Thursday, September 16, 2010

Poverty Level Soars: An Inevitable Consequence of Being a "Coppertop" in the Debt Matrix

The U.S. Census Bureau reports that nearly 1 in 7 Americans now lives in poverty.

Expect the trend to continue as the American middle class gets crushed by debts that have been growing significantly faster than their incomes.  Most of this debt was incurred based on home values which have dropped significantly and promise to drop further as foreclosures accelerate and shadow inventory enters the market.  With increased long term unemployment and increasing downard pressure on wages, the cost of servicing the existing debt is going to increase as a percentage disposable income even without new borrowing.  More middle class families are going to be driven into poverty as a result.

It's the Wages, Stupid

For the bottom 90% of American households, income essentially equals wages.  On average, wages represent over 75% of the pre-tax income for households in the bottom 90% of American households.  When you add income received from social security, retirement plans, and transfer payments (e.g., unemployment insurance payments, and state disability) to wages, this represents around 93% of total pre-tax income for households in the bottom 90%. (FYI - wages remain an important component of total income-- between 70% and 90%-- until you reach the top 0.5% of households.) 

While the bottom 90%'s share of wages has been falling steadily, it's share of total household debt has been increasing at a much faster pace.  Conversely, the top 10%'s share of wages has risen steadily while its share of total household debt has remained relatively constant.

As the size of the labor pool increases and downward pressure is placed on wages, the bottom 90%'s share of total wages will decrease, but its debts will remain unchanged.  This means that its debt-to-wage ratio will increase without taking on any new debt.  More people will fall behind, demand will fall, more people will be laid off, etc.  We are in a self-reinforcing cycle.

Unplug from the Debt Matrix

An increasing poverty rate is a feature, not a bug, of the current predatory system, which is consuming the American middle class to benefit a very small minority of Americans.  The American middle class is nothing more than "coppertops" in a debt Matrix.  Unless you unplug yourselves, you will be consumed.

I will be providing a more detailed post with data that backs up my conclusions.