How QE3 Will Make The Wealthy Even Wealthier While Causing Living Standards To Fall For The Rest Of Us

The mainstream media is hailing QE3 as a great victory for the U.S. economy.  On nearly every news broadcast, the “talking heads” are declaring that Ben Bernanke’s decision to pump 40 billion dollars a month into our financial system is definitely going to help solve our economic problems.  The money for QE3 is being created out of thin air and this round of quantitative easing is going to be “open-ended” which means that the Federal Reserve is going to keep doing it for as long as they feel like it.  But is this really good for the average American on the street?  No way.  Despite two previous rounds of quantitative easing, median household income has still fallen for four years in a row, the employment rate has not bounced back since the end of the last recession, and new home sales have remained near record lows.  So what have the previous rounds of quantitative easing accomplished?  Well, they have driven up the prices of financial assets.  Those that own stocks have done very well the past couple of years.  So who owns stocks?  The wealthy do.  In fact, 82 percent of all individually held stocks are owned by the wealthiest 5 percent of all Americans.  Those that have invested in commodities have also done very nicely in recent years.  We have seen gold, silver, oil and agricultural commodities all do very well.  But that also means that average Americans are paying more for basic necessities such as food and gasoline.  So the first two rounds of quantitative easing made the wealthy even wealthier while causing living standards to fall for all the rest of us.  Is there any reason to believe that QE3 will be any different?

Of course not.

This time the Federal Reserve is focused on buying mortgage-backed securities.  Yes, the same financial garbage that helped cause the last crisis.  The Fed plans to gobble up tens of billions of dollars of that trash every month from now on.

But will the Fed pay true market value for those mortgage-backed securities?  If you believe that, I have a bridge to sell you.

So this is going to be a huge windfall for some people, and that does not include us.

Not a single penny of this 40 billion dollars a month will go directly into our hands.  The theory is that it will “filter down” to us eventually.

But that hasn’t happened with previous rounds of quantitative easing.

So where does the money go?

A recent CNBC article discussed a very interesting report from the Bank of England about the effects of quantitative easing….

It said that the Bank of England’s policies of quantitative easing – similar to the Fed’s – had benefited mainly the wealthy.

Specifically, it said that its QE program had boosted the value of stocks and bonds by 26 percent, or about $970 billion. It said that about 40 percent of those gains went to the richest 5 percent of British households.

Many said the BOE’s easing added to social anger and unrest. Dhaval Joshi, of BCA Research wrote that  “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it.”

Wow.

Who benefits from quantitative easing?

According to the Bank of England, it is “mainly the wealthy” who benefit.

As I noted the other day, Donald Trump said essentially the same thing when he told  CNBC the following….

“People like me will benefit from this.”

As I already discussed above, a lot of quantitative easing money gets into the financial markets where it pumps up the prices of financial assets.

But not all of it goes there.

We were told that the whole idea behind quantitative easing was that it was supposed to get banks lending again, but this has not happened.  Instead, banks are sitting on unprecedented amounts of money.  Just look at how the first two rounds of quantitative easing have caused excess reserves being held by banks to explode from close to zero to over 1.5 trillion dollars….

Of course one of the biggest problems is that the Federal Reserve is still paying banks not to lend money.

Yes, you read that correctly.

The Federal Reserve is paying banks to park money with them.  So instead of risking their money by lending it out to us, the banks can just park it at the Fed and make risk-free profits for as long as they want.

Must be nice.

If the Federal Reserve really wanted banks to start lending again, all the Fed has to do is to stop paying banks not to lend money.

But of course if more than 1.5 trillion dollars suddenly started flooding into our economy (especially after you consider the multiplier effect) we would be dealing with nightmarish inflation unlike anything we have ever seen before.

So if you want to know why inflation was not even worse after QE1 and QE2 it is because more than a trillion and a half dollars is being parked with the Fed.

So did QE1 and QE2 do any good for average Americans?

Let’s go to the charts.

This first chart shows that the percentage of working age Americans with a job has stayed extremely flat since the end of the last recession.

Does it look like QE1 and QE2 made a difference to you?  I don’t see any difference….

Okay, but what about new home sales?

Did QE1 and QE2 help them?

Nope….

But the mainstream media is still buying the baloney the Fed is pushing.

The mainstream media is promising us that home sales will soon rise and that lots of new jobs are on the way.

