The Middle Class Financial Index 2nd Edition

The Dow fell 187.13 points yesterday and was falling as I came home today but I don’t know where it ended up. What I think is that we have psychology over reality.  The problem is that those of us who come from the Middle Class know that things aren’t rosy so it feels like we are being lied to when what we need is the truth.

I am not the only one who thinks like this.  One day after I put my first Middle Class financial Index out, a number of other economists began to write articles making the same assessment.  While their assessment is based on statistics my assessment is based on trials of daily living.

Paul Krugman in the New York Times on 6-15-09 wrote about being fearful that Obama would repeat the same mistakes Roosevelt made in the 1930s and Japan made in the 1990s.

In both previous cases what happened is that as the economy began to appear to be recovering elements in government began to lobby for more fiscal restraint and to change the focus from recovery to inflation.  The result is that this caused the economy to reverse and go back into the depression. We didn’t recover until World War II.

Krugman and others also high light that even in a recovery many places may not see job recovery for several years.  It is also no secret that many of the good paying jobs lost will not be coming back.

Using the governments figures, many see unemployment reaching 10 percent.  Some such as shadowstats.com believe that the real unemployment rate in this nation is something close to 20 percent. They factor in those who have become discouraged and stopped looking and those who are working part time because that is all they can get and come up with this number.

The goods and services we produce are worth 5.7% less than they were one year ago, according to the Wall Street Journal. What we buy is 0.7% cheaper.  The Gross Domestic product is down by 8% and  consumer prices jumped by 7% in the last year.

The most valuable thing we Middle Class Americans own is our own home.  The New York Times believes home prices may continue to fall.  This articles believes values may decline by as much as 41% from there high in 2000 to 2010.  In addition, the cost to rent and cost to construct homes may fall to there lowest level in 20 years.

Much of the predicate for bailing out banks was to get credit flowing again.  I have said in other articles that even if banks were willing to almost give money away no one could afford to borrow.  That is born out by the decline in equity on homes.  The average of all Middle Class homes is 41% of the value in equity.  That is down from 54.4% one year ago.  If you look only at houses that have mortgages on them, most of America’s homes I might add, the equity is could be as low as 20.4%.  what is it Middle Class America is supposed to borrow on?

What recovery will you have with just recapitalizing banks when American consumer spending accounts for 70% of GDP and 18% of the worlds GDP.  On top of this it was announced that credit card defaults are at an all time high.

These are not statistics that paint a rosy picture.  On top of that although there has been talk of reform it so far has been that, just talk.  It was Wall Street business as usual that got us into this mess and while they are getting rich on cleaning up their own mess they are also paving the way for round 2.  I thought one definition of insanity was doing the same thing a second time while expecting different results?