The one question no one ever asks is the simple, most obvious, and for American society, the saddest:
What if there is a recession and the upper 40% of the population does not care?
Because there is one now and it is about to accelerate and get a lot worse.
The apparent ability to distract the masses in society away from the reality of the average American, those who have a married household income of less than $75,000 per year with one or two children, perhaps even none, that are now experiencing the problems with Jay Powell’s inflationary recession is astonishing.
Social media, the mainstream media, the so-called “journalist”elites, all have withdrawn into a strange surreal world of distraction, derision, division, and pure propaganda to cover up what has become a two tiered society where the reality of hybrid capitalism have distorted the impacts on those least able to afford it.
For those earning less than $40,000 per year, it is a punishing society to survive in, be they single or married, with or without children.
And those income figures I stated above are optimistic compared to reality in many of these United States.
The true cost of living has not shot up at some fictional rate spewed out by the Bureau of Labor Statistics ever month around 3, 4, or even 5%. In fact the inflationary costs are now embedded in the society so those necessities to survive be it fuel for older vehicles, public transportation, housing, food, medical care, insurance, etc. are now inflicting a dangerous bifurcation of our society which will have consequences for whomever is sworn into office in January of 2025.
The true depreciation of the US dollar via a century plus of inflation is obvious.
The signs of lower and lower middle class distress are everywhere. I see it every day locally where people are living in their cars in parking lots at WalMarts, shopping centers, and numerous rest areas across the state of Florida.
Yet the media, be it local in our state or nationally, refuses to cover the story of financial hardship due to political and financial considerations which would bankrupt their corporations immediately.
For example, subprime auto loan delinquencies at the end of 2023 are at higher levels than they were during the Great Financial Crisis.
This shall continue to deteriorate as automobile insurance and maintenance costs on a national basis will eventually cause those in the most desperate of situations to choose between food and medicine or paying bills to keep their older vehicle on the road.
Housing is no better. In fact the ability of the “American Dream” to be fulfilled via home ownership is blown up as this chart shows from Longtermtrends.net through the end of 2023:
7.58 times the median income, not the average middle or lower class income. Thus the lower and lower middle class are now trapped in Pottersvilles, as I warned about in an article from December of 2005 where I stated:
“Gold is the bellwether. GM is a bellwether. The dollar is a bellwether. And they all tie into Pottersville, that mythical place from a Christmas movie that most ignore or watch only to feel good, without realizing that we could be living it soon.”
JohnGaltfla – December 9, 2005
If gold was the bellwether then, it’s ringing even louder now as the depreciation of the American dollar indicates that indeed, the Federal Reserve is going to attempt to inflate its way out of the government and banker debt crisis while using financial repression to trap the “poors” as financial social media likes to call them.
Housing prices existing in the stratosphere compared to affordability means rents are now far beyond the reasonable allocation of monthly income capacity of the average American family who the boom times left behind.
Whenever there is a crisis of debt, be it derivatives, corporate debt, or government debt, the central bank shall attempt to inflate its way out of the crisis without impacting the wealthy or elites but instead making the lower class foot the bill. If one sees the 30, 40, 50% plus price increases inflicted across the board at grocery stores, in medical costs, housing, and of course taxation in those parts of the nation which believe in a more socialist government structure, it is obvious.
The cost of money in fact is increasing in our society which impacts the lower class the hardest. Credit costs are something that those who can avoid, do so, because paying 9%+ for short term loans or credit and 31% plus on credit cards to carry monthly debt is a fool’s errand. Yet for the lower and lower middle class it is survival on a week to week basis.
Small businesses in fact are now having to pass that cost on to those who can not afford it with penalties for using credit versus crash with signs like this one appearing at local businesses all over the United States.
So what does this have to do with financial repression?
From the Financial Times, March 21, 2024:
Issuing debt directly to retail investors, if large in scale and with the specific purpose of lowering bond yields, also amounts to financial repression. Banks are unlikely to offer the same high yield on their savings accounts due to costs of intermediation. Direct debt sales to retail investors will therefore suck out funds from bank accounts. Rather than being intermediated to the private sector, these funds will finance government borrowing.
The economic consequences of financial repression are significant. These policies crowd out private sector investment. In the short term, this will lead to lower growth and inflation, as monies which would have been invested in the private sector capital stock are spent on public debt service and repayment instead. But in the medium term, lower accumulation of capital will result in a structurally more rigid supply side of the economy. When there is rise in demand, this will lead to higher inflation and therefore structurally higher interest rates.
The Rising Risks of Financial Repression by Tomasz Wieladek
The emphasis above is mine, not Mr. Wieladek, the Chief European Economist at T Rowe Price.
And now, let us review what has happened in the past five plus years since the silent derivative crisis of November-December 2018.
The Federal Reserve has chosen a policy of imaginary containment of inflation. The recent FOMC statement and policy directives now indicate that 3% hell, maybe 4% is the new “2%” level the American central bank considers as its base level for the PCE inflation gauge. In reality, this is the cruelest tax of them all as this brand of financial repression by the Fed will in fact keep a status quo of real 5% consumer inflation on the poorest strata in American society.
Hopefully one realizes that this is spreading as the layoffs start to accelerate as highlighted in the weekly news updates via MacroEdge.net. Why is that important?
Individuals who were formerly solidly middle class, for individuals that’s earning $75,000 or more per year($100,000/year in some states), are falling to the lower class as their jobs once thought to be immune from outsourcing or internationalizing are now transferred around the globe. This will result in more families and individuals joining the “poors” and becoming part of the struggling society.
The poors are now a substrata of America which will be bypassed by the media, ignored by the two major political parties, and used to subsidize the mistakes of government, central bank, and corporate policy mistakes America has not endured since the 1890’s.
The recession of the poors we are witnessing now is something that could have been avoided as far back as 2009, yet the political and economic elites failed to address the corruption and economic dislocations they created.
Needless to say, this will not end well for America or the West, as we devolve into a morass of social and economic discontent.
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