EDITOR NOTE: The shining image of strength and stability associated with the US economy is an exceedingly important image to Americans not because of its truth value but because it’s a precious myth. And as “faith” has taught us--whether it’s a matter of religion, politics, fashion, or the latest celebrity news--myth is far more important than reality. The latter keeps us grounded, while the former keeps us dreaming; some actually get to soar. Last week’s Personal Income and Outlays report is of the “reality” component. The Personal Current Transfer reading provides a sobering look at the state of American wealth--that 34% of all U.S. household income comes from the government. Our middle class--a status that’s typically characteristic of wealthy nations--is equivalent to that of Russia and Turkey. Meanwhile, reliance on the government is steadily growing, creeping in, and normalized. Is this the work of the ultra-liberal left? Is this the work of hard-right Americans who value freedom and tax cuts yet turn a blind eye to GOP spending? None of those answers are “entirely” correct. The Federal Reserve is responsible for this. Sadly, many Americans aren’t making the connection.
Following today's release of the latest Personal Income and Spending data, Wall Street was predictably focused on the changes in these two key series, which showed a modest jump in personal spending, which however was dwarfed by a record surge in personal income, to be expected in the month when Biden's latest $1.9 trillion stimmy hit.
But while the change in the headline data was notable, what was far more remarkable was data showing just how increasingly more reliant on the US government the population has become.
We are referring, of course, to Personal Current Transfer payments which are essentially government sourced income such as unemployment benefits, welfare checks, and so on. In March, this number exploded to a mind-blowing $8.1 trillion annualized, which was not only double the $4.1 trillion from February, but was also $5 trillion above the pre-Covid trend where transfer receipts were approximately $3.2 trillion.
This means that excluding the $8.1 trillion surge in govt transfers, personal income excluding government handouts would be virtually unchanged from a year ago level at $16TN.
In longer-term context, one can see the creeping impact of government payments, shown in red below.
This, as noted earlier, was due to the latest round of government stimulus checks hitting personal accounts which in turn helped double the savings rate to a whopping 27.6% from 13.6% in February.
Stated simply, what all this means is that the government remains responsible for a third of all income, or 33.8 to be precise!
Putting that number in perspective, in the 1950s and 1960s, transfer payment were around 7%. This number rose in the low teens starting in the mid-1970s (right after the Nixon Shock ended Bretton-Woods and closed the gold window). The number then jumped again after the financial crisis, spiking to the high teens. And now, the coronavirus has officially sent this number to a record 34%!
And that's how creeping banana republic socialism comes at you: first slowly, then fast.
So for all those who claim that the Fed is now (and has been for the past decade) subsidizing the 1%, that's true, but with every passing month, the government is also funding the daily life of an ever greater portion of America's poorest social segments.
Who ends up paying for both?
Why the middle class of course, where the dollar debasement on one side, and the insane debt accumulation on the other, mean that millions of Americans content to work 9-5, pay their taxes, and generally keep their mouth shut as others are burning everything down and tearing down statues, are now doomed.
The "good" news? As we reported last November, the US middle class won't have to suffer this pain for much longer, because while the US has one one of the highest median incomes in the entire world, with only three countries boasting a higher income, it is who gets to collect this money that is the major problem, because as the chart also shows, with just a 50% share of the population in middle-income households, the US is now in the same category as such "banana republics" as Turkey, China and, drumroll, Russia.
What is just as stunning: according to the OECD, more than half of the countries in question have a more vibrant middle class than the US.
So the next time someone abuses the popular phrase "they hate us for our [fill in the blank]", perhaps it's time to counter that "they" may not "hate" us at all, but rather are making fun of what has slowly but surely become the world's biggest banana republic?
And as we concluded last year, "it has not Russia, nor China, nor any other enemy, foreign or domestic, to blame... except for one: the Federal Reserve Bank of the United States."
Original post from ZeroHedge