes make it difficult for people to branch out on their own and create their own business.

We definitely need to make it much, much easier for people to start small businesses, and this is something that I have written about extensively. Small business creation has traditionally been one of the primary vehicles for upward mobility in our nation, but right now the rate of small business creation is hovering near all-time lows.  We desperately need to get that turned around if we ever want to have any hope of restoring vitality to our middle class.

If we continue on the path that we are on, we are going to continue to get the same results.  Tonight, more than half a million Americans are homeless, and the ranks of the poor are growing with each passing day.

America needs a strong middle class, but currently our middle class is disintegrating at a startling pace.

If we are not able to reverse this trend, what is the future going to look like for our society?

Source: ZeroHedge

The Number Of Americans Living In Their Vehicles “Explodes” As The Middle Class Collapses

If the U.S. economy is really doing so well, then why is homelessness rising so rapidly?

https://www.zerohedge.com/sites/default/files/inline-images/Sleeping-In-Car-By-Spaetz-The-Entertainer-On-Flickr.jpg?itok=f7Y9s5Iu

As the gap between the rich and the poor continues to increase, the middle class is steadily eroding.  In fact, I recently gave my readers 15 signs that the middle class in America is being systematically destroyed.  More Americans are falling out of the middle class and into poverty with each passing day, and this is one of the big reasons why the number of homeless is surging.  For example, the number of people living on the street in L.A. has shot up 75 percent over the last 6 years.  But of course L.A. is far from alone.  Other major cities on the west coast are facing similar problems, and that includes Seattle.  It turns out that the Emerald City has seen a 46 percent rise in the number of people sleeping in their vehicles in just the past year

The number of people who live in their vehicles because they can’t find affordable housing is on the rise, even though the practice is illegal in many U.S. cities.

The number of people residing in campers and other vehicles surged 46 percent over the past year, a recent homeless census in Seattle’s King County, Washington found. The problem is “exploding” in cities with expensive housing markets, including Los Angeles, Portland and San Francisco, according to Governing magazine.

Amazon, Microsoft and other big tech companies are in the Seattle area.  It is a region that is supposedly “prospering”, and yet this is going on.

Sadly, it isn’t just major urban areas that are seeing more people sleeping in their vehicles.  Over in Sioux Falls, South Dakota, many of the homeless sleep in their vehicles even in the middle of winter

Stephanie Monroe, managing director of Children Youth & Family Services at Volunteers of America, Dakotas, tells a similar story. At least 25 percent of the non-profit’s Sioux Falls clients have lived in their vehicles at some point, even during winter’s sub-freezing temperatures.

“Many of our communities don’t have formal shelter services,” she said in an interview. “It can lead to individuals resorting to living in their cars or other vehicles.”

It is time to admit that we have a problem.  The number of homeless in this country is surging, and we need to start coming up with some better solutions.

But instead, many communities are simply passing laws that make it illegal for people to sleep in their vehicles…

A recent survey by the National Law Center on Homelessness and Poverty (NLCHP), which tracks policies in 187 cities, found the number of prohibitions against vehicle residency has more than doubled during the last decade.

Those laws aren’t going to solve anything.

At best, they will just encourage some of the homeless to go somewhere else.

And if our homelessness crisis is escalating this dramatically while the economy is supposedly “growing”, how bad are things going to be once the next recession officially begins?

We live at a time when the cost of living is soaring but our paychecks are not.  As a result, middle class families are being squeezed like never before.

A recent Marketwatch article highlighted the plight of California history teacher Matt Barry and his wife Nicole…

Barry’s wife, Nicole, teaches as well — they each earn $69,000, a combined salary that not long ago was enough to afford a comfortable family life. But due to the astronomical costs in his area, including real estate — a 1,500-square-foot “starter home” costs $680,000 — driving for Uber was a necessity.

“Teachers are killing themselves,” Barry says in Alissa Quart’s new book, “Squeezed: Why Our Families Can’t Afford America” (Ecco), out Tuesday. “I shouldn’t be having to drive Uber at eight o’clock at night on a weekday. I just shut down from the mental toll: grading papers between rides, thinking of what I could be doing instead of driving — like creating a curriculum.”

Home prices are completely out of control, but that bubble should soon burst.

However, other elements of our cost of living are only going to become even more painful.  Health care costs rise much faster than the rate of inflation every year, food prices are becoming incredibly ridiculous, and the cost of a college education is off the charts.  According to author Alissa Quart, living a middle class life is “30% more expensive” than it was two decades ago…

“Middle-class life is now 30% more expensive than it was 20 years ago,” Quart writes, citing the costs of housing, education, health care and child care in particular. “In some cases the cost of daily life over the last 20 years has doubled.”

And thanks to the trade war, prices are going to start going up more rapidly than we have seen in a very long time.

