The Middle Class Squeeze

Biden's $7,400 tax on the working class while elites bank $30 trillion

(Source: Getty Images)

Bill Bonner, reckoning today from Normandy, France...

We begin with a bleak update. The DailyCaller:

Americans Getting Poorer As Real Disposable Income Plummets Over A Trillion Dollars In 2022

Over the course of 2022, America’s real disposable income fell to its lowest level since the 1932 Great Depression, Heritage economist EJ Antoni said Thursday… He said the 2.1% real GDP for 2022 was the slowest growth since 2016, outside the 2020 and 2021 pandemic years.

The Federal Reserve Bank of St. Louis shows real disposable personal income dropped to -6.4%, data released by the Federal Reserve Bank of St. Louis shows. The steep decline cost Americans over a trillion dollars in 2022, Antoni reported.

Did real incomes really fall to 1932 levels? Probably not… Let’s get the report directly from Heritage.Org:

New data released Thursday showed prices have risen 13.7% since President Biden took office, as measured by the consumer price index (CPI). The overall price level declined 0.1% last month but increased 6.5% in 2022, a year which saw four-decade-high inflation. Even as the increase in the CPI slows, many consumer staples remain highly elevated compared to the start of the Biden administration: eggs are up 189.9%, ground beef 21.1%, gasoline 44.3%, electricity 21.3%, transportation services 19.5%, and housing 11.8%. 

EJ Antoni, research fellow in regional economics with The Heritage Foundation’s Center for Data Analysis, released the following statement Thursday on the latest data:  

“Biden’s presidency has been marked by excessive spending, borrowing, and printing of money by the federal government. The result has been an appalling rise in inflation to levels not seen in 40 years. 

“If you are wondering where the government got the trillions of dollars in extra spending over the last two years, they are taking it out of your hide right now through the hidden tax of inflation. Every time you put gas in your tank or groceries in your back seat, you are paying Biden’s inflation tax. 

“Prices have risen so much faster than wages that the average family has lost $6,000 in purchasing power. As the Federal Reserve belatedly raises interest rates to fight the very inflation it helped cause, interest rates are rising fast, increasing borrowing costs by $1,400. Combined with falling real wages, the average family has effectively lost $7,400 in annual income since Biden took office. 

America’s Poor Middle Class  

Until now, the economic story has been fairly simple. The feds spent too much. They financed excess spending with ‘printing press’ money. The result was inflation – a tax, $7,400 so far, for every family in the country.  

The Fed is now working to bring consumer price inflation under control. Its higher rates have caused trillions in losses to investors and are leading to a recession, probably later this year.

Note also, that the Primary Trend has reversed. That too is easy to understand.  After 40 years of rising stock and bond prices, they are now going down. And as long as the Fed continues to raise its key lending rate…and reduces the nation’s money supply…asset prices are more likely to go down than up.

In brief, the Primary Trend aims to correct the excesses of the last 20 years – the rich got too much of the money, interest rates were too low, stock prices were too high (especially the techs), flakey ‘assets’ (cryptos...NFTs) were worth billions, debts and deficits were out of control...the Greenspan, Bernanke, Yellen, Powell Put distorted the markets…stimmie checks distorted the economy…and much more.

According to some estimates, the 2021 correction erased $30 trillion from the world’s (paper) wealth. And the yield on US 10-year Treasury bonds is now 7 times higher than it was in 2020.  

So you see, dear reader, God is in His Heaven, the king is on his throne…and the Fed and Mr. Market are both on the job…both bringing things back to ‘normal.’  

Elites Bank 10X

But this phase is unusual. And probably temporary. It will probably end soon. Before too long, the Fed and Mr. Market will part company.

The fiscal and monetary policies of the last two decades were exceptional. As we saw, above, they cost the middle class a lot of money. The aforementioned $7,400 is just the most recent and most obvious tab. Our own calculations show that the common working man has not had a real raise in nearly 50 years. The things that really matter – his food, his shelter, his energy, and his wheels – are much more expensive, requiring him to sell more of his precious time just to keep up with them. 

But while the ordinary citizen was getting poorer, the rich – that is, the elite – got richer, faster than any time in US history, with nearly all the increase in wealth going to the richest part of the population. Here’s David Stockman with the figures:     

…the net worth of the top 1% of households increased by a staggering 192% during that 13-year period, rising from $15.6 trillion in Q4 2008 to $45.6 trillion in Q4 2021.     

That $30 trillion gain, however, was 10X more than the $3 trillion gain attributable to the bottom 50% of households.

Naturally, the feds want to keep the show on the road. That is how they win the support and admiration of their elite brethren…it’s their source of campaign contributions, bribes and sinecures…and it’s how they pocket the wealth that previously belonged to the ‘The People.’

Yes…the Fed will ‘pivot.’ And that is when the next phase…much harder to understand, much more difficult to navigate…will begin. Investors will rejoice.  Homeowners will see their houses rise in price. Wages will rise. The economy will appear to boom…

…and the middle class will get even poorer.

More to come…

Regards,

Bill Bonner

Joel’s Note: Greenspan, Bernanke, Yellen, Powell… call it four generations of Fed Puts. And what do we see as a result of the elites’ meddling and fiddling?

A massive transfer of wealth from workers to moochers… outsiders to insiders… Main Street to Wall Street. Take a look at the chart Dan Denning sent to the BPR team this morning. It shows the increase in total net worth held by the richest 1% in the country since December, 1996…

(Source: Federal Reserve Board of Governors, fred.stlouisfed.org)

“The total net worth of the top 1% increased by 400% from then to the peak in Q42021,” writes Dan. “From $8.6 trillion to $45.6 trillion.”

Astute readers will recognize that start date as the moment when Ayn Rand’s fallen pupil, Alan Greenspan, delivered his (in)famous “irrational exuberance” speech. Here’s the key paragraph from that talk…

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability.

~ From Alan Greenspan’s address to the American Enterprise Institute for Public Policy Research, Dec 5, 1996

In a classic MAD “What, me worry?” moment, Greenspan then cited the market crash of 1987 as having “few negative consequences for the economy.”

Message to markets…investors…speculators: Have at it, we’ve got your back!

“What Greenspan didn’t reckon on,” observes Dan, “is what Fed puts would do to inflation, or to the gap between people who got rich on rising asset prices, and people who got poorer in real terms because their primary assets are/were their wages, and maybe their home (now subject to violent booms and busts thanks to monetary policy).”

Record inflation… violent booms and busts… and falling assets/wages… it’s exactly the kind of “negative consequences for the real economy” Americans are now dealing with.

Dan will have more in this evening’s research note to Bonner Private Research members. If you’re not already receiving all of his and Tom’s paid research, including specific, actionable ideas to protect and grow your wealth during these difficult markets, consider one of our membership plans, below…