Middle Class Bubble

[Frixxxx]

Frixxxx, well done. To summarize, the "Middle Class" was oversold and artificially inflated and subsidized with unwarranted borrowing? Maybe the definition of "bubble" is worth as much reflection as "middle class"... Maybe the Middle Class should be understood to be a result of policy, not the object of it or a state to be created, maintained or expanded. Can we tolerate the concept of failure, or is the Middle Class just such an "institution" that "is too big"?

Thanks, SP!
I don't think of middle class as an "institution". It is somebody's classification at the time they want to "justify" their numbers. The real question is how do you fairly apply the outgoing monies based on supply and demand. If you have 10 people in a community and they want a school there, then how is it paid for fairly? How are all services paid for fairly? When does anybody become "tax-exempt"? I remember when I joined the military and someone said that I cost the government "x" amount of dollars but my response was I provide a service as dictated by the U.S. government and the Constitution that formed it. I was not a "burden" as the monies invested in me were on my skills and talents I provided them.
I paid taxes (much to the chagrin of my mother who was beside herself when she found out her tax dollars were taxed again) against my income. But when does a service become an entitlement? When is it perfectly acceptable to pay into something without expectation of receiving all or partial repayment? Based on my previous example of classes, I was never middle class until 2007, 20 years after I joined the service. My parents were poor and they said they were upper lower class - yeah right!

Anyway - I will research more numbers this week to determine if I can find the numbers to people to taxes out there and stand from a better place with my understanding.

 

[Warrenlm]

I may switch my vote.

 

[Birchtree]

I think it may be time for me to apply for a home equity line of credit so I can get the interest deduction and invest the money in the market with larger dividend returns. I have the available resources to pay it back without difficulty so my paid off home is more valuable as collateral. Interest rates are not going to increase for several more years so as a capitalist why shouldn't I exercise this opportunity. I'm willing to assume the risk of a home depreciation because we are now already on the bottom in pricing. It seems like a good idea to me. You know you are middle class when you own a $500K recreational vehicle.

 

[SkyPilot]

Frixxxx, well done. To summarize, the "Middle Class" was oversold and artificially inflated and subsidized with unwarranted borrowing? Maybe the definition of "bubble" is worth as much reflection as "middle class"... Maybe the Middle Class should be understood to be a result of policy, not the object of it or a state to be created, maintained or expanded. Can we tolerate the concept of failure, or is the Middle Class just such an "institution" that "is too big"?

 

[Frixxxx]

Middle class as defined by Investopedia:

Individuals who fall between the working class and the upper class within a societal hierarchy. In Western cultures, persons in the middle class tend to have a higher proportion of college degrees than those in the working class, have more income available for consumption and may own property. Those in the middle class often are employed as professionals, managers and civil servants.

I think what happened, is those below this were targeted to be "brought" into the fold. If you look at most of the foreclosures on homes and people in trouble, they were the first to be introduced to the money by proxy. Take equity and spend it. Making us look more like the diamond:

That being presented, it should not surprise that this was an indirect effect of the progressive tax and tax code. Believe it or not it's the personal/dependent deduction that take the biggest chunk of taxabale income and turn it "untouchable". Case in point, I have a co-worker salary $125K/yr, of which his deduction of himself, wife, and four kids (+child credit), 401K investments, mortgage interest, and all other deductions drop him down to to almost 60,000 AGI.

$65,000 untouched dollars.

Now, ask yourself the question, is he middle class? The original definition describes him to a "T". But definitely, locale will determine levels of course, but as civil servants, we all know the "adjusted" income we receive because of where we live.

So, if we brought "up" all these people who normally wouldn't owned property, inflated values, validating their salary on "future" worth, then yes....Somebody sold them a bill of something that stinks. Hence the bubble was constructed, filled, and then popped by the unscrupulous investors.

The same way the "DOT COM" bubble was created and popped. Venture Capitalists. I remember the SEC doing the audit on my firm that went "public" and realized it was nothing more than "kicking the tires". Government oversight that failed miserably.

Any way, middle class, yeah, we need a better term. Bubble? yep, popped a few years ago....

 

[Aitrus]

So then, are we defining "Middle Class" by taxes as a proxy for class? And if so, then is Middle Class different depending on where you in terms of geography e.g. rural West Virginia vs Washington State?

I've always thought of "Middle Class" in terms of "Upper Middle", "Middle Middle", and "Lower Middle". I don't think that taxes would be a good measurement because some people can, and do, claim tax breaks that others can't, don't, or don't know about. I think it should be defined as a standard of living, purchasing power given the locale and anticipated retirement comfort.

