The Middle Class Sure Isn’t What It Used to Be

This report was originally published by Daisy Luther at The Organic Prepper

If you’ve noticed that it takes a lot more money to live the middle-class American Dream than it used to, you aren’t alone. Buying a house, saving for retirement, and putting your kids through college while living comfortably is a whole lot harder than it once was. Being part of the middle class sure isn’t what it used to be.

Despite the rosy outlook on employment numbers, things have become incredibly difficult for many families. They’re deeply in debt, living paycheck to paycheck, and without an emergency fund. Let’s take a look at what the media is saying about the middle class.

First of all, what IS “middle class”?

There are many different definitions of middle class, and a lot of it depends on where you live. “Easy,” you may be thinking. “Just live somewhere with a lower cost of living.” Unfortunately, it isn’t that easy, because when you move to an area with a lower cost of living, you’re likely to get paid less for your occupation.

Once upon a time, the middle class was the largest group of Americans. Now, according to the Pew Research Group, it is closely matched by people in the low-income class and the high-income class. The image below shows the stats for 2014.

Photo Credit: Pew Research Group

According to Quentin Fottrell, the personal finance editor for MarketWatch, “middle class” is tough to define:

There is no universal definition of the middle class. The Pew Research Center often uses the middle wealth quintile, the middle 20% of Americans’ income and wealth. Other economists have said it’s defined as making 50% above or below the median annual income. Most Americans regard a college education as a critical component to becoming middle class. Some 71% of people with a college degree consider themselves middle class versus just 58% of people with a high school diploma or less, according to a 2012 survey by Gallup. And yet college graduates in 2017 are shouldering $1.3 trillion in student debt.

Previous studies suggest those who identify as middle class as higher than 50%, but also indicates that the middle class is shrinking. Those who identify as middle class has fallen to 59% in 2010 from 62% in 1991, according to a separate report by the Pew Research Center, a nonprofit think tank in Washington, D.C.  (source)

Other sources cite variables like savings, net worth, debt, and spending to determine whether a family is “middle class.”

These two calculators will help you compare your income to others in your area:

• The Pew Research Group Income Calculator


• The CNN Money Middle-Class Calculator

For the purposes of this article, we’re going to go with Pew’s definition of the middle wealth quintile.

The middle class is shrinking

The middle class is getting smaller. According to an article on Quartz:

Pew defines middle earners as anyone who earns between two-thirds and twice the median household income in a given year. In 2014, this included a three-person household earning between $42,000 to $126,000 per year. In 1971, 61% of households were middle earners by this standard. By 2015, only 50% were. (source)

The Pew Group said:

After more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data. (source)

Both of the above articles state that more people are getting pushed into the higher income class than are sliding into the lower income class, which sounds great, initially. But when you look at it more closely, those in the middle class are far less wealthy than they used to be:

…middle-income Americans have fallen further behind financially in the new century. In 2014, the median income of these households was 4% less than in 2000. Moreover, because of the housing market crisis and the Great Recession of 2007-09, their median wealth (assets minus debts) fell by 28% from 2001 to 2013…

…The gaps in income and wealth between middle- and upper-income households widened substantially in the past three to four decades. As noted, one result is that the share of U.S. aggregate household income held by upper-income households climbed sharply, from 29% in 1970 to 49% in 2014. More recently, upper-income families, which had three times as much wealth as middle-income families in 1983, more than doubled the wealth gap; by 2013, they had seven times as much wealth as middle-income families. (source)

It’s getting harder and harder to thrive on a middle-class income

The middle class isn’t what it used to be. Once the “American Dream,”middle-class families are struggling for several reasons. Despite their incomes, they owe more and have saved less than ever before. If you can dig through the politically charged introduction and get to the statistics in this NY Mag article, you’ll find the following:

The percentage of families with more debt than savings is higher now than at any point since 1962, while the median American family’s net worth is lower than it’s been in nearly a quarter-century…

…So, this is what a “good” economy now looks like in the United States: shrinking household wealth; soaring middle-class debt; wage growth that can’t keep pace with the rising costs of housing, healthcare, and higher education; job growth concentrated in part-time positions; widespread retirement insecurity; and more wealth-less households than America has seen for 56 years. (source)

Having more debt than savings is called “negative wealth.” One-fifth of American households fall into this category. Of course, $1 trillion in credit-card debt and $1.4 trillion in student loan debt has to take a toll eventually, right?

Then there’s the ridiculous cost of healthcare in our country. (I recently had my own bad experience with healthcare costs.) Those who are on the upper end of the middle class are hit with premiums well into the thousands of dollars per month for far less coverage than they had previously.

