It is ironic the Fed puts out this data, as if to show off its success, and how every time the wealth of the 1% is threatened, the Fed comes up with new bailouts, rate cuts, and other shenanigans.
This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:
OK, the Federal Reserve just came out with its quarterly data on the wealth of American households. It’s mostly the headline numbers that are being displayed in the media – how much wealth American households have – namely a new record of $107 trillion, thank you Fed, QE, interest-rate repression, and Wealth Effect. But the Fed’s data also shows the wealth distribution.
Everyone knows that if you’re in the bottom 50% of households in terms of wealth in this country, you’re essentially screwed. At the bottom 50%, you’re chasing after the American dream, and while a few are able to get out of the bottom 50%, for most, the American dream remains just a dream.
But the share that the bottom 50% of households have of the overall wealth, of that record $107 trillion, is minuscule. It’s just 1.9%.
That share is down by half from the already miserably low levels of 1999, according to the Fed’s data. So those folks in the bottom half of households are screwed and we knew that.
But today, we’ll take a closer look at the top 50% to 99% of households by wealth because even their share of the wealth is now declining, while the share of the 1% is surging.
This is the upper middle class and the top of the middle class, and they’re losing out to the 1%. And it’s a big deal in terms of dollars because those households have a lot of wealth, but their share is shrinking as the share of the 1% is gaining.
In other words, this economy – and I will point my finger straight at the policies of the Federal Reserve – is set up to shift an ever-larger share of the wealth to the top 1% and away from everyone else, according to the Fed’s own data. And the Fed is bragging about it.
We already know what is happening at the bottom half of the households: They’ve always been screwed. They’re just screwed even more today than they were 20 years ago, according to the Fed’s data.
As of the new data from the Fed, the bottom half of the households, owns 6.1% of all assets that Americans own. They own just 2.2% of all stocks and stock mutual funds. They own just 2.7% of what the Fed calls “pension entitlements.” The gold-plated executive pension plans are only for the few. They own just 13.5% of household real estate wealth. They own just 0.1% of the “private business wealth.”
But in terms of debt, the bottom half of households carry 36% of the total debt, such as mortgages, credit card debt, auto loans, and student loans. So they own 6.1% of the assets and they owe 36% of the debt.
And the wealth of the bottom half of households – wealth being assets minus debt – amounts to just $2 trillion, or 1.9% of the total household wealth.
These are the people who cannot save anything because their expenses for housing, healthcare, education, transportation, childcare, etc. are eating up their income. And because they cannot save anything, they have no means to invest. The whole system is set up that way.
Healthcare expenses cost roughly the same for rich and poor. The problem is that health care expenses are enormous in the US, and become an affordability issue for the bottom half of the households, a huge burden, and lots of people struggle to pay for it or cannot afford it.
The healthcare sector is now around 18% of GDP, or nearly $4 trillion a year. This business has become immensely profitable with its monopolistic structure, constant mergers, abuse of the patent system to prolong pharma monopolies, outrageous hospital bills as hospitals have become integrated into corporatized medicine. And so on. Paying even for basic healthcare has become a nightmare for the bottom half of households.
For the lucky ones who’re covered by an employer’s health plan, family coverage costs the employee on average $6,000, according to the Kaiser Family Foundation. This is just the insurance premium. Then there are copays and deductibles, etc. And those deductibles can be thousands of dollars.
For families without employer health coverage, the premiums alone for reasonable insurance plans run over $20,000 a year.
Then there are housing costs – whether people own or buy. They have surged in many places in the country. And for the bottom 50%, paying for a roof over the head in a lot of places is straining budgets, or exceeding budgets. Just check out the thousands of parked vehicles that people live in, around Silicon Valley, San Francisco, and other places. These are people with jobs that cannot afford housing.
The costs of higher education have become a huge burden at the bottom 50% of the wealth scale. This burden is carried by the family that now sacrifices in many ways, and it will be carried by the student who will end up with a pile of student loans.
It boils down to this: The households in the bottom half of the wealth spectrum are spending all their money just getting to the next paycheck, and they cannot accumulate money to invest, and they cannot benefit from the Fed’s ingenious Wealth Effect.
The wealth effect is reserved for the already wealthy that have the most assets, and when asset prices surge, those that hold the most assets benefit the most.
So now let’s look at the bottom 99% – and I mean, this sounds really funny, “the bottom 99%.” But that’s what it is coming down to.
And we’ll look at the top 1% to see how the share of wealth has changed since the Fed started its wealth effect, QE, and interest-rate repression. And we may soon add to this strategy the fantastical repo market bailout.
So over the past 10 years, the Fed has engineered an enormous amount of asset price inflation. And over those 10 years:
- The wealth of the top 1% has soared by $18 trillion to $34 trillion.
- The wealth of the next 9% has soared by $16 trillion to $39 trillion.
- The wealth of the 50% to 90%, so that’s the upper middle class, has risen by a more modest $13 trillion to $31 trillion.
- The wealth of the bottom half of households has ticked up by $1.4 trillion to $2 trillion, a tiny fraction of the wealth of the 1%.
In terms of percentage share of all household wealth, it looks whacky:
The top 1%’s share of household wealth over those ten years increased by 5 percentage points to 32%. The 1% now own nearly one-third of total household wealth,
But over those 10 years, the share of household wealth owned by the next 9% fell by 3 percentage points to 37%.
And the share of the 50% to 90%, the upper middle class, also fell by 3 percentage points to 29%.
Today, the share of the 1% is nearly 4 percentage points higher than the share of the 50% to 90%.
Back in 2002, it was reverse: The share of the 1% was about 10 percentage points lower than the share of the 50% to 90%.
The first time that the 1% had a larger share of household wealth than the 50% to 90% was in 2013, and the gap has ballooned since.
So what is going on here? How is the 1% able to hog more and more of the household wealth that the Fed has so strenuously inflated, even at the expense of the next layers down?
There are several factors:
The Fed’s interest rate repression has destroyed returns on bank savings products. Households own about $10 trillion in these savings products, such as CDs and savings accounts. These types of products are a classic way of saving money at the lower income levels, and people have mostly gotten screwed doing it.
The stock market is open to all who have money to invest. And returns have been huge since the last collapse, and those with the most money invested in stocks gained the most.
But the wealthy have access to other types of investments. Many hedge funds, private equity firms, and venture capital funds require a $5 million minimum investment. Households that don’t have an extra $5 million to invest, in addition to their broader investment strategies, are excluded from the club.
Then there is a very small group of people who are super wealthy, who are billionaires and multi-billionaires, such as Amazon’s Jeff Bezos or Warren Buffett and others. Some of them, like Bezos, made their money on the immensely inflated stock price of their companies.
Warren Buffett’s entire finance and insurance empire got bailed out during the Financial Crisis, and he is probably the single biggest beneficiary of those bailouts. Then after the bailouts came QE, and his finance and insurance empire hugely benefited from that.
Then there are stock compensation plans. This includes people like Tesla’s Elon Musk. Tesla has been a financial nightmare throughout its entire existence, but its shares have been pushed by hook or crook to a valuation of $61 billion, and Musk has already awarded himself a bunch of them, and in addition has given himself an extraordinarily rich share compensation package valued at $56 billion that is now heading to court.
While Tesla fans have to buy shares, Musk just gets them – to the tune of billions of dollars. This principle is spread far and wide with stock compensation plans at the top of Corporate America.
Then there is the startup craze. Even if the shares flop after the IPO, the pre-IPO investors, such as VC funds made huge returns. These funds hold money that was invested by the top 1%. Again, a big minimum investment is required. Small fry cannot play in the VC arena.
And there are the stock compensation plans in the start-up craze where early employees make out with huge stock positions after the IPO. They’re also part of the 1%.
But this money at the top gets plowed into various real-economy things such as housing, and is one of the reasons why housing costs have skyrocketed over the past five years in areas where this wealth is, such as the San Francisco Bay Area. This is where the bottom half of the households suddenly find themselves tangled up in a housing crisis.
It is ironic that the Fed puts out this data on a quarterly basis, as if to show off its handiwork, its success, as measured by how much of the wealth is increasingly concentrated at the 1% of households, and how every time their wealth appears threatened even a tiny little bit, the Fed comes up with new bailouts, rate cuts, and other shenanigans, such as the repo market bailout recently. This data is like a report card that the Fed issues of how successfully its policies help the 1% gain an ever-larger share of household wealth.
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The Fed has also showed its political bias.
Lael Brainard of the Fed had started that it must consider global warming as part of rate setting.
After a former Fed official’s op-ed in which he stated that the Fed should use policy to defeat Trump.
Are you suggesting the Fed is liberal? Brilliant or not so brilliant joke. If the Fed was liberal it would use helicopter money and give the printed money to the people instead of to the 1%. How about universal health care instead of QE? Or student loan forgiveness instead of QE? And don’t tell me that it is unfair to give that money to students after we easily seem to accept giving all this money to the 1% for all these years.