And yes, I think that Middle Class is different depending on where you live. My Middle Middle class status wouldn't fly for diddly if I had to take the same amount of money and try to live in NYC.

 

[SkyPilot]

So then, are we defining "Middle Class" by taxes as a proxy for class? And if so, then is Middle Class different depending on where you in terms of geography e.g. rural West Virginia vs Washington State?

 

[Aitrus]

Not to cite him for anything other than it's where I heard it said.....Rush said if everyone had to pay their taxes by writing quarterly checks, rather than withholding, our taxes would be considerably different. 20% of my state income tax goes to medicaid alone. And we are told it's not enough.

I'd add to that all the sales tax and other hidden taxes passed on to us by businesses. That would really open up some eyes. It's happening here in Washington State. Voters just approved that liquour can now be sold in private stores, no more state-run stores. The price of liquour just shot up because the taxes placed on them is still in effect.

 

[Warrenlm]

Not to cite him for anything other than it's where I heard it said.....Rush said if everyone had to pay their taxes by writing quarterly checks, rather than withholding, our taxes would be considerably different. 20% of my state income tax goes to medicaid alone. And we are told it's not enough.

 

[WorkFE]

Casino money

 

[SkyPilot]

Dude, you pay more than I bring home! Yikes!!!

I paid $71,458 in taxes this spring - I think that puts me in the middle class.

 

[Boghie]

I paid $71,458 in taxes this spring - I think that puts me in the middle class. And the Deceiver in Chief wants me to pay even more to help promote his equality in distribution.

Squarely in the middle class. In fact, right in the middle of middle class. Ooops... I read it as getting paid $71K not paying $71K. So, I guess we middle class types just gotta say thanks sucka...

Yowser...

But, on the good side, you gotta make money to pay taxes - unless you are getting paid in stock that depreciated like all them dotCom dumbies...

 

[Birchtree]

I paid $71,458 in taxes this spring - I think that puts me in the middle class. And the Deceiver in Chief wants me to pay even more to help promote his equality in distribution.

 

[SkyPilot]

Interesting thought... The Middle Class is that class who may qualify for enough credit to finance their "American Dream", but lack sufficient cash reserves to afford it otherwise... Therefore, when the Credit Bubble pops, the Middle Class begins to decline.

A few years ago I was visiting with some of my friends in Ukraine and we were discussing the difficult state of the global economy. They said they felt very little impact because most people did not trust the banks, so they kept their cash in their pockets. They did not worry about a credit crunch, as few people borrowed money as they could not pay it back. Therefore, though they were a poor country, they continued on as usual and were not feeling any worse for the situation.

 

[Boghie]

I didn't realize how I should have been living all these years. As a stereotypical boomer I have no right to have my humble mortgage paid off, own two old humble vehicles nor spend some of my income on my kids/grandkids. I am assuming that the 1/3 tax thing includes state taxes as well. If not, then I am not quite up to middle class standards yet as my fed burden is about 28%. I have never thought I was rich, just that I was earning more than a retired E-7 could ever earn. Damned lifers!

I was including state taxes (but not ODSI - yuk yuk, Medicare and Social Security) in the mix. My state grabs 8% at my state marginal tax bracket. Your 28% bracket lands you squarely in the upper middle class. Welcome to the Bourgeoisie. Yuk, yuk. There are only two brackets above yours!!!

And, having your debt paid is very middle class. The rich never pay their debts because they are 'managing' their money till the estate is sold off, the poor never pay off their debts because they get stuck in a credit hole (the same type many of the rich get stuck in).

I love being in the middle with little debt. Yummy.

That might actually be a pretty good definition of middle class. Someone who has access to credit and is expected to pay it off. The rich are not means tested for credit and many never pay it off - thus leaving nothing for their children. The poor might attain credit but are gamed by the issuers to the point that paying it off is hopeless. What a mess.

 

[SkyPilot]

I think it is healthy to challenge our personal assumptions and cast doubt on our own points of view. There seems to be nothing so sacrosanct as "Middle Class". Maybe we should say there there are many "Middle Classes" and not all are created equal? Maybe "Middle Class" is too convenient and simplistic a term that we are taught to buy in to so that we are more easily manipulated as "sheeples"... Maybe the "Middle Class" is the most "entitled" of all "classes"? Are "we" Middle Class, or are there more than just three or four monolithic divisions? "Two Chickens in Every Pot"!

