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Western Civilization and the Economic Crisis: The Impoverishment of the Middle Class.   


Andrew Gavin Marshall  March 30, 2010



The Middle Class in Crisis


At the onset of the global economic crisis, as in, at the point in which the word “recession” was being used, in the Spring of 2008, it was reported that in the U.K., “The number of middle class families struggling to make ends meet has increased significantly, with debt advice agencies overwhelmed with pleas for help from households in affluent areas of the country.” The financial problems of the middle class “[were] being driven by rising inflation, the increased cost of living and the downturn in the housing market.” An article in the Telegraph explained that, “The face of debt has changed. Historically, it used to be mainly people on benefits and people in social housing who went to debt advice agencies.” However, “Since the credit crunch started, there has been a big increase in professionals and home-owners coming for help - you just didn’t see these people before at all.” The middle class is “struggling with mortgages, secured loans, and credit card debts.”[11]


The middle class in Britain has been plunged into a personal debt crisis, as professionals across the nation fall into the red. The middle class has been spending beyond its means; however, easy access to credit has been aided and abetted by the banks and financial institutions that gave away credit cards and loans without proper financial checks.[12]


At the same time, in America, it was reported in July of 2008 that years of spending beyond their means has left a record number of Americans “standing at the financial precipice.” Americans “have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.” As the New York Times reported, “the increased availability of credit has contributed mightily to the American economy and has allowed consumers to make big-ticket purchases like homes, cars and college educations.”[13]


It was reported in June of 2008, that despite the obvious onset of the economic crisis at that time, “Cash-strapped Americans are ringing up more and more purchases on their credit and debit cards, and there could be a steep price to pay ahead.” One market strategist stated that, “Right now what we're seeing is the US consumer losing their disposable income as they have to spend more and more on necessities because of higher prices for gas and food.”[14]


This debt crisis is a consumer debt crisis of the western world. An article in Macleans in March of 2009 explained that for Canadians, while “debt” used to be a “bad word” for nearly a century:


"[S]tarting in the 1990s our attitude to debt changed. As interest rates fell and soaring house prices made everyone feel richer, our nation of savers became a nation of borrowers. Debt emerged as the great enabler, the ticket to the trappings of a better life, to flat screen TVs and shiny new SUVs. Now the upward march of real estate has reversed course, taking the household net worth of Canadians with it."[15]


Now, Canadians are “at the point where regular Canadians are carrying even more debt than Americans. It’s true we used to save much more—as recently as 1990 we socked away 13 per cent of our disposable incomes—but the average debt carried by Canadian households has jumped 71 per cent since then to $90,700, growing six times faster than the average household income.” The article elaborated, “the average Canadian family now owes more than 1.3 times its disposable income. That puts us in a slightly worse position that the typical American family, which owes just over 1.2 per cent of its disposable income.” The middle class wealth was built on this debt, and so when the housing market began to collapse, it “exposed much of that wealth as a mirage.” Foreclosures and bankruptcies have soared, and now, “paying down debts that once seemed quite manageable will become a crushing and onerous process.”[16]


In August of 2009, Bank of America released a report in which they explained, “The consumer debt problem in the economy really is a debt problem for the middle class. The need to work off a chunk of that debt will sap middle-class families’ spending power for perhaps years to come.” The twisted irony here is that institutions like Bank of America encouraged and facilitated debt-based consumption, and engaged in far riskier debt-based transactions on a global scale, which caused the global financial crisis. Subsequently, the banks, like Bank of America, were given a blank check by the government that bought their bad debts, and are now going to charge the taxpayers, of which the Bank of America report states they need to “work off a chunk” of their own personal debt. They forgot to mention that the taxpayers would also be paying off the bankers’ debts, too.


The Bank of America report further revealed that, “Lower-income families account for 40% of the population but just 12% of total consumption,” while, “The middle class is 50% of the population and nearly as large a share of consumption, at 46%,” thus, leaving “the wealthy to account for a hefty 42% of consumption.” The report explained:


"In terms of their debt burdens, neither lower-income families nor the wealthy are constrained the way the middle class is constrained. . .


[The report] says the middle-class has suffered more than the wealthy from the housing crash because middle-class families tended to rely more on their homes to build savings through rising equity. Also, the wealthy naturally had a much larger and more diverse portfolio of assets -- stocks, bonds, etc. -- which have mostly bounced back significantly this year."[17]


Thus, the consumer society has already been altered. It will no longer be the middle classes that are the consuming class, but the wealthy. The middle class will be forced to deleverage and buckle under their debt burdens. This is only a radical acceleration of a several-decades long trend in Western society; the economic crisis simply sped up this process and is exacerbating its compound effects. Do not deceive yourself, this has been a long-time coming.