Yah, any excuse to coddle the 0.000001% and Powell’s ultra rich friends.
I have a hang nail and also might have a bad day today…better cut rates!
Naw, they’ll just pump $120 Billion out to their banker friends through the Repo Window.
The Fed is literally owned by the 1%. The Fed is owned by the big banks. It is not a public agency. It does not look out for the public good. The Fed is a key part of the Government of the Bankers, by the Bankers and for the Bankers. So, of course the Billionaires get richer. That’s the way the system is designed to work.
“Its a big club, and you ain’t in it. You know which club that is, don’t ya? Its the same club they use to beat you over the head!” — George Carlin
Amen to Tony and thank you Wolf for the excellent article. As the article implies, the quality of life of the majority of Americans (because even those who are not in the bottom fifty percent but are in the bottom 90% often have expenses that consume their income) will not improve unless there is a dramatic change as to healthcare.
Certain honest judges were the ones who told me in chambers that the way to get rid of the drug problem was to legalize drugs, regulate them, prepare them safely and cheaply with government safeguards, and provide them at reasonable prices under doctors’ care to addicts. This would thereby destroy organized crime’s business model as to drugs. Then, their incentives to addict more people to dangerous drugs and increasing profits as addicts need drugs more and more would vanish.
Similarly, certain people involved in healthcare have pointed me to the single payer systems in so many other countries, including some nurses and dentists: single payer systems ensure that medical professionals have generous, secure jobs while they limit costs by establishing a price structure for standard work. The single payer (government agency) can not just negotiate but can effectively specify the prices to the hospitals.
The parasitic HMOs and health care insurers (whose profit model is the charge the highest premiums that they think that you can pay and then figure out ways to deny you coverage) are thus eliminated. Just the savings from removing these parasites from the health care system are gigantic.
If you encourage the education and graduation of more medical professionals (including by grants and ultra low interest loans) and allow competent, foreign doctors to come to the US and get licensed, with jobs guaranteed by the single payer government agency, even small towns and undesirable areas will have adequate medical care available locally. Currently, small farmers and others in small, relatively unpleasant locations/towns cannot get medical care without lengthy trips to larger cities.
Unless a single payer plan is established, even the ACA has not stopped the worsening care and increasing health care costs that will increase in future years. (The ACA is an improvement, because before it was enacted, persons with pre-existing conditions could just not get insurance at all and faced a denial of treatment (or becoming bankrupt and needing government treatment at the GREATEST possible expense in emergency rooms, etc., even though many such conditions were treatable in other countries for minimal costs.)
Are you suggesting that being liberal means giving money and power to “the people”? Ha! As if anyone with any real power in the US gives a rat’s ass about anyone not in “the club“.
Blue or red, all they care about is who has the power and controls the money. Everything else is just noise.
Darlin’, that’s the old word “liberal”…as in “When I’ve got it, everybody’s got it!” as Telly Savalas (Kojak) used to say when he became a tv star. Friends, charities, family, church…that stuff.
The word has been co-opted since Reagan to mean you wince at minority slurs, but wouldn’t want one living near you…the old word for that was hypocrite.
Fed Lael Brainard seems to imply that the fed will have to keep money cheap due to the costs of global warming, so we can literally “float” our GDP to money heaven (I’m long boat stocks in 2080!). If this is the case, we sadly deserve our fate as we are too ignorant as a species to thrive and survive.
I’m also “Long A.I.”, as at least something we create will survive! And look on the bright side, maybe being a human “Matrix” battery will be better than being a wage and debt and healthcare plan slave in a fed centrally planned global society.
Looking down from space, the cities look like ant hills.
Actually the cities resemble something biologists call “tiling” which is when you get so much growth of a virus, that it comes to resemble tiles.
keeping money cheap is a sure way to increase global warming with even more useless and wasteful consumption … which might be part of the plan. Making money more expensive, and ditching the huge subsidies for fossil fuel and let producers really pay for the pollution and destruction they are causing would be the easiest way to fight global warming (yes I know, that wouldn’t be fair for deadbeats etc. …).
I’d be long on A.I. too. But I can’t invest in China. I don’t trust that the American government won’t just steal my money if I invested in the people who are going to win the AI Race.
Alex- Not a “difference of opinion”, as I generally agree with all your posts, opinions, etc. Just wanted to clarify.
A virus can’t grow by itself, it is just DNA/RNA in a protein package floating around but equipped to inject itself into living cells of all different types given the chance, and “steal” the cell’s machinery to make more viruses and usually kills the cell in the process.
Tiling is one of the latest methods for us to “amplify” their code for easier and quicker identification….more material to work with = easier resolution. Like for checking a food sample.
Kinda like a radio amplifier makes it easier to resolve the station you have picked up. There is still some debate over whether a virus is “really alive” or not, but it is kinda pointless stuff. They are definitely good and important players in the entire life game. Likely similar to the very first.
I guess the Fed loves how Trump raves about negative rates … even when they officially still claim that they never want to go there. Probably they are waiting to see how fast and how low Christine von Havenstein can drive interest rates in Europe without the whole system blowing up.
Best report yet!
I can definitely say that reality sucks for the average American, and eventually for everyone one else except the 1%.
And as I have quoted the late, great Carlin before, “It’s called the American dream because you have to be asleep to believe it.”
It’s ironic that centrally planned interest rates with no regard to free market capitalism may eventually bring down capitalism itself.
Yes, as I understand it, the top .1% are just playful socialists pretending to be capitalists. They’re honestly just raging liberals and are accumulating all that wealth to spread evenly among the lower 50% who don’t even know they are increasingly disenfranchised and losing voting rights to the upper 50%. The top .1% don’t want to frighten the next 49.9% who are very fearful that their feet shall slide in due time, down the class-ladder into the lower 50% netherworld. But those tricky .1%ers are going to give us all a big surprise. Of course they won’t do this until they’re ready. So, if you’ll just have a little patience…
Behavioral scientists have created experiments that show how the 2nd to lowest rung on the socio-economic ladder members are the most terrified of falling down one more rung. I think they’d rather lynch someone or something rather than have to deal with that kind of predicament. I can hardly wait until the top .1% hand out their winnings and deliver the big surprise – returning all their wealth to society and revealing themselves as the true socialists they are.
Ending up homeless and the night’s feature to be torn apart in a dog fighting ring run by crackheads is, actually, rather frightening.
And they’re so eager to siphon up every tiny bit of money that I’m being double-charged now for medical expenses I should not even have because if the rules were followed, I’d be on Medi-Cal.
I must assume I will be billed indefinitely no matter how much I scrimp and save to write checks, so I need to stay financially off the grid as much as I can.
That would be Justice not socialism…the most dangerous book on earth is a dictionary.
When sinful gain is returned, it’s called reparation and penance…not socialism.
I’m all for it.
I’m, you don’t believe in global warming. So we all know you aren’t reality based.
And the ice caps are not shrinking. Naw, its all a myth. There aren’t people sailing the Arctic Ocean where ice-breakers used to be required. The North Pole isn’t in ice-free water in the summer time. Big chunks of Antarctica aren’t breaking off into the world’s largest ice bergs.
But hey, I read on the Internets that Global Warming is all just some leftist hoax. I know I heard that, it was right before the announcer said “And now a word from our sponsors” and they played the commercial about how wonderful Exxon is. And that showed some smiling people and a waving American flag, so I know everything I heard was true.
I don’t deny climate change, just the BS of the politicians. The Paris accords are just a feel good political stunt. Dr Hanson , who did the original research agrees. To stop things from getting worse let alone reverse what has already happened would require that dirty word in politics “austerity”.
When Jimmy Carter had the audacity to advise people to wear sweaters and use less fuel in winter his political career was over.
All true and very very sad.
Wonder if the 1% are losing out to the 0.1%
Judging from what I read, in most of the world the 1% are barely keeping even over time or had relatively mild improvement, depending on if you believe the official CPI numbers. Often it is only the 0.1% that has seen their wealth / income surge since the inception of the various QE policies.
This also depends on how people respond to QE e.g. by taking out huge loans. In my country “old money” has most of their wealth in companies, stocks and real estate; but they don’t like debt so I think they are not doing too well lately – only the real speculators who can drink right from the central bank taps are doing extremely well. And this isn’t just entrepreneurs, it also includes high level (semi-)government workers who can ask outrageous salaries for doing nothing because after all, governments all over Europe are playing with free money, nowadays so who cares what it is spent on …
BTW, at the same time some people at the bottom have been doing EXTREMELY well thanks to QE and clever (ab)use of government policies. In my country you can buy a home even on social security, with all the financial risk for society. I have heard some examples where such people made loads of money, totally tax free, without ever working for it while financially more responsible people struggle to afford a decent home.
