The Federal Reserve Has Done A Great Job Destroying The Middle Class

Authored by Tom Lewis via GoldTelegraph.com,

The Federal Reserve has been determined to create “Wealth Effects” throughout the economy since 2008, which has left the majority of Main Street on the sidelines.

The Fed’s objective was to make American households feel wealthier by pushing up the valuations of stocks and bonds. However, this paper wealth mentality has worked beautifully for Wall Street and the 1% but has destroyed much of the middle class as wealth inequality continues to skyrocket.

In fact, former Federal Reserve Chairman Alan Greenspan has gone on record to warn of a massive bond and stock bubble thanks to historic low-interest rates. I guess, the idea of rising paper wealth to drive a wave of renewed borrowing and spending hasn’t quite worked out as planned.

Sadly, as the below chart points out most households have been squeezed as the majority of the wealth created has only gone to the top 5% of households earning in excess of $200,00 annually, meanwhile the bottom 95% have suffered.

We used to live in a time where making a six-figure paycheck was a lot of money, but parts of the United States are simply unaffordable for most of middle America. In San Francisco, you have to earn as much as $110,040 to be even considered in the top 50% of earners, according to U.S Census figures.

It is evident that these “Wealth Effects” that the central bankers have been chasing does not drive inflation-adjusted wages of the bottom 95% which has stagnated for decades. It merely accelerates purchasing power decay where the 1% get the wealth first, and it then trickles down to the rest of the economy. The experiment of prolonged zero interest rates has destroyed savers and rewarded reckless spenders who have helped push household debt to unprecedented levels. 

Unfortunately, the 2008 Band-Aid is going to be ripped off at some point which will further alienate the middle class and drive wealth and income inequality even further.

Wealth Effect = Total Bust

Comments

abgary1 InjectTheVenom Wed, 04/18/2018 - 15:19 Permalink

Include neo-classical economic theory with that.

Inflation is the most destructive weapon on earth so the question I have is what is the benefit of the higher price of everything?

 

To understand how illogical neo-classical economic theory, the basis for the central banks decisions, really is, please read Debunking Economics: The Naked Emperor Dethroned? by Prof. Steve Keen. Please support, intellectually and financially, his efforts to develop new theories that are reflective of the complex, dynamic and chaotic economy and markets that exist.

In reply to by InjectTheVenom

NugginFuts Wed, 04/18/2018 - 14:49 Permalink

I know this is probably an unpopular question, but what if it's the middle class that is destroying itself?

I see friends and neighbors going into extreme debt for stuff they could never really afford, then surprised when the bill comes due and they are short on money.

I see people more concerned about monthly payments than long term affordability.

I see people living for the moment but failing to plan for the future.

Previous generations of middle class didn't do this to themselves. Our parents, grandparents, etc worked hard, saved, invested for the long run, and only bought things they could afford. The newer generations of middle class don't seem to have the same principles or work ethic. The Fed sure isn't helping with cheap credit, but whatever happened to self discipline?

Alright, now back to the Old Folks home for me.

bloofer resistedliving Thu, 04/19/2018 - 04:54 Permalink

If being born white equals being born on first base, why is that? While there are several reasons, the biggest one is that you are more likely to have a basic education, or at least what nowadays passes for a decent education. You are more like to be able to read, write, and do basic arithmetic.

If you are a person of color and can't read, write, and do basic arithmetic, whose fault is that? I'd say it's your own fault and to some extent your parents' fault. It's not Whitey's fault. And it is both reasonable and unsurprising if Whitey looks down on you for your willful ignorance. And it is willful--unless you are willing to plead race-based mental insufficiency--since these minimal skills are easy to come by and easily mastered.

