-- Inflated college tuition, lower home ownership rates, and compressed wages
Posted by mybudget360
Posted by mybudget360
The American Dream was always tied to economic prosperity. The
ability to work and save for a respectable retirement seemed
cornerstones to this vision of middle class success. The idea that future generations
would have it better seemed to also be part of this vision of economic
prosperity. The last two decades have seen a dramatic shift to this
vision. The struggle to stay in the middle class is getting more
difficult since more are being pushed into the poor or working poor
categories. The recovery has been largely an odd accounting function
courtesy of bailouts to the banks and massive government spending.
Today, we have the largest number of Americans on food stamps. Those seeking to follow their desire to get a better education are saddled with a minefield of student debt
and subpar institutions that simply look to steal their money and give
them a piece of paper that is hardly recognized in any professional
context. The home ownership rate, the symbolism of the American Dream
is drifting further into the shadows.
The consequences of the housing bubble
The current home ownership rate across the country is now back to levels last seen in 1996:
What does this mean for the middle class
that once relied on housing as the cornerstone for the American Dream?
At the core, it has shaken the faith of many because housing was
supposed to be a sure bet. Every year, your home value would go up and
you subtly built equity. That assurance has been wiped away in the
current aftermath of the housing bubble. The housing market had been a
steady investment for many decades providing this bedrock of stability.
This all changed of course when investment banks
in conjunction with government backed guarantees co-opted the market
and turned it into just another commodity to speculate and destroy.
Keep in mind many of these investment banks and government cronies
sought to increase home ownership across the nation and have only done
the opposite. Glass-Steagall was repealed back in 1999 and here we are
with a home ownership rate now back to 1997 levels and an economy that
is still in disarray for working and middle class Americans.
The Case Shiller Index reveals a lost decade in home values:
Yet this destruction in illusory and real wealth in real estate has impacted the net worth
of most Americans. The biggest asset most Americans have is in their
property and it has been one of the worst performing items in the last
decade. Keep in mind that many Americans already had a small net worth
to begin with:
So here you have a two prong attack to a symbolic item of the American Dream:
-1. Younger Americans now have a much more skeptical view of housing. The low wages and big student debt already make them a harder sell for current housing.
-2. Older Americans had most of their wealth in housing and have seen their biggest asset class pop only a few years before many enter into full retirement mode.
The student debt bubble
The blue collar power that built a big middle class
after World War II is no longer an option for many in this country.
Many of the viable careers that are available today require specified
training through education. Yet many are led into for-profits
with the notion that all degrees are created equal and are saddled with
back breaking levels of debt. Put yourself in the shoes of a young
person today. You are 18, you realize that there are little options for
making it into the shrinking middle class without a solid education.
So many take the big plunge into for-profits or subpar schools
and simply come out with a giant level of debt.
State schools and
local community colleges cannot compete with marketing budgets of
for-profits. How many at 18 really have a solid understanding of
macroeconomics and future trends?
Over 66 percent of all student debt is held by those 39 and younger.
If you remember that first net worth chart, most of these people
already have a terribly low net worth. This is going to be a big issue
moving forward especially given the structure of student loan debt.
Almost every form of debt including mortgages, auto, and credit card
debt can be discharged through the bankruptcy process. This makes sense
in any balanced economy with a responsible financial system. For
example, a bank does a careful analysis of a home and requires a down
payment that is meaningful. For whatever reason, the current owners are
unable to meet their mortgage payment (a very common issue). The bank
will start foreclosure proceedings and take the home back. The owner is
not responsible for the mortgage once the bank takes over the house and
gets a clean start and if the bank was diligent, the home can be sold
for market value. Of course the financial system did not exercise due diligence and that is why we are in the mess we are in.
However with student loans, there is no formal discharge process. So
now you have many young Americans either underemployed or unemployed
yet they need to pay back that student loan debt. Do you think these
people are eager to take on another giant debt load with a mortgages?
The middle class dysphoria is causing this recovery to feel more like a
shadow recession because in reality, it is for most Americans. The
stock market is up over 100 percent from the lows in 2009 but look at
how Americans feel in poll after poll. Why?
Most Americans derive
their wealth from housing and solid employment and those two items are
in the doldrums. The stock market largely benefits those in the top one percent
who derive a sizeable income from dividends or stock gains. We’ve seen
banking executives making millions of dollars in bonuses for what?
Breaking apart the middle class? Taking out trillions of dollars in bailout funds? No wonder why most Americans are questioning what it means to be middle class. Source