On Tuesday, we learned that diaper and toilet paper prices are rising again

Procter & Gamble said on Tuesday that it was in the process of raising Pampers’ prices in North America by 4%. P&G also began notifying retailers this week that it would increase the average prices of Bounty, Charmin, and Puffs by 5%.

P&G is raising prices because commodity and transportation cost pressures are intensifying. The hikes to Bounty and Charmin will go into effect in late October, and Puffs will become more expensive beginning early next year.

I wish that I had better news for you, but I don’t.  We are all going to have to work harder, smarter and more efficiently.  And we are definitely going to have to tighten our belts.

Many middle class families are relying on debt to get them from month to month, and consumer debt in the United States has surged to an all-time high.  But eventually a day of reckoning comes, and we all understand that.

The U.S. economy is not going to be getting any better than it is right now.  So it is time to be a lean, mean saving machine, because it will be important to have a financial cushion for the hard times that are ahead of us.

Source: ZeroHedge

A New Type Of Poverty Is Crushing The Middle Class

https://www.zerohedge.com/sites/default/files/inline-images/pov.jpg

As if the current global monetary system didn’t put the middle-class at a structural disadvantage versus the wealthy, by taxing them disproportionately with inflation, encouraging dissaving and taxing labor (ordinary income) much higher than capital (long-term gains), we now find out that the middle class has a new reason they’re being pushed into poverty: banks are willingly trying to put them there.

In a report by the Sydney Morning Herald, the newspaper notes that more middle-class Australians are being pushed into poverty. The simple explanation why this is happening: Australian banks are trying to figure out exactly how much they can charge customers before pushing them into poverty; to do this they are using a formula which incorporates a poverty index to calculate the last marginal dollar of disposable income that the middle class has for fees and charges.

Here’s more:

The banking and finance royal commission has cast light on a new type of poverty to emerge in our society: middle class poverty.

To understand it, we have to go back to an earlier government inquiry: the 1972 Commission of Inquiry into Poverty, conducted by Professor Ronald Henderson. That commission had no real policy impact, but its cultural impact was profound. It gave prominence to the Henderson Poverty Index: a measure of consumption described by Henderson as so austere that it was unchallengeable. Updated versions of this index remain a standard benchmark of poverty.

But more than 45 years on, the royal commission into finance is revealing that poverty is no longer just about low income. The commission has heard that Australian banks have adopted actual lending practices (as distinct from their official lending policies) that claim so much household income for contract payments that borrowers are left without enough money to fund basic consumption levels: they are living in poverty.

This isn’t an accident: it is a strategic policy by banks. How much do banks think households need for daily living? According to the Australian Prudential Regulation Authority’s submission to the royal commission, banks “typically use the Household Expenditure Measure [a relative poverty measure] or the Henderson Poverty Index in loan calculators to estimate a borrower’s living expenses”.

And regulators in Australia aren’t doing much to help – in fact, they’ve simply made a blanket “don’t worry about it” type statement while conducting a “targeted review”:

So measures designed to capture the impacts of low incomes are now targeting financially-enmeshed middle-income households, and not as a statement of social shame, but as strategic objects of bank policy.

This has caused embarrassment to APRA, the regulator charged with overseeing those bank practices. In response, it was permitted to make a supplementary submission to the royal commission in March.

APRA now distances itself from use of these lowly measures, claiming them to be an “under-estimation” of household expenses. It reports that in 2017 it conducted a targeted review of a sample of loan files, using external audit firms to ensure independent integrity.

Following the review, one “groundbreaking” conclusion emerged:

The review contended that lending on the basis of either poverty index is not consistent with sound risk management. It assures that its discussions with banks are leading to improvements.

But it doesn’t stop there, as regulators had already identified the problem more than 10 years ago and did nothing to act on it: 

The urgency of this attention is disingenuous. In 2007, then APRA chairman John Laker revealed that a survey by APRA showed that “most [banks] use either the Henderson Poverty Index or (the higher) Household Expenditure Survey data from the Australian Bureau of Statistics as the basis for their living expense calculations … Our review indicated that many lenders were, at the time, using estimates of living expenses below the HPI or were not regularly updating their estimates”.

So a decade ago, APRA had already publicly named the problem, in the exact same terms as it names it now. It has simply watched as the practice of using a poverty index to measure a customer’s ability to repay a loan has become normalized as a culture.

A consequence of APRA neglect is that “poverty” now goes significantly up the income scale, well into what we generally call the middle class.

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As the report further elaborates, the middle class is far more susceptible to slip into poverty as a result of their financial profiles versus either the upper or lower classes:

Middle income people are the cohort in greatest financial risk. They are highly leveraged: they spend more of their income on loan repayments than do people with higher incomes.

Second, their assets are un-diversified: they own labor market skills, some home equity and some superannuation.