In reply to by resistedliving

rf80412 NugginFuts Wed, 04/18/2018 - 15:13 Permalink

Because if leverage makes sense for a business, it makes sense for an individual.  You have X amount of money to spend, and you can can afford one lifestyle by paying cash up front for everything, but you can afford a much more lavish lifestyle (i.e. a middle class lifestyle) by spending the same amount of money servicing debt.  People living la vida leverage get in trouble because of circumstances beyond their control - loss of a job, downturn in the economy, unforseen expenses, etc. - which is the same reason leveraged businesses and banks get in trouble: reduced cash flow.  You can argue that there's such a thing as overleveraging, which implicitly leaves you without that kind of safety margin, but arguing against leverage on principle is morality, not economics.

In reply to by NugginFuts

Ski Daddy NugginFuts Wed, 04/18/2018 - 15:18 Permalink

The way most Americans operate, if one receives a 10% raise, you can generally assume that the monthly and annual expenditures of said person will go up 10% as well.  Most Americans see that gap and think they ought to find something to fill it with- nicer housing, nicer car, nicer clothes, etc.

In reply to by NugginFuts

Blue Steel 309 NugginFuts Wed, 04/18/2018 - 16:15 Permalink

What if it was left to the consumer to have to protect themselves from highway bandits, because the government shouldn't be looking after the welfare of individuals?

 

Basically you are excusing predatory behavior and advocating for anarchy.

In reply to by NugginFuts

Kurpak NugginFuts Wed, 04/18/2018 - 16:20 Permalink

Yes and no.

Yes to all the debt spending for crap they can't afford, no to the destruction of their wealth via inflation of those little green things they call dollars these poor saps convert their labor to and save in. All the financial fraud since, I don't know, us going off the gold standard? Obviously before that but that's when it really took off.  I'm only in my 40s and I can remember a time my father had a median wage job, my mother stayed home, 3 kids, and we could afford to live a comfortable lifestyle. Those days are gone, we have serfs and lords now.  We are so far gone towards financial ruin as a country and world there really is no escape.  The entire thing must crash and burn so we can start over.  Ending the Fed would be a good start.

 

In reply to by NugginFuts

AGuy NugginFuts Wed, 04/18/2018 - 18:08 Permalink

"I know this is probably an unpopular question, but what if it's the middle class that is destroying itself?"

Let's just say the the gov't isn't helping anyone stay Middle class: from Making Debt Cheap (No returns on Bank Interest), Soaring Healthcare costs, Dumb down public schools (Common-Core), and soaring taxes (local, State to pay for Midaz pensions).

"The Fed sure isn't helping with cheap credit, but whatever happened to self discipline?"

Gov't Leading by example with $21T+ in Debt?

In reply to by NugginFuts

Trader200K NugginFuts Wed, 04/18/2018 - 19:58 Permalink

Only work and humility have (temporarily) become unpopular, the principles you point out truly are timeless. This cycle too shall pass.

Value Creation and Personal/Property Rights are the supporting constructs that allow 'work' to flourish. 

When the proud non-readers of books and Marxists outnumber the rest, it falls apart for everyone. 

AKA USSR, Venezuela, n-number of suicidal Euro govts, etc. 

"You can ignore reality, but you cannot ignore the consequences of ignoring reality." ~Rand

Best of the Spring day to you!

In reply to by NugginFuts

DipshitMiddleC… Wed, 04/18/2018 - 14:50 Permalink

the planned destruction of america is almost complete.  when it gets "back on track" it just means most of the northeast and west coast coastal areas will be walled off and the rest of the country will balkanize into smaller tribal regions warring with one another over resources.

lester1 Wed, 04/18/2018 - 14:50 Permalink

When the Fed did their QE/money printing programs it all went to their "primary dealer" banks on Wall Street.

Main Street got nothing accept for inflation and rising prices!

End the Fed !

Freddie Wed, 04/18/2018 - 14:51 Permalink

The real name is the Roth$child Federal Reserve.

The Roth$childs also founded and funded i$real and bankrolled just about every war over the past 400 years.

