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The Cruel Injustice Of The Fed's Bubbles In Housing

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

As the generational war heats up, we should all remember the source of all the bubbles and all the policies that could only result in generational poverty: the Federal Reserve.

Federal Reserve chair Janet Yellen recently treated the nation to an astonishing lecture on the solution to rising wealth inequality--according to Yellen, low-income households should save capital and buy assets such as stocks and housing.

It's difficult to know which is more insulting: her oily sanctimony or her callous disregard for facts. What Yellen and the rest of the Fed Mafia have done is inflate bubbles in credit and assets that have made housing unaffordable to all but the wealthiest households.

Fed policy has been especially destructive to young households: not only is it difficult to save capital when you're income is declining in real terms, housing has soared out of reach as the direct consequence of Fed policies.

Two charts reflect this reality. The first is of median household income, the second is the Case-Shiller Index of housing prices for the San Francisco Bay Area.

I have marked the wage chart with the actual price of a modest 900 square foot suburban house in the S.F. Bay Area whose price history mirrors the Case-Shiller Index, with one difference: this house (and many others) are actually worth more now than they were at the top of the national bubble in 2006-7.

But that is a mere quibble. The main point is that housing exploded from 3 times median income to 12 times median income as a direct result of Fed policies. Lowering interest rates doesn't make assets any more affordable--it pushes them higher.
 The only winners in the housing bubble are those who bought in 1998 or earlier. The extraordinary gains reaped since the late 1990s have not been available to younger households. The popping of the housing bubble did lower prices from nosebleed heights, but in most locales price did not return to 1996 levels.

As a multiple of real (inflation-adjusted) income, in many areas housing is more expensive than it was at the top of the 2006 bubble.

While Yellen and the rest of the Fed Mafia have been enormously successful in blowing bubbles that crash with devastating consequences, they failed to move the needle on household income. Median income has actually declined since 2000.

 

Inflating asset bubbles shovels unearned gains into the pockets of those who own assets prior to the bubble, but it inflates those assets out of reach of those who don't own assets--for example, people who were too young to buy assets at pre-bubble prices.

 

Inflating housing out of reach of young households as a matter of Fed policy isn't simply unjust--it's cruel. Fed policies designed to goose asset valuations as a theater-of-the-absurd measure of "prosperity" overlooked that it is only the older generations who bought all these assets at pre-bubble prices who have gained.

In the good old days, a 20% down payment was standard. How long will it take a young family to save $130,000 for a $650,000 house? How much of their income will be squandered in interest and property taxes for the privilege of owning a bubblicious-priced house?

If we scrape away the toxic sludge of sanctimony and misrepresentation from Yellen's absurd lecture, we divine her true message: if you want a house, make sure you're born to rich parents who bought at pre-bubble prices.

As the generational war heats up, we should all remember the source of all the bubbles and all the policies that could only result in generational poverty: the Federal Reserve.

 

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Mon, 11/17/2014 - 13:50 | 5457698 Colonel Klink
Colonel Klink's picture

Note to self (/sarc).  Stop playing the feral Fed's game.  Stop buying houses, furnishings, taking debt, etc.

Now if everyone else would just do it too this scharade would end.

Mon, 11/17/2014 - 13:51 | 5457726 Headbanger
Headbanger's picture

Everybody is already doing it cause they're out of a job and credit now.

But wait until they run out of belief in everything cause that's when the shit will really start flying.

Mon, 11/17/2014 - 13:59 | 5457761 Spastica Rex
Spastica Rex's picture

Maybe everybody in the bottom 80%.

We're not all in this together, that's just unconscious knowledge.

Mon, 11/17/2014 - 14:15 | 5457816 jbvtme
jbvtme's picture

"moses parted the red sea. einstein split the atom. but it was bob who cut the crap".  church of the sub-genius

Mon, 11/17/2014 - 14:16 | 5457827 jbvtme
jbvtme's picture

"act like a dumb shit and folks will treat you as their equal".  dobbs

Mon, 11/17/2014 - 14:27 | 5457874 comob
comob's picture

Damn jbvtme - it has been TOO long!

Long live the Stark Fist of Removal!

I now need to go back to excremeditating on how to manipulate the luck plane in my direction so as to reap my fair share of SLACK. 