Sadly, the truth is that things have steadily gotten worse for average Americans over the past 4 years despite all of the money printing the Fed has been doing.  If you doubt this, just read this article.

But this is all that Ben Bernanke seems to have left.  When printing money doesn’t work, his answer is to print even more money.

QE3 is likely to cause agricultural commodities and the price of oil to rise even further.

So unless you can convince your employer to give you a corresponding raise, this is going to mean that your paychecks are not going to go as far as they did before.

And so that means a lower standard of living.

In a recent article, Bruce Krasting issued an ominous warning….

Higher inflation expectations in the US will filter around the globe. Post the extraordinary steps Ben took yesterday, people will be stocking up on “stuff”. Things like rice, flour, cooking oil, soy, wheat and sugar. If you can eat it, buy it now. It will be more expensive in a month. While your at it, fill up the gas tank, the price is going up next week and every week for the next few months.

In addition, the policy of the Federal Reserve of keeping interest rates as low as possible is absolutely crippling the finances of many retirees.  Even the former president of the Federal Reserve Bank of Atlanta, William F. Ford, recognizes this….

One of the overlooked consequences of the Federal Reserve’s recent rounds of monetary stimulus is the adverse impact those policies have had on the interest income of savers. The prolonged and abnormally low interest-rate structure put in place by the Fed has made life particularly difficult for retirees and others who depend on conservative interest-sensitive investments. But the negative effects do not stop there. They spillover into the overall performance of the economy.

Just about everything that the Federal Reserve does these days is bad for ordinary Americans.

But the Fed is not going to stop.  The Fed is addicted to money printing now, and as a recent article by Peter Schiff explained, the Fed is just going to “up the dosage” until it gets what it wants….

The Fed will try to conjure a recovery on the backs of currency debasement. It will not stop or alter from this course. If the economy fails to respond to the drugs, Bernanke will simply up the dosage. In fact, he is so convinced we will remain dependent on quantitative easing that he explicitly said he won’t turn off the spigots even if things noticeably improve.

This is complete and total incompetence by Ben Bernanke and his cohorts over at the Fed.

Economist Marc Faber believes that Ben Bernanke should resign, and I agree with him….

“If I had messed up as badly as Bernanke I would for sure resign. The mandate of the Fed to boost asset prices and thereby create wealth is ludicrous — it doesn’t work that way. It’s a temporary boost followed by a crash.”

And yes, a crash is coming.

Bernanke can try to put it off for a while, but every action he takes is just making the eventual crash even worse.

And some in the financial community clearly recognize this.  For example, credit rating agency Egan-Jones downgraded the credit rating of the United States to AA- on Friday.

The primary reason they gave for the downgrade was QE3.

Ben Bernanke and the Federal Reserve are destroying the U.S. dollar and destroying our financial system for a short-term economic sugar high.

It is utter insanity.

That is why we desperately need to get the American people educated about the Federal Reserve system.  It is at the very heart of our economic problems and yet neither major political party is willing to blame the Fed for the problems that it is causing.

A bunch of unelected bankers that are not accountable to the American people are running our economy into the ground and the American people do not even realize what is happening.

Please share this article with as many people as you can.  Hopefully we can get the American people to understand that more money printing is definitely not the solution to our problems.

Record Low New Home Sales In 2011

New home sales in the United States are on pace to set a brand new all-time record low in 2011.  This will be the third year in a row that new home sales have set a new record low.  Sadly, this is yet another sign that the U.S. economy continues to grow weaker.  Back in 2005, more than four times as many new homes were being sold as are being sold today.  The home building industry is one of the central pillars of the U.S. economy, and the fact that we are going to set another new record low for home sales in 2011 is a really bad sign for those hoping for an economic recovery.  Unlike most of those that work in the financial industry, those that build new homes produce something of lasting value for American families.  In addition, millions of Americans have traditionally made a solid living by building and selling new homes.  But today the market for new homes has totally dried up and large numbers of those jobs are disappearing.  Some of the reasons for this include high unemployment, a glut of foreclosures on the market and the tightening of lending standards on home loans.  In order for the U.S. to have anything resembling a healthy economy again, we are going to need a revival in the sale of new homes.

But unfortunately, it looks like things are getting even worse.  In August, the number of new home sales declined for the fourth month in a row.  That is a very troubling sign because typically summer is the best time for new home sales.

Celia Chen, the director of housing economics at Moody’s Analytics, is saying the following about the dismal numbers….

