Paycheck to paycheck

It used to be that living paycheck to paycheck was not something the vast majority of people were used to. There were savings in the household, and those savings were used to boost the living standards of folks whether it comes to buying a new car, a new house, a trip abroad, a better standard of living, better school for the kids or just a financial safety net in case something happened, and the family needed to have savings available to tap into to ensure the bad times would pass without too much of a lasting impact on their finances.

"In 1950, real-dollar household incomes in the U.S. had risen by 178 per cent since 1936, had increased sixfold since 1901. Wages had risen to real-dollar $1.59 an hour from 58 cents an hour in 1936. The percentage of families that owned their own homes: 50. The percentage that owned a car: 60. The percentage that lived on a single income: 70." (Opinion: The sad demise of the one-income family - The Globe and Mail)

The value of the dollar was such and the expectation for the purchasing power was such that a family of four could conceivably make it comfortably in a middle class setting with a single income and be able to set aside for rainy days. The United States emerged from WWII victorious and led the transformation of the world economy with the Bretton Woods Agreement, where the monetary values of the world economies were tied to the US Dollar and the Dollar was in turn pegged to gold at $35 per ounce. Back then the US Dollar was as good as gold and the 44 countries to this agreement were plowing forward with the new economic realities following WWII.

Then came the 1960s and the United States introduced what was referred to as the Butter and Guns economy, where it was simultaneously fighting the Cold War against the Soviets, the real shooting war in SE Asia - first Korea then Vietnam, followed by Cambodia and Laos while also spending on space exploration, social programs and other resources which were needed. The nation built out the Eisenhower highway system, put several men on the moon and introduced new social programs aimed at improving the structure of the country.

But all these things need funding and the amount of money the government was spending was starting to outpace the amount of gold reserves available to back the dollars in circulation. Simultaneously, the economy was growing, and the banking sector was introducing new and innovative ideas which led to money creation that was starting to exceed the norms and resulting in inflationary issues. By the end of the 1960s it became necessary for some households to have dual earning powers in order to maintain and increase their standards of living.

The 1970s saw tremendous tumultuous changes in the nation and in August of 1971, Richard Nixon made his famous televised speech where he informed the country that as of that day, the US has suspended the convertibility of dollars to gold to defend the dollar against what he called speculators. Reality was that the number of dollars in circulation has exceeded the gold reserves backing them and it was on an unsustainable track to continue operating with the reserves as a backdrop. As of that day, the US dollar became officially known as a FIAT currency where it is backed by nothing except the "full faith and credit of the US government". In other words, it is backed by decree and nothing else.

This led to a tremendous inflationary runaway train and by the time Ronald Reagan entered office in 1981, inflation was running rampant in the country. The vast majority of families were at this time required to work outside of the house, both parents, and a lot of them saw the introduction of husbands or fathers working a part time job as well to make ends meet.

Then Reagnomics kicked in and the wealth growth kicked into high gear for the top 10-15% of households while the bottom 80-85% were more and more relying on their dwindling savings to get by in case an emergency came up. The 1980s saw the re-introduction of the idea of cohabitation with family members in order to survive, since so many families were impacted by emergencies and ongoing crisis, that could not be covered by their dual incomes while at the same time paying their regular bills, that their savings evaporated, and they had no choice but to move in with relatives.

At the end of the decade, the savings rate of American families was near 0.00. The 1990s and the early 2000s saw somewhat of a rebound in the economy, where the savings rates did not improve but the incomes did somewhat. This was due to a lending boom that was brought about by the relaxation of banking regulations where commercial banks and investment banks largely erased the line put in place after the Great Depression that kept banks from encouraging speculation on a grand scale and tanking the economy. The 90s and the early 2000s were a boon for fresh lending especially in the property sector, where money seemingly was made available to anyone who could fog a mirror.

So, the American family, who went from a single income earner in the 1950s, with savings and a middle-class lifestyle, to a dual income household in the 60s and 70s, with savings parred back to 0.00 in the 80s to borrowing money against the last remaining asset it had in the 2000s - the home - found itself in the second decade of the new millennium with both parents having to work, sometimes multiple jobs, with no savings and having borrowed money to pay the bills and at risk of losing their homes, and living paycheck to paycheck.

And that is where we are today. After the pandemic, as life returned somewhat to "normal", millions of American families are finding themselves in a position where they not only lack the ability to save anything, lack the ability to have any time outside of work, lack the ability to own any assets that are not mortgaged away to 3 different banks but comparatively speaking are making less, inflation adjusted income then their 1950s counterparts and now borrowing against their future incomes with so called payday loans, struggling to make ends meet on a monthly basis.

The tragedy in all of this is this. The destruction of the American powerbase, which is the lower and middle class, will have dire consequences for the future of the country. If wealth is accumulated in the hands of an increasingly smaller and smaller group of people, the economic engine of the country starts producing less and less goods and services because the consumer base is shrinking. Eventually, even the very wealthy will feel the impact because at a tipping point, there will come a time when their wealth will not be able to purchase the things they desire because nobody will be producing them.

The issue of so many increasing numbers of families living paycheck to paycheck will have tremendous consequences for the US economy in the future and not good ones. This is not something that can be ignored at least not for long. The irony is millions of people living paycheck to paycheck still believe that taxing wealth is a bad thing because they'd rather let wealthy people keep piling on millions of dollars' worth of wealth onto their pile on a daily basis than to allow the government to tax the wealth and then turn around and spend it because, "governments waste money". So, they pay their taxes, but they protest the idea of wealthy people paying taxes.

But the vast majority of government spending is designed to benefit wealthy individuals and corporations in terms of tax cuts, subsidies, etc. Defense spending alone pays trillions of dollars every year to defense contractors, none of which trickles down to people who actually work to make the products. Billions are spent by the government on healthcare, all of which is sent to companies who in turn still send bills out to patients demanding more money.

The price of gas is over $3.00 per gallon but oil and gas companies get billions in subsidies every year from the federal government. The banking industry, that is perhaps the most visible in terms of directly impacting families with car and home repossessions for failure to make payments, received trillions of dollars in bail outs following the 2008 crash that they themselves were instrumental in causing.

So, living paycheck to paycheck in America is not something that will be mitigated with the current system. It will not be fixed. It requires a new way of thinking and a new approach to wealth. What that is, hard to say. But what is clearly known is this - the current economic picture is unsustainable on the long run and that is definitely bad news for the country. Wealthy and paycheck to paycheck families alike.