The death of the middle class

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Why is this happening? AlterNet’s Lynn Stuart Parramore had the answer for the American middle class:

“Energized by Ronald Reagan’s famous declaration that government is the problem, not the solution, conservatives in recent decades have sought to reduce the government’s vital role in creating opportunity and keeping hard-pressed Americans afloat. Simultaneously, they have unleashed the wild horses of deregulated capitalism, which have trampled working people. Labor unions have been crushed, wages have declined, safety nets have frayed, medical expenses have risen, and millions of Americans are now teetering on the edge of poverty.”

The middle classes in the UK can swap Regan for Thatcher and successive neoliberal governments including the current disastrous coalition.

The super-rich – the top 1% of earners – now pocket 10p in every pound of income paid in Britain, while the poorest half of the population take home only 18p of every pound between them, according to a report published  by the Resolution Foundation thinktank, which reveals the widening gap between those at the very top and the rest of society.

and a recent report from the UN found that the UK was the most unequal nation in the western world.

The situation in the U.S. is a stark warning to the English middle classes who feel comfortably beyond the reach of poverty

New research shows that four out of five U.S. adults will struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives. What’s especially interesting is that the face of poverty is changing. You are still more likely to be poor if you are black or brown, but census data show that race disparities in the poverty rate have significantly narrowed since the 1970s. By the time they turn 60, a whopping 76 percent of whites will experience economic insecurity, defined as a year or more of periodic joblessness, reliance on government assistance like food stamps or income below 150 percent of the poverty line.

You read that correctly. Three out of four white people will get a chance to know economic panic before they reach retirement age.

the accelerating use of food banks in the UK is being driven not only by unemployment, benefit sanctions and the bedroom tax – but by record levels of private debt, much of which is tied to large mortgage repayments.

Now paying the mortgage is part of the middle class path to glory but as The Guardian recently reported, the hyper inflated property market had led to many families being obliged to take on dangerously high levels of debt.

More than a million homeowners will be at risk of defaulting on their mortgages and losing their properties in the wake of even a small rise in interest rates, a bombshell analysis reveals. Borrowers who have failed to pay down their mortgages when interest rates have been at record low levels now face being overwhelmed by “perilous levels of debt” when the inevitable hike comes.

Gillian Guy, chief executive of Citizens Advice, warned of a “financial ticking timebomb”: “The rising cost of energy, food and travel has been absorbing any spare income people may have. This means that in some cases there is little or nothing left to cope with larger mortgage repayments.”

According to a new report from an influential thinktank, the Resolution Foundation, even in the most optimistic scenario – in which interest rates rise slowly to 3% by 2018 and economic growth is strong and well-distributed between the rich and poor – 1.12 million homeowners will be spending more than half of their take-home pay on mortgage repayments – this is a widely accepted indicator of over-indebtedness.

the Bank Of England had already came to the same conclusion from their own research

Drawing on a detailed survey conducted by consultancy NMG, the Bank finds that average household debt remains high, at £87,000, and any rate rise that was not accompanied by an increase in real wages could push a growing proportion of borrowers close to the edge.

Accelerating inequality can only mean accelerating insecurity and poverty.

The middle classes of the UK may be about to learn just how deep the misery caused by neoliberalism can go.

Trapped into high debts, declining real incomes, job insecurity and cuts in local support services – the middle classes have responded by buying Christmas on credit:

a survey carried out by Which? reveals that rather than paying off their debts, around 13 million people (25%) paid for their Christmas by borrowing. Overall, more than four in 10 (42%) used credit cards, loans or overdrafts to fund their spending over the festive period,

But piling debts on top of more debts may be a strategy to get through today – but as we all know its not a strategy that can be sustained for long. 

While the latest flood of cheap money is ramping up house prices and making some people feel rich, (and a few actually very rich) history shows us that interest rates will not stay close to zero forever.

When the latest bubble pops we can expect the top 1% to be in a great position to profit – but the prospects for the British middle class look bleak – indeed they may be a dying breed altogether.