You may have missed a report issued this week by the Federal Reserve. The report is issued every three years and is regarded as the most comprehensive examination of the financial health of American families.
It’s full of bad news.
The financial state of the average American family is just about where it was in the early 1990s. The economic implosion, and the resulting Great Recession, has erased almost two decades of accumulated prosperity for middle-income Americans.
The median American family — meaning half the population is poorer, the other half is richer — had a drop in net worth from $126,400 in 2007 to $77,300 in 2010. The drop in home prices accounts for most of the wealth loss — about 75%.
But, the Fed study found, actual earned income has also declined in the last three years, accelerating a trend that began 20 years ago. Median family income in 2007 was $49,600. In 2010, it fell to $45,800.
The Fed report confirms that middle-income families sustained the largest losses in both total wealth and incomes from the economic implosion of 2008 that created the massive economic contraction of 2009 and 2010, the last year included in the Fed report.
The percentage of savings by families fell from previous years. Families that are saving are doing so partly as a precautionary measure, a desire for more liquidity in shaky economic times. Fewer families are saving for retirement, education or a down payment for a home.
The median debt load for families remained the same, indicating families are not taking on new debt, nor are they able to pay down existing debt. The report also found Americans are shifting the type of debt they carry. Credit card debt declined, and more families report that they carry no credit cards at all. Families with education-related debt grew. For the first time in the history of the Fed report, families with education loans exceed families with car loans.
From the Feds point of view, the study confirms one reason why the economic recovery continues to sputter. When consumers have less income, they spend less, they save less and they pay their debts more slowly.
In short, the Feds say, there is an economic cost to the nation’s economy of the continuous shrinking of the middle class and the ever-growing economic inequality in the U.S.
While middle-income America saw both its wealth and income decrease during the Great Recession, the richest 10 percent experienced both wealth and income gains.
In 2010, 93 percent of all wealth created in the U.S. went to the top 1 percent of Americans. The percentage of the nation’s wealth held by the top 10 percent of Americans equals 49.7 percent of the nation’s entire wealth, a larger percentage than any other year since 1917, surpassing even 1928, the peak of the stock market bubble in the Roaring 1920s.
Recently, the Associated Press took income data and created an interesting illustration of what the nation’s income equality looks like. In 2011, the average annual pay for a top CEO in the U.S. would equal what a minimum-wage worker would make in 9,096 years. A median wage worker — making $39,312 — would have to work 3,489 years to earn the average annual income of a top CEO.
When one speaks about the growing income inequality in the U.S. — the largest gap of all major-industrialized countries and the 4th worst inequality in the world — the typical response is that one is promoting “class warfare.”
But Warren Buffett, multi-billionaire investor, put it succinctly and accurately when he said in an interview in 2006: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
As the Fed report confirms, the charges of “class warfare” may win the battle for a time, but they will ultimately cause us to lose an even larger war.