With $21 Trillion, China’s Savers Are Set to Change the World

I guess this is why the decline of the middle class is not such a big deal to Wall St.

There are seven billion people in the world, of which only around 100 million constitutes ‘America’s middle class’.

Then you have the Pareto principle, in that the richest 20% contributes 80% to consumer spending. The richest consume the most; the poorest the least:

Booming foreign consumption, especially the Chinese luxury consumer:

You have all these rich foreign consumers compensating for any decline in US middle class consumption.

S&P 500 companies, web 2.0, apps, biotechnology…high-IQ industries and multinationals are doing just fine, even if middle class participation is lagging. This is because of exports and b2b (such as app companies selling advertising space to businesses), bypassing the middle class consumer altogether.

Foreign investment is helping to keep the US dollar high and interest rates low. Normally at this stage of such a strong recovery, interest rates would be at 2-4%, but insatiable foreign demand due to the ‘flight to safety’ and other factors is keeping rates low.

Unless you’re among the cognitive elite (top 1-5% of IQ), you may need to lower your expectations, sorry. Foreign competition, along with automation and outsourcing, is creating a ‘hollowing out’ of the middle – a lot of low-paying service sector jobs, combined with self-actualizing jobs at the top, but not much for the middle.

The problem is the skills taught in school are only good enough to be merely competent (and that was good enough a generation ago) but in our ‘average is over’ super-competitive economy, in many instances you need to be exceptional just to get your foot in the door.

Entrepreneurial endeavors, such as self-publishing, may not help much either since you need to be smart to succeed as an author, which according the normal distribution of IQ scores excludes 90% of the US population. Although the literacy rate of America is high, ability falls considerably once you go beyond the very basics. The same goes for re-training the workforce, in which the acquisition of increasingly technical skills is restricted by the cognitive limits imposed by biology. Eventually you may have a situation where any ‘middle class’ job that isn’t already automated or outsourced may be cognitively out of reach for the majority of Americans.

For regions such as the Bay Area, Seattle, Los Angeles and New York, where demand vastly exceeds supply, it will continue to suck being a renter, but being a homeowner or a landlord will continue to pay as prices keep rising. Home prices tend to be positively correlated with IQ, with ‘smarter’ regions having higher prices, greater rates of appreciation, and higher rent.

Globalization changes everything, creating winners and losers, but also changing the rules of macroeconomics.

Related: Wealthy foreigners bought $100 billion in US real estate