You probably won't be surprised when you read today's Wall Street Journal and find out that the income-inequality gap is widening. The wealthiest Americans in the top 1% earned 21.2% of all income in 2005, according to data from the IRS. That's a lot different than in 1986 when the top 1% of earners earned 11.3% of all income earned.

What do you have to earn to be in that top 1% bracket - at least $364,657. People in this group also saw the biggest jump in income. Their 2001 income in current dollars was at least $292,913, which means a $71,744 increase during the five year period or 4.9% per year. There were 1,316,116 tax filers in this bracket.

Next group of earners tracked are the top 5%. (The IRS tracks this cumulatively, so the top 1% is included in the numbers.) The top 5% earned 35.75% of all income in 2005, so those between 1% and 5% earned 14.55% of all income in 2005. To be in this bracket, you would need to have earned between $145,283 and $364,656. People in this group saw an income increase in current dollars of at least $17,379 in earnings between 2001 and 2005, or a 2.7% increase per year. There were 5,304,466 tax filers in this bracket.

Reuters reports that two-thirds of Americans think the U.S. is in, or soon will be in, a recession. This despite the recent report from the Commerce Department that GDP grew 3.4% in the second quarter of 2007.

Are two-thirds of Americans just plain stupid? I don't think so. As John Edwards correctly pointed out during his 2004 run, there are two Americas. The first America -- occupied by hedge fund and private equity grandees, investment bankers, and oil executives -- is a wonderful world where it's easy to make hundreds of millions of dollars a year. For those first Americans, this is truly the best of times.

Then there are the second Americans, the other 99.9%. Unlike the First Americans, they have limited ability to influence economic and tax policy. They have been borrowing on their homes and using credit cards to make up for stagnant wage growth. Meanwhile, their housing, health care, education, and energy bills have been skyrocketing.

Pushing for a higher minimum wage, looking for ways to protect workers from the pain of globalization: that's the stuff of American organized labor today. And with Democrats controlling congress, some say the labor movement is going to get what it wants.

The AFL-CIO, the nation's largest labor group with 10 million members, on Tuesday made a bold move. It asked the Securities and Exchange Commission to stop the $40 billion Blackstone IPO.

The Financial Times reports that the request will stir political heat on private equity firms and threaten efforts by other buy-out groups to go public. In a letter, seen by Financial Times reporters, the union argues that Blackstone's executives are trying to evade the coverage of the Investment Company Act of 1940. The article explains that the labor attack points up new concern among union leaders and elected officials over the wealth of executives who run private equity funds in a time of increased wage inequality. They argue that private equity firms apply their generous tax status to wildly enrich an elite few while taking away jobs from millions of American workers.

This week on the BloggingStockcast we talk about Nokia Corporation's (NYSE: NOK) new phone, the problem with the new Apple Inc. (NASDAQ:AAPL) Apple TV, Steve Jobs' recent Barron's Magazine's ranking, Blockbuster Inc. (NYSE:BBI) vs Netflix, Inc. (NASDAQ:NFLX), income inequality, Jim Cramer, and Yahoo! Inc.'s (NASDAQ:YHOO) new email developments. And all in three minutes to boot!




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The good news is that you still have time to protect your stocks from a plunge that will rival that of the Great Depression.

How so? This decade has featured record debt levels, extreme income inequality not seen since 1928 -- according to the New York Times [registration required] in 2005 the top 1% (over $348,000 in income) took home 21.8% -- their largest share of national income since 1928, and a negative savings rate of -0.7% -- last seen in 1933 -- the depths of the Great Depression.

Why does this mean that stocks will fall? Many of the top 0.01% -- those making over $25.7 million a year -- are getting that way by borrowing money. Consider Blackstone Group CEO, Steve Schwarzman, whose annual compensation is estimated at over $500 million. If banks and bondholders were not willing to lend Blackstone billions of dollars, his deals would not work. In 2006, a record $480 billion was used to finance leveraged buyouts and Moody's expects the default rate on this debt to increase to 3.07% this year. Bad buyout loans could lead to corporate bankruptcies and worker firings.