“Health-care spending is growing at an unsustainable rate. Insurance and medical costs are draining the incomes of the middle class—tens of millions of people who earn too much to qualify for government-subsidized coverage, but not so much that they don’t feel the bite of medical bills…Health premiums and out-of-pocket costs wiped out most of the real income gains for a median family from 1999 to 2011, according to an analysis published on the blog of the journal Health Affairs in 2013.” (source)

Finally, Americans don’t have much in the way of an emergency fund. A recent study found that a whopping 47% of us would be unable to cover an unexpected bill of only $400. The middle class – and often even the upper middle class – are living paycheck to paycheck, and not always through poor handling of money.

Where the great jobs are, folks want to make $300,000-400,000 to live a middle-class lifestyle.

Lots of young people go deeply into debt for an education that will (hopefully) land them a job in Silicon Valley, New York City, or some other metropolitan area. After all, that’s where the jobs that start you off at $80,000 a year are, right?

Unfortunately, these are also the places in which the cost of living is completely out of reach for those with middle-class incomes, making it so that to be “middle class,” people feel as though they need to earn anywhere from $300,000-400,000 per year. This article pinpoints the actual amount of money you’d need to make in 25 different metropolitan areas to live a middle-class lifestyle.

While there’s a big difference between these amounts and the amounts that statistics show are needed, the stats aren’t showing everything. Sam Dogen wrote an article about why you need to earn more:

Let me tell you a sad story: In order to comfortably raise a family in an expensive coastal city like San Francisco or New York, you’ve got to make at least $300,000 a year. You can certainly raise a family earning less as many do, but it won’t be easy if your goal is to save for retirement, save for your child’s education, own your own home instead of rent and actually retire by a reasonable age. (source)

Here’s the budget he put together. If you read the article and look at his review of the expenses, they aren’t as out of whack as they might sound to those of us who live outside of the major metro areas.

While I can’t actually imagine making that kind of money every year, neither can I imagine facing those kinds of expenses. When your base costs are that high, even hardcore frugality can’t save you.

What’s a middle-class family to do?

It’s essential to watch the trends and be ready if things come tumbling down. Here are the things on which you should focus:

• Building an emergency fund – you don’t want to be one of those people who can’t handle a $400 emergency, right?


• Reducing your fixed expenses – this will help you through the rough times


• Building a stockpile – this will cut your costs to the bare minimum during bad times


• Paying off debt – this will help you live within your means

It’s essential to pay attention to what is going on in the economy. Jose, our writer from Venezuela, wrote of numerous warning signs that should have told him that a financial crisis was drawing near. If you want to keep up to date with what is happening, subscribe to my newsletter here.

Finally, maybe it’s time to take a look at the lifestyle for which you yearn. Maybe you need to focus on simplicity. Maybe you don’t need to keep up with the Joneses. Maybe, after some adjustment, you’ll find that you are happier without the stress of competing for that middle-class lifestyle.

Figure out your priorities. Would you rather have a big house or travel the world? Would you prefer to put your kids through school debt-free or have a new car every other year? Most of us can’t do both.

The only way to be different from those families who are struggling to pay their $24,650 in monthly expenses is to live differently than they do. Being part of the middle class isn’t what it used to be. It doesn’t take a financial expert to see that the US economy, despite the optimism from the White House, is going to continue to hit most of us hard. Now is the time to make the changes before they’re forced on you.

This Is Where The Next US Debt Crisis Is Hiding

This report was originally published by Tyler Durden at Zero Hedge

As the Federal Reserve reported most recently two weeks ago, US consumer non-mortgage debt has never been higher: as of December 31, 2017, US households have a record $1.0 trillion of credit card/revolving loans, a record $1.3 trillion of auto loans and a record $1.5 trillion of student loans.

Among these, credit card and auto loans in particular have been experiencing accelerating delinquencies. As a result, finance companies/banks have been increasing bad debt provisioning to build balance sheet reserves due to expectations of rising defaults. The chart below illustrates the highest reported net charge off rates (NCOs) in years.

Net Charge Off Rate for Credit Card Companies

And while all major credit card companies and banks are experiencing increasing credit costs from the trough of late 2015, one would be remiss to spot this at the aggregate level.

As the chart below courtesy of TCW, which illustrates modestly rising net charge offs (i.e. defaults) for the entire U.S. banking universe, NCOs increased from a trough in 4Q15 at 2.9%, which coincidentally was the same quarter the Fed executed its maiden interest rate hike of this cycle, albeit very modestly.

