The Disappearing Middle Class (The Not Uncommon Case of Chicago)

I lived in Chicago while I taught at University of Chicago in Hyde Park, the site of the 1893 World Columbian Exposition. The World Columbian Exposition was intended to showcase advancement and the glorious future ahead. Sadly, virtually all of “The White City” was torn down after the Columbian Exposition ended.


Unfortunately, Chicago is now representative of a dismal trend in America — the disappearing middle class.

Thanks to some Gary Becker (University of Chicago Economist and Sociologist) type research, we now have pictures of the median family income as a percentage of metro area median income. Hyde Park is marked in a black box on the South Side of Chicago.


If we fast forward to 2012, you can see the expansion of both high income concentration (green) and low income concentration (reddish-brown), while the middle class (gray) evaporates (or moves to distant suburbs).


The evolution of income concentration can be seen in this gif:


Unfortunately, we also know that the GINI ratio, a measure of income inequality keeps growing (despite the promises of politicians, the war on income inequality, the Great Society, the war on poverty, etc). In fact, it just gets worse and worse with each new government program. The push for homeownership pushed us over the edge (look at real median household income, labor force participation and the GINI ratio since 2007).


But not to worry. Toronto (Canada) is experiencing a similar phenomenon.


It looks like America (and Canada) are returning to a feudal society where we have the ruling class and the peasants.


Fed Chair Yellen’s 2008 Concerns About A RISING Labor Force Participation (And Look What We Got!)

During the December 2008 Meeting of the Federal Open Market Committee, Alternate member Janet Yellen (now Federal Reserve Board of Governors Chair) expressed concerns about rising labor force participation. Her fears of a RISING labor force participation rate may have contributed to the massive Fed intervention in to the financial system in order to manipulate interest rates and distort markets.

YELLEN: Turning just very briefly to the labor market, the Beveridge curve chart that Stephanie presented during her briefing suggests that we have seen an unusually large increase in the unemployment rate recently in comparison with the decline in job openings, at least in the JOLTS data. I think one interpretation might be that the unemployment rate has risen in part because we have had an unusual rise in labor force participation during this recession.

Labor force participation has been higher than would be expected, particularly for three demographic groups: young adults, married women, and older workers nearing retirement. Analysis by my staff estimates that this rise in participation could reflect behavioral responses to unusual credit constraints and wealth declines.

Specifically, young adults aged 20 to 24 years appear to be entering the labor force in unusual numbers, and that might reflect diminished access to student loans.

Similarly, more married women are entering the labor force, and that’s a possible reflection of diminished access to home equity and credit card loans.

Finally, an unusually large number of older workers are in the labor market, and that may reflect the negative wealth shock associated with the collapse of housing values and the plummeting stock market.

All in all, I expect the anomalous increase in labor force participation to put continued upward pressure on the unemployment rate.

Here is a chart of labor force participation as of December 15, 2008.


Here is the chart of labor force participation AFTER Yellen’s concerns over a rising labor force participation rate. The purple line is the Fed’s balance sheet.


Well, if Yellen’s intention was to lower labor force participation, she succeeded beyond her wildest expectations. But was a decline in real median household income (green line) part of her model? Here is a closer look since January 2008.


Or crashing M1 Money Multiplier or M2 Money Velocity? I changed the Fed’s Balance Sheet to a purple line for the following charts.



Or crashing mortgage purchase applications.


But at least the US equities (blue dashed line) have benefited from the massive Fed intervention to depress labor force participation.


And the Elliott Wave for the S&P 500 index is tracking the Fed’s Balance Sheet nicely!


Great. The middle class got walloped (declining labor force participation and real median household income) while stock market investors got a pat on the back. Also, we got a M1 money multiplier below 1 and dying M2 money velocity in the bargain.

Like the Star Trek episode “All Our Yesterdays,” a view back in time is very telling about Yellen’s ideas of “helping” the middle class.


China Unloads Treasuries at 2nd Highest Rate Since 2009 (As US Debt Doubles And Real Median Household Income Declines)

According to the US Treasury, China reduced its holdings of Treasuries by $47.8 billion, or 3.6 percent, to $1.27 trillion in December from a record the previous month, according to the report. Japan’s holdings of Treasuries dropped by $3.9 billion to $1.18 trillion.


This was the 2nd largest dump of US Treasuries by China since 2009. The largest dump by China occurred in December 2011.


I wonder if the fact that the USA has doubled their public debt since January 2007 has anything to do with it?


Or that U.S. real median household income (green line) has fallen while U.S. government debt has doubled??


Or that U.S. real GDP is bumbling along at a tepid 1.90% pace (purple dashed line).



Just wondering.