Continuing our theme of the effects of the Second Great Depression on the middle class and society in general, we can see that the shrinking of manufacturing in this country is having a profound effect on the ability of middle class families to participate in home ownership. Manufacturing jobs historically paid the highest wages, due to more collective bargaining in the sector, but that has all changed with globalization:
The blue line of existing home sales represents the predominate purchasing of distressed properties using the first time home-buyer tax credit in the current depressed market. The red line representing new home purchases is falling faster because of less price flexibility according to
Calculated Risk.com. The "distressing gap" is not good news for the FIRE economy. Housing construction is now one of the biggest industries in America.
The federal government is also feeling the squeeze. Falling tax revenues are increasing the burden of existing and future public debt. Morgan Stanley created an interesting table tp show the relative position of western countries when it come to the ability of a country to pay back its public debt. Compared to western Europe and especially the notorious Mediterranean profligates, the US debt to GDP ratio is conservative. But the ability to pay debt is better related to government revenues which are basically taxes. In this comparison the US comes last:
The middle column shows why. The US has the lowest total tax revenue by far, less than half of all the other nations in the table. This will make a Tea Party person happy, but creditors will get nervous about the US ability to pay back its debts. Perhaps the answer is to cut taxes even more? Not so much. The fact is the United States has a very
low corporate tax rate and no VAT which most other western nations have.