 

[PessOptimist]

Oh geez. Sky pilot, yeah we are off subject. Ambiguity? Be very careful, the prols may actually start thinking. That could be very dangerous to the status quo.

I like Boghie's hypothesis about the middle class. Maybe I shouldn't use that word, prols think it refers to a big mammal that hangs out in the mud. Maybe prols shouldn't know what a mammal is?

SkyPilot,

I think the relatively recent problem with the 'middle class' is that we began to think we were rich. How many middle class families and individuals refinanced their houses or jiggered their credit cards to buy a new Lexus rather than a used Lexus or a smart looking Ford? We all watched (and some of us enjoyed being) folks who did this. Are you middle class if you own a McMansion, lease a new luxury car every three years, go out to eat three times a week, go on European vacations with borrowed money, etc.? The middle class has temporarily shrunk because we are deleveraging and learning to live like middle class again. It's not so bad. We will be back.

Now the nice thing is this: The fat is coming off. When the middle class does not waste their assets and learns to live like their middle class parents and their middle class grandparents and their middle class great grand parents (within reason of course - I ain't giving up my cell phone, microwave, clothes washer, television, high mpg car, efficient air conditioner, nice flooring, stone shower enclosure, or magnificent tungsten darts) we will actually bump up against the rich. It will be the free spending middle class that will become the working poor. The working poor will bump up against the responsible middle. That is how things work.

Now, if we could just get the middle class tax rate below 1/3rd of income. That would help, eh FWM. My tax burden is higher than my mortgage. But, to do so we have to accept that the Boomer Generation has demanded quite a bit more out of their government than prior generations and actually more than the current GenXers. Good thing we GenXers refuse to play and there are ways to shield income from the tax man. I still have a bit of room waiting in my 401(k) (TSP) contributions for the tax increase Governor Moonbeam wants to implement in Kalefornea. Message to Moonbeam and President Obama - I will absolutely Zero Out your tax increases. Did it before, know how to do it, and will act again.

Ah, that felt good. On topic - but able to launch a scud or two.

I didn't realize how I should have been living all these years. As a stereotypical boomer I have no right to have my humble mortgage paid off, own two old humble vehicles nor spend some of my income on my kids/grandkids. I am assuming that the 1/3 tax thing includes state taxes as well. If not, then I am not quite up to middle class standards yet as my fed burden is about 28%. I have never thought I was rich, just that I was earning more than a retired E-7 could ever earn. Damned lifers!

Aleven and Warren

Yes, i was whining about acronyms and the elitism involved. I could have googled them and found out more than I needed to know.

I recently attended two all employee meetings identified only by the meeting holders acronyms which are fairly common in the agency but in each case meant something else known only to the meeting holders. The one I was fortunate enough to attend was started out with no introduction of the GS-99 giving the lecture and consisted of this person reading the power point slides to us. (un)fortunately my phone rang and I had to attend to an operational problem. As of today. I have no idea who these people are and what they were talking about.

Note to GS-99s: do not take the prols away from their job, do not assume they know who you are, at least have some local managers give you an introduction

Tom. I am on board for the new idea for political expressions. My thoughts are expressed better by another.

I like that idea. I promise to be good this time. No wait, i promise to be better. No wait, i promise i'll try harder. Yeah, that's it. I can keep that promise.

Just please don't hit me with the wiffle bat too hard. What is the application process/which 'i swear i won't cry when someone kicks my flawed logic ass' waiver do i have to sign?

If for whatever reason you do not choose to include me in this possible new thread, IMHO you should include relative new person Aitrus.

Skypilot, what are we talking about again? Oh yeah, what is the middle class? Excellent subject. Thank You.

PO

 

[Aitrus]

Hmm...and here I thought that the Middle Class in America was still better off than 90% or so of the rest of the world in terms of standard of living. I think that one of the things destroying our Middle Class and creating a bubble is student loans.

For the last 3 decades or so we've preached that the only way to be "successful" is to first get a degree, then get a high-paying job. Then we instituted all kinds of programs, many of them government-run, to get kids through college. They emerge with a piece of paper, a mountain of debt, and no job experience. Then they end up having to getting a job that pays the same as what their non college attending high school compatriots now get for their work. Add on top of it the debt, and now we've got somebody who doesn't know how to save and invest, has no notion of what really improves them as a person to make them more attractive to an employer, and an instant-gratification handicap.