Net Charge-Off Rate on Credit Card Loans, All Commercial Banks

Why the very gradual increase in aggregated NCO, and thus why the lack of economist concerns about the state of the US consumer? Simple: the larger U.S. banks that dominate credit card issuance have focused on prime and super prime consumers post the Great Financial Crisis (GFC), and have enjoyed a prolonged period of low charge off rates concurrent with the Fed’s almost decade long ZIRP.

However, since 2015 the Fed has progressively raised interest rates from ZIRP while NCOs at the larger banks have started to rise, albeit off a low base. NCOs were 3.6% at 3Q17, closing in on a 4% rate, a level that matched the end of previous business expansions in 2000 and 2008.

And here a startling discovery emerges.

As TCW’s Chet Melhotra notes, it is America’s smaller banks – those not in the Top 100 by asset size – that have experienced in just the recent months a surge in charge off deterioration, which at 7.9% is on par with the last financial crisis!  In other words, to find where the next consumer credit crisis hides – and will erupt next – ignore the big banks and focus on the smaller ones.

Net Charge Off Rate on Credit Card Loans, (Banks Not in Top 100 by Assets)

Oddly, this spike in net charge offs among smaller banks has gone largely unnoticed by the general media which has traditionally focused on aggregate numbers and also the largest banks. So, as TCW asks, “is this a precursor to larger banks experiencing much higher loss trends as well or just anomalous?”

Time will tell: there is a possibility that the larger bank NCO rise be just another midcycle phenomenon pulled forward by Fed hikes such as in the mid ‘90s, while the small bank NCOs will stabilize and even revert.

Yet, as TCW further notes, while it is possible that the current NCO increase is benign it is “far from certain in our view, given the current accumulation of overall leverage in the financial system expressed by Bank Credit/GDP at 63%, levels last seen in 2008” as shown below:

U.S. Bank Credit (Loans + Securities)/GDP

The problem is that while the above observation would be easy to dismiss in world of declining, or flat, interest rates, the Fed’s current tightening posture leads to substantial risks of even greater NCOs and defaults as a result of ever higher debt servicing costs, especially if Jay Powell hikes rates 4 more times in 2018 and more in future years.

As TCW points out, rising interest costs and lower credit standards due to stiff competition have resulted in higher credit costs. Even unsecured personal loans have seen rising credit costs, as FinTechs and non-traditional sources of credit have consolidated loans for consumers. Consumers consolidated borrowing but turned around and re-levered with new refinancing capital instead of prudently de-levering.

In response, banks have materially tightened their “credit box” or underwriting standards per the Fed’s SLOO Survey. Recently, nearly 10% of banks reported tightening credit card lending standards, ironically the same level that ended the last two business expansions.

Net % of U.S. Banks Tightening Credit Card Lending Standards

Will this just be another spurious correlation? It remains to be seen, but at the very least it sends a shot across the bow to the consensus thesis of unshackled consumer strength, further amplified by the recent passage of the Tax Cuts and Jobs Act (“TCJA”) aka the Trump Tax cuts.

And while large banks may so far masked the rapid deterioration amid US consumer credit trends, two things are indisputable:

• credit card loans have seen substantial growth over the last few years, and


• credit costs started to rise in 2016.

Most of the increase was initially attributed to “growth math” by card-issuing company executives. This is a seasoning phenomenon that occurs when loan growth rates increase and weaker borrowers default. As newer and weaker front-book pools become a larger share of portfolios, the overall NCO rate rises, and would then be expected to fall after the seasoning effect. Recently lenders have been tightening standards, and high growth pool NCO rates are expected to taper. The problem with the growth math thesis is that now even seasoned back-book vintages are posting rising NCO rates. This is a result of normalization of credit which is less idiosyncratic and more a function of economic factors and consumer stress.

It gets worse.

But first some background: credit card assessed interest is the annualized ratio of total finance charges to the total average daily balances against which the charges were assessed, as defined by the Federal Reserve. In 3Q17 the assessed interest charge jumped to 15%, levels similar to previous business cycle peaks.

Credit Card Assessed Interest Rate vs. Stated APR Rate

This jump may be a result of a maxing out process of the consumer as late fees, cash advance and over-limit fees increase and customers tend to borrow more on their credit cards as a last resort. The higher assessed rate could also encapsulate an incremental mix shift within weaker subprime and private label cards. The spread between the assessed rate and stated average APR rate, which largely reflects Fed rate hikes, is widening. Industry credit card limits of $3.5 trillion are close to the previous 2008 peak while utilization rates are still low.

