Sorry, Losers! How The Fed Has Screwed The Many To Protect The Few

Tyler Durden's picture

Submitted by Chris Martenson via PeakProsperity.com,

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.

Sorry!

I'm one, too, if that helps soften the blow.

But we have a lot of company. Other losers include:

  • Savers
  • 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
  • Endowments
  • First time homebuyers
  • Renters
  • 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%
  • Speculators
  • 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...

Righteous Anger

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.

Housing 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:

(Source)

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:

(Source)

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!

(Source)

To recap: if you put down a 20% down payment for a $250,000 house in San Francisco (good luck saving that up, ordinary people!) then the yearly mortgage cost alone is $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 can't afford to live there

Aug 11, 2016

 

Once Kate Downing and her husband Steve did the math, it was obvious that if they wanted to raise a family, staying in Palo Alto, California, was not an option.

 

Although Steve, 33, works as a software engineer at a nearby Silicon Valley technology company and Kate, 31, is a product attorney at another tech firm, the cost of owning a home near their jobs has simply become too steep for them.

 

If they wanted to purchase their current house – which they rent with another couple for $6,200 a month total – it would cost $2.7m plus monthly mortgage and tax payments of $12,177, adding up to more than $146,000 a year.

 

The Downings’ housing struggle in the northern California region that is home to many of the world’s wealthiest tech companies carries a special irony due to Kate’s second job: up until this week, she served as a planning and transportation commissioner for Palo Alto – a position in which she pushed city officials to build more housing and pass pro-development policies that could help solve the growing affordability crisis.

(Source)

When two upper middle class successful professionals cannot even remotely begin to make ends meet, you have a raging housing bubble on your hands.

I’m going to keep repeating this point: this is no accident.  It is not an act of God.  This is the desired outcome of a specific and targeted Federal Reserve policy that is getting exactly what it intends: Higher home prices.

As a consequence of these high prices, home ownership rates in the US have plunged to levels not seen since 1965:

(Source)

Generations of homeownership have been undone in less than ten years by an activist Fed that has decided it knows who should be the winners and who should be the losers in the home buying game.

Of course, all of this is not real, long-lasting wealth. The Fed has merely blown another bubble; one that will eventually burst, creating far more pain on the downside than the pleasure enjoyed on the way up.

That’s just the nature of bubbles, as we laid out in detail in our recent report The Marginal Buyer Holds The Pin That Pops Every Asset Bubble (it's worth a read if you haven't done so yet)

It’s too bad the Fed did not learn from its prior recent bad mistakes that blew up in 2000 and 2008. I’ve taken the liberty of expressing this in chart form:

I hope that clears thing up.

There's no other way to put this, the Federal Reserve is a serial bubble blower. And sadly, the Fed is the alpha central bank in the world. It sets both the tone and the direction that the others follow. Which is why the bubbles in stocks, bonds and real estate span the globe today.  

The Fed somehow lost the institutional memory that Paul Volker embodied back in the 1970’s and 1980’s.   Volker's bitter medicine approach was replaced with a spiked punchbowl. Greenspan began the process, Bernanke cemented it, and now Yellen is busy keeping the party going long after the lights should have been turned off.

The Fed may never recover from the injustice it is creating. And good riddance.  When institutions fail so horribly they need to be disbanded and discredited so that new ideas and practices can emerge.

And interestingly, we are (finally!) beginning to see some rotten tomatoes get thrown the Fed's way. 

Is a ‘Fed discrediting cycle’ underway?  Surprisingly, the answer may be: Yes.

The Worm Turns

The reason we need to track the ‘intangibles’ like Fed credibility is precisely because the entire system of fiat money is faith-based, when you get right down to it.  We all know that on some level, but it becomes a conscious awareness once you understand how money is created in the fractional reserve banking system.

It's created when a loan is made at the bank level, as well as whenever the Fed ‘buys an asset’ which is really a fancy way of saying ‘created money out of thin air and exchanged it for debt.

