What things cost ... by gimleteye

The pressure of inflation-- inflation that the federal government does not count in its indexes -- is a significant driver in the abandonment of ethics and moral values that triggered the biggest economic crisis since the 1930's. Wage inequality and income disparities tell the tale of a whole strata of wage earners rushing over to the side of the ship to make as much money, as fast as they could.

Under normal conditions, a few people couldn't capsize the economy. What happened, though, was that the side of the ship was also weighted down with trillions in debt in far greater ratio to underlying equity than ever before. The abandonment of financial regulation-- or regulation of much of anything for that matter including the environment and public health-- combined with an historic series of interest rate cuts beginning in 2001, and steered consumers to use their most stable asset -- a house-- as financial leverage. What housing inflation accomplished for homeowners was to provide both a rationale and means to absorb the real cost of inflation; energy, education, healthcare to name a few. If you did borrow based on home ownership during the boom years and if you didn't, tough luck has now turned into tougher luck.

Home equity lines of credit, for instance, actively seeded consumption. Millions of homeowners are walking away from debt they cannot afford to repay. That's why this is not ordinary recession. No wonder that consumer confidence in the USA, the superpower that doesn't make much of anything anymore but aircraft and weapons for the world, is sapped.

During the housing boom, the richest class didn't make things: it learned to skim a few basis points off the biggest pot of debt. Super-sized business models delivered economies of scale that consolidated profits and socialized risk. (Take a drive down Miami's ghostly Brickell Avenue to see what it looks like.)

But 99 percent of Americans are not the kind of wizards who can persuade others that massive oversupply matches stable demand. Here is the kind of statistic I pay attention to. A two wage earner family I know (he is a city of Miami fireman, she is in a senior job in the tourism business) have a combined gross income of $250,000. They are not profligate spenders. Between mortgage payments -- home bought in Miami at the top of the market, "this bubble is not made of latex, but of stainless steel"-- and three children, they can't save a dime.

The huge number of Miami and county government employees who make more than $100K in a city where the average income is less than $40K also says a lot: that government statistics over time severely under-report the cumulative costs of inflation. Today if you are an ordinary worker, or, if you depend on "stable" investments in financial markets to do the same thing, you are stuck: either with a debased currency in dollars or force to chase higher interest rates by accepting principal risk.

No one ever entered government service saying they wanted to get rich. At least while employed there. Compared to ordinary workers in the private sector, government is the place to be. That is a very strange legacy of those who idolized the "free" market.