Middle class families in the US saw a sharp drop in their real income (down 7.7 percent) and a nearly 40 percent decline in their net worth between the years 2007 to 2010. These are the findings of the Fed’s tri-annual Survey of Consumer Finances, an 80-page report that was released last week. The paper points to the Great Recession as the putative cause of the overall decline in wealth, but Central Bank policy could be as easily blamed. Low interest rates and deregualtion inflated asset-price bubbles in housing and securitized bonds that wiped out 2 decades of accumulated prosperity for US working people. Nearly everyone is poorer due to the Fed’s policies.

The survey found that the median net worth of families in the US fell 38.9 percent between 2007 and 2010, from $126,400 to $77,300. Also, the median value of a US home dropped by 42 percent, from $95,300 to $55,000 in the same period. Plunging housing prices have increased the burden of mortgage debt leaving more than 20 percent of all homeowners with negative equity which greatly increases the probability of default. This is a problem that President Barack Obama could have fixed in 2008 through principle reductions, but refused to do so because the write-downs would have meant significant losses for the banks. Here’s the story from Matt Stoller at the Roosevelt Institute:

“There were policy debates within Obama’s economic team about what to do about the mortgage crisis. The choices were to create some sort of legal entity to write down mortgage debt or to allow the write-down of mortgage debt through a massive wave of foreclosures over the next four to six years. He chose the latter. That choice was part of what led to roughly $7 trillion of middle class wealth gone, with financial assets for the elites re-inflated.”

Given the choice between saving middle class homeowners from catastrophic losses (and years of excruciating de-leveraging) or fattening the bottom line for the banks, Obama chose the banks. As a result, the housing crisis drags on while the economy continues to sputter and under-perform.

Other findings in the survey indicate the extent to which the Fed’s policies have hurt ordinary working people many of who will never fully rebound from the slump. For example, the percentage of families that took out payday loans increased by an eye-popping 65 percent. The most common reason for using these extortionist loans was medical “emergencies or lack of other options.” Sadly, the total debt- burden actually grew among some groups, notably “low-income and low-networth families as well as families headed by a person aged 65 or older.” Clearly, the recession exacerbated the divide between rich and poor while greatly increasing the number of people experiencing “severe poverty.”

The signs of middle class devastation are evident throughout the report. Families had to deplete their savings while lowering the balance on their credit card accounts by 16.1 percent. More than 10 percent of families with a 401Ks had to liquidate them by 2010.” Also, the percentage of debtors with loan payments that exceeded 40 percent of their income, remained at record highs at 14.8 percent.

While working people have been battered by high unemployment, stagnant wages and a policy-induced slump, margins at the banks continue to soar. In the first quarter of 2012, bank profits rose by $35.3 billion, the most profitable 3-month period since 2007. The nation’s biggest banks netted the largest gains ($10 billion) due to trading activity and derivatives contracts which have had no positive impact of the real economy. (Lending to consumers and small businesses is actually down nearly 5% on the year.) The Fed’s zero rates, myriad subsidies, and recurrent bailouts have been the main drivers of bank profits.

Also, according to market analyst Henry Blodget, “Corporate profit margins just hit an all-time high in 2012 (while) wages as a percent of the economy are at an all-time low (and) fewer Americans are working than at any time in the past three decades.”

Hooray! Record profits, low wages and high unemployment; the Fed’s policies have succeeded beyond their wildest imagination. As the Survey of Consumer Finances indicates, the US middle class has been decimated, and most of the blame goes to the Fed.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, forthcoming from AK Press. He can be reached at fergiewhitney@msn.com