Nov 3 2010

The Federal Reserve plans on exporting the U.S. middle class abroad with Quantitative Easing II. QE1 cost $1.7 trillion and took the underemployment rate from 10 percent to 17 percent.

The Federal Reserve is entering uncharted territory with this second phase of quantitative easing.  The public may or may not be aware that the Fed has already embarked on quantitative easing (QE1) and has grown their balance sheet by $1.7 trillion (that’s $1,700,000,000,000) by exchanging U.S. Treasuries for questionable assets including a shopping mall in Oklahoma.  It is obvious that the Fed is betting on the public being unaware of this action to continue on their unabashed shadow bailout of the banking industry.  Some think that this will somehow cause residential real estate prices to boom.  Yet this flies directly in the face of a middle class that is quickly seeing their nominal income decrease.  How will they support higher home prices?  It doesn’t compute but what is certain is the demise of the U.S. dollar is already happening.

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Nov 1 2010

Real estate is a bad investment does not show up in Google News and other interesting housing trends – Strategic default searches went viral in 2010. Banks betting against American homeowners.

82 percent of American households have internet access.  Of those with internet access, a large number are homeowners.  The vast majority use Google to search for many things including foreclosure advice or investigating the real estate market.  The online trends give of a sense of what is happening in the collective psyche of our country that really isn’t revealed through the conventional press.  The housing market seems to be entering a second leg down and many are now predicting nationwide home prices to fall by 5 to 10 percent in the upcoming year.  With that being said, very few articles have made their way to the popular press regarding real estate as a bad investment.  Even today, there is still a sense that no matter the price, real estate will always be a good financial choice.  Let us examine the online trends and market behavior that surround the current real estate digital psychology.

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Oct 30 2010

Income disequilibrium – The top 74 Americans earned an average of $518 million in the economic troubling year of 2009. Top 1 percent earned 14 percent of all earnings in 2009 versus 11 percent in 1989.

The disappearing middle class in the United States is a troubling consequence of the culmination of economic and political policies of many decades.  There is a sense, and probably why so much frustration is out in the country, that the once comfortable life of being middle class is slowly slipping through our hands.  The American public senses something is amiss with the economic system and clearly is not happy.  When we look at income data from the Social Security Administration records, we realize that even in years that Americans have suffered greatly, the wealthiest in our country actually became a lot richer.  The jump is incredible and begs the question that in a year where millions lost their jobs and witnessed collapsing home values how was it possible for a few to make hundreds of millions of dollars and sometimes billions of dollars?  Let us first examine the income data for this elite group.

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Oct 27 2010

Shipping the housing market overseas. Long-term housing prospects hinge on an economic recovery for working Americans first – No housing bottom until middle class recovers a foothold in the U.S.

The housing market can have no sustainable recovery without the employment market improving.  It is incredible that over three years into this crisis that there has been little focus on coupling employment with housing.  Banks argue that many are simply not paying their mortgage yet they want the Federal government to ease lending restrictions.  Who are they going to lend to?  Over 95 percent of all mortgages now being originated are government backed.  It is disturbing that all bank bailouts including the Fed forcing the interest rate lower merely focus on one aspect of the financial equation.  The reality is, without a burgeoning middle class housing will never recover.  Even the rising default rates in government backed loans, many “plain vanilla” loans are defaulting in record numbers because people are not able to service their debt.

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Oct 25 2010

Debt U – 4,800 colleges and universities in the U.S. and many are putting students into massive amounts of debt. The higher education bubble is getting to a point of bursting.

A few months ago a troubling milestone was passed.  In the United States college loan debt outstanding has surpassed credit card debt.  As of June 2010 $829 billion in student loan debt was outstanding compared to $826 billion in credit card debt.  Higher education by looking at a handful of metrics is clearly in a bubble.  The only question that remains is when will it burst?  Bubbles tend to go on longer than many people expect (i.e., the housing bubble) but when they burst they carry long-term ramifications for the economy.  Bubbles have unique sociological phases that they go through.  For example, at the height of the housing bubble people started questioning whether home prices were really worth it.  When people woke up from their sleepwalking and questioned ancient mantras like real estate never goes down, then the bubble implodes either by the sheer size of debt or by people shunning the market completely.  In education, the mantra has always been “going to college is worth it no matter what the costs” but the costs are now so high that we do have to question whether college is worth it.  Let us take a look at a few reasons why higher education is in a bubble and why it will certainly pop.

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Oct 24 2010

How the mortgage interest deduction subsidizes the spending of wealthy families at the expense of middle class families. Average California mortgage deduction for filers is over $18,000 versus $9,900 in Texas.

One of the sacred cows of our economy revolves around the mortgage interest tax deduction.  Home buying is heavily subsidized in the United States.  The Federal Reserve has injected trillions of dollars in purchasing mortgage backed securities and other questionable assets all for the purpose of keeping interest rates low.  Yet this is one area of misunderstanding by the public because when the data is sorted out it becomes clear that the mortgage interest tax deduction heavily subsidizes the home buying of wealthier Americans and those who live in more expensive states.  The golden goose is expensive to maintain.  The median household income of $50,000 garners very little benefit from this deduction because the standard deduction is already high for half of U.S. households.  Let us carefully examine the details of this expensive subsidy and visualize how costly this subsidy is but first let us look at the failed home buyer tax credit.

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Oct 20 2010

Some American families are $133 a month away from Great Depression like problems – 1 out of 7 Americans receiving food assistance at an average of $133 per person.

The U.S. government is now spending roughly $5.6 billion per month on food assistance helping out 41,836,000 Americans.  How bad is it for the lower economic strata of families in our economy?  In January of 2007 we had 26,000,000 Americans on food assistance.  The economic crisis has added 15,800,000 Americans onto the food assistance program now known as SNAP.  These numbers are incredible and demonstrate how deep the recession has gotten.  Even though on paper the recession ended in the summer of 2009 these numbers show a very different economic climate.  Where did these 15 million people come from?  Many have fallen off the middle class treadmill and have been sucked into the ever growing invisible class of people in the U.S.

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