Whatever happened to trade schools, being satisfied with a good-paying manufacturing job? I think that education is over-rated in this country. Don't get me wrong, I still believe that education is vital in some career fields simply because of the amount of knowledge required that no amount of life experience can teach well - doctors, lawyers, etc. But how on earth does an accounting degree make somebody automatically better at crunching numbers? Other useless degrees: Retail Floristry, Ranch Management, Professional Nanny, Sports Ministry, Adventure Recreation, Golf and Sports Turf Management? Don't get me started on a degree in Black Studies.

Ask yourself: how many dumb people do you know that have a piece of paper stating that they're smart? And then ask yourself: how many of those people are in the Middle Class? I think you'd be surprised at how many are in that category, because a degree by itself won't get somebody out of the Middle, yet so many go for it.

 

[alevin]

Wow! This thread has really been hijacked! Back to the main point, that being is there really a "middle class" and if so, is it temporary or sustainable?

Earlier someone posited that the middle class was an extension of the trade guilds of the middle ages, but to me that is not really equivalent to the middle class of today as they were owners, and the workers and apprentices really did not participate. But this may be an inadequate understanding on my part.

That brings us then to the question "what is the Middle Class"?

Is it financial status, social status, professional status or what?

This is not really political, but rather sociological isn't it?

Let us inform ourselves, and let out wisdom and understanding inform our politics, and not enter into the polarization that the politicos are depending on.

totally agree that we need a clearer definition of middle class, Skypilot I started thinking about that after I responded earlier with my attempts at historical equivalents. and I'm all about discussing economic and financial realities and trends. if I throw political rocks its generally at both sides of the aisle anymore and without naming names.

so you questioned whether the workers and apprentices could be included as middle class? I'd have to concur-we still have a working class and a "working poor" set of people in this country-economically-perhaps those would be the equivalents of apprentices and non-slave laborers in the middle ages. Anyone owning land or stocks or other productive economic resources today likely qualifies as middle class or above-just like in the old days. my attempt at a definition of middle class. The aristocracy even in the 1700s could be totally depauperate due to gambling debts-their solution was to marry a rich middle-class or aristocratic heiress to recoup their fortunes. they were often still landowners, and socially among the highest ranks-so had access to the higher financial opportunities-a title in exchange for money. where that fits in todays equation-somebody else will have to figure out.

 

[alevin]

Well great, a discussion.

My comments on posts in chronological order, picking on no one.

Alevin - I'm not going to quote you, just make a statement and ask some questions.

Elitism takes many forms. I run in to it often at work in the form a person giving a briefing (usually mandatory attendance) who throws acronyms around freely and takes offense that everyone doesn't have a clue what they mean. I suppose it does provide the briefer an opportunity to later tell peers how stupid the prols are. I feel it is elitist in that not everyone thinks your job/project is the most important thing in the world, though you do.

With that in mind, what is PTB and what is M2 wealth. Warrenlm mentioned M2 first out of fairness. Should the rest of us just tune out at this point because we are stupid?

!

PO, apologies for the acronyms. I read other boards regularly where these are used, and I'm almost to my MRA- I tend to forget where I am some days-senior moments increasing in frequency. PTB=Powers That Be-our legislative branch. Warren LM explained the M2 better than I did-here's a link for those interested in pursuing subject further-probably not many.

M2 Money Stock (M2NS) - FRED - St. Louis Fed

My real focus is on the illusion of wealth. When I look at the market and GDP over the last 30 years-and then look at the graph below-it tells me that if all the credit were ever paid back-we'd HAVE no national growth in stock market or GDP over the past 30 years-total illusion-the growth was in credit, not collateral (wealth-M2, M1, however you want to look at it).


http://market-ticker.org/akcs-www?get_gallerynr=3118

Funny thing-I used to tell my mom and friends, I didn't understand this credit business-those who don't need it (have savings)-can get credit. those like me that NEED the credit-can't get it. I get it now. It's called collateral. How much collateral (wealth/GDP/savings) does this country have relative to the amount of debt? Hint- GDP increase is essentially equivalent to debt increase-illusion of wealth. we (taxpayers) owe so much principal exactly because the interest rates are so low at this point. couldn't have borrowed so much if interest rates had stayed up.

same with the housing bubble-20% down would have protected the banks-their mandatory capital reserve ratios were established to help them survive mortgage default losses at 20% down rates. they weren't designed to survive 3% down and 0% down mortgages. Yes we had a mortgage-easy credit bubble. bubbles pop. many people were faux middle class during the bubble era that weren't really middle class-they were living on margin, not enough collateral to meet the margin calls on lifestyle.

we'll crash and burn on national debt interest payments vs. tax base (collateral), if/when interest rates go up. they will- one of these days. debt ceiling anyone? sovereign credit rating?