I have heard similar stories from e.g. Germany where people on social security rent out their home for top money to others (after all, the cost they pay is artifically low), maybe even use this trick to rent out several homes they don’t own, and then retire for life to some nice Spanish island.
Or think about all those in Europe (e.g. Spain) who got rock bottom zero-down mortgages for new homes based on Euribor plus a small fee, which currently amount to just 0-0.5% per month; it’s easy to live on social security if your home comes almost free.
The line between a lazy, cheating, stupid, fraud and a very good and astute businessman is very blurred. El Chapo, and the prez, or Warren Buffet and Jamie Dimon?
I’m so old (72) I knew trust fund people with a sense of honor and noblesse. They drove old cars and sat on the boards of genuine charities and public efforts of art and music.
They died off with the horrible yuppies…anybody remember Tom Wolfe and “Bonfire of the Vanities”?
How many today would inherit huge trust funds and live like that? Our values have slithered and slid right to he*l.
Probably. And the seeds of revolution are planted.
re: “… the seeds of revolution are planted”
Historically that has been the case, but today you’d have to get the populace to look up from their cellphones.
IT seems like the populous is turning. Big Changes are coming soon to your country! Just look at Chile, Venzuela, Hong Kong, Lebannon,…those are just ones i read about this week. People are fed up! Actually maybe it’s they can’t go any lower?
And those pods in LA ..like Japan..squeezing more and more like a vessel pressurized! What happens when it reaches max pressure?
Those Japanese pods are all in peak urban centers, in rural japan they have millions of vacant high quality homes that in many cases they will give away.
Japan is mostly rural…and for space check out America’s south, and France, and my ancestral lands of northern Scotland facing the north sea….used to be full of small farmers and decent folk until the clearances. With France the clearances were 1914-1918…
Pete – they actually are.
Ironically, the fed is causing some extremely long term unintended, and negative consequences for more than just the lost of wealth for the bottom 99% of humans. I am not a necessarily a tree hugger myself (I own a bulldozer, so not so tree friendly I guess), yet I undertand that free money and unlimited, forever growth is a fairy tale and most likely not sustainable with limited natural resources. The Fed low interest rates cause us all to buy more expensive everything as there is no real time value of money. Larger houses, larger autos, larger vacations on airplanes, etc, etc, etc. In 20 years, the fed will go down in the history books as not only causing the great inequality disruption to the social fabric of our global society, but also helping cause a negative impact of the future of our species.
For example, SUVs are the second largest increase of C02 from 2010 to 2018, according to Bloomberg. We have had almost a 600% increase in the number of SUVs on the road since 2010, according to Bloomberg. The fed has impacted the automotive market with low interest rate policies, to a very large degree. Would SUV and truck sales be 69% of all new purchases in 2019, if oil was say $85/barrel (no fracking cash burn “revolution” due to cheap money policies), and interest rates for new auto loans at 8% instead of almost zero?
What is facinating is it all becomes a perpetual motion machine, both the fed and the fed consequences. Note that up to 20% the increase in C02 in the same 2010-218 time period can be attributed to the increase in energy demand from increased energy useage during hotter summers and colder winters (perpetual). The fed allows us to live beyond our means, which increases our carbon footprint, then to keep it going indefinately the fed allows us to live beyond our means even more and more (perpetual). For example, how many people could afford a $40,000 SUV if interest rates were 7%? How many people could afford 3,000 square foot houses at 8.75% interest rates (what I paid in 1997)? How many people could fly for only $200/trip if fracking oil companies could not access unlimited, virtually free money? Zirp, Nirp, QE, etc…at some point our entire species will pay a price measured beyond the worship of never ending GDP and money.
Couldn’t agree more, same story for Europe and probably all of the developed world. And it doesn’t help that we are importing millions of third world citizens every year who also aspire to consume way beyond their means thanks to EU socialism.
My country is struggling with obligations for the Paris agreement about CO2 use and other climate change problems. They prefer to solve environmental problems with some paper shuffling and even more consumption (e.g. forcing people to install heat pumps and solar panels). In reality many measures presented as necessary to fight climate change are probably making things worse (like the recent shift to more SUV’s, dirty diesels and big/heavy/expensive EV’s that run on subsidies).
Now they are even going to change the maximum speed on high ways from 130 to 100km per hour so they must be desperate, as the ruling party represents first of all the many Dutch citizens who couldn’t care less about the environment of the planet as long as they themselves can enjoy boundless consumption. Over here the main contributor to climate change problems (about half of CO2/ methane emissions) is the out sized Dutch livestock industry that has been growing hugely (on subsidies, again) despite warnings about dire environmental impact. For now livestock farmers seem sacred and the only “solutions” is offering even higher buy out premiums to some farmers; the big livestock farmers will all be multi-millionaires and ordinary citizens (and to some extent small farmers with better practices) will pay the price.
It’s also interesting how the Dutch government spends 10-20x more money every year for keeping Dutch mortgages above water (endless housing subsidies and tax incentives), compared to investment for keeping the country above water. Again, paper shuffling seems more important than what happens in the real world. The whole planet is starting to pay the price and in the end humanity will not escape that (maybe the elites are saving for a just-in-time one-way trip to Mars with Elon?).
Down here .gov implemented a new mandatory paper-less policy which had the unintended consequence of quad fold increase in the use of paper. You can’t make this stuff up.
Nobody here doubts it for a second…
How does that work? I’m not surprised in the least, but, how??
Recurring, or one-time increase?
I truly don’t understand all the SUVs. How does anyone afford them? Is it because if you don’t have a car, no one will hire you in the US? It is an SUV because you can always live in the thing?
Wow! You have outdone your fine reporting with an amazing polemic about class in America. We listened to the podcast with wonder and concern for our struggling American neighbours.
Nice job, Wolf.
We listened to the podcast with wonder and concern for our struggling American neighbours.
It’s no accident that social unrest is going viral globally as young people face a bleak future of unaffordable housing and dead-end jobs, often in the gig economy, while the rapacious elites have used their control of central banks to enrich themselves beyond measure and to rig the system to their own advantage. The Wall Street-Federal Reserve Looting Syndicate’s next Great Muppet Reaping may be its last, as millions of former sheeple finally become awake and aware, and start fighting back against a kleptocratic system that is robbing them blind and denying their children a future.
If you’re from Canada, a half-dozen families own Canada, and the government takes very very good care of them.
Does saying that console you?
They used to but now the Chinese own Canada but virtually all their wealth is outside of Canada.
In the 1920’s and early 1930’s, the Ontario government looked the other way as as Seagrams exported whiskey from its Windsor (Walkerville) distillery to very willing buyers of ill repute across the Detroit River. Ontario enforced Prohibition against its own residents but didn’t care about being a co-conspirator in violating US law. Samuel Bronfman, the controlling owner of Seagrams, became the wealthiest man in Canada. His son Edgar, who moved to the US in the 1950’s to manage US operations, later became the head of Seagrams and joined the Forbes 400 list. When Edgar died a few years ago, his estate was divided amount many heirs and the Bronfman name dropped off the list. The Rockefellers experienced a similar fate. John D’s grandson David was the last Rockefeller to appear on the list.
Anon1970 – it’s hilarious because even now, “Canadian” is a good appellation to have on a whiskey label in the US, sort of like “Smooth” or “Handcrafted” when of course Seagram’s is cheap plonk.
“Appellation” made me think of folks who flew from the Bay Area as late as the mid 80’s, to destinations back east. It was common to throw a couple loaves of fresh SF sourdough in the suitcase as an unavailable rare taste treat for whoever you were visiting.
I’m sure some entrepreneur has ended that somehow by now.
If QE was shared with everyone, there would be massive inflation and that would not work either.
Which also works as an excuse for wage repression. But it is not necessarily true.
Currency valuation is a function of labor productivity, all other things being equal. When labor productivity is rising, wages can also rise without inflation. But inflation can rise even without increases in wages, and for the last forty years most inflation has been in assets, not consumer prices. But all other things are not equal, because either also depends on monetary policy, and that is tilted to capital.
Economic policies in the US and elsewhere have been successfully designed to repress wages and control consumer inflation so as to enable asset inflation and accumulation. Virtually the entire increase in labor productivity has been captured by the investing class for decades, and virtually none by the productive class.
Asset inflation degrades the productive class just as consumer price inflation does, because assets like housing and education become increasingly unaffordable, as do services like health care, while enriching the investing class. The productive class suffers the worst effects of wage repression and asset inflation, while the investing class benefits both ways.
That is very much by design. Restricting QE to the investing class amplifies the effect. Taken to their logical conclusion, existing monetary, fiscal, and social policies, all controlled by the rich, enable the investing class to recapture all the economic gains the productive class has ever made, and further ensure that capital can permanently maximise its capture of the value of labor. This enables the wealthy to enrich themselves by driving the general population to destitution, as indicated by the Fed’s statistics.
