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Wages: Faking the Good Life in America

August 21, 2008

a brief exploration of wage stagnation and credit by E. Manning

web of deception

wages: web of deception

The concept of wage stagnation is in the news once again even though the economic blight is a mere 35 to 40 years old. The media and economic bean counters are curiously worried about the “standard of living bubble.” Imagine the idea that this news at all. Most Americans, except during times of heady expansion in certain markets, have been fully aware of the concept as jobs head out of the American economy in droves because of corporate multinationals and careless politics. For years, the idea was that you could beat wage stagnation with a well-heeled education, but reality has proved that this idea is no longer true if it ever really was.

Americans and other high-faluting nations have been loading up on credit for years to bolster the appearance of bettering the Joneses next door. The contracting market cut into that fantasy for many credit afficianados. Now the contracting job market, which in reality has been imploding in the United States for some time is hampering the ability of Americans to cope with lifestyle choices.

If that prospect wasn’t enough, now Americans risk losing the ability to use their precious credit cards because contracting credit markets threaten to limit access of credit cards to many participants. The entire economy of the United States seems to be facing a reality check where fiscal relevance is concerned.

credit is good for America

credit is good for America

The media has suddenly cooked up the idea that inflation has been increasing more rapidly than pay increases, which goes against what the U.S. government has preached for decades. A modest 3 percent raise in pay was supposed to cover the national inflation rate. The reality from the 80’s to 2006 shows a ten percent yearly-averaged inflation rate. Using these humble and easily accessible figures, no fool would admit that wages have kept pace, even if those wages were not stagnant. The term stagnant is relative, depending on how you want to justify the term.

The cold reality that we all know is that we have supported our lifestyle dreams on credit. We lost the incentive to save, which we have lost anyway due to the monster of inflation. Saving a few dollars now with a regular inflation loss means a dollar saved is a dollar lost, just a little slower over time. The endless printing of American greenbacks combined with a burgeoning national debt has ensured that a dollar saved ten years ago is worth zero today. Any interest gained on that dollar is worth very little unless you were able to invest that dollar to somehow create more. When viewed in reality, inflation is really a hungry bear. The working man has been royally and cruelly worked over, even though the government has denied the reality all along.

semantics in wealth perception

semantics in wealth perception

Since the mortgage debacle and the contracting real estate market has hit the economy (not pointing fingers today), Americans have embraced the last source of easy money to keep up their lifestyle or to avoid the reality of bankruptcy from relentless spending.

Americans aren’t ones to be told no when it comes to lifestyle. According to bean counters, credit card debt is growing much faster than the economy as Americans use credit cards with interest rates as high as 30% as a substitute for income. Last year, use of credit card increased around 7% each quarter. That is a 28% increase in an attempt to sustain economic lifestyle. Last May reported an increase of credit card use of 7%. If that were to continue for 12 months, the humble increase is a mere 84%. Obviously, this economic miracle is not sustainable.

A big crush is coming, but not just because you can’t pay your credit card bill. Banks are “securitizing” everything including your beautiful credit card debt to be sold off to eager desperate investors, at least bankers hope. Citigroup alone lost $176 million through securitized bonds for credit cards in the last quarter. Sweet. Delinquency rates devalue the securitized bonds, forcing a writedown in value.

Since banks can’t sell of all that glorious credit card debt, banks are going to make customers pay more for the privilege of easy money resulting in less easy money and a contracting credit market over time because creative money creation is not working to the advantage of wiley bankers.

Where America will turn next is anyone’s guess. Barring black market prices for selling off children as collateral, Americans may be faced with the joys of living within their means. The good news behind all of this drama is not the perceived pain. Contraction of any marketplace is a mixed blessing. Billions will be lost and millions of Americans will see hard times, but in the end everyone is a winner because, at least in theory, the marketplace achieves a value balance. America has needed a long-awaited correction that politicians are deathly afraid of. Market contraction means that prices and everything that is assigned a dollar value decreases in relative cost. The exception to that blessing is the specter of devaluation or the possibility of hyperinflation due to stagflation. That however, is another story. ~ E. Manning

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One Comment leave one →
  1. Paul Alleyne permalink
    August 21, 2008 11:54 pm

    I am 60 yeras old and for most, if not all of my adult life I have heard the mantra; “get an education and you will get a good job.” Unfortunately, a good education today does not always get you a good job. You still have to find yourself in the right business, and then still work at the mercy of companies who are more interested in profit than in loyalty to their employees.

    I remember the days of .25 cents gas and $3000.00 cars and .25 cents Mcdonald’s hamburgers. We have come a long way from there to here and are not better off, in fact we are worst off economically and socially. No jobs are safe havens anymore, because you are likely to lose yours at any moment, whether you are the CEO, or the janitor. So what do we do? We can start small businesses, but if the formula is wrong, we will be out of business within the first year; or we can take two, and sometimes three jobs in order to survive, because of low pay, high prices for everything we need; from food, to fuel, to transportatiion, entertainment and services.

    There is a triangle of evil in this society today. The government, the media and big business. And it is impossible to make any headway against these three. The goven=rnment creates the law to protect big business, allowing them to do as they please with a wink and a nod, the media fights to maintain a high rating so that they can earn more advertising dollars form businesses, and the consumers pay more for it while getting shoddy products at inflated prices.

    I don’t know what the answer is, but this government, or the next will get us no farther than we are now. The few that are rich will continue to get richer, and those of us who like in the underserved inner cities will continue to be underserved by both government and the media

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