“Since 2008, the number of people who call themselves middle class has fallen by nearly a fifth, according to a survey in January by the Pew Research Center, from 53 percent to 44 percent. Forty percent now identify as either lower-middle or lower class compared with just 25 percent in February 2008.

“According to Gallup, the percentage of Americans who say they’re middle or upper-middle class fell 8 points between 2008 and 2012, to 55 percent.”

There are many bipartisan culprits. But let’s just finger one here: the Federal Reserve Board. The Democrat Paul Volcker, Fed chairman from 1979 to 1987, was the last one with decent policies. He was appointed by Democratic President Jimmy Carter. Volcker crushed the “stagflation” — stagnation plus inflation — of the 1970s with tight money and high interest rates. Prosperity ensued, also due to Republican President Reagan’s 1981-83 tax cuts.

Volcker gradually cut interest rates. But he kept rates always about 2 percentage points above the inflation rate. That way, people could save money in their passbook savings accounts. They could build for the future.

Reagan mistake

He was replaced in 1987 when Reagan appointed fellow Republican Alan Greenspan as Fed chairman. Greenspan later was re-appointed seemingly endlessly by Republican President George Bush Uno, Democratic President Bill Clinton and Republican President George Bush Dos.

Greespan was good for a while. But after the 9/11/2001 terrorist attacks, Greenspan panicked, inflated the dollar and cut interest rates to zero for most of his term. Doing so funneled too much money into the supposedly fragile economy. But meant the middle class couldn’t save money on its passbook savings accounts. Inflation came rushing back — that’s why 99-cent gasoline in 2000 now is $4.00 — also crushing the middle class.

Bush Dos appointed the next Fed chairman, Republican Ben Bernanke, in 2006. Democratic President Barack Obama re-appointed Bernanke in 2010. Bernanke continued the Greenspan policies. Along with the other bad policies by presidents and Congress (not covered here), the Greenspan-Bernanke zero percent interest rate policy set the middle class up for the Sept. 2008 economic collapse.

Zero percent

Zero interest rates mean money cannot be saved the normal way. With inflation at least 2 percent (probably more like 8 percent), the middle-class’s savings are drained away. Credit-card interest rates of up to 30 percent also gouge the middle class.

With people unable to save the normal way, they lose money on passbook savings, don’t invest or put what little money they might have into stock market speculation. The Fed inflationism also pours artificial money into stocks. Hence, the record stock prices of recent years, mainly benefitting the rich. But the “prosperity” all is fake, based on money creation and low interest rates.

Obama just appointed Democrat Janet Yellen as Fed chairperson. She said she will continue the Greenspan-Bernanke zero interest rate policy “for some time.” So the Fed will continue to gut the middle class, which just can’t save to lift itself up.

The middle class gets gouged for everything and by both parties: Zero percent interest rates on passbook savings, 30 percent interest rates on credit cards, preposterous college debt, declining pay levels and high inflation.

It’s a bipartisan, 13-year ripoff of the middle class.

And eventually this house of cheap credit tricks will fall down.

But only 74,000 jobs were created, which is really bad. That was way below expectations of 200,000 jobs created.

The Guardian reported:

“Only 62.8% of the adult workforce participated in the jobs market in December, down 0.2 percentage points from the previous month. It was the lowest participation rate – the number of people employed or actively looking for work – since the 1970s.”

Working-age Americans not in the labor force now amount to 92 million, a new record.

This really is a “jobless recovery” — assuming it's even a recovery.

Some economists say the economy still is “growing.” Certainly it still is in some areas, such as technology.

But it also seems that the large new weights on the economy — the Obamacare taxes and regulations, and in California the Proposition 30 tax increase and AB 32 regulations — are preventing the kind of strong jobs growth enjoyed in earlier recessions.

Another problem is the inflationary policies of the Federal Reserve Board, which will be continued when Janet Yellen becomes chairperson in February. Inflation is like cocaine, seeming to bring about euphoria for short time, then causing a crash.

If a crash does occur, the Brown's budget assumptions go out the window. And his illusory “surplus” turns into another $20 billion budget deficit.

That means the CPI has been less than the COLA. So far so good.

But what if inflation is higher? It’s unlikely that 1970s-style double-digit inflation could return. But even an increase in inflation to 4 percent a year, for example, could rapidly erode pension values.

The possibility is real because Janet Yellen, currently the vice chairwoman of the Federal Reserve Board, long has advocated more inflation. She is a prime candidate to replace outgoing Ben Bernanke as the Fed chairwoman.

“Progress on reducing unemployment should take center stage … even if maintaining that progress might result in inflation slightly and temporarily exceeding 2 percent,” Yellen told a meeting sponsored by the Society of American Business Writers and Editors, as reported by Reuters.

However, similar “temporary” inflation policies were pursued by the Fed in the 1970s, but then things got out of hand and inflation rose much higher than expected.

CalPERS pensions could be cut in half in just 11 years

CalPERS’ set COLA of 2 percent a year is 1 percentage point less than the 3 percent historical inflation rate. A 1 percent per year erosion of pension payments over 20 years is a 20 percent reduction in benefits.  On a compounded basis, the reduction in pension payments would be even greater.

A looming increase in money inflation from the “tapering” of “quantitative easing” by the U.S. Federal Reserve, even if Yellen does not become chairwoman, is likely to result in CalPERS pensions eroding.

If inflation jumps to a compounded 9 percent, a CalPERS pension could be cut in half in as little as 11 years, as shown in the table below.  At a 9 percent inflation rate, pension benefits would erode by 74 percent over 20 years.

Inflation Averaged 8.75 Percent from 1973 to 1982

Inflation has averaged only 1.46 percent since the Mortgage Meltdown and Bank Crisis of 2008.  But inflation averaged 8.75 percent per year from 1973 to 1982.  The crisis led to President Gerald Ford’s Whip Inflation Now campaign, where he passed out “WIN” buttons. But it didn’t work. Only the tight money policies of Federal Reserve Board Chairman Paul Volcker finally crushed inflation in the early 1980s.

That is, Volcker applied the opposite policy to what the Federal Reserve Board currently is using, and which could accelerate if Yellen becomes its chairwoman.

Inflation is a double-edge sword. Fiscal conservatives have historically opposed inflation as a policy because they see it as a hidden tax. But high inflation may be the only way to bring California’s public pension system into line with reality.

If that happens, even as pension payouts increase in monetary amounts, inflation stealthily would reduce the actual value of the dollars sent to the retirees’ bank accounts.

CalPERS’ retirees, as well as employees paying into the system, then would have to lobby the Legislature for increased payouts. But if inflation occurs, it also would be squeezing other state budget items.