SOME ARE MORE EQUAL THAN OTHERS

The LA Times gives us some depressing truth about the recession:  the wealthy are fine, the rest of us are screwed for a good, long time.

No group was immune to the downturn. In 2008, as the financial crisis raged, the stock market hit bottom and the Great Recession ate into the economy, the number of millionaires in the United States plunged.

But last year the number of millionaires bounced up sharply, new data show.

Nobody could have predicted, etc...

The rebound largely reflects the stock market's powerful surge from 12-year lows reached in March 2008. Even though the long bear market that began in late 2007 continued into early last year, the Dow Jones industrials gained 19% over the course of 2009.

As a result, the expansion of the portfolios of the rich resembled the quick recovery of the profits of Wall Street investment banks and the bonuses of their executives, both of which depend on the health of the stock market.

The boom didn't reach all parts of the population. For the middle class, home values account for a larger slice of a family's wealth than they do for the rich. And unlike stocks, home values remain at or near the lows they reached after a painful crash.

In fact, real estate and other hard assets, such as $200,000 cars, aren't reflected in Boston Consulting Group's report. Had they been, the financial condition of ordinary Americans would have appeared even worse.

The Federal Reserve reported Thursday that the net value of real estate owned by U.S. households fell again in the first three months of this year after sinking a total of $7.7 trillion in 2007-09.

Let me run that by you again.  Nearly eight trillion dollars vanished from our economy.  Eight.  Trillion.  With a T.  That's just from the residential real estate market.  Gone.  Vanished.  And still vanishing even as we speak.  That wealth is gone, folks.  It's not coming back for a long, long time if at all.  That's half our GDP lost to just the residential real estate market.  The total losses elsewhere are just as staggering.

When you take that much money out of an economy like that, that creates massive deflationary pressure.  Add to that increased deflationary pressure from long-term unemployment and decreased household spending and you have a formula for a massive deflationary spiral.  Only the TARP money and the stimulus prevented us from tipping into that spiral.

But if the deficit hawks prevail here and we cut spending, we will be trapped in a nightmare.  Well, the wealthiest Americans will be alright for the most part.  The rest of us poor working-class schlubs are going to see the value of anything we owe money on disintegrate, like mortgages.  Considering your average American homeowner has everything tied up in their home, once the stimulus runs out we're going to be right back to Fall 2008 again.

Only this time we'll already be against the wall.  The Tea Party movement is being used to cloak the systematic dismemberment of the American safety net, and should spending be slashed the way people want, the Great Depression era income inequality we now have will only get far, far worse.