The middle class (those with household incomes between 100k-300k) have done ok, not well but ok, in terms of income (collectively — a lot of people have fallen out of the middle class). They have done pretty badly in terms of asset prices, because they were among the suckers who chose a “buy and hold” strategy in a “greater fool” market.

The working classes (those with household incomes between 40k-100k) have done pretty badly because many of them were into unionized industries, and they also tried to engage in capital gain speculation and market timing.

Note: actually “middle class” and “working class” are not defined by income. They are defined by the role in the workplace. Middle class people have professional or supervisory roles, advising upper class people or implementing their strategies, so they are always a minority and well above average earnings. “middle” refers to their being in the middle between business owners and generic workers, that is their role, not them being average. “working class” have roles requiring them just to carry out other people’s decisions, no matter how well paid they are (and yes, there are working class families with household incomes close to $100k). Example: fast food “managers” are working class, because they are entirely driven by company procedures (3 ring binders); they are just squad leaders. The people who design the company procedures are middle class. The people who decide what the company procedures should be like are upper class. It just happens that as a rule the middle class is rewarded for their loyalty with incomes in the top 10-20%, and that the working class gets incomes in the middle 40-60%. Education does not matter much anymore as to class: there are plenty of people with a college degree and a working class role (e.g. bookeepers), because of the credentials inflation/arms race.

Note: “house prices always go up” and “buy now or be priced out forever” are market timing speculative strategies.

imo its not as much an all out war* as an attempt to bring more consumers into the way things are here in the West .. to do that jobs and the way of life needed to be supplied/exported to the East .. of course that direction created some immediate reductions in labor costs and lots of factory setup profits for the right companies here in the West .. then the increased productivity put more and more corporations under the gun to do likewise or suffer the consequences .. I think we hit the wall of over capacity E & W

not sure how an easy & less painful rebalancing can happen .. the game called a draw – divy up for replay & start over

coda* I’ll grant that union busting was an objective imo .. that brain/brawn fight and who makes it all happen

funny stuff dude- also-

leverage can parlay into a bigger payday for sure- but can also result into crash and burn victims

Surely so, but the destruction of the unions has had a much bigger effect: it has dumbed down workers collectively. Once upon a time unions were the coordinating “brains” of the lower classes, hiring experts, training negotiators, creating think tanks that allowed the lower classes to play a better game. As individual the lower classes are too poor and exhausted to fight back; but unions contributions fund those that plan and fight for them. Once upon a time unions has serious money to lobby Congress.

Exactly as shareholders appoint directors and management to run a company, and businesses create associations (Chambers of Commerce, industry bodies, Business Roundtable) to plan and advance their interests. Now almost all the money to lobby Congress, both for Democrats and Republicans, comes from business interests.

The result has been that policy has been in the hands of the upper classes for a long time, driving changes like abolition of usury laws, of New Deal legislation etc. that restrain their ability to make money fast at everybody else’s expense.

Quite the opposite — the consumers were demanding it because it was so cheap, because supply went through the roof.

Disreputable hacks like Greenspan and Bernanke started peddling the talking point of “the asian savings glut”, as if extremely poor asian coolies were saving like crazy and investing in USA stocks and bonds instead of eating or going to the doctor.

The punchbowl was the result of deliberate government policy on both sides:

* Asian governments, mostly the Japanese and Chinese, kept their exchange rates low with a very loose money policy, because their policy was to boost the industrial sector to shift as many jobs as possible to their countries.

* The USA government allowed that to happen, because their policy was to boost the financial sector (low interest rates and high currency favour banks and in general property owners) and to shift as many union industrial jobs as possible outside the USA, to destroy the unions who were strong in industry but weak in finance and other services.

The twin results were colossal jobs and investment bubbles in Asia (or a lower rate of shrinkage in Japan) and colossal asset price bubbles in many countries with governments who has decided to boost property owners and impoverish (union) workers.

«Unions….So if household income increases….credit use decreases??»

Sure, and the link is direct and indirect, but pretty clear:

* Constant or lower wages have induced consumers to cash in paper capital gains; if unions had not been weakened, probably wages would have grown with productivity, and HELOCs would have presumably been a lot less popular. At some points a pretty large chunk of the disposable income of many usians was coming from HELOCs.

* Not only wages have been stagnant or decreasing, pension benefits have been collapsing, creating a huge political demand for asset price bubbles by workers desperate to get capital gains to compensate for collapsing pension contributions. Unions would have been more effective in avoiding collapsing pension benefits.

* The massive growth in the share of GDP going to corporate profits and to the top 1% would have been much smaller, making asset bubbles much harder to start, and thus the demand for extreme deregulation of finance and credit creation.

