Crushing the Middle Class

Tuesday, June 11, 2013
By Paul Martin

By: John Browne
Senior Market Strategist, Euro Pacific Capital, Inc.
GoldSeek.com
Monday, 10 June 2013

Like a carefully memorized religious incantation, politicians and central bankers continually stress how their stimulus policies are designed to promote the interests and prosperity of the middle class. Cynical observers may note that this brave political stance may have something to do with gaining the support of the vast majority of voters who identify themselves as “middle class.” However, the cumulative effect of their economic programs has achieved the opposite. The middle class is being crushed under increased taxes, negative real interest rates, debased currencies and increasingly intrusive regulations.

A large and healthy middle class is the single most important bastion of democracy and freedom in the modern world. Individuals who identify with the middle class exhibit strong support of their nation and economic system. A small, weak middle class opens the political door to dictatorial control and tyranny. This was the case in the waning days of czarist Russia when, the small Bolshevik party was able to court the discontent of the underclass to seize control over more than one hundred million people.

Many government policy decisions lead Americans to take on debt, such as Clinton’s home ownership push, Bush’s post-911 spending prescription, or the tax code’s mortgage interest deduction. As the largest debtor in the world, it is not a leap in logic to imagine the U.S. Government prefers policies that favor debtors rather than creditors. These efforts can be magnified if central bank monetary debasement destroys the value of any savings the middle class had managed to save. The explicit policy of the Federal Reserve is now to hold interest rates below the rate of inflation, which by definition discourages saving and encourages debt.In exchange for the loss of their savings, the middle class can’t point to any significant gains. Wage rates in America and Europe have been largely flat for several years. In Japan, a similar recession caused a flat economy that has lasted for more than ten years while the broader economy has largely stagnated.

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