Well, if the Fed has the power to create money out of thin air, that’s really an extraordinary power, right? How can we have confidence it's putting that power to the right use?

Because all fiat currency (I hesitate to call it ‘money’ as it lacks the essential ‘store of value’ feature) is nothing more than an agreement between ourselves, it’s vital that trust and transparency be part of that arrangement.

But the current system goes out of its way to keep the public in the dark about how it works.

Even though money (er, currency) creation is a rather simple thing to explain, as I’ve done in the Crash course (Chapter 7: Money creation in Banks and Chapter 8: The Fed), it is not taught in schoolsAt any level.

In over 10 years of presenting this material publicly, I've not yet once run into a single person who has claimed to have learned about money creation in a public school or major college as part of the ordinary curriculum.  Not one.  Homeschoolers? Yes, all the time.  Self-taught? Sure, them too.

Now ask yourself why something so important and yet simple to explain is not taught at practically any ‘place of learning’ throughout the land?  The only reason I can think of is that it is considered too dangerous by those in charge.

After all, how can you keep a workforce chained to a paycheck model once they find out that the Fed simply prints up dollars by the trillions and hands them out to their closest friends, relatives, and revolving door colleagues?

Kinda makes me recall the bank scene from this old SNL skit with Eddie Murphy titled White Like Me:

 

Or perhaps we can understand why currency creation is not taught through this old quote from Henry Ford:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

(Source)

I think old Henry also nailed it. The privilege and advantages enjoyed by those running our banking and monetary systems functions are deeply unfair. If those in charge of them want to keep their heads, its best to keep the public in the dark as much as possible.

Well, I think the cat’s out of the bag, and I base that on two exceptional recent events.  The first was the ill-fated launching of a Fed Facebook page, by the Fed, and the second was a real turnabout article penned in the WSJ by none other than perennial Fed insider/toady John Hilsenrath.

In Part 2: This Is How Sentiment Shifts And Markets Crash, we look at how the previously-bulletproof faith in the Federal Reserve is quickly eroding. As with all belief systems, once sentiment shifts below a critical threshold, everything gets called into question. Suddenly, it's obvious to all the emperor was naked.

The demise of faith in the Fed is an essential milestone on the way to the long-overdue market correction. Once the markets no longer trust the Fed can keep the party going, the stampede for the exit will one for the history books. 

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

 

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BaBaBouy's picture

BUY GOLD To Fight Back ...

Tallest Skil's picture

You know, we could fix all this by going back to Salamancan School fundamentals.

Here2Go's picture
Here2Go (not verified) Tallest Skil Sep 3, 2016 2:54 PM

"Sorry, Losers! How The Fed Has Screwed The Many To Protect The Few"

 

"Sorry, Goysers! How The Fed Has Jewed The Many To Protect The Jew"

 

There, fixed it!

 

vega113's picture

I am half jew. Can I get my fair share? So far I just work, pay taxes  and earn zero percent on my bank deposits like the goys... 

Off course non jew rich are "good" rich people, it's just those jews are bad. LOOK, a terrorist there! 

Terrorists, jews - what a bull shit. You don't need to be a jew to be corrupt and abuse the system. 

max2205's picture

80k motg pymt is wrong.   Try 10k 

bleu's picture
bleu (not verified) max2205 Sep 3, 2016 10:14 PM

And who are they? These elusive "few"? https://goo.gl/bFYusM

Boris Alatovkrap's picture

Question for Amerikansky… when Federal Reserve is expand balance sheet, you are wake up next day, go to bank, you are find extra money in bank balance to compensate for dilutive effect of Fed action, no?

Pure Evil's picture

Yes, but it only amounts to 0.01 percent interest.

Kagemusho's picture

Smart Amerikansky will run like matyobber to local coin dealer and buy der'mo-load of Ag before it all gone. Probably not much left, though...