Credit Card Utilization Rates (LHS) vs. Card Limits in $Trillions (RHS)

But why are consumer credit costs rising in a benign economic environment? Indeed, as shown above, consumer credit costs have been dramatically rising in an economic environment characterized by tepid economic growth over the last two years. Full year 2017 Real YoY GDP growth was +2.3%, accelerating from +1.5% in 2016, while unemployment is at trough levels of 4.1%.

Several potential drivers include:

1. Decelerating Jobs and Weak Wage Growth: Employment growth has decelerated over the last few years, wages have been growing at a subdued 2-2.5% rate, while the costs of rent, healthcare, food and other living items have been rising at a faster rate.

Avg. Hourly Earnings for Production and Non-Supervisory Employees (YoY Change)

As a result, the savings rate has been declining with new spending financed with more credit borrowing. In fact, the personal savings rate has been surprisingly poor this entire cycle, and recently dropped to just shy of all time lows.

Personal savings rate

The CEO of Assurant, Inc. (insurer of mobile devices) recently stated in 2017, in talking about the U.S. consumer: “The reality is half of Americans can’t afford to write a $500 check.” This speaks to the great wealth inequity in the U.S. exacerbated by the Fed’s ZIRP and QE policy.

* * *

2. Consumer Credit and its Share of Real Disposable Income are at Record Highs: Consumer credit is running at $3.8 trillion surpassing its 2008 peak by +45%…

Total Consumer Credit Owned & Securitized ($in Billions)

… and accounting for a record 29% share of consumer real disposable income and 19% of nominal GDP.

Consumer Credit/GDP (LHS) vs. Consumer Credit/ Real Disposable Income (RHS)

To be sure, “drowning in debt” is hardly equivalent to the image of a strong, stable, confident US consumer.

* * *

3. Fully Loaded Financial Obligation Ratio Trending Higher: The U.S. Consumer Financial Obligations ratio has fallen since the GFC, given lower mortgage balances and lower interest rates. However, upon including healthcare costs the Financial Obligation Ratio increases dramatically making it more difficult to service debt.

Financial Obligations Ratio (FOR)

* * *

Meanwhile, as underlying credit trends deteriorate, the Fed is hiking rates, leading to even higher delinquencies and Charge Offs.

The Fed rate hike cycle, begun in 4Q15, has been increasing consumer debt service costs while measured wage growth persists. As a result, NCOs have risen and the Fed continues to increase interest rates at a rapid pace. The rate of change of the Effective Fed Fund’s Rate off a low absolute base is an important determinant of weaker consumer credit metrics, as most consumer debt is keyed off the front end of the yield curve.

Effective Fed Funds Rate vs. U.S. Bank Net Charge Off Rate

Separately, US consumer confidence is currently soaring to levels not seen since close to previous peaks in financial and economic markets. This may be due to the fact that household net worth to disposable income is at an all-time high of 673% or 2.9 standard deviations above its mean since 1951. Worse, as shown in the chart below, the gap between household net worth and the tangible income economy continues to widen to unprecedented levels.

Wealth Economy Has Decoupled From Tangible Economy

As TCW reminds us, the last time we saw this movie the argument was similar to today’s: The equity market was acting as savings for the consumer in the Dot.com Bubble, while the Housing Bubble obliged almost a decade later, abrogating the need for thrift. History hasn’t been kind to this kind of bubble logic.

Today, the discrepancy within aggregate household wealth has never been more skewed. The majority of households don’t have the wherewithal to participate in the Fed’s wealth effect, and as such bear the brunt of financial stress.

However, as noted above, what is especially disconcerting is that this cycle peak in wealth and confidence is being accompanied by a plummeting savings rate.

Consumer Confidence vs. Personal Savings Rate Confidence Outpunting Coverage –> PCE Declines?

This as TCW colorfully puts it, “is akin to consumer confidence out-punting its coverage in football parlance.” Historically, when consumer confidence is robust in the face of a plummeting savings rate, personal consumption expenditures (70% of GDP) typically roll over thereafter, as shown in the chart below. Given the weak savings rate and jump in leverage the consumer seems vulnerable to further interest rate hikes.

Peak Spread Between Real Personal Consumption Expenditures (PCE) YoY Growth & Personal Savings Rate

* * *

So now that we know of a festering locus where American credit deterioration is especially acute – smaller US commercial banks, those not in the Top 100 – and we have observed a substantial deterioration in broader credit trends, the biggest question outstanding is could credit costs accelerate substantially from this point on?

