Stocks Off Sharply as Market Upheaval Grows

Very little of the credit created on the balance sheet has actually entered the market.

Everyone's been picking at all your claims except this one, so let me jump in on this part.

You've been drinking too much of the kool-aid. It's certainly fashionable for talking heads to spout platitudes about the middle class, but it doesn't match the real world. The picture that's being painted is that the vast majority of us will be living lives as serfs, while a group of oligarchs (the arbitrarily mythical 1%) determine our fates while eating grapes and being fanned. That's not what's happening.

In fact, the VAST majority of Americans are better off than they ever have been. Check out this [1], for example, based on US census data.

Yes, the middle class has been disappearing, but they haven’t fallen into the lower class, they’ve risen into the upper class

Further, in the demographics where we have seen increases in inequality, the lion's share of the change has been the result of lifestyle choices made by the individual. Imagine a social order - call it "A" - in which most people are paired off and raising a family. In that world, a large portion of the families have two incomes, which are going to pay for a single rent or mortgage bill, a single set of utility expenses, etc. Imagine another society, "B", in which many of the folks corresponding to those paired adults have instead decided to go it alone, either by way of divorce, or even deciding to have a family with no mate.

Isn't it obvious that in society "B", the un-paired "families" are going to have far less aggregate income ('cause there's not a second breadwinner earning that income), and are going to have much greater expenses at the same time ('cause there's not a mate to share housing and utilities, and in fact other things like dining may need to be outsourced, that being the result of not having a mate to cooperate with)? And compared to those families that are following the "A" model, it'll appear that the "B"s have a disadvantage?

It doesn't apply for every case, but for most "B"s, a decline in purchasing power for the family is directly explainable by their own choices. We might wish that our choices had fewer side effects, but we can't blame it on others who made different choices.

[1] http://www.aei.org/publication/yes-the-middle-class-has-been...

I think the background idea is that "real inflation" = "change in the real money supply". But that's wrong, because the economy changes size, too. That is, if I start a company and make some stuff, the economy is now bigger than it was. If the number of dollars doesn't increase, then the value of each dollar has to increase, so prices go down - deflation. What the Fed is trying to do is keep the value of the dollar (relatively) constant, rather than keep the number of dollars constant.

So I think MCRed's request (to the degree that it differed from your answer) is based on a mistaken idea...

My own view is this, and it is based on a lifetime of having made all the typical mistakes.

Steady is the best way to go for your investable funds. That means, go with stocks for a decent segment of your investments but temper this with investments that will help preserve capital when things get rocky. Keep a ratio between the two that is age-appropriate. There is a rule of thumb floating about among advisors that your stock percentage should be 110 minus your age. This may or may not be a good ratio for you but some method that helps discipline you in these decisions will help you and this is not a bad one for many people. The other major factor is to avoid impulse buying or selling and to keep transaction costs at a very low level - and this usually means going with broad-based no-load index funds for much of the ride.

Doing the above will not make anyone rich. It will, however, ensure that you have the best chances of getting decent, normal returns on average over time while helping to preserve your capital as you go. If you want extraordinary returns, get them through your startup or by doing extraordinary things in your work. For your investments, the rule is different. You do not "underperform" by hitting averages with your investments. You simply meet the goal that should be the defining goal for most people in that area.

Granted, you definitely give a more in-depth account of how we got to the end points that OP cites, but still I don't see the need for such hostility.