We've noted many times on The Economic Populist how the continual focus of the United States citizenry as simply a bunch of consumers is just plain wrong. We hear cries 70% of the economy is based on consumerism, how this creates demand and so on....
But here's the real situation. The consumer is plain tapped out.
In a Merrill Lynch report, covered by this LA Times blog, (I cannot find the original report), we see some very damning income to debt ratios of America's middle class.
Remember, these numbers are from 2007, so lord only knows, with people trying to live off of credit cards due to job loss, what the ratio is today.
Lower-income families account for 40% of the population but just 12% of total consumption, BofA Merrill estimates. The middle class is 50% of the population and nearly as large a share of consumption, at 46%.
That leaves the wealthy to account for a hefty 42% of consumption.
In terms of their debt burdens, neither lower-income families nor the wealthy are constrained the way the middle class is constrained, the report asserts.
It estimates that middle-class families’ debt as a percentage of disposable income was 205% in 2007, a function of the level of trading-up during the housing boom and of the cash people pulled from their houses via home-equity loans.
By contrast, lower-income families’ debt-to-disposable-income ratio was a much less onerous 133%. And for the wealthy the percentage was lower still, at 116%.
Thus, the need to pare debt is most urgent now for middle-income earners.
Consumer confidence has retreated, retail sales are flat or dropped, wealth inequality is at record highs and we have a coming tsunami foreclosure wave, with just today it was reported a record 13.2% of all mortgages are in foreclosure or delinquent in Q2.
We also had in increase of at least 12.7% more people now in poverty and those figures are from 2008.
Merrill Lynch also reports most people put their wealth into home equity, which has evaporated.
The Baseline Scenario is wondering about further wealth inequality in all of this:
There are a lot of moving parts going on with the interaction between the top percents and the middle class, inequality and collapse, but it isn’t hard to see a story where the stock market picks up, housing is in decline for a decade, and we have a jobless recovery. I’m not sure how that would effect our quantitative measures of inequality, like the gini coefficient, but we could end up with much more inequality, and inequality that stings a lot harder than it did during the boom times.
BS (clever huh!) also notes Wall Street and the super rich will probably recover just fine....but the middle class? Strongly looks like the U.S. middle class will all just be left behind.
In my view, this is the entire problem with focusing in on the United States middle class as consumers, otherwise known as how to suck up every single dime out of their pockets....instead of producers. Here is this workforce, with the most hard working people in the world, dedicated ethic, highly skilled and educated....and instead of focusing in on giving them stable increased income and job security, i.e. a production economy, the attention is whether or not you can get them to go shoppin' and increase their credit limit on a deck of credit cards.
What a waste! Imagine what could happen, what kind of real growth the U.S. economy could have....if only we had policies focused on the U.S. middle class as the ultimate workforce, something to be encouraged, promoted, incentivized and utilized.
After I posted this, some other sites came to my attention, who are also writing on the same topic.
European Tribune which has quite a number of graphs in one post (whereas in this article you must click on the links to see graphs per topic).
Naked Capitalism is also focused on income, but from a more macro economic theoretical view point.
More detailed graphs and analysis at Zero Hedge where they conclude the consumer (middle class) will be the cause of the next financial crisis. Zero Hedge has the main reports as attachments to their post.
I recommend reading all (in addition to this post and original links/references of course!).
What can I say. Great minds think alike (sic).