The investing class still needs some of the productive class to implement the design, but their compensation can be minimised and a lot of them can be replaced with technology. An increasing fraction of the general population costs more than they’re worth, do not enrich the wealthy, and are unproductive assets which can be disposed of. For the time being they’re merely tolerated.
It is easy enough for the rich to tell the poor that there is no other choice, and that is what you have done.
All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. The plan is working. But the plan also guarantees that the system cannibalises itself and must self-destruct. That is projected to occur no later than 2026, and that worries the master class, but not enough to prevent it. They’re going to take their chances. Nobody else has any choice.
Good points, one could add that in many countries there now seems to be a deliberate policy of importing foreign migrants who can work for almost nothing (competing with low income workers) because they don’t pay taxes and almost everything they really need they get free from the taxpayers (like free housing and free healthcare, in my country even to higher standards than for those on social security).
This again is a double racket, all the benefits to the investor class and all the downside and most of the cost is for the productive class.
Why pay people minimum wage for simple (but often essential) jobs if you can find foreign migrants who happily do it for 50 or 75% less? Even if paying lower wages is illegal there are so many ways around this using foreign contractors etc.
I guess the master class assumes that when the system breaks down they will hold all the cards, or if things get really get they have enough money to flee to their shelter homes in New Zealand, the Caribbean or who knows. Similar to how many liberal-conservatives (that how they self-identify, I don’t think either term qualifies) in my country don’t worry about pollution, destruction of nature or increasing inequality – they have the money for faraway vacations so why bother? They don’t realize this is going to bite them anyway, only a bit later than for ordinary people.
1. Hussman has some good graphs that show the tight inverse correlation between labor costs and profits. Profits in the US peaked a year or two ago at a little over 10% of sales.
2. Hard money types warned about the corrupting influence of central bank printing. Incentivizing poor financial behaviour can’t end well for aociety.
I guess the master class assumes that when the system breaks down they will hold all the cards
Won’t they be surprised when all their assets suddenly become unproductive, turn into liabilities, and burn off with skyrocketing costs. It won’t matter what cards they hold when the game is over.
nhz – Illegals have to come up with a social security number so they’re paying someone’s taxes. Plus they’re also paying sales taxes, taxes on things like gasoline and motel rooms, and paying the “idiot tax” at convenience stores.
And I’m not so sure they’re getting free medical care these days because not even American citizens like myself who qualify, can get it.
You just described genuine cowards…life should be more adventurous.
Perhaps that explains those edgy sins those people pursue…a starving actor washing dishes with spaghetti leftovers leads a happier life…certainly a more honorable one.
It appears the current Federal Reserve Board has the same mindset as officials on the Titanic, who put the wealthy on life boats while locking everybody else in the lower deck.
Why else would you let asset inflation run wild? I’ve never heard a rational explanation for it.
New credit, which is currency/money in our present system, comes into existence through borrowing. Generally speaking, you don’t borrow to buy labor as lenders don’t take labor as collateral. People do borrow to buy capital (securities) and real estate.
Not surprising in present system that asset prices have rocketed higher compared to labor. That was the insight Keynes had way back when dealing with nominal and real prices, and how a central bank can use interest rates to obtain low unemployment, moderate inflation, and stable interest rates.
Aaron, what’s you point? Are you saying it’s OK for central banks to encourage excess debt levels in our economy, even though wealth shifts from poor to wealthy was a known side effect? I find that explanation unacceptable.
As for Keynes, his philosophy involves stimulating the economy with fiscal spending in rough times, then retracting that fiscal stimulus in good times. That has nothing to do with current Fed policy, which focuses on continual money printing.
The Adam Smith cherry pickers leave that and a lot of his other observations out.
Talked to someone last night working for one of the large US banks. Within a few months the big banks will have paperless mortgage. If you have all your stuff done inspection, appraisal you can apply on-line and have the funds the next day. It’s being coordinated with fanny, freddie.
Why wait to borrow a million dollars?
why wait? because within a year or so you will be paid to take out a huge mortgage, instead of having to pay (admittedly, very little) – just like in some parts of Europe where the mortgage rate is already way below official inflation.
It is not exactly right banks do not work for free so they take a percentage even with the rate below zero
The banks do charge some cost (e.g. nowadays in Denmark) so most of these mortgages are not completely free YET. But this will change quickly when Euribor gets even slightly lower like Christine Lagarde is planning (she has repeatedly stated that she wants to see rates at least 4% below inflation, or something to that extent).
In Netherlands some people have interest-only mortgages at Euribor +0.6-0.7%; with Euribor at minus 0.5% now they pay 0.1-0.2% for their mortgage. When the ECB lowers rates their rate automatically follows and it can easily go negative next year. Over here these are primarily people with some of their own capital invested in the home, as you could not get these Euribor-based loans for the common zero-down mortgages. But in some other (mostly southern) EU countries there are large numbers with zero-down Euribor-based loans. That’s a big reason why count Draghila was hell-bent on keeping Euribor down. If Euribor ever increases by even 1% all hell would break loose in the RE markets.
Wow, you are incredibly financially illiterate.
The absolute rate matters far less than the relative rate.
Taking on an enormous debt has risks far beyond the monthly payment.
Pumping up already sky high real estate prices only serves to increase housing costs for the poor, as well as increase bankster loan book sizes.
just to be sure, my comment was TIC. I’m just mentioning what the average guy is thinking over here (just read the many web comments on general news sites about these subjects).
But you are wrong on several points although some of that may be specific to Netherlands / EU situation and different in the US. We have national mortgage protection insurance, which means that you can never lose money when you have to sell your home: you can collect all upside tax-free and shift all downside to the taxpayers. Of course this is Ponzi finance that will stop working when there is a severe housing crash, but many assume this guarantee is for real because it has very broad political support.
Also, the sky high RE prices definitely are NOT increasing housing costs for the poor themselves, because they pay only a fraction of the real cost that is determined by politicians to keep it affordable. This is similar in much of Europe. The only ones who are suffering are those on low incomes (but above social security level) or people who for some reason fall outside the countless housing subsidy rules.
Good. It’s about the time mortgages entered the 21st century with regards to technology.
A mortgage is another consumer loan, and a house is a consumable. Consumables which have associated costs to operate that exceed the principle value are essentially worthless. A computer printer costs ten times as much in terms of ink. This is why game show contestants must prove they can afford the prizes, sales tax, etc. We are building a world we cannot afford to live in.
“We are building a world we cannot afford to live in.” I’m going to steal this phrase from you someday :-]
but the story changes if the computer printer is no longer considered a consumable (in my country many homeowners now assume that the older a home is, the more it is worth even without upkeep) and worth 10x the original purchase price twenty years later … don’t ask how, I guess the FED/ECB could make a special rule to make it happen ;(
Almost anywhere vaguely desirable has become unaffordable for the average wage worker.
Henry Ford (An unpleasant man) made some important points. Workers should be able to afford to buy the things they make.
Today American burger flippers that have not already been replaced by machines, can not regularly afford to buy the burgers they flip.
Single generation upward mobility in America, is rotting in its casket, for the vast majority of those born in America..
I have already stolen it, and used it when a friend called to say we are gathering for coffee tomorrow (last owner owned/run coffee shop in the area we know of).
I substituted “have” for “are”, though, so I’m a bit less of a plagiarist?
The result and maybe the aim of the present FED actions will be more control on the way households spend their budget. Savings are discouraged and (hidden) inflation will limit your choices of spending.
No matter the income, you will be forced to spend most of it ‘to maintain your status quo’.
Agree, that is one of the main pillars of the central bankster plan: you are forced to spend most of your money on things for which banksters, politians and big multinational companies can control the price. Having some savings is not going to help much with rampant price increases, but cheap debt will help – except that from then on you are on the hook.
It’s not just the FED, the ECB is even worse. In Northern Europe it certainly isn’t the whole 50% bottom segment that is being squeezed: people on social security and all kinds of other “disadvantaged” groups pay a fraction of the real cost of their housing (in my country 20-25% of the cost for the same home in the free rental market) and they are fully compensated for almost every mandatory cost increase (healthcare, energy, education etc. etc.). If they don’t do stupid things or had bad luck financially, they are doing a lot better lately than workers with low income who are struggling to get by. Also, most government workers are doing very well lately, with surging wages (way above inflation).
It’s the middle class, especially small business and self-employed people, that is rapidly being eliminated in Europe. Before long many of them will be at the bottom and fully depend on the government – just like the politicians like it.
I heard an economist say one time as long as people will lend the US govt money at low rates, then the US govt should run massive deficits so the money goes into the economy where it can earn a higher return.
All these things seem like arrows in the quiver. Once they are gone they are gone. Seems like there are plenty of examples to show excessive debt leads to no growth.
Correct, I am living in the EU and feel the financial straight jacket tightening year after year.
