by Michael Stack
Why are so many young families having a difficult time making ends meet?
Many young people feel the dream of owning a home will never be within reach. While a born optimist, for the first time in my life I’m starting to actually believe that their fears may be justified. The inflation and accompanying asset bubble that has been created by profligate government spending and hyperaggressive Monetary policies has created a historic income and wealth disparity in our country. If you were not on that asset bubble train when it left the station you may be out of luck.
Unfortunately, our leadership class has devolved into having a mindset which believes they can only correct such problems by redistributing wealth and spending more. Every new “creative” solution they come up with just throws more coal on the fire and the asset bubble train speeds further from the station. Those left there holding, yes you guessed it, the empty calories of false promises.
When was the last time anyone heard a politician say that we need to stop or even slow spending. I mean seriously, I do not remember the last time I heard a genuine cost cutting proposal that wasn’t a redistribution strategy cloaked in Equity, Climate change or some other “Just cause”.
U.S. National Home Price Index are 70% higher now than they were at the last peak. The last peak was August 2006 just before the collapse of the Subprime credit market. When that bubble burst it took us into the “great recession”, a historic 18 months pull back. I will repeat, we are now 70% above those last artificially induced price levels.
Super aggressive Monetary Policy
Simplistically, printing or digitizing more dollars reduces the value of the those in your pocket. This drives inflation, devalues currency and makes your disposable income shrink. In that scary world, real things hold value, paper things (401k, savings, cash) don’t. Everyone knows the historic examples – Weimar Germany, Brazil, Venezuela.
The $7 trillion in the Federal Reserve balance sheet would look like a four-story building of $100 bills piled over the entire area of a football field.
Our spending driven leverage relative to GDP at 124% has reached historic highs. Borrowing or leveraging money during financial stress is risky. We have essentially doubled our debt to GDP ratio since the last major financial crisis in 2008 and are at levels unprecedented in the last 100 years.
The current U.S. National debt clock registers $34.6T. Click here if you dare: U.S. National Debt Clock : Real Time.
What can you do?
Face it, the smart money is already on-board the proverbial asset train. If you did not get on or were too young to have the capital necessary to buy a ticket, you really only have one option: speak with your vote.
Last March, Federal Reserve Chairman Powel’s took a victory lap, outlining the recent drop in Inflation. The bad news, Chair Powell noted, is they have decided to slow the pace of the decline in the Fed’s securities holdings.
In layman’s terms, they are going to keep the financial heroin in the system.
The FED is going to continue to run a very loose monetary policy and as a result continue to create hot asset inflation. At this point the asset train may be rounding the bend, out of sight, and yes, you are still standing at the station.
Future taxpayers, you are being punked. You must convince your elected officials that the “Borrow and Spend” policies and behaviors of the past are robing you of a financial future. Demographically you will end up holding the bag for the mountain of debt being generated on “your behalf”.
Even if your generation never actually can pay off the debt you will be left with a currency that is so depleted that your parent’s standard of living will just be memory. One way or another you are going to be held accountable for $34T in debt. Back to our visual 34 X 6 = 204 feet or a twenty-story building of $100 bills covering an entire football field.
The political class are like sheep. You need to hold their hand and show them that their “power” depends upon insuring your financial future. If they are borrowing and spending your future every time they come up with some new great social agenda just ask “what is that going to cost me”?
The easy money has been made by someone else. If you want a shot of catching the runaway asset train or getting it to come back to the station, dramatically change your thinking. Dramatically change the demands you place upon our, and eventually your leaders.
Stop falling for empty financial calories and the promise of free money from the political class.
My father’s first house cost $15k in 1960. Today that house is on the market for 21 times that amount. What will your first house and your children’s first houses cost? Do the math: will you even be able to come up with the downpayment?
The author is a retired NYC financial services professional now living in Bellows Falls.