The banking system’s methodical way of punishing savers: How punishing savers is encouraging a low savings rate and high levels of debt.
Would you be motivated to save money if your rate of return was 0 percent? That is the situation facing many Americans looking to put their hard earned dollars into the current banking system. Underlying the zero percent stated rate however is the reality that the real rate is closer to negative three percent given the rate of inflation. To keep it short and sweet, you will lose money simply by putting it into a regular savings account or even a certificate of deposit (CD). The Federal Reserve carries a lot of power in our financial system. The mere mention of shifting course sent the markets into a financial panic. The problem of course is the Fed has conditioned a public to very low rates and risk is being mispriced. These low rates in classical conditioning fashion have created a market addicted to lower and lower rates. The current system punishes savers and the setup has worked when we look at data to discourage saving.
The Fed has built a financial pyramid based on unsustainable low rates. How the Fed is running out of economic curtains to hide behind when it comes to monetary policy.
The markets are pulling back dramatically because the Fed sneezed. The Fed essentially said they would begin tapering off their experiments in quantitative easing by pulling back their bond purchases from $85 billion a month to $65 billion. That is it. Not a shocking revelation. So why then are the markets plunging on this news? The entire market is being driven by artificial stimulus that is largely helping the top one percent in society. This is a primary reason on how we can have a peak in stocks while we have a peak in food stamp usage all at the same time. A large part of the recovery has been fabricated by giving banks access to trillions of dollars in easy debt via the monetizing machinery while the working public has to grovel for any crumbs that are left over after the banks have their feast. The Fed merely hinting at pulling back is slamming the market because many financial institutions gorging at the trough of low rates are sensing the 135 percent rally in stocks is coming to a close.
Has inflation fueled the two income household trap in the US? How inflation has eroded the purchasing power of the working and middle class.
Inflation in the United States is largely seen as a built in part of our economy. People take it for granted as if this was simply the order of things. Yet our central banking system has inflated our debt based financial system and subsequently, the value of money has eroded. For example, most items that are financed through debt have increased dramatically during a time when household income has reverted to inflation adjusted levels of the 1990s. The cost of inflation is hidden of course from the eyes of the public as to not shock people into action. Playing with interest rates, a car that once cost $20,000 is now going for $30,000 but the monthly payment has remained the same thanks to the Fed’s unrelenting push to lower interest rates. There is a cost to all of this of course. If it were so simple to fix an economy, the Fed would simply send unlimited debit cards to each and every American. Inflation is a threat to the economy from the perspective that it destroys the purchasing power of working and middle class Americans, those with limited access to debt. In our economy, debt provides access to real assets and those with the most access to debt (banks) can lock into the larger share of assets (i.e., banks now buying up thousands of rental properties). Is inflation a main culprit in the two income trap?
The financially forgotten generation: Economically raising the Millennials in a debt strapped financial world. Over half of Millennials have no savings.
Millennials, those roughly 18 to 34 years of age are growing up in the financial shadow of their baby boomer parents. This group of Americans is more diverse in what they perceive to be a good quality life. They prefer to live close to work and shopping, they are not big on suburbs, and many are massively in debt. It seems to go against the grain of what we expect, that a future generation of Americans will have it financially tougher than the current generation but that is the path we are now walking on. Student debt is a large burden for many of the Millennials. Total student debt outstanding is now over $1 trillion and continues to be the fastest growing segment of non-housing related debt. Are Millennials a forgotten generation when it comes to their financial success?
A wing and a prayer retirement plan: Two-thirds of Americans are not saving enough for retirement. Income inequality at record levels in the US.
It is interesting to see what passes for financial journalism in the press. This morning a guest was on one of the major news stations and she was mentioning that Americans need to save $1 million or more to retire comfortably. In the next sentence, she mentioned that two-thirds of Americans don’t even save enough and in this group, about half don’t even save. So think about that. How in the world is this group even going to come close to saving one million dollars for retirement when they are living paycheck to paycheck? 47.7 million Americans are on food stamps and they are talking about saving a million dollar as if this was some kind of easy task to achieve. Is it any wonder then that the vast majority of the country is by default going to rely on Social Security as their main source of retirement income as if the government had a secret touch that turns everything into gold like King Midas? Pensions are becoming a thing of the past now. For most of this country retirement consists of closing your eyes and hoping something will be there when old age hits. Well many are opening their eyes and realizing that not much of a net is now left for retirement.
The return of irrational exuberance to Las Vegas: The growing worries of another Las Vegas housing bubble.
It is rather clear that large institutional investors are diving into investment real estate once again. This time these investors are supplanting individuals but are targeting very familiar markets in Arizona, Nevada, and Florida. One of those markets is Las Vegas. Las Vegas had one of the most spectacular real estate bubbles that we have seen in this generation. The housing bubble was not evenly distributed. You had places across the nation that barely saw the signs of a housing bubble and then you had places like Las Vegas. The glamour and lights in the Southwest Desert. You had home values rising close to 140 percent from 2000 to their peak in 2007 like some sort of real estate Icarus. The bust was equally spectacular. Today you are seeing the same kind of fervor in the market but this time it is being driven by hungry institutional investors. There are clear signs that Las Vegas real estate is in some form of bubble albeit different from the last one.
Bread, butter, and food stamp economy: Is the US developing a permanent under-class of citizens economically?
The American economy has developed a deep disconnect between its financial markets and the working and middle class. The stock market has soared by 138 percent from the low reached in 2009. Yet very little of this has trickled down to the majority of Americans. In fact, most Americans actually saw little to negative growth in their net worth over this period. Even more problematic is the emergence of a permanent working poor in spite of a booming stock market. Over 47 million Americans are still receiving food stamps on a monthly basis. Not only has this number remained high, there is now an economy that is building up around servicing the needs of this large constituency. Why wouldn’t there be a new booming market here? Nearly one out of every six Americans is on food assistance in the most prosperous country in the world. Doesn’t exactly go hand and hand with the perception of a record breaking stock market. Is the US and the current economy developing a permanent under-class of citizens?