Mon, 11/17/2014 - 15:59 | 5458298 jbvtme
jbvtme's picture

amen, bro

Mon, 11/17/2014 - 16:22 | 5458352 MalteseFalcon
MalteseFalcon's picture

Generational warfare?

I earn ZIRP on my savings.

Why?  So debtors, including the 'young', can borrow up to their eyeballs with reduced consequences.  The 'young' can buy houses with 0% down.  And when they default, it comes back to me.  Student loans?

Generational warfare?

Fuck you, Charles.

Mon, 11/17/2014 - 13:50 | 5457727 localsavage
localsavage's picture

It amazes me how so many otherwise smart people fail when it come to their knowledge of the FED and basic math.

Mon, 11/17/2014 - 13:56 | 5457754 NotApplicable
NotApplicable's picture

False Authority Syndrome induced by government schools will be the death of us all.

Mon, 11/17/2014 - 14:06 | 5457788 Spastica Rex
Spastica Rex's picture

American corporations and financials want credulous, compulsive consumers.

These folks pay for elected representatives - they are the state.

State schools teach conformity and fear of/compliance with, authority.

Mega-media - agents of the state - teach desire and dissatisfaction through celebrity example.

Everything our children are encouraged to view, read, and do is designed to make them incurious.

They grow up and become us.

Mon, 11/17/2014 - 14:00 | 5457768 bbq on whitehou...
bbq on whitehouse lawn's picture

A lifetime of prapaganda and lies can distort the picture. Smart people are often vary detail focused so they dont see beyond what their taskes are. Most have accepted the prapaganda in such large amounts to start questioning it now may do more harm then good.

Some people are just not ready to be unplugged from their dream.

Mon, 11/17/2014 - 16:56 | 5458511 daveO
daveO's picture

Career = Wage/Tax Slavery.

Upwardly Mobile = Debt Slavery. 

'Dream' is the glue that keeps the slaves within the system.

Take those two things (mental programming) away and the whole system collapses. Back when 'original slavery' existed, 'careers' didn't. Welcome to Orwell's Animal Farm. 

Mon, 11/17/2014 - 13:57 | 5457760 813kml
813kml's picture

I find your lack of faith disturbing, give in to the Dark Side of the Farce.

Mon, 11/17/2014 - 14:31 | 5457802 Colonel Klink
Colonel Klink's picture

I am Yoda among sheople.

Mon, 11/17/2014 - 14:02 | 5457770 AmericasCicero
AmericasCicero's picture

I am months away from retiring the last of my debts.  NEVER. AGAIN.

Mon, 11/17/2014 - 15:22 | 5458135 Bloppy
Bloppy's picture

I'm already seeing a big real estate slowdown in my area vs a year ago. What's holding up prices when mortgages aren't available? So far, a relative lack of sellers- that's it though.

 

CNN's HARD-HITTING investigation: Republicans used Twitter to communicate!

http://tinyurl.com/ldvjknr

Mon, 11/17/2014 - 13:45 | 5457700 ParkAveFlasher
ParkAveFlasher's picture

Why the surprise?  This is a woman who prints money for a living.

Mon, 11/17/2014 - 13:46 | 5457707 Squid Viscous
Squid Viscous's picture

Usury, the second oldest profession

Mon, 11/17/2014 - 13:46 | 5457711 813kml
813kml's picture

I strongly disagree with your assertion, that is NOT a woman.

Mon, 11/17/2014 - 13:47 | 5457714 kchrisc
kchrisc's picture

Guillotine the Fed!

An American, not US subject.

 

The "crowding out effect" is where the banksters get priority at the guillotines.

Mon, 11/17/2014 - 14:19 | 5457840 gwar5
gwar5's picture

Start at the feet, work your way up.

Mon, 11/17/2014 - 13:47 | 5457716 madbraz
madbraz's picture

that and withdrawing deposits from TBTF banks...much easier.

Mon, 11/17/2014 - 13:50 | 5457728 starman
starman's picture

San Francisco! Should be renamed to China City!

Mon, 11/17/2014 - 13:56 | 5457756 NotApplicable
NotApplicable's picture

Maotown!