I think you’re in need of this:

http://www.youtube.com/watch?v=kQFKtI6gn9Y

I don’t see why we should agree to disagree. We see real estate the same way!

I’m just saying that most people don’t see real estate the way we do and many have made much more money than us using leverage. And the jury is still out.

Ha!! Now I think we may be getting closer to the heart of the matter.

The simple question is, Why do people spend more than they can afford??

When did it start??
Why has it gotten so bad??
What drives it??

I don’t think many would argue that the increase availability of credit is a big factor. But if the consumer wasn’t demanding that credit I suspect the punchbowl might have been smaller.

I blame MTV.
Seriously.

I think cable/mass media has played a HUGE factor in the “Dumbing Down of America”. It has made many slaves to the getting the latest greatest doodad/gadget/car/home/etc.
TV makes people Stupid.
In fact, with the exception of a few bright spots of enlightenment….I would say the same for the internet.
Neither are about education/entertainment….only about marketing.

I don’t have much sympathy for most folks who get too deep. If you refuse to read the contracts and educate yourself a bit…it’s strictly “live and learn”.

PS. I read the article. Tea and China and all that.

Unions….So if household income increases….credit use decreases??
At the income levels we’re talking about I don’t think I buy that as a reasonable assumption.

The “average Joe” in Real America is just cattle to be squeezed as hard as possible; those households making $60k/y are losers nobody cares about, least of all themselves. The credit card techniques described above are just way to ensure that as much of their income goes to the deserving, producing, creative top 10%, to avoid wasting it on losers.

Real America is a nation of many self-hating losers and a few winners.

The deduction makes thing worse.

However the real estate bubble was NOT global. Several countries, notably Germany, had no real estate bubble.

Even worse there have been several bubbles, one after another, of which the real estate one is just a phase. Currently we have a treasury debt bubble. Before real estate there was a finance stock bubble, before that a corporate bond bubble, and before that a tech stock bubble. And all along there has been a tremendous bubble in jobs and investment into China and India. Just as asset prices and financial profits rose wildly in the USA, wages and industrial profits rose wildly in China and India.

The main technical causes of all these bubbles is a gigantic increase in the amount of credit and decrease in real interest rates, mostly because of the Japan ZIRP, and the main political cause is the control of Congress and Presidency by the Republicans and democratic Blue Dogs (including Clinton), both of which happened in 1994-1995.

If you look even deeper the likely ultimate cause is that a large part of the USA (and Japanese) working class, the middle 60% of the population, making it to pseudo-rentier status, and dreaming of becoming rich on assets, and turning dramatically to the right.
This happened in other countries, like the UK, Australia, Spain, Ireland, Iceland, all countries in which the working class clamored to become “rich” with asset price speculation, demanding low interest rates to buy and assets and drive up their value.

Most political elites went along, not just because voters wanted it, but because the financial and business elites felt that they could make enormous amounts of money fast by catering to the speculative demands of the working class, and because there was a small chance that this would solve the retirement problem (drive up asset prices with low interest rates, bring in a lot of immigrants to bid up asset prices, older working class cash in and retirement problem solved).

It never had a chance to work… I suspect that most policymakers knew, but they also knew that after the collapse of the Soviet Union and the end of the 40 years war with it the working classes were disposable, as there was no longer any need to keep them sweet to avoid them turning socialist, and there was a gigantic oversupply of labor from places like China and India.

So likely the speculation-oriented working classes were consciously led to to the slaughterhouse, while the financial elites moved their productive asset to China and India, thinking that the USA, the UK etc. were entering secular decline.

no anger here- my point is only that it is a false choice- I see the 300K as more affordable because it can be paid off faster- plain and simple- and the 5 years loan is paid off in 5 years- right? It’s like saying you got a nicer deal on a car because you have a 10 year loan payment at only a a few bucks more than a car with a 4 year loan that’s not quite as nice-

I have always found that when you have extremely low overhead- such as no rent or mortgage- you have more freedom- sick of your job? your new boss is an asshole- tell him to go fuck himself because you have all the time in the world to find a new job- because your expenses are minimal-

people get caught up in what they can afford on a monthly basis- all that guarantees is that they will maximize what that will buy and be a slave to the payments-

but possibly we will have to agree to disagree- maybe we are just seeing the world differently- I do want to drop a should out to Canada though for not having the mortgage interest deduction- truly a giveaway that gets the government involved in subsidizing a person’s living choices- sometimes renting is better solution for many people- why are they penalized?-

NAR wouldn’t have that though- but I wish wiser minds would prevail and eliminate it altogether