Carnage Of The Middle-Class

In President Donald J. Trump’s inaugural address he promised, “This American carnage stops right here and stops right now.” And immediately liberals and the MSM took umbrage to his use of the word carnage, which means the slaughter of a large number of people, claiming it was just too dark a description for America. Maybe so. However, in a recent Bloomberg commentary, Justin Fox cites some sobering statistics that support Trump’s statement.

While the overall murder rate for the nation should end up increasing about 8% year-over-year, the surge within U.S. cities is absolutely staggering. Chicago suffered a 59% increase in homicides during 2016. Murders were up 56% in Memphis, 61% in San Antonio, 44% in Louisville, 36% in Phoenix and 31% in Las Vegas.

There were also 44,193 suicides in the US in 2015, with the percent increase in suicides rising the most for females aged 10–14, and for males aged 45–64. The suicide rate has risen 24% over the past 15 years and is the highest recorded rate in 28 years.

But it isn’t just violent crime that has exploded recently in the US: an incredible 52,404 Americans died from drug overdoses in 2015. More than double the amount experienced in 2002.

These morbid truths reveal the crux of this election. While Washington and the media elites were busy gloating about a falling unemployment rate, the overlooked carnage lay in plain sight. But it wasn’t just the disturbing rise of unnatural deaths. If liberal elites ever bothered to land in flyover country they would have easily found another type of carnage…the evisceration of the middle-class. 

There are two reasons for this decline. The first is a result of the Federal Reserve’s money printing that forced $3.8 trillion into the canyons of Wall Street, leaving just crumbs for the people on Main Street to feed upon. The Federal Reserve’s money flowed mostly into stocks, bonds and real estate, creating asset bubbles and inflation for the rich to enjoy. While the middle class--who don’t own nearly as many assets and spend much more of their disposable income on energy, food and shelter—became even poorer.

The second is America’s huge and persistent current account and trade deficits.  The current account deficit was $500 billion, and the trade deficit was $762 billion for 2015. The sad truth is that we haven’t had a trade surplus since Nixon closed the gold window back in 1971.

Unlike what most pundits like to argue, the money that is lost through our current account deficit and returns to us as a capital account surplus, is not merely an innocuous transaction. The so called capital account surplus is really just the transfer to foreign ownership of US equities, real estate and bonds; driving them into unsustainable bubbles and making the rich even richer.

But that’s not the worst of it. That deficit is the result of high-paying manufacturing jobs leaving this country and turning the middle-class factory worker into a minimum wage Wall Mart greeter.

In 1970, more than a quarter of US employees worked in the manufacturing sector. By 2010, only one in 10 did. Therein lies the nucleus of the trade deficit and the demise of the middle class.

But the middle class rout is not solely a result of companies moving plants overseas--often a company doesn’t have to move locations to get cheap labor.  In October of 2015, Disney, the self-proclaimed happiest place on earth, didn’t make 250 of their US employees very happy when they replaced them with immigrants on temporary visas. This transaction was facilitated by an outsourcing firm based in India.

And Disney is not the alone; similar “outsourcings” have happened across the country. Businesses have been misusing temporary worker permits, known as H-1B visas, to place immigrants willing to work for less money in technology jobs based in the United States.

These visas are intended for foreigners with advanced science or computer skills to fill specific positions only when a similar skilled American worker cannot be found. But legal loopholes have allowed companies to circumvent the requirement to recruit American workers first and that guarantee capable American workers will not be displaced.

American blue and white collar workers have good reason to fear that globalization will result in the slow extinction of the middle class; setting the United States on a dystopic course where a small group of wealthy elite reign over a large class of workers without benefits, pensions, job security or a living wage.  

This is the unrecognized pain that sat below the frequently-touted government data points on employment and GDP. And it is the carnage of the middle class that has abetted the dissolution of the American family, which in turn as led to the surge in homicides, suicides and drug overdoses in the United States.

Washington and media elites have failed to listen to the forgotten man for decades. Normalizing interest rates and enforcing fair trade agreements are absolutely mandatory for a middle-class renaissance to take place. Even though the transition will be incredibly painful, it appears there is finally someone in the White House who will begin to address these issues. The hope and prayer is that he will have the courage to see it through.

Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, “The Mid-week Reality Check”, is Host of The Pentonomics Program and Author of the book “The Coming Bond Market Collapse.”