So the Fed plans to destroy the middle class in order to make the rich richer. But before explaining why and exactly what you can do, you need to understand that this isn’t the first time that this happened. 1980s inflation was super high so the Fed said let’s raise rates and stop spending and forced the economy into recession. Then President Reagan wanted to one-up the Fed to see who can screw over more people. So he cut social safety nets and gave tax cuts to the rich and the result was surprisingly better than expected.
Only half the incomes across the US fell and only about 20% of the middle class went poof. All while the rich got richer. However, it wasn’t until the Great Recession that started the beginning of the end of the middle class in 2008. The pattern repeats the US economy collapses the government gives billions to big banks to survive despite being the ones that caused the problem. The labor housing and stock market tanks led to a 47% drop in median net worth and over 15% of Americans falling below the poverty line making middle-class wealth go poof again. Since then the wealth gap between the haves and has not reached the highest level, for everyone.
It is getting Worst
This isn’t even the worst of it? To save the economy, the Fed needs to make a hard choice sacrificing the rich and the poor through its economic policies. Inflation is currently the highest it’s been since the 1980s. The Fed( Federal Reserve Board) decided to use the same exact plan to save the economy by aggressively raising interest rates to claim credit for the economy through recession. Surprise, surprise, just like every other recession in the past. The middle class and the poor will bear the burden with the scary part is this. There’ll be far more brutal and miserable than ever before because honestly most of the middle class will not recover.
Important information to take Note of First
Since most data regarding income and student debt is not truly covered in Singapore. We will be using the US data to analyze since there are more data to prove how and why the middle class is disappearing.
How the Wealth Gap has Drastically Change
Although the data shows that middle-income families did get wealthier in the past few years. It didn’t even come close to making up for the losses that they face from the 2008 financial crisis. In contrast, operating-income families actually have a 10% higher median net worth. The terrifying part is the middle class is vanishing quicker than the value of Logan Paul’s NFTS.
Back in 1971, 61% of US adults belonged to the middle class. But as we go through time, that percentage falls to 52% in 2016. And now even though the American middle class looks to be stabilizing right at the present range. The middle class continues to fall behind financially 600 households do not have enough liquid assets to cover three months’ worth of expenses. Which is bad news because on average recessions in the US lasts about 10 months.
Why Middle Income Groups are losing Wealth
So about 30 years ago, the middle 60% of Americans doubled the net worth of the 1%. Which makes sense because the majority of citizens should collectively have more wealth than just a select few. But then something happened. rigged system had been working as planned. The rich have been strategically taking advantage of every economic crisis. Leading to the very first time in US history in 2021. And the top 1% now owns more wealth than the middle 60%.
This comes at a time when 75% of middle-class households say their income is falling behind the cost of living. The wealth gap in the US has changed so much in the past few decades that even Webster’s Dictionary can’t agree on how to define a class for many years. Our middle class referred to Americans who successfully reached a version of the American dream. The requirements are ha a stable income, a house any sense of financial security for the future. However, that’s no longer the case.
Now the middle class refers to people who can set up automatic payments to pay off their credit card debt or what might even be a more important criterion is whether a middle-class American can still afford the three hitches and the scary truth is the impending recession could be the final nail in the coffin that redefines the middle class forever.
Purchasing Power Growing Weaker
Let’s compare the price differences between 1978 and 2022. In 1978, the median annual income was $9,870 while the median house costs around $17,000. So about 1.7 times the income in 2022. However, in 2022, the median annual income is $65,000, while the median house costs $420,700. Which is a whopping 6.5 times the median annual income. It is supernatural for prices to rise over time the issue is at home values significantly outpace inflation. Making it nearly impossible for you and young buyers to enter the market.
Assets are growing Faster
This poses two massive problems first in the short term the majority of America. The middle class are getting priced out and are forced to pay high rent which adds to their already high expenses.