To address this key question, TCW notes that Jobless claims recently printed at a 45-year low of +216K and have been lower than the key level of +300k for the last 43 months. Claims are now 1.6 standard deviations below their historic mean since 1967. This is important as there is a 67% correlation between claims and card NCOs. This means that if claims mean revert at some point, consumer NCOs should increase, possibly dramatically, given tight historical correlations.

Credit Card Net Charge Offs vs. Initial Jobless Claims Strong 67% Correlation 45% of NCO Changes are Explained by Jobless Claims

In conclusion, TCW believes  there is significant potential that consumer NCOs and credit stress may continue to increase, exacerbated by a levered consumer, tightening lending standards, stretched financial obligations ratio, and an aggressive Fed rate hike cycle – but not necessarily in a straight line. In addition, the Fed’s draining of bank reserves as part of its balance sheet reduction plans should make consumer access to liquidity incrementally more difficult over time, as overall monetary aggregates correspondingly decelerate.

At the very least, the asset managers warns that the consensus party lines that “Subprime credit costs are contained” because “This time is different” should be met with skepticism.

We believe the aforementioned adages may not age as well as “I’m tapped out Marv. American Express got a hit man lookin’ for me” as we move through the twilight of this seasoned and levered credit cycle.

For now, however, to find the inflection point, keep an eye on net charge offs at smaller US commercial banks: that’s where the next consumer credit crisis will begin.

Net Charge Off Rate on Credit Card Loans, (Banks Not in Top 100 by Assets)

New Poll Results: Majority Of White Americans Feel Discriminated Against

A new poll found that white Americans feel that “discrimination against white people exists in the U.S. today.”  Over half of those surveyed said that they believe white people are also facing discrimination.

Conducted by NPR, the Robert Wood Johnson Foundation, and the Harvard T.H. Chan School of Public Health, the new polling data found that 55% of whites surveyed believe that “discrimination against white people” is a part of American society.

More than half of white Americans say there"s discrimination against whites because of race. https://t.co/XHZtAaFC3N pic.twitter.com/eQTUwxnT1I

— NPR (@NPR) October 24, 2017

Among whites, 19% said they’ve “been personally discriminated against” because of their race when applying for jobs, while 11% said it occurred when applying to or while at college. Thirteen percent of whites said they experienced discrimination when being considered for equal pay or promotion at work.

“If you apply for a job, they seem to give the blacks the first crack at it,” said 68-year-old Tim Hershman of Akron, Ohio, “and, basically, you know, if you want any help from the government, if you’re white, you don’t get it. If you’re black, you get it.”

According to NPR, income seemed to “affect individual responses to the question of discrimination,” with those making less money “more likely to say that whites are discriminated against.”

The poll, which sampled 3,453 adults, only 902 of whom were white, was conducted Jan. 26-April 9, 2017. But all groups surveyed are claiming discrimination at some level.

• When asked if discrimination against their own group exists, 78% of Latinos say that discrimination against Latinos exists.


• Approximately 75% of Native Americans, 61% of Asian Americans and 90% of people who identify as LGBTQ said that discrimination existed against their own groups exists in America.


•  92% of African Americans surveyed said that they believe “that discrimination against African Americans exists in America today.”

Discrimination is an unfortunate piece of the human condition and no law or excessive tax or communist wealth redistribution scheme will change it.  But humanity can do better without government mandates.  We can treat people the way we’d like to be treated, regardless of the exterior packaging.

Free Money: Potential Presidential Candidate Mark Zuckerberg Suggests That All Americans Should Get A ‘Universal Basic Income’

Should everyone in America receive a “basic income” directly from the federal government?  Considering the fact that we are already 20 trillion dollars in debt, such a concept may sound quite foolish to many of you, but this is an idea that is really starting to gain traction in leftist circles.  In fact, Facebook CEO Mark Zuckerberg suggested that this was something that we should “explore” during the commencement speech that he just delivered at Harvard.  For quite a while it has been obvious that Zuckerberg is very strongly considering a run for the presidency in 2020, but up until just recently we haven’t had many clues about where he would stand on particular issues.  If he is serious about proposing a universal basic income for all Americans, that would make Zuckerberg very appealing to the far left voters that flocked to the Bernie Sanders campaign.

Yesterday, I discussed the fact that the number of Americans that are receiving money from the government each month has reached an all-time high, but Zuckerberg would take things much farther.  According to Zuckerberg, society would be far better off if everyone got an income from the government…

“Every generation expands its definition of equality. Now it’s time for our generation to define a new social contract,” Zuckerberg said during his speech. “We should have a society that measures progress not by economic metrics like GDP but by how many of us have a role we find meaningful. We should explore ideas like universal basic income to make sure everyone has a cushion to try new ideas.”