Mon, 11/17/2014 - 15:20 | 5458128 NihilistZero
NihilistZero's picture

As a reisdent of the San Gabriel Valley of Los Angeles County, SoCal's Chinese occupied territory, I share the sentiment.  As do the old school Chinese immigrants here who fled Maoisim.  They hate the recent Chicom immigrants as much as I do.

Mon, 11/17/2014 - 13:56 | 5457758 Make_Mine_A_Double
Make_Mine_A_Double's picture

After the divorce my credit was so bad when someone stole my identity they send it back to me.

That was 4 years ago. Now I have liquidated most all the debt and am making more than I ever have. So in theory I would be ideal candidate for new house rather than renting.

However, after being fucked over by the courts and credit agencies I have permenantly altered my consumption patterns. Also I am confident in the knowledge that the market is easily 50% over valued if not more (Seattle metro) and the house of cards will - when is the question - collaspe again as it did way, way the hell back in.....oh wait that was 2008-09.  

 

 

Mon, 11/17/2014 - 14:10 | 5457798 gwar5
gwar5's picture

First part made me laugh out loud, second part is so true! Winner-Winner chicken dinner!

 

"My credit was so bad the identity thief sent it back!" -- Make_Mine_A_ Double, ZH

Mon, 11/17/2014 - 14:04 | 5457777 Bumbu Sauce
Bumbu Sauce's picture

Look for lower housing prices in Ferguson in a week or two.

Mon, 11/17/2014 - 16:59 | 5458528 daveO
daveO's picture

'Fire' sale?

Mon, 11/17/2014 - 14:04 | 5457783 techstrategy
techstrategy's picture

And all the bubble wealth was effectively transferred to those who have no interest in growing it or investing, but solely preserving it.  Which, of course, guarantees lower velocity and gradual collapse... Unless and until we end the financial asset ponzi and buy gold in USD terms, ensuring that ALL financial assets lose value with respect to productive assets...

Mon, 11/17/2014 - 17:01 | 5458539 daveO
daveO's picture

IOW, excise the cancer.

Mon, 11/17/2014 - 14:04 | 5457784 techstrategy
techstrategy's picture

And all the bubble wealth was effectively transferred to those who have no interest in growing it or investing, but solely preserving it.  Which, of course, guarantees lower velocity and gradual collapse... Unless and until we end the financial asset ponzi and buy gold in USD terms, ensuring that ALL financial assets lose value with respect to productive assets...

Mon, 11/17/2014 - 14:08 | 5457790 abatis
abatis's picture

What is the median income in the Bay Area? Having lived there for years seems like the median income is higher than the US Median used in this comparison.

Mon, 11/17/2014 - 14:10 | 5457795 pragmatic hobo
pragmatic hobo's picture

perhaps it would be more informative if san-francisco housing price is charted with san-francisco median salary and not national median salary ...

Mon, 11/17/2014 - 14:11 | 5457804 sandhillexit
sandhillexit's picture
1316 AMERICAN WayMenlo Park, CA 94025 $1,830,000

Last Sold Price

 
2

Beds

 
1

Baths

 
1,390 Sq. Ft.
$1,317 / Sq. Ft. Built: 1948 Lot Size: 6,250 Sq. Ft.   Sold On: Oct 10, 2014

Status: 
Sold Sold

This home sold and is now off the market.

More Info

 

Mon, 11/17/2014 - 14:20 | 5457847 Eireann go Brach
Eireann go Brach's picture

ZH, will you fuck off with the pop ups and videos that play all the time. How do you stop these videos?

Mon, 11/17/2014 - 19:07 | 5459124 Earl Slaughter-...
Earl Slaughter-- Truck Driver.'s picture

N/S about Explorer, but in Chrome click on tiles in upper right-hand corner:

--> Settings

--> under Privacy, click -->Content Settings

--> In Privacy, under Plug-Ins, select "Click to Play"

--> In Privacy, again, under Pop-Ups, select "Do not allow any site to show pop-ups"

Not perfect, but should disable the Adobe Flash auto-play and rid yourself of many of the pop-ups as well (but not all). 

Good luck.

Mon, 11/17/2014 - 14:25 | 5457868 Clowns on Acid
Clowns on Acid's picture

Yes but if they are so smart, why are they so ugly face and soul ?  