We have several US cities that are dying. The productive sectors have for the most part left. If you are in the productive class you will be taxed more and more in the debt spiral as the city tries to preserve itself and the promises made to city workers on a pension.
The only real power you have is to move to a place that treats you better. If you are old this means move to a retiree area where taxes and crime are low. If you are young and have skills move to a place that is growing where there is a demand for peoductive people.
Which makes me wonder why Boeing moved its head office to Chicago from Seattle, given Chicago’s many financial problems. I would have thought they would move to Dallas instead.
Illinois rebates the company the state income taxes paid by their headquarters employees.
Texas has no state income tax.
Sounds like a big mistake. Top management screwed that company by trying to squeeze to much cost out. A plane is super complicated. No need to spread design and manufacturing all over the world. I can tell you that engineers knew there were problems with that plane. Management didn’t earn their pay.
Many of these cities and states are soon going to run into the issue of NO Property buyers.
It’s not just the FED, the ECB is even worse.
All of the central banks are acting in concert with their globalist masters to create two-tiered societies of the super-rich and the debt serfs, with the destruction of the former middle class a central objective. However, when the Wall Street-Federal Reserve Looting Syndicate executes its next 2008-style Great Muppet Reaping to transfer the remaining wealth of the vanishing middle class to the Fed’s oligarch accomplices, I suspect the resultant public rage and mass red-pilling is going to pose an existential threat to the Fed’s ability to carry out the unfettered plunder of the 99% as we are going to see a huge rise in populist and nationalist movements among the screwed-over proles.
Do we remember the occupy Wall Street movements? I supposed they died out because the economy eventually improved. But when it slows again I can see how the movements will be 1000 worse as people realize they had been slowly screwed over the last decade but really over the last 40 years.
On the one hand the wealth distribution looks appalling, on the other hand, what % of the bottom 50% is made up of zero ambition losers who are only interest in sponging a living off other peoples hard work.
If you consider the lifestyles of the lower class 100 years ago and compare it to today, they are a million miles better off – Healthcare, mobile phones, playstations, big tv’s etc. Certainly in the UK.
It is the squeeze on the middle class which is the killer. Something needs to happen to restore the balance. Without a middle class we are all doomed. I just don’t know how it can be fixed…..
There are leeches throughout the wealth spectrum. Let’s not pretend there are more leeches at the bottom.
Bear in mind, every leech at the top has 1000x more power than a leech at the bottom. They suck the blood out of you and believe your arm is their arm. Neumann and Dimon, for example.
There are infinitely more leeches at the lower level.
Don’t confuse wealthy people as being bankers or other types of parasites.
What about the entreprenures that constitute the vast majority?
At the lower end the vast majority are content to do next to nothing and are happy with that status quo.
In response to your annoying assumptions:
Let them eat cake, in other words.
Sorry, I don’t agree.
The point of society isn’t that the poorest among us are better off than the poorest among us 10 years, 50 years, 100 years, or 1000 years ago.
The point of society is that life improves at a reasonably equitable distribution for everyone.
If everyone can have equality of opportunity, that’s even better.
Note this is not equality of outcome.
Otherwise why bother?
The lives of the lower classes in the UK have improved beyond all recognition. i would say outstripping the top 0.1% who have lived a privileged existence for Millennia.
100 years ago, there was no electricity, indoor toilets, welfare state, benefits. Now they all have free housing, money healthcare, education. The prisons are like Hotels. Most council estates are full of drug smoking layabouts who sit there wasting there lives watching daytime tv and drinking beer.
Is this not a vast improvement on the historical lifestyles of the poor?
The middle class on the other hand are a different story. 30 years ago a middle class family could enjoy a good quality of life with one bread winner. Today with both parents working there is barely enough in the kitty to get through the month let alone deal with any financial emergencies that might pop up.
How can it be? why are they being squeezed so hard? How can we reverse this trend.
It cannot be fun for the successful ones in society to know that they are surrounded by people struggling everywhere.
This is another reason why shopping centres are doomed. People with money parading through centres with there bags of shopping mingling with desperate people can only end in robbing.
Our entire societal structure is changing and eventually the upper middle class upwards will be forced to live in secure compounds because otherwise they will be too exposed.
Already this is happening. i despair, i really do.
Why are the middle squeezed so hard? Because the middle have no damage power.
Why the poor gets taken care of? Because if they are NOT taken care of, they will go violent,
AKA, damage power.
How can this be solved?
1. Make the rich depends on the middle to stay afloat. This is NOT happening because the middle have created the automatic productions that the rich can just turn on and produce. No more middle is needed. Check Karl Marx if confused.
2. The middle can go out and do damage like the Hong Kong folks. Smashing the city into pieces and see if the rich cares. This is NOT happening. The middle has kids and loans and they don’t want to be poor.
So the only choice for the middle is to become poor, and then you are taken care of. But the poor don’t get laid, the poor don’t get respected. That’s why the middle is trying really hard in despair mode, but nobody cares since the middle have no damage power. And the middle want to ban guns and knives because there is too much school shooting.
so true, but discontent is usually not determined by absolute poverty or wealth level, but by their relative levels compared to others (mostly at the local level). The growing huge inequality (worse than at almost any other time in history, probably including the Middle Ages) is the main problem for social stability; that the average deadbeat of today lives better in material sense than an emperor some centuries ago doesn’t make any difference.
The disappearing middle class will make it easier for the master class to keep things under control and they will do their best to continue their current bread & games distraction strategy to keep the rubble from revolting.
I do NOT mind the inequality between me and Steve Jobs. I even do NOT mind the inequality between me and Jamie Dimon.
What I do mind, is that when I am incapable of working, because I am too old, medical reasons or unforeseen accidents, I can still live in my shack, send my kids to school,
and get medical care.
Regardless how much I despise rent seekers thriving on low/negative interest rate like Rober Kyosaski, he does provide an ABSOLUTE (NOT relative) measure/definition of wealth. The unit of wealth is time. Wealth is defined as how long can you last to live in your current life style without you having to go to work.
Wealth of most people is basically two weeks. I have much longer than 2 weeks but NOT enough to retire, and the thing is, I see my wealth being transferred away and there might NOT be a day that I can retire.
That is what I care about. I don’t care they fly G5, and I fly economy in 737MAX. I don’t care they live in lash ion and I live in shack. All I want is the capability to say F U to anybody I don’t like (Such as POTUS) and THEY are transferring that power out of me, everyday.
I’m in the bottom 50% and I work. I have no healthcare – too poor. No TV. Several years old laptop, employer-provided internet, no “subscriptions” like Netflix, and I have a radio.
I have a small fridge/freezer I traded $80 and some ammo boxes for. I get around by bike.
How am I sponging off of others’ hard work? Without me, my employer would be making a few hundred a month on Ebay, if they were on Ebay at all by this time because his lackadaisical approach to business and shipping promptness would have killed his tiny business off by now.
Instead because he’s hired me, he’s grossing several thousand a month, an R&D space is being rented instead of being empty, and my employer’s finances are a lot healthier.
For all this I get kicked in the teeth and called a lazy sponger?
There are not negative numbers large enough to convey how little loyalty this country, this society, deserve.
Isn’t much of the Fed driven housing price appreciation offset by lower mortgage rates / mtg payment?
It probably is, as mortgage rates seem the primary driver for RE valuations nowadays.
But at some point that mortgage has to paid off, and this becomes increasingly expensive as home prices have been rising in many countries for way above wages for many years. Although most current buyers no longer think about this (it is only how-much-a month that counts), or they assume that home values will keep rising at the current healthy pace forever, so that in 30 years they can pay off their home with the small change from the grocery store.
Thanks to ever declining rates, in my country buying a home is now 3-5x cheaper than renting a home, because owners base their rents on valuation of the home and not on their mortgage cost (if any). If you have sufficient income for a mortgage and no capital this is great, because you can’t go wrong with buying and there is no way lenders can make you bleed in case the home value declines (also because of Dutch mortgage insurance policy). When renting you are sure to loose lots of money every year.
But these trends cannot go on forever and the compensation of rising prices through lower rates stops when mortgage rates stop declining. I guess they will start experimenting with negative mortgage rates in Europe next year, but IMHO this is a sure way to blow up the whole financial system and even many bankers are now warning about this risk in Europe. I don’t know how this will end, but probably very badly.
Great article Wolf. Just one question…what asset level do you consider the top 1%…that you’re referring to?
When the Fed’s Everything Bubble implodes under the weight of its own fraud and fictitious valuations – and that day is not far off – the new .1% will be those with productive agricultural land and pastures, well-tended herds or flocks, and ample stocks of life’s essentials, to include physical precious metals as well as lead and brass.
Foolish. When the masses are sufficiently hungry the governments will step in and take control of your productive agricultural land and pastures — for the “good” of all. If you have not yet noticed the governments have a lot more lead and brass than you could ever accumulate. There are no more free frontiers. Long term there is nowhere to hide. I am very sorry for both of us.
