from our 'old friend' Charles Hughes Smith athttp://www.oftwominds.com/blogmay12/debt-serfdom5-12.html
(snip)"The essence of debt serfdom is debt rises to compensate for stagnant wages.
I often speak of debt serfdom; here it is, captured in a single chart. The basic dynamics are all here, if you read between the lines:
1. Financialization of the U.S. and global economies diverts income to capital and those benefitting from globalization/ "financial innovation;" income for the top 5% rises spectacularly in real terms even as wages stagnate or decline for the bottom 80%.
2. Previously middle class households (or those who perceive themselves as middle class) compensate for stagnating incomes and rising costs by borrowing money: credit cards, auto loans, student loans, etc. In effect, debt is substituted for income.
3. The dot-com/Internet boom boosted incomes across the board, enabling the bottom 95% to deleverage some of the debt.
4. When the investment/speculation bubble popped, incomes again declined, and households borrowed heavily against their primary asset, the home, via home equity lines of credit (HELOCs), second mortgages, etc.
5. The incomes of the top 5% rose enough that these households could actually reduce their debt (deleverage) even before the housing bubble popped.
Here is a chart of real (inflation-adjusted) incomes, courtesy of analyst Doug Short: note that the incomes of the bottom 80% have been flatlined for decades, while the top 20% saw modest growth that vanished once the housing bubble popped. Only the top 5% experienced significant expansion of income. Notice that incomes of the top 20% and top 5% really took off in 1982, once financialization became the dominant force in the economy.
Interestingly, we can see the double-bubble (dot-com and housing) clearly in the top income brackets, as these speculative bubbles boosted capital gains and speculation-based income. Since the bottom 80% had little capital to play with, the twin bubbles barely registered in their incomes.
Bottom line: financialization and substituting debt for income have run their course. They're not coming back, no matter how hard the Federal Reserve pushes on the string. Both of these interwined trends have traced S-curves and are now in terminal decline:
Those hoping the economy is "recovering" on the backs of financial speculation/ legerdemain and ramped up borrowing by the lower 95% will be profoundly disappointed when reality trumps fantasy.(snip)
IMHO, Author Charles Hughes Smith has an uncanny ability to get right to the 'heart' of any topic. In this case, the central point is that, for the past ~25~30 years, the vast majority of Americans have been maintaining or improving their standard of living via the assumption of ever greater amounts of additional personal debt. This segment of Americans essentially comprises those in the 'bottom 80%' of earnings, or those households with combined earning of less than $170,000 per year, and arguably includes those in the 'bottom 95%' i.e. those households earning less than $ 288,000 per year.
The arguable 'take away' from this article, of course, is that with earnings now stagnant or declining, with increasing costs of 'necessities' such as food, energy, and taxes, etc., and with lenders now paying much more attention to such particulars as debt to income ratio, verifiable income etc., those 'bottom' 80% / 95% of American earners now face a rude awakening. With 'additional borrowed money' no longer being available to supplement their actual incomes, many of these Americans are now living an economically unsustainable lifestyle. Thus after paying for increasingly expensive 'necessities', they now find themselves increasingly unable to service existing debt payments. Sooner rather than later, enforcement measures to collect on existing debts will force these 80% / 95% of American households to adjust their standard of living downwards.
And that, of course, is very bad news for exotic dancers and camgirls ... or at least those catering to customers earning less than $170,000 / $288,000 per year !






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