In May of 2009, it was reported that in the U.K., “The number of Britons in traditionally affluent areas who are being swamped by debt has more than doubled in the last six months,” as “The recession and resulting increase in unemployment has hit white collar workers in the service sector particularly hard.” One expert stated that, “We are seeing a higher percentage of middle and higher income clients who are struggling because of redundancy or the inability to manage their mortgage repayments, often alongside multiple credit card debts.” He further articulated, “Inevitably, these higher levels of debt are leading to [an] increased number of clients having to look at bankruptcy or other insolvency solutions.”[18]


In July of 2009, the IMF warned that “Britain’s credit card debt crisis will get significantly worse in the coming months with a wave of consumer payment defaults.” The IMF said it “expects [that] £1.5bn of consumer debt across Europe will not be repaid, much of it in Britain which has the highest number of credit card borrowers on the continent.” Further, the “failure to pay credit card bills is likely to increase as unemployment rises and the number of personal insolvencies, which reached 29,774 in the first quarter of the year, continues to rise.”[19]


In October of 2009, it was reported that, “High earners are struggling with debt as much as people on low incomes, according to financial experts and advisory charities,” as a direct result of the credit crunch and years of spending beyond their means, as “The withdrawal of easy credit as a result of the credit crunch has forced even those earning six-figure salaries to seek help with their debts.”[20]


Now into 2010, central bankers are concerned about the massive debt levels of nations and consumers (that they played a central role in), and “they are warning about the need to raise interest rates to control this.” However:


"When interest rates start to rise payments on these mortgages will rise to the point where some borrowers won’t be able to manage. The fear is that foreclosures will then increase and there will be a repeat of the market collapse that started in the United States in 2007."[21]


As a result of the credit crunch in Canada, middle-income families have actually been increasing their credit and debt in order to stay afloat. In May of 2009, “household debt has reached an all-time high of $1.3 trillion in 2008,” as “Canadian families are financing consumption activity with unearned money as they increasingly reach for credit to finance day-to-day living expenses.” In October of 2009, the Bank of Canada reported that total household debt had risen to $1.4 trillion. In 2008, the average Canadian had a personal debt of almost $39,000, and the trend was on the rise. 58% of Canadians said their borrowing is to finance day-to-day living expenses. Between September 2008 and September 2009, 148,373 Canadians went into bankruptcy, with the trend rapidly increasing on a monthly basis, suggesting that the financial situation of Canadians is only getting worse.[22]


It was reported that over the course of 2009 in the United States, “Total credit-card debt outstanding dropped by $93 billion, or almost 10%.” On the surface, this appears to be a good trend, suggesting that people might be paying off their debts. However:


"It turns out that while total debt outstanding dropped by $93 billion, charge-offs added up to $83 billion — which means that only 10% of the decrease in credit card debt — less than $10 billion — was due to people actually paying down their balances."[23]


In reality, “Consumers weren’t paying down their credit cards at all: they were racking up billions of dollars in new debt, and defaulting on the old stuff.” In late 2008 and early 2009, considered the worst period of the economic crisis, spending was down and panic was in the air. People were also trying to pay off their credit cards:


"Then two things happened: the panic started wearing off, and unemployment continued to rise. The urgency of paying down debt ebbed, even as spending naturally continued in the face of country-wide layoffs. And as a result, credit card debt continued its natural upward rise."[24]


The only way to stem the rise in credit card debt is to increase employment so that people can afford to pay off their credit card debt. However, due to governments bailing out the banks at trillions of dollars, the governments have put themselves at great risk of a fiscal debt crisis; thus, to pay off their debt, they will have to cut spending, which means exacerbating the unemployment rate, not stemming it.


The middle classes of the western world, surviving only on debt, are about to be subject to a “class default.” The wealthy class will be the consumption class, as the middle class is absorbed into the lower class and labour work force.


To be Continued....


[11]      Caroline Gammell, Debt crisis: More middle classes seeking help. The Telegraph: May 18, 2008:


[12]      Sean Poulter, Now desperate middle-class families face huge debt crisis as more and more professionals plunge into the red. Daily Mail: May 19, 2008:


[13]      Gretchen Morgenson, Given a Shovel, Americans Dig Deeper Into Debt. The New York Times: July 20, 2008:


[14]      Jeff Cox, Credit-Card Use Is Surging, Risking Another Debt Crisis. CNBC: June 3, 2008:


[15]      Jason Kirby, Pay up or get out. Macleans: March 19, 2009:


[16]      Ibid.


[17]      Tom Petruno, 'The consumer isn't overleveraged -- the middle class is'. Los Angeles Times Blogs: August 14, 2009:


[18]      Sean Poulter, Middle-class debt epidemic: Wealthy plunged into crisis by recession. The Daily Mail: May 12, 2009:


[19]      Alastair Jamieson, Credit card crisis to grip Britain, IMF warns. The Telegraph: July 27, 2009:


[20]      Jill Insley, Middle-class life and debt, even on a good salary. The Guardian: October 4, 2009:


[21]      Rupert Taylor, Canadians Boosting their Debt. Suite 101: February 11, 2010:


[22]      Ibid.


[23]      Felix Salmon, That stubbornly high credit card debt. Reuters: March 10, 2010:


[24]      Ibid.




As the middle class evaporates into the

lower labour-oriented class, there will

 be a number of major social changes that

 take place. As the Industrial Revolution changed class structure, the Post-Industrial Revolution will do the same.



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