Zuckerberg said that, because he knew he had a safety net if projects like Facebook had failed, he was confident enough to continue on without fear of failing. Others, he said, such as children who need to support households instead of poking away on computers learning how to code, don’t have the foundation Zuckerberg had. Universal basic income would provide that sort of cushion, Zuckerberg argued.

Such a proposal is going to look really good to a lot of people at first glance.

But who is going to pay for this?

Of course the truth is that the money for the people that are not working would come from taxing the people that are working.

I don’t think that Zuckerberg has really thought this through.  Are young people going to have an incentive to work if they can just stay home and watch movies and play video games all day while collecting their “universal basic incomes” from the government?

And why would anyone want to bust their rear ends working for a living when their incomes are just going to be taxed extremely heavily to pay for all the people that aren’t working?

We are already 20 trillion dollars in debt, but politicians on the left just want to keep giving even more free stuff to people.  During his presidential campaign, Bernie Sanders suggested that everyone in America “deserves a minimum standard of living” and that every citizen is “entitled” to universal health care, free college education and basic housing…

So long as you have Republicans in control of the House and the Senate, and so long as you have a Congress dominated by big money, I can guarantee you that the discussion about universal basic income is going to go nowhere in a hurry. But, if we can develop a strong grassroots movement which says that every man, woman and child in this country is entitled to a minimum standard of living — is entitled to health care, is entitled to education, is entitled to housing — then we can succeed. We are living in the richest country in the history of the world, yet we have the highest rate of childhood poverty of almost any major country and millions of people are struggling to put food on the table. It is my absolute conviction that everyone in this country deserves a minimum standard of living and we’ve got to go forward in the fight to make that happen.

In previous generations, very few people would have ever taken someone like Bernie Sanders seriously.

But in our day and time socialism is really starting to catch on.  In fact, one survey found “that four out of every ten adults say they prefer socialism to capitalism”…

The American Culture and Faith Institute recently conducted a survey of adults 18 and older. It shows not only how deeply divided Americans are on some issues but also how their view of the nation stands in many cases in stark contrast to our nation’s founding principles. Most Americans (58 percent) see themselves as politically moderate, while a quarter identify as conservative, and 17 percent as liberal. Those who were both socially and fiscally conservative, the group tracked by the ACFI in greatest detail, were 6 percent of the population.

But those differences don’t reveal the greatest divide and danger to America’s future. “The most alarming result, according to [George] Barna, was that four out of every ten adults say they prefer socialism to capitalism,” the ACFI noted in its commentary on the poll. “That is a large minority,” Barna said, “and it includes a majority of the liberals — who will be pushing for a completely different economic model to dominate our nation. That is the stuff of civil wars. It ought to set off alarm bells among more traditionally-oriented leaders across the nation.’” That 40 percent of Americans now prefer socialism to capitalism could spell major change to the policies advanced by legislators and political leaders and to the interpretations of judges ruling on the application of new and pre-existing laws.

And as I noted yesterday, Millennials are particularly attracted to socialism.  This could have dramatic implications for our society as older generations of Americans slowly die off.

Unfortunately, there is just one huge problem with socialism.

It doesn’t work.

If you want to see the end result of socialism, just move to Venezuela or North Korea for a while.

In socialist nations, there is very little incentive to work hard.  Instead, people tend to become very lazy and expect the government to provide everything that they need.

When people work hard and are productive, the overall wealth of a society goes up.  And when people sit around and wait for someone else to provide for them, the overall wealth of a society goes down.

Would Mark Zuckerberg have worked so hard to develop Facebook if he knew that the government would just come in and take most of the money away so that others could have a “universal basic income”?

Yes, we want to do all that we can to reduce poverty and to build a strong, vibrant middle class.

But socialism is not the answer and it never will be.

Why Living With Less Can Actually Make You Happier

By: Phillip Schneider, Waking Times |

Will having more wealth actually make you happier? According to a number of studies an addition to your income isn’t only unlikely to make you happier, but it can make those around you less happy, and you for the fear of losing it.

To explain, we must first look at a study from the National Bureau of Economic Research. Two economists, David Blanchflower of Dartmouth and Andrew Oswald of Warwick, set out to document the relation that age has to overall happiness. What they found was that as income tends to increase steadily over time, happiness follows a U-shape pattern, dipping to its lowest point at around age 45, then quickly climbing up thereafter.