Deep Snorkeler FreeShitter Wed, 04/18/2018 - 15:03 Permalink

History Lessons

1. the growth of the middle class is what doomed feudalism

2. the middle class is the force of the French Revolution

3. democratic institutions arise from middle class political power

4. large corporations + Church + Party, undercut the middle class

resulting in fascist dictatorship

5. The War of American Independence was caused by a growing middle class

resentful of a lack of political power

6. No middle class = no America

 

In reply to by FreeShitter

rejected Deep Snorkeler Wed, 04/18/2018 - 15:19 Permalink

"The War of American Independence was caused by a growing middle class resentful of a lack of political power"

Actually it was caused by taxes which were required to be paid in gold.

The ban on weapons.

Housing of British troops in Americans homes.

There was no middle class, just wealthy land owners and the rest were slaves and indentured slaves. Most sent to the colonies were criminals and societal rejects.

In reply to by Deep Snorkeler

Endgame Napoleon Francis Marx Wed, 04/18/2018 - 15:04 Permalink

The military budget is massive and debt-financed. But as someone on B.B. pointed out, the military industrial complex creates a lot of breadwinner jobs, with just the B 135 (I think) creating 200,000 high-paying jobs. If true, that is as many jobs as Amazon—the nation’s number 2 private-sector employer after Wal*Mart—creates, and in the case of the weaponry production, the jobs actually pay enough to cover rent.

The means-tested welfare state suppresses wages by creating a womb-productive workforce of citizens and noncitizens with an incentive to accept part-time hours and low pay, as it keeps them below the earned-income limits for free monthly everything — from free rent to free food — and refundable EITC child tax credits up to $6,431. It is not a huge part of the budget, but it is a huge wage suppressor and underemployment creator.

In reply to by Francis Marx

Endgame Napoleon Wed, 04/18/2018 - 14:57 Permalink

It is worse in other parts of the country. If you are a just-above-the-median single earner in SF, your $3,000-per-month rent for a one-room apartment is sky high, not to mention your 40% SF tax rate, but try being a college grad making a typical $25k office-job wage in the South, with rent for a one-room apartment at about $900 per month. The poverty market is so much bigger than the luxury market that, in the South, you get slightly higher pay and a better chance at benefits working with that clientele.

3-fingered_chemist Wed, 04/18/2018 - 15:00 Permalink

Let's see. Pump up stocks and bonds when middle class doesn't own any of them really and then act surprised when middle class doesn't see any wealth increase? Go figure. I guess a Harvard, Yale, Columbia, etc. education doesn't go as far as it used to.

wmbz Wed, 04/18/2018 - 15:01 Permalink

  "Gold is the currency of kings, silver is the money of gentlemen, barter is the money of peasants, but debt is the money of slaves."

~ Norm Franz

Pollygotacracker Wed, 04/18/2018 - 15:02 Permalink

Jim Grant, an accepted expert on interest rates, asked a simple question..."What ever gave the Fed the idea that blowing up asset prices sky high was a great way to create wealth and prosperity?" Every time a crisis caused by reckless speculation comes along the perpetrators get bailed out. Next time...no way. I don't think that is politically tenable to bail out the bankers ever again. Get back to sound money.

Endgame Napoleon Pollygotacracker Wed, 04/18/2018 - 15:14 Permalink

They did not just bail out bankers.

They bailed out insurance companies that forayed into speculative activities, even though they had legal obligations to hold enough to cover claims....all over the world. 

They bailed out public pension funds because of the legal, contractual obligation and the fact that pension fund managers were encouraged — policy-wise — to speculate with money that was handled differently in times past. 

They were backed into a corner, with national “full faith and credit” on the line. 

Cause, if a nation backs away from its legal obligations, it loses standing in the world, leading to wider poverty. 

Only problem: The poverty is descending, anyway, due to an aristocratic-minded elite that has mostly invested in countries with lost-cost labor for the last 40 years. 

And now, automation may upend even that oligarchical arrangement. 

In reply to by Pollygotacracker