Offthebeach's picture

Not even the common decency of a courtesy reach-around.

JRobby's picture

Individual gold purchases will be outlawed shortly. We know at a gut level this is true. You better hide what you have now. War is coming.

nightwish's picture

Let's fuck em over and all go back to the barter system. Sick of legalized theft and oppression.

Allen_H's picture

I know a few Names of ICBM's that will make a difference.

Ballin D's picture

Ridiculous weak argument. Author is claiming a mortgage pmt on a 250k house is 80k a year and appears to believe the location affects the mortgage payment in some way beyond the cost of the house (and residual related costs).

CNONC's picture

Not weak argument, piss poor weak writing.  The 250k actually refers to an approximation of the 20% down payment required on a median priced house of 1.37 million.  Likewise, the 80k is the mortgage payment on that median priced home.  For some reason, few contributors on ZH know how to proof read.

Ballin D's picture

Good call, I jumped to a conclusion too fast on that one.

Hoffman Lenz's picture

Admitting you're wrong is the right thing to do. It puts you above Central Banks, 'Climate Scientists', Liberals and about 99% of other people.

Krungle's picture

I assumedd that was a typo, since the paragraph before the author was stating the 80k figure as the annual payment on a median priced home in the Bay Area. The mortgage assumption was based on the Bay Area assumption--nowhere was it implied that mortgage payments are location dependent beyond local pricing conditions. 

booboo's picture

That pissed monkey was taken out and shot.
He should have played along with a grin until he could rip the balls off his handler.
That's the way it's being played by many, woe unto the handlers for they shall inherit a stump.

the grateful unemployed's picture

Yellen was appointed by Obama, you should have impeached Obama when we told you too

Swamp Yankee's picture

Oh look! Its a day that ends in 'y'!

cognitive dissident's picture

the title implies that the "game" has already ended... um, I beg to fucking differ, I am prepared for the endgame that is almost afoot.

cossack55's picture

Hmmmmmm.....I am not on either list.  Oh well, back to stacking.

tlnzz's picture

"As primates, we’re all hard-wired to expect fairness."

It ain't over till the empty shell casings hit the floor and the fat lady sings. We need a "Benito Mussolini" outcome for those at the federal reserve. The angry mobs will need to hunt them down and hang them from nearest streetlight.

cognitive dissident's picture

I'm up for Xmas in September... can't wait to string up the banke -- err -- "popcorn"...

Colonel Klink's picture

Be sure to put the needle and rope through them all.

cognitive dissident's picture

on your orders, Werner... Achtung!

GRDguy's picture

Age of Computerization: Never have so few, stolen so much, from so many, so quickly.

Lost in translation's picture

Can't wait to see Yellen put to the guillotine.

CAN'T. WAIT.

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Sep 3, 2016 2:59 PM

My biggest fear is that my house ends up underwater before I am ready to sell it in about 5-6 years.

I wish I knew the future, so I could screw the banks instead of being screwed. Of course, the banks DO know the future. Esp the member banks of the Fed.

max2205's picture

Just get your pymt where you can live on it..  it won't get any better for us that can't pay cash.  Let your estate worry about it but gift out all you can before you die. 

10mm's picture

As I watch this total fraud,I'm stacking lead. Keep your powder dry.

Seasmoke's picture

I could be wrong. But I think , the many, have the numbers on their side, to overthrow the few.

Fuku Ben's picture

The creation of currency isn't taught because it was all stolen at birth from the slaves. When you don't have any of it will never earn any of it (only paid in fraudulent debt FRN's) they you don't need or want you to be taught anything about it. Because what you don't know won't hurt you. But it would hurt them, quite a lot, if everyone ever found out. Which is happening now.