“With job growth at a standstill, the stock market swinging wildly, Congress wrangling over the debt ceiling and the euro zone’s problems sending consumer confidence down, sales of new homes are slipping from an already weak pace.”

When you take a close look at the numbers, it really is shocking to see how far we have fallen.

Back in 1963, the U.S. Census Bureau began monitoring new home sales.  Prior to the most recent economic downturn, the record low for new home sales happened in 1982.

In that year, only 412,000 new homes were sold.

Well, that record was broken in 2009.

Then it was broken again in 2010.

And it will be broken again in 2011.

This year, we are on pace to see only 303,000 new homes sold in America.

That is beyond pathetic.

To get an idea of just how bad that is, just check out the following chart which comes from the Calculated Risk blog.  The first number is the year, the second number is the total number of new homes sold during that year, and the third number is the total number of new homes sold through the month of August during that year.  The number of new homes sold during 2011 is a projected number….

2000:  877  608
2001:  908  644
2002:  973  670
2003:  1,086  759
2004:  1,203  841
2005:  1,283  906
2006:  1,051  756
2007:  776  577
2008:  485  365
2009:  375  261
2010:  323  231
2011:  303  211

As you can see, this will be the fifth year in a row that new home sales have fallen.

And yet the folks on television keep telling us that the recession is over.

The frightening thing is that new home sales are this anemic even with mortgage rates at historic lows.

So what is going to happen once mortgage rates start going up?

It is hard to imagine new home sales getting even worse than they are now.

And we desperately need to get things turned around.  New home construction is very good for the economy.

According to the National Association of Home Builders, each new home that is constructed creates the equivalent of 3 jobs for an entire year and generates approximately $90,000 in taxes.

So what is holding things back?

Well, for one thing, if people do not have good jobs they cannot afford to buy new homes.

Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job.  In July, only 81.2 percent of men in that age group had a job.

That is a massive problem that needs to be solved.

Unfortunately, our leaders continue to allow millions of our jobs to be shipped overseas.

If you gathered together all of the people in the United States that are “officially unemployed” right now, they would constitute the 68th largest country in the world.  It would be a nation larger than Greece.

Secondly, there is a gigantic glut of foreclosed homes on the market right now that is competing with new homes for the few qualified home buyers that are out there.

It is absolutely shocking how many vacant homes there are in some areas of the country.

According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant.  That figure is 63 percent larger than it was just ten years ago.

In the city of Detroit alone, there are more than 33,000 abandoned homes.

Until the number of vacant homes goes down, there is just not going to be a need in the marketplace for a lot of new homes.

Sadly, it looks like another huge wave of foreclosures could be on the way.

According to the Mortgage Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.

That is more than a bit frightening.

Thirdly, lending standards on home loans have dramatically changed.

Five or six years ago, if you were breathing you could get a home loan.

Even the family dog could get a home loan.

But now the pendulum has swung to the opposite end of the spectrum.

Applying for a mortgage today is like getting a series of proctology exams from a very rude and very uncaring doctor.

Many mortgage lenders today will deny you at the slightest hint of a problem.

Even if you have a very high income, near perfect credit, very little debt and a long history of financial responsibility there is still a very good chance that you will be turned down.

If you don’t believe this, just start talking to people that have applied for home loans lately.

A ton of pending home sales are being cancelled because potential home buyers simply cannot get approved.

Until some sort of “balance” is restored to the mortgage lending process, this is going to continue to be a major problem.

It would be nice if I could tell you that things are going to get better soon, but the truth is that there are all kinds of signs that the U.S. economy is getting even worse and there are all kinds of signs that the global financial system is on the verge of a massive nervous breakdown.

So if you make a living by building or selling new homes, you might want to find other ways to supplement your income for a while.

Things are not going to turn around significantly any time soon.

18 Reasons Why You Can Stick A Fork In The New Home Construction Industry

If you make your living by building or selling new homes in the United States, you might want to consider taking up a different career for a while.  New homes sales in the United States hit yet another new all-time record low in the month of February, and there are a whole lot of reasons why new home sales are going to stay extremely low for an extended period of time.  The massive wave of foreclosures that we have seen has produced a giant glut of unsold homes in the marketplace, mortgage lenders are making it really hard to get approved for home loans, unemployment is still rampant and the global economy looks like it may soon plunge into another major recession.  None of those things is good news for the new home construction industry.  The truth is that we were supposed to have seen new home sales already bounce back by now.  If you look at the historical numbers, new home sales in the U.S. always increased significantly after the end of every recession since World War 2.  But that did not happen this time.  Instead, new home sales have just continued to decline.  This is absolutely unprecedented, and economists are puzzled.  So what is going to happen if the U.S. economy suffers another major downturn?