Mon, 11/17/2014 - 14:28 | 5457880 madcows
madcows's picture

Just wait until all the multihome owning boomers start dying off, and their multiple homes come back on the market.  Lots of home coming soon to people that can't afford them.  that housing boom should get back to normal in a couple decades.

Mon, 11/17/2014 - 15:27 | 5458177 NihilistZero
NihilistZero's picture

A couple decades???  Try a couple of years.  Boomers are already trying to liquidate, it's just that no one is buying at their full retard asking prices.  But make no mistake, they need to sell.  Within the next year they will be joined by knife catching specuvestors and REITs that are being liquidated because those 10% annual increases in rent failed to materialize.

We just did this 6 years ago and it's about to go down again play-by-play.  Hillarious.  At least it's not gonna burn so many average didn't-know-better working folks this time.  Fuck the rentiers and specuverstors.

Mon, 11/17/2014 - 14:33 | 5457910 Comte d'herblay
Comte d'herblay's picture

Whoa.

Fuld, Dimon, blankfein, cassano, Ranieri, all those mortgage fraudsters that obtained no doc loans, have somehow been exonerated???

The FED is an accomlice, aiding anb abetting this scheme, and the derivatives that derived from them but they are by no means the main culprit.

Mon, 11/17/2014 - 14:40 | 5457951 SheepDog-One
SheepDog-One's picture

Of course, the FED's only actual job is to keep the rich people rich.

Mon, 11/17/2014 - 14:46 | 5457992 fukidontknow
fukidontknow's picture

Year zero anyone?

Mon, 11/17/2014 - 14:55 | 5458020 Ewtman
Ewtman's picture

The Federal Reserve has all but dug its own grave. It may not be around a decade from now...

http://www.globaldeflationnews.com/the-creature-from-jekyll-island-the-e...

 

 

Mon, 11/17/2014 - 15:00 | 5458049 khakuda
khakuda's picture

Well done.  Agree with all of this.

Mon, 11/17/2014 - 15:43 | 5458243 CHX
CHX's picture

It's an effin theatre of pain.

 

http://www.youtube.com/watch?v=bFqxVDJTsrQ

 

Good luck to all and enjoy while it lasts. What's coming down the pike may well make the last crisis look like the proverbial picknick.

Mon, 11/17/2014 - 15:47 | 5458262 Clesthenes
Clesthenes's picture

HomersGhost wrote,

“Jews are our misfortune”

They have been man’s misfortune for at least 5,000 years.  Archeologists and historians first detected their money-lending, genocides and general plunder well-established 4000 years ago; which means there had to be another 1000 years prior to that time to establish their policies and collect the power to enforce them.

Since that time, they have continuously perpetrated mass genocides and general plunders to present times.

First evidence of them showed in Elam as money-lenders, merchants and power brokers (with puppet kings et cetera); then, Babylonian merchants and money-lenders; Phoenicians (or Carthaginians, they called themselves “Canaanites”); then, Jews; now they would be better known as Judeo-Bolsheviks.

Mon, 11/17/2014 - 16:20 | 5458346 calltoaccount
calltoaccount's picture

man's misfortune today-- people named Clesthenes 

Mon, 11/17/2014 - 17:53 | 5458807 Clesthenes
Clesthenes's picture

Of course, slaughterers employed by the Mossad would think that.

Mon, 11/17/2014 - 16:01 | 5458306 csmith
csmith's picture

As the generational war heats up, we should all remember the source of all the bubbles...

 

Or, get a law degree and go to work as an estate attorney (i.e.;gatekeeper)... 

Mon, 11/17/2014 - 16:46 | 5458462 giggler321
giggler321's picture

No one mention Agenda 21?

Mon, 11/17/2014 - 16:54 | 5458499 chomu
chomu's picture

Federal Reserve chair Janet Yellen recently treated the nation to an astonishing lecture on the solution to rising wealth inequality--according to Yellen, low-income households should save capital and buy assets such as stocks and housing.

 

And perhaps they are "low income" precisely because they lack the education to properly do such a thing?? "Low income" lads tend to get sold shitty A shares, whole life policies, and the worst of the worst mortgage terms..

Mon, 11/17/2014 - 18:52 | 5459080 yogibear
yogibear's picture

Let's see Japan implode first as a preview of the Federal Reserve's infinite printing policy end-game for the US.

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