Because not only would everyone demand back what was stolen they would also sue for interest, penalties and punitive damages on the theft and other crimes. More than likely many would want revenge. The greedy, psychopathic, murdering criminals don't want to give back 1 cent. Instead they plan on murdering everyone else that's a problem before they are caught and possibly murdered themselves. Which is why they've planned out WW3 to start later this year. So they can eliminate the threat to their crimes being disclosed, being held accountable and continue their organized criminally racketeered enslavement and murder mill as usual.

Mountainview's picture

You forgot one loser, hard working Chinese, Bangladeshi and Vietnamese, who still take US currency for payment and will one day find out it's not worth the paper it is printed on.

Offthebeach's picture

Well, we're all adults. They could tend their fields, cashless. They could take other paper. Or work only for gold, if anyone which they won't, would pay in gold. And behind them are a billion or more who would if the factory was there, the shipping ports were there, where ever they are, a two week drive in a 4wd truck down some mud path. But no one comes, there is no factory, no road, no port...Those would work for a dollar a month. But whatever they could make would cost them a fortune to get in and out.

Still a lot of poor, nasty, brutish and short around in the world

Who was that masked man's picture

So what?  It's been like that for all eternity.

In the words of Clint Eastwood (more or less), "Tuco, there are two kinds of people in the world, those who have bullets (metaphorical or actual) in their gun, and those who dig.  You dig".

BeerMe's picture

Fuck!  I'm actually reading about NIRP in more places than ZH.  Can we hang them yet?

Yen Cross's picture

 Yellens mouth looks like a 'black hole'.

  Yikes, I wouldn't let that thing near my Manhood let alone my body, if IT gave me the key to the printing press.

  That nocturnal Gargoyle, that wears a bowls-R-us haircut, isn't to be trusted with a goat.

  that is all/ Bitchez

VW Nerd's picture

Fed has China and Russia on their Loser list and Putin and Xi know it. Hence, gold accumulation and the establishment of a non dollar trade system.  Ever wish you could do the same?  Monopolies are inherently unfair.

gregga777's picture

Con Street exists solely to fleece the suckers, I mean, the average American investors out of their hard won earnings.

The Goldman Sachs' Feral Reserve and it's much trumpeted "wealth effect" policy exists solely to further enrich the rich, thus grievously exacerbating wealth and income inequality.

If one were to design an institution and its policies to foment revolution I could not think of a better way than the Goldman Sachs Feral Reserve System.

gregga777's picture

The Goldman Sachs' Feral Reserve System makes it absolutely impossible to impose any fiscal discipline on the Feral government. The Feral government does not need even 1 penny in revenues because the Goldman Sachs Feral Reserve System will keep buying their debt. For that reason alone the Goldman Sachs Feral Reserve is absolutely Unconstitutional!

The Constitutional Republic of the United States of America no longer exists. It was overthrown in 1913 by a cabal of banking gangsters and their wholly-owned political parasites. The American People have no representation because the political parasites are owned by the banking gangsters, Con Street swindlers, crony capitalist conporations and Oligarchs.

J J Pettigrew's picture

THe Fed has SELF EXPANDED their powers...and those who own stocks (COngress and friends)  sit back and rejoice.

But they have taken over the market.  They have made all others inconsequential..because it is only THEY and what THEY think that counts...

Free market...? Nope.

Hayek was dead right.

honestann's picture

Humans are OBVIOUSLY dumber than those monkeys!

MUCH dumber (didn't take them decades to figure it out).

PS:  That monkey-fairness video is hilarious... and priceless.

peddling-fiction's picture

honestann: I am still laughing. It is a great video.

The wronged monkey even wants to get out of its cage to give its opinion up close.

gregga777's picture

Those monkeys did not heavily armed thugs making them comply either.

headless blogger's picture

Not really. The monkey's don't have Zionists to contend with. We get to watch the Zionists who are running the Fed bail out their buddies at the Big Banks. And if anyone mentions these truths they could lose their job or be called racist, anti-semite, etc, which is basically a sure-bet on totally damaging your life.