Yesterday CNBC’s Sam Dogen reported that a middle class lifestyle now costs a whopping $350 000 per year in San Francisco. I know, sounds crazy right, but should this really surprise anybody?
The Fed more than quadrupled the size of their balance sheet, while at the same time lowering interest rates to levels never before seen in human history. Just so that terrifying statistic actually sinks in, say that out loud to yourself, and repeat it slowly.
“The Fed more than quadrupled the size of its balance sheet, while at the same time lowering interest rates to levels never before seen in human history“
30 years ago, just one of those fiscal policy measures would have caused your average economist to faint! Check out these long term charts
This isn’t even the half of it though. To calculate the total amount of new money created by a central bank, you have to multiply the initial deposit by a factor of 10. This is known as “the money multiplier”, and some reports have estimated the total fiscal impact of the federal reserves quantitative easing program to be as high as $29 trillion! To understand how this works, check out this video
To be fair, there has been some debate with regard to that $29 trillion figure, so we can’t be sure about the exact amount of money created following the financial crisis. What we do know, though, is that it did not cost $350 000.00 per year to support yourself in a major city 10 years ago. Not even close
How many people do you know who make that much money? Probably not many? Don’t worry, it’s not just you that has this problem; only 7.7% of the population makes anywhere near that much!
Remember when the term “6 figures” actually meant something? Today, you can barely buy a mobile home with 100k, let alone take care of yourself in a major city. Payscale.com has some tips on how to deal with this unfortunate turn of events:
The gist is: be frugal.
The banks are doing great though. After that bailout, JPM’s market cap went from a low of roughly $57 billion at the end of 2008 to $400 billion, a 700% increase.
Bank of America did pretty well too. Back in 08, they were only valued at $14 billion, but fast forward to today, and they are now worth $300 billion, a 2142% increase!
Some might use these figures to argue that trickle down economics has failed the common folk over the past decade, citing extremely high tuition costs and stagnant wage growth as evidence of the fact that these bailouts were unfair to the average citizen.
The banks might argue that although wages didn’t grow (at all), house prices did increase, and that this represents the common folks share of this world record breaking fiscal expansion.
Is this argument fair though?
At the height of the housing bubble, the average selling price of a home was $257 400, and at the bottom of the financial crisis, the average selling price of a home was $208 400, a 23% decline. If you subtract the high of $337 900 from the low of $208 400, this gives you $129 500, and if you divide the amount of home owners in 2009 by that $29 trillion figure, you get $139 423, so you could make the argument that yes, the people did receive some of this helicopter money, but when you account for the incredible price inflation we see in large cities, this house price appreciation doesn’t seem to matter as much. Also, the price of tuition has doubled!
The personal savings rate went up about 100%, but don’t be fooled, this is relative to the low achieved immediately before the financial crisis, which was at levels not seen since the Great Depression!
You might have been able to increase your share of this historic monetary expansion by investing in the stock market, but don’t feel bad if you didn’t. It turns out that 50% of the stocks are held by only 1% of the of population!!!
Is this fair? No, it’s not. What can we do about it? Well, it looks like nothing..You can try saving your money as they like to say, but, considering all these figures, it doesn’t look like that is going to get you very far. Prayers are all you have at this point it seems. Good luck everybody!