A large-scale survey from the General Social Survey, which included around 20,000 men and 25,000 women of 16 years and older supports these findings. After asking Americans to rank their happiness on a 3 point scale ranging from “very happy” to “pretty happy” to “not too happy”, they found a resulting average of 2.2, or just over “pretty happy”. The Eurobaromoter, after conducting a similar survey on close to 400,000 men and women in 11 European countries from 1975 to 1998 found that the average self-assessed happiness score across Europe is 3 out of 4.

After further investigation, Oswald and Blanchflower found that the age of any given person in the developing world is more powerful in determining overall happiness than a halving or doubling of income. Also, they found that people of every gender and income have become enormously less happy throughout the past century. The difference in levels of happiness between those born in the 1960’s vs the 1920’s is the same effect as a tenfold difference in income, despite the fact that the younger generation is far more prosperous.

“I thought, if I could make 10 million dollars then it must be too easy. In fact, I honestly thought, everyone else had probably already made 11 million dollars. So then I felt poor again. I now needed 100 million dollars to be happy.” ~James Altucher

What could explain this sharp decrease in happiness over time? Well, one of the largest societal changes that occurred throughout the 20th century was the onset of a mass consumerist culture. Before the roaring 1920’s, life was much simpler and people didn’t have strong desires for material things beyond the basics to live a fulfilling life like we do today.

On a scientific level, the ultimate reward for the purchase of a new watch, car, or other status symbol is a short-term release in dopamine which triggers a brief period of personal satisfaction. This is why we feel good after buying new things and it’s where the term “retail therapy” comes from. However, the happiness one gets from material worth is short-lived. After time, the buyer will revert back to their original demeanor, while obtaining a sense of comfort and security from those new things they bought.

From this perspective, it begins to make sense why prosperous people in the developing world are some of the most prone to depression; they become afraid of losing what they have which their peers don’t. In fact, those on the opposite end are shown to have the reverse effect and often become more depressed when around those with greater wealth. Contrary to popular belief that areas of high poverty produce higher homicide rates, it is actually those with the highest income disparity.

“Riches leave a man always as much and sometimes more exposed than before to anxiety, to fear and to sorrow.” ~Adam Smith

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Phillip Schneider is a student and a staff writer for Waking Times.

This article (Why Living With Less Can Actually Make You Happier) was originally created and published by Waking Times and is published here under a Creative Commons license with attribution to Phillip Schneider and WakingTimes.com.

Mass Deception

Submitted by 720Global"s Michael Lebowitz via RealInvestmentAdvice.com,

Janet Yellen

At the December 14, 2016 FOMC press conference, Federal Reserve Chairwoman Janet Yellen responded to a reporter’s question about equity valuations and the possibility that equities are in a bubble by stating the following: “I believe it’s fair to say that they (valuations) remain within normal ranges”. She further justified her statement, by comparing equity valuations to historically low interest rates.

On May 5, 2015, Janet Yellen stated the following: “I would highlight that equity-market valuations at this point generally are quite high,” Ms. Yellen said. “Not so high when you compare returns on equity to returns on safe assets like bonds, which are also very low, but there are potential dangers there.”

In both instances, she hedged her comments on equity valuations by comparing them with the interest rate environment. In May of 2015, Yellen said equity-market valuations “are quite high” and today she claims they are “within normal ranges”? The data shown in the table below clearly argues otherwise.

Interestingly, not only are equity valuations currently higher than in May of 2015 but so too are interest rates.

Further concerning, how does one define “normal”? Does a price-to-earnings ratio that has only been experienced twice in over hundred years represent normal? Do interest rates near historical lows with the unemployment rate approaching 40-year lows represent normal? Is there anything normal about a zero-interest rate monetary policy and quadrupling of the Fed’s balance sheet?

Does the Federal Reserve, more so than the collective wisdom of millions of market participants, now think that it not only knows where interest rates should be but also what equity valuations are “normal”?

One should expect that the person in the seat of Chair of the Federal Reserve would have the decency to present facts in an honest, consistent and coherent manner. It is not only her job but her duty and obligation.

Homebuilders

On December 15, 2016, CNBC reported the following: “The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 70, the highest level since July 2005. Fifty is the line between positive and negative sentiment. The index has not jumped by this much in one month in 20 years.”

The graph below shows how much house one can afford at various interest rates assuming a $3,000 mortgage payment.

Over the past two months U.S. mortgage rates increased almost a full percent from 3.50% to 4.375%. Given such an increase, a prospective homeowner determined to limit their mortgage payment to $3,000 a month would need to seek a 10% reduction in the price of a house. In the current interest rate environment, this equates to drop from $668,000 to $601,000 in order to achieve a $3,000 a month mortgage payment. One would expect that homebuilders temper their optimism, given that a key determinant of housing demand and ultimately their companies’ bottom lines is facing a sturdy headwind.