It’s the Fed’s classification and division, not mine. From the Fed’s website:
“The Distributional Financial Accounts (DFAs) provide a quarterly measure of the distribution of U.S. household wealth since 1989, based on a comprehensive integration of disaggregated household-level wealth data with official aggregate wealth measures. The data set contains the level and share of each balance sheet item on the Financial Accounts’ household wealth table (Table B.101.h), for various sub-populations in the United States. In our core data set, aggregate household wealth is allocated to each of four percentile groups of wealth: the top 1 percent, the next 9 percent (i.e., 90th to 99th percentile), the next 40 percent (50th to 90th percentile), and the bottom half (below the 50th percentile).”
I find quite interesting the size and placement of the categories chosen by FRB. I.E. the rich, the administrative/managerial classes, the workers, and the poor. Not like the old days when the distribution was more like the King and court, the soldiers, the tradesmen, and the serfs. How things have changed.
Last I checked admission into the 0.1% was around $20M net assets…naturally those are just known assets…and the top 75,000 in USA begins at $50M per Credit Suisse High Net Worth Report….again, just known assets…
Even running an extremely conservative portfolio the last 3 years my 10 year annual return was 10%. For my modest starting nest egg that was $450,000 gain. Add 3 zeroes on that and a 1%er probably had a $450 million dollar gain. The biggest problem I have with it is the rich can get out of most taxes by charitable giving which doesn’t really have to do with what I call charity.
It always seemed strange to me to push american labor so hard and then the business owner gives the money away to other people. It hurts worse if it’s to a political group.
The tax scam is to create a foundation, donate your money to the foundation who supports a charity, and the charity supports you because now you have no money. Ever wonder why all the elites have foundations?
Ever wonder why all the elites have foundations?
Because they’re philanthropists at heart and care deeply about us proles?
Foundations allow the wealthy to evade taxes while enabling them to appear virtuous, giving them a dishonest rationale for the evasion.
Philanthropy always costs the rich less than taxes would, which is the whole point. Wealthy ‘philanthropists’ benefit themselves at the expense of everybody else, so it’s mostly deceptive terminology.
Try a South Dakota trust. That hides all property from any claims and from all taxes. There is not even any pepetuity limit since that was abolished by the trust lobby. England (UK) introduced a 100-year perpetuity at some point and migrants took that to the USA but SD abolished this. SD houses 355 bn USD and counting.
No, the true scam is more complex than that.
The true scam is: donate your money and form a foundation – thus avoiding a 20% to 40% tax.
The foundation is required to donate 5% a year, but there’s nothing preventing the foundation from growing its assets more than 5% a year – particularly with a highly paid family office type expert setup.
The donor also controls the 5% “spend” – the lifestyle support is just icing on the cake. Throwing tens or hundreds of millions around has its own benefits.
When you’re in the “club” you will find it convenient to donate most of that 5% to other foundations controlled by other members of the “club.” Always nice to be on the board of a foundation that has several biz jets and lodges for “conferences” and “retreats.”
In other words, this economy – and I will point my finger straight at the policies of the Federal Reserve – is set up to shift an ever-larger share of the wealth to the top 1% and away from everyone else, according to the Fed’s own data. And the Fed is bragging about it.
People who call the Keynesian fraudsters at the Fed incompetent for its engineered boom-bust cycles and market crashes are missing the big picture. The Fed since its misbegotten conception as “The Creature of Jekyll Island” on December 23rd, 1913 has had one purpose: to serve as the oligarchy’s instrument of plunder against the 99%, orchestrating the transfer of wealth and assets from the middle and working classes to a corrupt and venal .1%. in the financial sector. In this, the Fed has been a brilliant success, and will go down in the books (if a true history is ever allowed to be written) as the greatest swindle ever conceived against the American people.
This is one of the best summaries of the hosing of the lower 50%. How we got there is a good discussion.
But… how do we change the Fed without causing a lot of collateral damage in unrelated areas? If we go back over the last 20 years, both parties have been in power and helped continue, and add to, the policies which created this mess.
Bingo. Those who believe that there are actual differences between Democrats and Republicans are fools. Sure, on hot-button issues that generate alot of controversy and talk (i.e. bathrooms for trans-gender) there are differences, but on issues that actually affect the majority of people in a significant way, there are no real differences.
The fact that people are hell-bent on “their party” winning so much so that they’re rather see the country go completely to hell than to lose, combined with the laughable idea that their party is really any different from the other … well, it’s just a very clear indication of why the bottom 99% are losing – because we’re all really, really stupid.
The only thing both parties always agree on is raising the debt ceiling.
That, and perpetuating an economic system that increases wealth disparity.
Maybe Warren would be different, the proof would be in the pudding. I’m quite certain that Sanders would definitely be different (he’s actuall an independent you know) which is why I am voting for him.
they both seem pretty ok with perpetual war too.
Off topic a little. Wolf, you frequently write about on-line retail devouring brick and morter. In reviewing most shorted stocks I ran across Tanger Outlets. I researched it pretty thoroughly and was surprised to find that outlets are a very profitable distribution system for many name brand products. Tanger has about 30 locations. They have a low cost of operation model that is interesting. Anyway, I thought if you are ever looking for ideas Outlet distribution might be one. Can it compete in an on-line world?
I have a lot of experience as a consumer with outlet shopping. It is both brick and mortar discount shopping and a destination activity for day trips. The merchandise can be made specifically for the outlet shop or can be out of season unsold stock.
In the last year or two the retail apocalypse has affected the outlets. Some retailers close the full price stores and keep the outlets, others close down completely. There are definitely more empty stores. Generally, if you are lower income the outlets are a good deal. I always buy something when I go to an outlet.
I was thinking SKT miight have gotten shorted too far down just because it is a retail brick and morter. Its probably an opportunistic speculation for me. You can tell growth has rolled over so its kind of a value play on dividend, but might be a value trap.
Funny story. I live close to Raleigh, NC. Went to Bermuda on my honeymoon. Local wanted to know where I was from. Said Raleigh. They said: We love it there. We go once a year too shop. It’s about a 1.5 hour flight.
If you want more confirmation of activity at the outlets, look at the hotel and restaurant chains that are usually near by. They tend to be the lower priced hotels and dining chains.
Look at the numbers for those complementary businesses and how they are trending. This would tend to align with the trend for the outlet business. Good luck.
Raleigh and Chapel Hill are the Hilton Heads of NC. The people who make those lifestyles possible can’t afford to live there…they commute from the sticks.
Which makes it very vanilla and boring…
REIT with MAX debt, latin-“Let the sucker beware”, all these REITS, like Fracking, are exactly why the REPO market seized up in September.
MTG paper based on outlet mall’s, what could go wrong?
Tanger like Fracking was a good play 4+ years ago, now its dangerous
Last time I looked into this Warren Buffet was selling, and telling fools to buy.
Anyway, I thought if you are ever looking for ideas Outlet distribution might be one. Can it compete in an on-line world?
It’s the wrong question. Both are in a race to bottom in the attempt to keep up with decline in the purchasing power of most consumers.
If you insist on pursuing a financial investing strategy, it has to focus on benefiting from asset inflation, even though it will blow up eventually. The correct approach is to pursue a non-financial investing strategy. That will also fail but it will buy you more time.
There is no point in hoping the Vogons will be punctual.
Heard a saying one time? How many of the world’s rich are pessimist?
The optimist believes this is the best of all possible worlds. The pessimist is afraid this might be true.
The optimist can often be correct, but it is always temporary, while the pessimist will always be validated sooner or later. Neither can be correct at all times. Only the fatalist can. And I am neither optimistic nor pessismistic about that.
There are two groups of millionaires that I would like to see statistically compared and analysed:
1. Bitcoin millionaires
2. Lottery winner millionaires
I suspect a high percentage of Bitcoin millionaires remain millionaires ten years out, while a high percentage of lottery winners do not.
Bitcoin buyers are a more sophisticated group of speculators. They are speculating over time for a gain while trying to maintain their “investment.” Lottery winners were never “investing,” they were never trying to maintain their initial stash. Because of the disparity in sophistication, Bitcoin speculators will lose more slowly and win less bigly. Statistically, Bitcoin has the edge because it’s a smaller more sophisticated pool to play in.
look at the Bitcoin chart of the last ten years, this can’t be true. The majority of Bitcoin buyers (= those who started to buy near the top, by definition) are loosers; only a small percentage is winning, some early adopters, some whales and some lottery winners.
would be interesting to compare those groups though, in some lotteries they make sure that the players win a little bit form time to time so they keep playing and maybe loose 50% of their money in one year – IMHO not much different from Bitcoin for the average speculator.
Your comment doesn’t hold true, particularly given the high level of financial crime going on with cryptocurrency speculation.
