What happened to America's Middle Class?

Destabilizing America's Middle Class

An unpleasant surprise to invisible forces interested in controlling the world's wealth was that students and activists from the wealthy American households were able to stop the war in Vietnam. The war ended in April 1975. The Federal Reserve report showing the wealth of American households at $1.7 trillion, at a time when the entire budget of the US government was $108 billion had been released in 1974.

To whatever oligarchy that has the wealth and power to affect world events, this development indicated that the American middle class had become too powerful. If their children could force the end of a war that forces in Washington, DC, had started with a trumped-up attack that never took place, on US Navy ships by North Vietnamese PT boats, what else could they do? If the students could recognize a phony premise for a war and force its end, then they may be able to recognize global warming and force an end to the use of fossil fuels or nuclear weapons or nuclear power plants. Clearly, to those who profit greatly from exerting power at the highest levels, this was unacceptable. A plan to curb the power of the middle class had to be devised and implemented in a way that would not expose those behind this attack.

Remember at the time, 1974-1975, the middle class represented the greatest concentration of wealth that had ever existed on the planet. How can they possibly be destabilized by external forces?

In analyzing how the middle class gained it wealth and. influence, several factors become apparent. To remain a cohesive class, the middle class must keep growing and not become stagnant.

The key is the American dream of homeownership. From this base, the occupants mount careers, educate their children, and. send them to college. These features of gainful employment, education, and property ownership are the attributes of a middle-class family and the foundation to continuing on their trajectory of upward mobility. Through education, they can enter the ranks of a learned profession, such as law, medicine, and architecture. They can become businessmen, bankers, or college professors. The most effective engine for wealth accumulation is their increasing home values. The home, through home equity loans, is a source of capital for investment and operates as an investment itself.

The home, the education, the career, and many times the homeowner's business all play a role in creating and maintaining the homeowner's prosperity. Two and a half decades of growth between 1950 and 1975 created the phenomenon of the American middle class.

The entry point into the middle class and its growth potential is for a household to form and seek homeownership. They must have saved, have parents who will offer support, or accumulate a sufficient amount to pay what is generally 20 percent of the purchase price, a down payment. They then must have sufficient income and credit to qualify for a home mortgage. Upon surmounting these barriers, they become homeowners and are on their way to the benefits of being members of America's middle class.

If households are being formed, new homes are being constructed, purchased, and occupied; the middle class is growing and enjoying prosperity.

The middle class prospers because it has multiple paths to upward mobility. Paths include home, job, education, business, investments, and contacts. All are operating within the same time frame and simultaneously propelling upward mobility.

But what happens when the building stops? If a household cannot purchase a home, their education and employment upward mobility are negatively influenced. Without the home, the capital necessary for business and investing will generally not be available. Current employment income will not increase sufficiently to keep up the "homeowner household." The distance between renters and homeowners will begin to expand, sometimes exponentially. It will not take long for inflation to negatively impact the buying power of a household's income. New households will continue to form, but without vigorous new home construction, both home prices and rents will begin to rise. Soon, rent costs will exceed household ability to pay the rising rents. So a household has been priced out of the housing market and become homeless. The homeowner household. is on its way to being the "millionaire next door." The difference is that one purchased just before construction of new affordable housing collapsed.

Now an equilibrium has set in where the only new homes being built are for the upper 25 percent or so who qualify for the expensive homes that are the only ones on the market. The builders only build for the wealthy, and only the wealthy can purchase. No one bothers with lower-cost homes because they don't sell. Willing buyers cannot qualify, and those who can qualify have more attractive options.

What happens then to the middle class is that a percentage continues upward into millionaire status and starts developing upper-class thinking. The remainder sink into working- and lower-class status. Growth stagnates. The middle class begins to disappear.

The Fortunes of the Middle Class

The middle class is closely tied to new affordable home construction. Without entry-level housing, the middle class doesn't grow, and its potential starts to die. If you want to attack and weaken the middle class, cripple the new affordable home construction capability. How? One method that has been employed is described as follows. Appeal to one of America's most powerful and widespread forces of nature, banker's greed.

The Wall Street collapse fueled by fraudulent mortgage-backed securities was brilliantly described in the film The Big Short. A side effect of the collapse was that affordable home building atrophied for over a decade. This caused the decline of the middle class to accelerate. The home building industry has not been able to revive its production. After being sidelined for nearly twelve years, it no longer has the logistical capability and is fighting legal and political headwinds. "Not in my backyard." (NIMBY) political opposition is now widespread. Building permits are now much more expensive and difficult to acquire. Getting to "close of escrow" and the "start of construction" is now a difficult proposition. High interest rates do not help. Qualifying for a. mortgage in now more difficult. Inflation is pushing up the price of labor and materials. The more the affordable housing market atrophies, the further the decline of the middle class.