Advice/Summary

The point in highlighting these examples is to remind you that people’s opinions, especially those with a vested interest in a certain outcome, may not always be trustworthy. We simply urge you to examine the facts and data before blindly relying on others.

We leave you with historical insight from a few so-called experts:

• “We will not have any more crashes in our time.”: John Maynard Keynes 1927


• “There is no cause to worry. The high tide of prosperity will continue” : Andrew Mellon 1929


• “Stock prices are likely to moderate in the coming year but that doesn’t mean the party is coming to an end.” : Phil Dow 1999


• “The Federal Reserve is not currently forecasting a recession.” : Ben Bernanke 2008

Legal Marijuana Created 18,000 New Jobs in Colorado Last Year

The marijuana industry created more than 18,000 new jobs in Colorado last year, and had a $2.39 billion impact on the state, according to a new report released October 26. [1]

In a study conducted by the economic consulting firm Marijuana Policy Group (MPG), researchers looked at two years’ worth of sales numbers from Colorado and found that legalization resulted in nearly $1 billion in retail sales in 2015.

Source: WeAreChange.org

There was also an indirect economic impact from increased demand on local goods and services, such as growers renting warehouse space and purchasing high-tech lighting and irrigation equipment. Then there are the contractors, lawyers, bookkeepers, and other companies that cannabis retailers rely on.

Study co-author and MPG founder Adam Orens said:

“If this is done right, regulated right, taxed right, this industry can bring real economic benefits to a state.

If the state or the local governments manage, permit and enforce [marijuana regulation] in a thoughtful way, then this can have real benefits.”

According to the Marijuana Policy Group, the legal marijuana industry’s growth isn’t so much the result of new, previously untapped demand for weed, but rather from a reduction of the unregulated black market.

Orens and his co-authors wrote:

“It would be easy to confuse the rapid growth in marijuana sales with an inherent growth in marijuana demand. But that is not the case. Legal marijuana sales are increasing due to a supply shift — away from gray and black market suppliers, toward licensed suppliers.”

The black market is what keeps marijuana prices high, and what most people associate with drug-related crime. Opponents of the War on Drugs have been pushing for decriminalization for decades, partly because it reduces the black market.

In Colorado and Washington, D.C., the black market still exists, but the new study suggests it has been greatly reduced by legalization. In fact, the MPG predicts that by 2020, more than 90% of the marijuana market will be supplied by regulated, state-licensed dealers. Home growers and a small fraction of unregulated and “grey market” dealers (dealers who aren’t entirely legally legitimate) will comprise the remaining 10%.

The report states:

“Applying the marijuana impact model to Colorado, it was found that each dollar spent on retail marijuana generates $2.40 in state output. This compares favorably with general retail trade, which yields $1.88 per dollar. The more traditional (and sometimes subsidized) mining sector generates $1.79 per dollar. General manufacturing generates $1.94 per dollar, and casinos generate just $1.73 per dollar of spending.

Other industries have lower output yields because their inputs are sourced from outside of the state, or because the profits are remitted to corporate owners that exist primarily outside of the state as well.” [2]

However, Oren stresses that the report only examined the economics of marijuana legalization in Colorado, not its effects on public health or criminal justice. [1]

At that point, the MPG expects growth in the state’s cannabis industry to slow, resembling growth in other retail industries, which tend to follow population growth.

Additionally, the Marijuana Policy Group found:

• Marijuana is currently bringing in tax revenue at three times the rate of the alcohol industry. MPG predicts that by 2020, pot will overtake cigarette taxes as a revenue-generator.

• Marijuana taxes brought in about $121 million in revenue last year. MPG expects that number to increase to about $150 million by 2020.

In 2014, the marijuana industry brought more than 10,000 new jobs to Colorado.

In the Spring of 2014 – just three months after marijuana was legalized in Colorado – the city of Denver enjoyed a 14.6% decrease in crime.

Tax revenue from legal weed has funded scholarships for high school seniors in need.

And speaking of young people, a report from this past July showed that youth marijuana use stayed at about the same level post-legalization, shattering the myth that decriminalizing marijuana sends straight-A students into the depths of addiction, despair, and destroyed futures.

Sources:

[1] The Washington Post

[2] The Cannabist

WeAreChange.org

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About Julie Fidler:
	Julie Fidler is a freelance writer, legal blogger, and the author of Adventures in Holy Matrimony: For Better or the Absolute Worst. She lives in Pennsylvania with her husband and two ridiculously spoiled cats. She occasionally pontificates on her blog.