Unless you consider pump and dumpers “sophisticated investors”.
I called them speculators, which is synonymous with gambler.
A gambler understands the risk, most people in this market do not. In that old show “The Music Man” Prof Hill went out to the midwest to work a con because the rubes don’t believe in gambling (Pool) and in order to sell a “sure thing” you must have someone who doesn’t believe in gambling.
I read something a professor said one time. If you are an investor there is a limit to the amount of risk you can take. If you repeatedly take too much risk you will get wiped out.
For lottery where the odds are against you if play enough, you should save your money and play one time.
I think winning the lottery causes people more problems than it solves for most people.
Bitcoin. I just am not into it.
If there was ever a topic which requires graphs/charts, it’s this one.
One of the best pieces you’ve ever written. Printed copies of your article should be sent to every US citizen. What an incredible indictment of our government, our banks, and our corporations.
It all comes down to this:
Billionaires complained taxes on the rich are unfair. They wanted to do away with entitlements like Social Security. Some who paid into Social Security all their lives do not get COLA raises high enough to keep up with rising ren
A president is being investigated prior to impeachment. A president is not above the law.
Inflation sneaks in. The consumer price index rose 0.4 percent in October. A penny saved at 0% interest is lost in time.
I really don’t want to repeat myself yet again just suffice to say when they push this to far and the vast majority of people can no longer see a future it is going to end really badly for everyone.
To all with alternate investment and wealth retention plans good luck with that as the reality is it’s all a Ponzi scheme there is no true value or worth in anything its all just a big fantasy.
When there is fighting and blood in the streets no amount on a bank account statement or cash in hand or gold or stock certificates is going to save you or be worth anything. Neither is it going to feed or cloth you or get you medical care.
I don’t have the answer for any of these problems or can even tell you when this is going to happen. But it is going to happen and sooner rather than later IMHO.
excellent piece, but since most of the post recession wealth gains have accrued to the upper income strata , doesn’t that segment bear the most risk in the event of a downturn ? jus say’n
Yes, the Fed said at one time that wealth disparities were “transitory”, but that was before it embarked on a de facto policy of keeping asset prices propped. The “new” Fed, which is biased to 1% of wealth holders, now believes QE/repo is a permanent tool to prevent asset price discovery.
Last time they received the largest bailout in human history :-]
“This data is like a report card that the Fed issues of how successfully its policies help the 1% gain an ever-larger share of household wealth.”
This statement is the stunner, because it sheds light on what appears to be true. What justification is there for continual pursuit of asset inflation? The Federal Reserve appears to be subscribing to a trickle down theory, where wealth of the top 1% somehow trickles down to everybody else. There is more than evidence at this point to show that this is fantasy. Interest rates are low because wealth has concentrated to extremes, and the wealthy see no reason to invest the savings in production until things deflate and there is sustainable demand, which can be achieved only through LESS skewed wealth distribution. It is the asset price inflation itself that creates the barrier to investment. The Fed is chasing its own tail.
The Fed is not preserving Joe’s job by perpetuating the asset price bubble. The Fed is turning Joe into a debt slave who gets an ever-decreasing sliver of the pie.
I have just been reading the book “When Money Dies”, about the Weimar hyper-inflation. There, the printed money went straight into the real economy, which caused real inflation, which required more money, which caused more inflation, etc, in an ever-increasing feedback loop. The FED has been much smarter. By giving money only to the 1%, ordinary people don’t perceive it as hyper-inflation, so confidence in the currency has not been lost. Yet.
Yes, the German hyperinflation lasted just a few years and BTW there also was a “1%” that profited hugely then. We have been living the FED/ECB asset inflation nightmare for one generation already and it is still going on and eliminating everyone who tries to act financially responsible. A whole generation has been trained to believe in the most stupid economic policies and the crazy entitlements that come with it. There will be hell to pay once this confidence game collapses.
The German hyperinflation had a purpose: erode the foreign debt saddled on Germany after World War 1 – in turn precipitated in no small part due to the US insisting on its war loans be repaid (unlike past wars).
It wouldn’t surprise me at all that those in the know, would profit from this, but there is a difference between a side effect (Weimar hyperinflation) vs. a goal (Fed/US oligarchy self enrichment).
I think we could redistribute the ability to create wealth with a simple tax-rate adjustment that creates different incentives.
There are basically 4 types of income:
– Wages earned from labor (W2 or 1099)
– Pass-through from business ownership (K-1’s, rental property)
– Dividends & interest
– Capital gains
Tax the first $40k from each type of income identically at a low flat rate. Say you pay 5% of wages upto $40k, 5% of cap gains upto $40k, etc. So if you had $40k of each type of income ($160k total) you would pay a whopping $8k in taxes. So there is an incentive for everyone to diversify income streams to have wages and business ownership and interest, etc.
Then tax the amount over $40k per type the same at progressive tax rates – say 20% upto $100k, and 30% for everything over $100k. So if you are raking in $5 million per year, it doesn’t matter if it is from cap gains, dividends, business ownership or wages. The amount in the under$40k type becomes a rounding error.
Income is income – should income from working be taxed differently than income generated from investing in a business? Or flipping houses?
Tax systems are not about what is fair but usually about the most efficient way to loot the general population; the wealthy always have more opportunities to shift their income or wealth to tax heavens or commit outright fraud without ever getting convicted. I don’t think this is ever going to change, the recent tax evasiou scandals like the Panama Papers only lead to some paper shuffling but no real change.
When France introduced a wealth tax some years ago many high net worth individuals left the country (on paper at least). Netherlands introduced a very similar wealth tax in 2001, they just didn’t call it a wealth tax and no VIP left. Of course the VIP didn’t have any need to leave: politicians made exemptions for high net worth individuals (e.g people with over 20 million or so don’t pay 1.2-1.7% of their wealth every year, but just 0.1%. Argument: otherwise they would leave and not pay anything).
Companies same story: small business pays through the nose because it is difficult for them to move, multinationals pay close to zero profit tax and some even collect huge subsidies (negative taxes) every year despite record profits.
When robotics where first discussed, the premise was the consumer would own a robot and the robot would work for you. The fundamental altering of the labor force was made in favor of robot owners, and the elite or business class. It’s a damning indictment of neoliberal policies. This is a feudal society, “and the life of man, solitary, poor, nasty, brutish and short.”
Bastille Day is coming!
The Fed (et. al.= “economics/banking elite”) stated plainly through Bernanke that the gyrations with interest rates (lowering, QE, etc.) were to create the “wealth effect”.
They are very scared to remove this. I think rightfully so. (A lot of the “elites”, like Buffett’s partner Munger puts it like this: be grateful that the crisis wasn’t worse and that the bailouts happened because there wouldn’t be a recovery)- there is some truth to this statement.
If the real economy has been stripped of the highest value added activities (e.g. manufacturing), it’s hard to get the real economy going enough to provide earning power to working class people. (the only lever is monetary/interest rate policy/wealth effect).
It’s that simple, and grotesque.
Wolf, in this blog, below the bullet points, your sentence re the 9% needs proofreading. No doubt some will want to quote parts of this blog, so letter-perfect is desired.
You have written a devastating indictment of the Fed’s failure to “promote the common welfare” in recent years. Thank you.
Lest the finger pointing at the moon (i.e., in this context, summaries of the transfer of wealth from the smallholder and the impoverished, to the wealthy ) becomes the single focus, I remind myself from time to time to join the commenters who focus on the moon itself:
the national wealth, and what the smallholder can do to acquire a good share of it. (We all have to look out for the impoverished, and that’s another topic.)
For today, I will say that planting and growing trees, shrubs, flowers and vegetables, is something that the super-wealthy have not taken, and can not take away, despite Monsanto and GMOs. The mycorrhizae are with us !
JMHO, and I hope, Wolf, that you do have a pot of thyme, or some other plant that strikes your fancy, on your windowsill …..come to think of it, you need something that can tolerate the sootfall… let us know what it is.
Correction: “promote the general welfare”
I live in an apartment and have about 3ft by 6ft of balcony as my only outdoor space. I set up some planters and grew some tomatoes and lettuces and things. They didn’t do all that well because the building next to mine puts my balcony in shadow except for about 3 hrs per day during the summer. Sucks to be a peon.
Thanks for the typo alert. Yes, my typos have been republished and cited far and wide :-]
And yes, we have herbs on a little table in the nook of the bay window in our kitchen. We love fresh herbs.
We pulled out every inch of grass in our backyard with a Quail handmade in America manual sod cutter and converted it to a fruit and veggie garden. Best $300 I have spent.
We also pulled out 50% of the grass in our frontyard and planted trees and flowering shrubs. Our water use went down 40% in a year.
The super-wealthy (helped by the average first world consumer) have taken a lot away already: micro-plastics, pesticides and countless other toxins, GMO seeds, too much NOx and CO2 etc. etc. are everywhere and nature is suffering badly (especially here in Europe, maybe a bit less in some parts of the US). Most of what people can do is symbolic and will not turn the tide.