Secondly, in a long term, the wealth gap will get higher because real estate is one of the fastest vehicles to grow wealth. Only the rich can afford it, therefore, they get to be much richer, faster. And all this is made much worse as 40% of millennials who don’t own homes say they can’t afford one because of student loans, aka higher education.
Education level not increasing pay fast enough
It’s no secret getting a higher education is now drastically more expensive to the point that most students are forced to be riddled with debt just to get one. This is kind of counterintuitive because an advanced society generally benefits from having an educated public. In America, the amount of student pursuing higher education has dropped significantly over the year. Most of these student report mentioned that they would focus their time to get into the society as soon as possible to make money would produce better results.
The average American household income to debt ratio is getting worse. In 1980, the middle-class family on average of making dollars had somewhere around $60,000 in debt. Now that ratio is just under one. Meaning the same exact family will have around $100,000 in debt over the past decade.
Therefore, it does actually make some sense for student if they have the right skill to enter the workforce as soon as possible to pay off debt. By removing bad debt as soon as possible, these young adults would have a better chance of living comfortably in the future.
Most of American debt is caused by taking on higher education. For now, the job market is still relatively strong so most of us are safe. However, the concern here is when the Fed successfully forces a recession by raising rates and millions of Americans will get smacked harder than they first walk. With raising inflation, cost of living becomes harder. Coupled with raising interest rates as well, businesses growth will start to slow down or collapse. Which will lead to higher unemployment. Which is the worst case scenerio for the middle class.
Middles Income can be easily affected by Job Loss
The IMF predicts unemployment may reach 7.5%, or roughly 60 million people will lose their jobs essentially forcing all these people to shop for new, more expensive health insurance putting them at risk of financial Jeopardy.
Middle-class America is in a very bad place. Two-thirds of Americans are digging into savings just to pay for things in 1985. The average major living expense for a family of four including housing, healthcare, transportation, and education was around $13,227. That means the typical male worker needed to work for about 30 weeks to cover this cost. But in 2018, the average major living expense is now $4,441. And the average male worker has to work 53 weeks to afford this and there are only 52 weeks in a year.
Why the Current Time is an opportunity for the Middle Class
But it’s not all doom and gloom because, at the same time, this recession creates a fantastic wealth-building opportunity for you. And it doesn’t matter if you only have $1,000 or a million dollars in savings. If you have to drive to build your wealth. You can get out of this recession with your fortune.
A secret most people don’t know is that the wealthy make a lot of their money during a recession because of one simple reason asset prices from stocks to real estate typically crashed during an economic crisis. And those with enough liquid cash can scoop them up at a discount. And what’s absolutely wild is that the rich are very prepared for this massive buying opportunity.
So if you are in your early 20s or 30s. Now is the perfect time to invest since you guys are young. Like how I took opportunity of the recession, at 24 years old, I was able to build a networth of over $100,000. It’s no secret that riches are made during a recession and is your best bet to invest to escape the rat race.
What the Rich are doing with their money
Big banks like Morgan Stanley and Bank of America have reported that rich Americans have been increasingly taking out a very, very special type of loan. Despite a looming recession. These special loans are called securities-backed credit lines, which basically means the wealthy are putting up their houses, they’re building toilets, Valencia trash bags, or whatever as collateral to borrow lots of at a much lower interest rate than people like you and me can get in there just silently waiting for the perfect time to scoop up discounted tangible assets.
It’s no secret that the middle class and the poor are more likely to lose their jobs during economic crises than high-income earners. We saw this in the 1980s and other needs and even in 2020, the most vulnerable population feels the largest impact. So think about when the middle class loses their jobs and can no longer afford their expenses. They will be forced to sell their assets, houses, their cars, and stocks at a discount to survive the moment they put their assets on the market.
The rich will be over there watching, waiting for a sale. But the most terrifying thing is this wealth inequality between the haves and the have-nots has learned so much that we are painfully unprepared. 70% of economists predict the US will go into a full-blown recession by 2023. So ask yourself this, are you ready to scoop up good discounted assets for yourself, or are you selling assets to survive?