New home construction has always been one of the foundational pillars of the U.S. economy.  When times were good new home construction would boom, and when times were bad new home construction would falter.

Well, unfortunately the industry is stuck in the midst of a multi-year decline right now.  The reality is that you can stick a fork in the new home construction industry in the United States.  It is toast.  There is going to be no recovery for the foreseeable future.

Not that previously owned homes are doing that much better.  According to the National Association of Realtors, sales of previously existing homes in the United States dropped 9.6 percent in February.  But at least sales of previously owned homes are not at all-time record lows like new home sales are.

As you can see from the facts posted below, new home sales are absolutely abysmal right now, and there are a lot of indications that things may get even worse.  The following are 18 reasons why you can stick a fork in the new home construction industry….

#1 New home sales in the United States set a brand new all-time record low in the month of February.

#2 Only 19,000 new homes were sold in the United States during the month of February. The previous record low for new home sales during the month of February was 27,000, which was set last year.

#3 The “months of supply” of new homes in the U.S. rose from 7.4 months in January to 8.9 months in February.

#4 The median price of a new home in the United States declined almost 14 percent to $202,100 in the month of February.

#5 The median price of a new home in the U.S. is now the lowest it has been since December 2003.

#6 As of the end of 2010, new home sales in the United States had declined for five straight years, and they are expected to be lower once again in 2011.

#7 Now home sales in the United States are now down 80% from the peak in July 2005.

#8 New home construction starts in the United States fell 22.5 percent during the month of February.  This was the largest decline in 27 years.

#9 In February, the number of new building permits (a measure of future home building activity) declined to the lowest level in more than 50 years.  In fact, new building permits were 20 percent lower during February 2011 than they were in February 2010.

#10 There is a major glut of foreclosed homes that still need to be sold off.  David Crowe, the chief economist for the National Association of Home Builders, recently told CNN that the constant flow of new foreclosures being put on the market is a huge hindrance to a recovery for new home sales….

“One of the biggest detriments to building new homes is the flow of existing foreclosed homes.”

#11 The number of foreclosures just continues to increase.  This means that those trying to sell new homes are going to continue to be competing against a giant mountain of foreclosed homes for the foreseeable future.  An all-time record of 2.87 million U.S. households received a foreclosure filing in 2010, and that number is expected to be even higher in 2011.

#12 In fact, there are a whole lot of signs that there will be very high levels of foreclosures for years to come.  For example, according to the Mortgage Bankers Association, at least 8 million Americans are at least one month behind on their mortgage payments at this point.

#13 A stunningly high number of Americans are “underwater” on their mortgages right now.  This could lead to an increase in the number of “strategic defaults”.  31 percent of the homeowners that responded to a recent Rasmussen Reports survey indicated that they are “underwater” on their mortgages, and Deutsche Bank is projecting that 48 percent of all U.S. mortgages could have negative equity by the end of 2011.

#14 The truth is that the U.S. doesn’t need a whole lot of new housing at the moment.  Right now, 11 percent of all homes in the United States are currently standing empty.

#15 Mortgage lending standards have become extremely tight.  Back during the housing bubble, almost anyone that was breathing could get a zero-down mortgage.  Today, mortgage lenders have made it extremely difficult to acquire a home loan, and it is quite typical these days for lenders to demand down payments of 20 percent or more.  This is dramatically reducing the number of home buyers in the marketplace.

#16 American families cannot buy homes if they do not have good jobs.  Unfortunately, it has become extremely difficult to find a job in the United States today.  This is especially true if you are looking for a good job.  It now takes the average unemployed worker in America about 33 weeks to find a job.

#17 There is not going to be a jobs recovery until the overall economy improves.  Unfortunately, the price of oil continues to rise dramatically and economic disasters all over the planet threaten to plunge the global economy into another major recession.

#18 On top of everything else, perceptions regarding home ownership are shifting in the United States.  In 1996, 89 percent of Americans believed that it was better to own a home than to rent one.  Today that number has fallen to 63 percent.