Middle class makers slip to low class takers - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 31 January 2013
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Baltimore, Maryland

And all the towns and people seem
To fade into a bad dream
And the steel rails still ain't heard the news.
The conductor sings his song again,
The passengers will please refrain
This train's got the disappearing railroad blues.

- Steve Goodman

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The Acela train from Penn Station in New York left on schedule. It entered the tunnel to cross the Hudson into New Jersey. But when it came out, there was nothing to see....a thick fog lay over the whole area. Ghost-like ...we passed abandoned factories, wrecked warehouses, and whole areas that seemed devoted to collecting and recycling industrial relics...with mountains of bent and rusty steel...Everests of broken concrete...and what looked like whole blocks full of abandoned junk.

We looked out the window...curious about what goes on in this part of the world. Amid the phantoms, do real people still live here? Do they still do real work?

They must. Many of the buildings had broken out windows...but others looked freshly painted with rows of tractor trailers waiting to take something somewhere.

There were also areas of very modest worker housing...not abandoned...but actually lived in. Or else, someone went to a lot of trouble to fool us...there were modern automobiles in front of the row houses. And parking lots full next to the old warehouses.

We breathed a sigh of relief...the Northeast Corridor has not been entirely taken over by zombies. There are still people who work in America!

But wait...is it still there? The train slid into Trenton...had the city fathers finally given up the advertising that welcomed visitors since the Depression? Or was it still there, announcing a world that died half a century ago?

We held our breath...then we realized...we missed it. Or it has come down. We didn't see it.

Oh say can you see...does the town motto still proudly and fraudulently proclaim: 'Trenton Makes; The World Takes'? We checked Google. Apparently, the Warren Street bridge, built in 1935, still has the motto on it. Trenton ain't heard the news.

Trenton, 50 years ago, was a city of middle class makers. Now, it is a city of takers. They take food-stamps, disability payments, poverty grants, subsidies, bailouts - whatever they can get. Twenty-one percent of Trenton residents "live in poverty," say the press reports. The rest must live in houses. Or in shame.

Many of the people of Trenton - like the people of so many of America's cities and suburbs - have slipped from middle class makers to low class takers.

What happened?

The feds undermined America's middle class economy with cheap money. In effect, the feds gave out free money and credit. Consumers used it...like the Romans during the late imperial period of the 2nd to 5th centuries...and the Spaniards during the 16th and 17th centuries...to buy stuff. When you can get stuff without producing anything, why bother?

The Romans took money from the people they conquered. When the conquests ran out in the first century AD, they began inflating the currency. The Spaniards got their money from the Aztecs and Incas. Instead of producing things they used the cheap money to buy things from foreigners. Overseas industries prospered. Spanish industries shriveled and rusted.

Trenton stopped making in the '80s and '90s. Instead, the people of New Jersey bought what they needed from China. And Saudi Arabia. On credit.

And now...surprise, surprise...Trenton's middle class is struggling. Good jobs are hard to find. Housing prices are low. And in real terms, a $1,000 investment in the stock market 12 years ago is now worth $884.

But aren't things picking up? Maybe. But in the final quarter of 2012, GDP actually fell 0.1%.

Why? Because the Pentagon cut its spending $40 billion. The New York Times:

    The United States economy unexpectedly reversed course in the final quarter of 2012 and contracted at a 0.1 percent rate, the Commerce Department said Wednesday, its worst performance since the aftermath of the financial crisis in 2009.

    The drop in gross domestic product was driven by a plunge in military spending, as well as fewer exports and a steep slowdown in the buildup of inventories by businesses. Anxieties about the fiscal impasse in Washington also contributed to the slowdown, one reason stockpiles grew more slowly.

    The 22.2 percent drop in military spending - the sharpest quarterly drop in more than four decades - along with the drop in inventories and exports overwhelmed more positive indicators in the private sector, he said.
We have previously reported that the manufacturing comeback in the US is not based on making real things for real buyers. Forty percent of US manufacturing is for the military. Take it away and the economy is in trouble.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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2 Responses to "Middle class makers slip to low class takers"

V M Ketkar

Jan 31, 2013

I was not aware that Defense accounts for about 40% of all US manufacturing! If US starts withdrawing its forces from Afghanistan and Iraq, future is bleak for US GDP.

Like 

Rajaram

Jan 31, 2013

Mr.Bonnner still keeps raising the issues, but he has no solutions. Ultimately, I only admire people who also give solutions along with the problem symptoms. A return to production, a return to consuming what we produce (I mean real goods and services) is the way out. Also America has the advantage of an open society and an innovative culture. Instead of getting themselves lost in a superiority complex, they should produce real goods that solve the world's problems, instead of isolating themselves as a continent. American should be more relevant to the world, than just itself. And iPads type of innovations are not going to solve the world's problems... Food, water, energy, education, hygiene, sustainable localized economies, these are the kinds of things American tendency to innovate must address.

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