Third, these assets are illiquid (not easily sold): you can’t transfer your skills to another, houses are costly to sell and superannuation is generally inaccessible. By contrast, people at the top of the income distribution also hold more debt, but their assets are more diversified and liquid, and many generate income streams. Conversely, low income people hold proportionately less debt and are more diversified than the middle: they don’t have their (more meager) assets tied up in housing.

Fourth, middle income people are under-insured or, in financial terms, unhedged. Their insurance isn’t keeping up with their borrowing. Low income people are relatively well insured. They face compulsory insurance, such as for cars and health. High income people have also not increased their insurance, but their need is less because they are more diversified and have more discretionary funds.

In a commercial setting, financial units that are highly leveraged, un-diversified, illiquid and un-hedged are considered to be high risk.

So who is advocating for the interests of this cohort? Not the regulators. Their mandate is to ensure that households don’t default at unexpected rates and create problems for financial institution solvency (APRA’s concern) or for wider financial stability (The RBA’s concern). The fact that people are living on the Henderson poverty line is not a concern in itself to the regulators; it only matters if they stop paying their bills.

The article’s author, an emeritus professor of political economy at the University of Sydney, concludes that the regulatory system is rigged set up in such a way so that banks can continue to rip off the middle class, as opposed to making sure that the consumer is actually protected:

So Australia’s regulatory framework is vigilant in ensuring that households don’t create stability problems for the financial system, but no regulator has a mandate to ensure that the financial system doesn’t create stability problems for households. Someone or something has to assume this mantle, for mounting poverty and default risk is surely going to play out as a social crisis, not just a financial one.

This leaves the obvious question: if taxpayers are blanketed with regulation that benefits banks at the expense of the middle class, just why did taxpayers (i.e. the middle class) bail out the world’s banks ten years ago?

Source: ZeroHedge

Stagnation Nation: American Middle Class Wealth Is Locked Up in Housing and Retirement Funds

The majority of middle class wealth is locked up in unproductive assets or assets that only become available upon retirement or death.

One of Charles Hugh Smith’s points in Why Governments Will Not Ban Bitcoin was to highlight how few families had the financial wherewithal to invest in bitcoin or an alternative hedge such as precious metals.

The limitation on middle class wealth isn’t just the total net worth of each family; it’s also how their wealth is allocated: the vast majority of most middle class family wealth is locked up in the family home or retirement funds.

This chart provides key insights into the differences between middle class and upper-class wealth. The majority of the wealth held by the bottom 90% of households is in the family home, i.e. the principal residence. Other major assets held include life insurance policies, pension accounts and deposits (savings).

What characterizes the family home, insurance policies and pension/retirement accounts? The wealth is largely locked up in these asset classes.

Yes, the family can borrow against these assets, but then interest accrues and the wealth is siphoned off by the loans. Early withdrawals from retirement funds trigger punishing penalties.

In effect, this wealth is in a lock box and unavailable for deployment in other assets.

IRAs and 401K retirement accounts can be invested, but company plans come with limitations on where and how the funds can be invested, and the gains (if any) can’t be accessed until retirement.

Compare these lock boxes and limitations with the top 1%, which owns the bulk of business equity assets. Business equity means ownership of businesses; ownership of shares in corporations (stocks) is classified as ownership of financial securities.

https://i1.wp.com/www.oftwominds.com/photos2016/ownership-assets2-16.jpg
These two charts add context to the ownership of business equity. Note that despite the recent bounce off a trough, the percentage of families with business equity has declined for the past 25 years. The chart is one of lower highs and lower lows, the classic definition of a downtrend.
https://i2.wp.com/www.oftwominds.com/photos2017/biz-equity10-17a.png
The mean value of business equity is concentrated in the top 10% of families.While the value of the top 10%’s biz-equity dropped sharply in the global financial crisis of 2008-09, it has since recovered and reached new heights, while the value of the biz equity held by the bottom 90% has flat lined.
https://i0.wp.com/www.oftwominds.com/photos2017/biz-equity10-17b.png

Assets either produce income (i.e. they are productive assets) or they don’t (i.e. they are unproductive assets). Businesses either produce net income or they become insolvent and close down. Family homes typically don’t produce any income (unless the owners rent out rooms), and whatever income life insurance and retirement funds produce is unavailable.

This is the key difference between financial-elite wealth and middle class wealth: the majority of middle class wealth is locked up in unproductive assets or assets that only become available upon retirement or death.

The income flowing to family-owned businesses can be spent, of course, but it can also be reinvested, piling up additional income streams that then generate even more income to reinvest.

No wonder wealth is increasingly concentrated in the hands of the top 5%: those who own productive assets have the means to acquire more productive assets because they own income streams they can direct and use in the here and now without all the limitations imposed on the primary assets held by the middle class.

By Charles Hugh Smith | Of Two Minds