Federal Reserve silently grows balance sheet to approximately $2.75 trillion by a shadow bailout of residential real estate and commercial real estate. The continuing hidden CRE bailout imperils future economic growth.
The biggest silent financial bailout going on in the nation revolves around commercial real estate. Commercial real estate (CRE) values have plummeted $3 trillion from their peak in 2008. While residential real estate values peaked in 2006 CRE waited two more years before moving lower. The two year lagged occurred because many banks, especially local regional banks have held onto trillions of dollars of CRE loans that have now lost nearly half their value. This includes hotels without adequate demand, empty shopping centers, and multi-use projects that really have little market demand in a country facing a debt base recession. Ultimately CRE had to come down to reflect the values of what people could afford. As it turns out when the average income is $25,000 in the U.S. there is little discretionary income on a per capita basis to spend day and night at the local shopping mall. We have all heard of the residential real estate bailout since this seems to be the message coming from the banks and government yet little is ever mentioned about this $3 trillion industry that is benefitting just as much.
China’s ghost cities and shopping malls – 14 million empty housing units in the U.S. while China may have up to 64 million empty apartments. GDP is only as good as the quality behind the financial numbers. China real estate bubble.
The Census released data showing that 14 million housing units in the U.S. are categorized as being vacant. As startling as this figure appears on the surface, China has an estimated 64 million empty apartment units. As we enter a perpetual cycle of global financial bubbles, the largest ongoing bubble in the world at the moment is likely to be in Chinese real estate. China has grown from having a GDP of $1 trillion in 1999 to well over $5 trillion today making it the second largest economy in the world. Yet as we will examine in this article simply having a large GDP does not necessarily mean a robust economy. Many Americans thought home values would remain elevated but once reality took over prices came crashing down in dramatic fashion putting household balance sheets into a tailspin that we have yet to recover from. China in order to keep up with growth demands from their central government and investment demand is building at a pace where many areas including entire cities remain largely empty.
The financial scam of the century – In 2010 we added 600,000 millionaires while 5,000,000 people were added to the food stamp program. Wealthy derive profits from stocks while middle class hold most of their net worth in housing.
Part of the discontent roaming across America is that the economic recovery is targeted to a small portion of the population. This part of the population controls most of the mainstream media channels so the working and middle class are wondering why isn’t the fact that food, college, health care, or many other day to day items with price increases fails to grace the media agenda? Have you ever heard the words “median household income†or “average income†grace the daily news tube? The problem of course is that some are doing extremely well in our economy. In fact the number of millionaires in the United States soared once again last year. The number of millionaire households jumped to 8.4 million in 2010 increasing by 600,000 last year. Now to contrast this rise in millionaires in 2010 we added 5,000,000 Americans to the national food stamp program. The income inequality gap is only getting more pronounced here. A rising sea is not lifting all ships because many of the reasons for wealth building (i.e., corporations cutting costs to boost profits) directly impacts the working and middle class who own very little in stock. Yet the stock market going up over 100 percent from the March 2009 lows has helped the top 1 percent that control 42 percent of all financial wealth.
Federal Reserve and the opaque banking syndicate – If the economy were booming why does the Fed still hold over $2.5 trillion in securities? $640 billion current fiscal year budget deficit.
The Federal Reserve is one giant black box of financial mysticism in our economy. At least that is what the Fed wants the public to think so it can remain shrouded in mystery. Since the crisis slammed our economy and the bailouts started in mass, calls for greater Federal Reserve transparency have been echoed in a non-partisan voice. The protectors of the Fed are largely part of the banking syndicate that have used this institution as one giant washer machine to recycle taxpayer money and convoluted the true intent of the original bailouts. Some in the public seem to think that the bailouts have all been repaid and suddenly the economy is back on even footing. Nothing can be further from the truth. To the contrary, the digital printing press is humming at a feverish pitch but the mainstream media has failed to convey the biggest financial story in any meaningful way. How can a multi-trillion dollar swindle occur with very little media scrutiny? The media would rather focus on Dancing with the Stars or some other flavor of the day reality show instead of confronting the financial system that runs our economy.