By its actions, the Federal Reserve has selected a precious few winners and many, many losers. Sadly, you are highly likely to be one of the losers.
I’m one, too, if that helps soften the blow.
But we have a lot of company. Other losers include:
- Anyone with money in a checking account
- Anyone with money in a savings account
- Anyone with money in a CD
- Anyone depending on bond income
- All pensions
- First time homebuyers
- Those who invest based on fundamentals
- Everybody alive in the future, when the bills come due
Anyone on this list has been intentionally pre-selected by the Fed for losing. The Fed has done this deliberately, with full pre-knowledge that it was going to diminish the prospects of the majority in favor of the benefit of an elite few. And to make matters worse, it has no plans to — and no clue how to — reverse the damage it has wrought.
Everyone on the list above has been dinged by the Federal Reserve — on purpose and by design, I will repeat — in order to transfer wealth and purchasing power to:
- Big banks
- The government
- Entities with large stock (equity) holdings
- The wealthiest 0.1%
- Borrowers (the heavier the better)
- Well-connected insiders whom the Fed tipped off in advance
This has, of course, not been lost on the 99.9% relegated to the loser camp. They are angry and growing more pissed off by the day. We see this anger playing out politically, in street protests, and in growing tensions with the police. All of this is connected, of course.
Soon, more and more folks will figure out the source of the growing inequity causing this anger, and the hot new trend of the future will be Fed bashing. So you might as well get in on the ground floor…
As primates, we’re all hard-wired to expect fairness. It’s part of being a social creature. When we experience unfairness, we react the same way this Capuchin monkey does, although we might try to convince ourselves we do so in a more civilized manner:
But really, we’re just as emotionally-driven as that poor, deprived monkey when confronted with our own circumstances of injustice.
While it’s true that the world will never be completely fair, the conditions today are extremely ripe for provoking a lot of righteous populist anger.
Watching big banks commit huge felonies time and again, then get away with only paying fines that are mere blips on their earnings statements, has been difficult for me to swallow — as it was for a large number of other people. The recent movie The Big Short does a good job of making your blood boil on this point.
Or noting all the instances where the wealthy and powerful skate by without any real charges or penalties for their crimes, while ‘regular people’ have the book thrown at them by the legal system.
In fact, the rule of law in America today might as well be restated as the ‘sliding scale rule’, where the number and consequences of possible penalties that apply are inversely proportional to your net worth. Poor = more. Rich = less.
But of all the injustices being inflicted upon us, few are more pernicious than those being committed via the Federal Reserve’s monetary policy.
The Fed is playing God, picking winners and losers. And as I outlined above, nearly all of us are losers.
In the aftermath of the credit crisis, the Fed has been loudly telling us that if house prices go up then the owners of those houses will feel wealthier and spend more, boosting the economy. Or something like that.
In truth, the Fed has been acting to protect both the mortgage holders (banks, mortgage companies, Fannie, Freddie) and also its own portfolio of mortgage bonds. Few people realize this, but the Fed is the largest landlord in America. It owns more real estate, by far, than any other entity:
Now, would you not agree that if a private entity had been entrusted with the capability of printing money out of thin air and then using it to purchase $1.78 trillion dollars’ worth of mortgage backed securities, thereby becoming the largest landlord in America, that there should have been a robust and spirited national conversation over whether or not this is a good idea? One that came with a truckload of debate, oversight and enforcement?
But there was no conversation. The Fed decided all on its own that driving up the cost of homes was the right thing to do, and they’ve succeeded wildly in that regard. Winners = current homeowners who sell at these current bubble prices and then downsize. Losers = everyone else.
Even many current homeowners who’ve benefited from recent price increases will lose over time. Why? Because of higher insurance and property tax costs.
The housing bubble that preceded 2007 has been restored by the Fed nation-wide, In dozens of cities., prices are now at or near all-time highs:
The impact of these insanely-high house prices is that ordinary people are being priced out. Here’s the extreme case of San Francisco:
The “Housing Crisis” in San Francisco Strangles Demand
Aug 16, 2016
In San Francisco, the median house price – half sell for more, half sell for less – is $1.37 million. According to Paragon Real Estate, if condos were included, the median price would drop to $1.2 million.
The median household income in San Francisco is $84,160, including households with more than one earner. So a household of two teachers with $130,000 in household income is doing pretty well, comparatively speaking.
The monthly mortgage payment for the median house in San Francisco, after a 20% down payment and at the prevailing rock-bottom mortgage rates, is $6,740 per month, or $80,900 per year!
So what kind of minimum qualifying household income would be required for the mortgage of a median house, plus taxes and insurance? For the US on average, $47,200 per year. In San Francisco, $269,600 per year. It would require a household of four teacher salaries!
Only the top-earning 13% of households in San Francisco can afford to buy that median house!
To recap: if you put down a 20% down payment of $250,000 (good luck saving that up, ordinary people!) for a median $1.37M house in San Francisco then the yearly mortgage cost alone would still be $80,900.
This affordability problem is so severe that regular people are moving out in droves. As a result, San Francisco is dealing with all sorts of worker shortages, including the lack of teachers mentioned in the above article.
These insanely high house prices are not some miracle of God, and it doesn’t require a PhD in particle physics to understand what’s causing them: the Fed specifically created the conditions to boost house prices to these levels, and has been printing up as much money as needed to accomplish this.
If you enjoy irony with your tragedy, consider the case of the planning commissioner for Palo Alto who had to move out of the area because she and her husband could no longer afford to live there:
Housing official in Silicon Valley resigns because she