Dear PGM Capital Blog readers,
In this weekend blog edition we want to discuss with you the decrease of wealth and the increasing number of Americans living in poverty.
A new study published by the Russell Sage foundation helps explain why many American families feel like they’re falling behind: they actually are! The study, which measures the average wealth of U.S. households by income level, reveals a startling decline in wealth in the USA.
The median household in the USA in 2013 had a net worth of just US$ 56,335.00, which is 43 percent lower than the median wealth level right before the beginning of the Great Recession in 2007, and 36% lower than a decade ago.
Wealth generally comes from two types of assets: financial holdings and real estate. Financial assets have more than recovered ground lost during the recession, thanks largely to a stock-market rally now in its sixth year.
Since the Great Recession, the FED policy of pushing long-term interest rates to unusually low levels, has provided tail wind which increased the demand for housing too. But a housing recovery is taking much longer to play out than the reflation of financial assets.
Since wealthier households tend to hold more financial assets, they’ve benefited the most form the stock-market recovery, as a consequence of which households with a lower income, have lost a larger portion of their wealth than those with higher incomes as can be seen from below chart.
Source: Russell Sage Foundation
SAVINGS RATE:
As can be seen from below chart, the bottom 90% of earners — most Americans — currently save only about 3% of their income.
This chart also shows that for a decade prior to the Great Recession of 2007, the savings rate for this group was negative, meaning most Americans borrowed on an ongoing basis to supplement their income.
That debt binge created a financial hole that many families are still digging themselves out of — one reason many people feel like they’re falling behind.
Above chart shows also that currently by, contrast, wealthy Americans save about 12% of their income, while the richest 1% save 38% of their income. The huge and growing gap in the ability to save among different income groups explains why the rich get richer and the rest don’t.
INFLATION:
Analyses and research done by Walter J. “John” Williams and published on his site “Shadow Government Statistics“, exposes flaws in current U.S. government economic data and reporting.
Below chart from this web site shows respectively the current rate of inflation (CPI) in the USA, using the methodologies as if it were calculated in respectively 1990 and 1980.
In general terms, methodological shifts in USA government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.
PGM CAPITAL COMMENTS:
The first ever U.S. Census Bureau report on the near-poor, released on May 1st of this year, shows that 14.7 million people, or 4.3 percent, of USA family incomes live between 100 percent and 125 percent of the poverty level, down from 6.3 percent in 1966, as can be seen from below chart.
This decrease of people living near poverty in the USA is actually a consequence of the surge in the number of people who have slipped below poverty levels since the Great Recession of 2007-2009.
As a consequence of this, the poverty rate in the USA shot up from about 12 percent before the recession to 15 percent, extending lines at food banks.
For those living in or near poverty, educational attainment matters. Those with a high school diploma or less had higher poverty rates than those with some college education.
About 10 percent of those with less than a high school diploma live just above poverty level, compared with 1.6 percent of college graduates.
But in a tough economic climate, and as more people go to college, even degrees may not help.
As can be seen from below chart, those 12 percent of people living near poverty have at least a college degree.
Racial divides are clear with the near-poor.
- About 76 percent of people living barely above the poverty level are white, slightly below their national representation (79 percent of U.S. residents are white).
- But even though blacks represent 13.2 percent of the overall population, they make up almost 18 percent of the near-poor.
Ethnicity
If wages are corrected according to official core CPI from the USA government on the one hand and on the other hand real cost of living is rising according to the data provided by this website, this can be seen as a major cause of the increase of the decreasing rate of the savings decrease and poverty in the USA.
The homeownership rate in the USA has been declining since 2004 and now stands at 65%; some economists expect it to keep falling. The percentage of Americans who own stocks has been falling too, and is close to a record low.
So fewer people have been taking advantage of a housing recovery and a long bull market in stocks, which is how a growing amount of wealth is being concentrated among fewer people.
By technical measures, the USA economy has been expanding since the middle of 2009, which is why economists label the past six years as a recovery.
Yet it’s the weakest recovery since the 1930s, with incomes stagnant, consumers reluctant to spend and employers skittish about hiring. Lost wealth has a lot of do with that, since people can’t spend money they don’t have, and they don’t feel like spending when they’re in the hole, anyway.
Last but not least, most people would be asking themselves why governments and central banks are fighting deflation but not poverty and why they are changing the CPI criteria, in order for the inflation figures to look lower than they really are.
Answer:
- Inflation is a hidden tax on the population.
- Poverty and inflation keep the wage slave in line.
- Inflation reduces the real value of government debt.
James Rickards, an American Lawyer, Economist and Investment banker and writer of the books “Currency Wars” and “Dead of Money” once said;
“Since Inflation favors the government and Deflation favors the worker, governments always favor inflation”
Until next week.
Yours sincerely,
Eric Panneflek