BTW, I’m trying to establish a food forest with some friends, but even that seems a drop in the ocean compared to the tidal wave of destruction that is rolling over us. The only thing that will work is a full stop to the current worldwide consumption orgy, so nature can take over and maybe recover in a million years, if it isn’t already too late for that because ecosystems have started to collapse.
Well Double D, I don’t want to buy a book to learn this truth that is supposed to liberate me. So why exactly are my earnings not actually subject to income tax like I think they are?
Meanwhile, Mr Market is up on the 11,127,749,138,468,119th break-thru in trade talks.
Investing is all about fundamentals and price discovery, folks.
the feds been around for about a century, until ten years ago most people didn’t understand who they are or what their job was. now we mostly just know they’re not federal employees and we think we have stumbled onto some conspiracy. w/ a job description basically max employment and stable prices, they use stats from gov agency’s to measure and effect policy/achievements. when not effecting a recovery from a full blown collapse w/ few tools they mostly raise/lower interest rates by the means/mandate congress has given them. its evident listening to congress and even the joint economic committee (inferring some sense/knowledge of economics) that they are just as clueless (or feign) as to the feds responsibilities as most of us. q’s and cry’s for help offered to the fed about trade, climate change, minimum wage, deficit budgets, state banking, fracking (ty tc, bh) are all answered by the fed w/ ‘that’s your responsibility’. at the time of the gfc I believe the fed’s main concern was employment/financing, hence bailouts etc, yep 1% does most of the that stuff, however bottom 99% hold most of those jobs. leading up to and in the aftermath of the gfc there was some 1% gilding to be sure and some crime, no doubt. the fed has no ability or mandate to charge/hold criminally responsible etc like say treasury, irs, doj, sec, congress etc. these ‘civil servants’ were ‘filing their nails while they’re dragging the lake’ (ty ec). as far as keeping score of policy, the 50-99% tie their wagons to the 1% for good jobs, assets, interest, pensions, savings, re, stock mkt, taxes, etc, the bottom 50% not so much. I recently read a spirited debate on student loan relief (strongly a bottom 50% issue) and probably their best chance of climbing out of that hole. the sentiment ran mostly against any relief and understandably so, the other thing we have learned from the 1% in the last hundred years.. reach the beach and slam the gate behind you. so I consider that policy might be gently steered (w/in the mandate) by the change in chair, for two reasons, 1) cant do anything about it anyways and 2) we could use the help.
“the fed has no ability or mandate to charge/hold criminally responsible”
That is of course incorrect. The Fed is in charge of supervising and regulating national banks. And that of course should come with a responsibility to charge and hold the criminally responsible. Its hard to know, because even though JP Morgan has been convicted of three felonies and is currently facing a RICO indictment for its metals trading desk, no one is ever given more than some time in the comfy chair and 5 lashes with a limp noodle.
The webpage put up by the Federal Reserve says that citizens who have a complaint with a national bank should file that complaint with the Federal Reserve. Where I’m sure it will be promptly filed away in a nearby plastic-lined circular container.
Wait, the bottom half had their absolute amount of wealth go up by $1.4 trillion to $2 trillion in the past 10 years? That’s a 233% gain. The S&P 500 over the same time about the same…
The fun part about being poor is having some rich guy quote misleading statistics to you while you are hungry.
Depending on who you ask, 50% to 80% of Americans live paycheck to paycheck, which suggests that the ‘wealth’ of the bottom half has not increased by an average of over $80k in the last ten years.
I suppose it’s possible for the Fed to fake up some statistical gyrations that would show that they did, but you can be sure the bottom half will never actually see the money.
You cannot take percentages to the bank. So let’s talk dollars.
The wealth of a homeless guy with $1 in his pocket soars by 1000% when someone gives him $10. So he totally blows away the S&P 500? I mean come on!
You know what $2 trillion in total household wealth – home equity, cash, savings, 401k, equity in durable consumer goods such as cars and appliances (which are included in household wealth) – amounts to per household in the bottom half?
I’ll do the math. There are 128 million households in the US. Half of them – 64 million – are by definition in the lower half. So average household wealth for them today is $31,000 per household. They gained $22,000 in household wealth over the decade. That’s the price of a decent used car. That’s the wealth they gained in a decade of asset price inflation.
The 1% of households – 1.28 million households – gained $18 trillion, and they now have $34 trillion. So on average, the wealth of each household in that group rose by $14 million and is now at $27 million.
So that’s a $14,000,000 gain for the average 1% household compared to the $22,000 gain for the average bottom-half household. Percentages can fool you.
Wolf, give me your numbers and specifics on this statement
For families without employer health coverage, the premiums alone for reasonable insurance plans run over $20,000 a year.
I have two kids on Obamacare and each pays less than 7K per year.
Wonder what you call a “good” health plan and why it may cost 20K.
Yeah, our health insurance doesn’t nearly cost as much either. But that’s not a national average. We live in California. When we moved from Texas to California back in the day, our independent health insurance premium dropped by half — similar plan, same huge deductibles, both with Blue Cross at the time. But that’s anecdotal.
Health insurance is hugely dependent on where you live.
For example, yesterday — and that’s another anecdote — I spoke with Chris Mortensen on his Peak Prosperity podcast, and his family coverage is a LOT more than $20K a year. They live in New England. And he has what he calls a “tarnished bronze” plan, with huge deductibles. I don’t remember the exact number — you’ll have to listen to the actual podcast when it comes out.
Here are some national numbers: the national average cost for employer-sponsored health insurance plans for a family is over $20,500, with $6,015 paid by the employee and $14,561 paid by the employer, according to the Kaiser Family Foundation. To get an equivalent family plan with the same deductibles as an independent you will have to pay more.
For links and charts:
Your kids’ numbers confirm that. The way you wrote it, it seems they’re insured as singles, not family, and are young adults. So turn them into 45-year-olds, married with two kids each. If each pays ca. $7,000 now as young single, family coverage for people a little older with kids will run them over $20k, assuming average deductibles.
My own “Why is the Fed doing Crazy Stuff” theory is they know another big financial crisis is headed our way soon enough, and they are attempting to allow the banks to hoard as much easy gains as possible to survive the fallout (and pick up the pieces for pennies on the dollar), as long as possible, before the next recession hits globally.
On a side note about health insurance Wolf, I noticed an online ad for a 2017 Mclaren 570s supercar lease for $1,885/month. Ironically it was the same day I signed up for our “Southern” BCN Obamacare Silver family plan, which is exactly $1,885/month. The 570s supercar is about $220,000 new. Sadly, my silver plan can not hit 201 Mph, and the wife did not thing the supercar was a good substitute for health insurance. I did notice, although I do not qualify, that the plan is only $887 if I made less than $100,400. Crazy cut-off if you are at near this family limit, as a single dollar of additional income would cost $11,976 in Obamacare subsidies!
Moral of the story is over the next 4 to 8 years, anyone with any wealth will become a political target due to the current fed ponzi scheme and future fallout. Less than $100,000 income seems somewhat safe, and anything above $250,000 is going to get caught up in a wrath of consequences. Thus, the wealthy are all now trying to pick up the last of the easy ground fruit as they know a very long Winter is coming, a winter measured every two and four year election cycles…
ObamacareAteMySuperCar, that’s a great handle!
All about population control methinks. Reminds me of a comment on zerohedge :
The great presumption of this article is that any of these people want to make it better. If anything the elite ambition is to destroy the promise of the 1990’s portrayed above. To a certain class of people the possibilities of the 1990’s were absolute nightmare.
Many before the 1990’s have pointed out the danger of unrestricted economic growth to the 1% or better but certainly by the 1990’s the ultimate object lesson was provided. Act now or suffer the consequences!
Currently, the ideas of economic contraction as virtue reign supreme with all the proper implications for growth. The last thing the elites want to see is real growth. What they want is to own all of existing wealth, not create more of it. To that end they keep fiscal stimulus small and monetary creation large. The claims of financial assets on real wealth grow and grow while real growth is stymied.
Real growth depends on the motives of people who will spend money to grow the real economy. That expenditure is not forthcoming. Loans are for financial speculation and grants or government expenditure are minimized or spent for military hardware or speculative “earth preserving” projects.
The people in charge are selling foul as fair and fair as foul and very few are taking note of it. Most continue to believe they mean well. That is furthest from the truth. They really do not mean to crash the economy but to diminish it and restrict it so that it serves only them and from which, once in a while, they can toss a bone to the remainder of the population. The few that remain useful to them after the rest have quietly passed away under some bridge.
Until it is understood a subtle, very subtle, and sophisticated evil has gained control of governments in the West and is selling foul as fair there will be no recovery from gradually encrouching desetude.
so its a labor thing.