Inflation Is Higher Than You Think; The Federal Reserve Orchestrating Biggest Banking Bailout In History


The American economy appears on the rugged surface to be stabilizing but only if you fail to look under the hood.  Today, we have a record 46,000,000 Americans on food stamps.  Many of these people were once moving into the middle class but were launched off the economic treadmill.  The banking syndicate that caused the greatest financial crisis since the Great Depression has largely blocked any substantive financial reform.  So all the risks that led to the crash are not only pervasive in the system but are now much larger since governments are largely backing these giant irresponsible bets.  The data for the typical American shows a gloomy economy largely disconnected from the news pushed out by Wall Street investment banks.  Today we examine five charts and the implication they contain for the future of the American economy.


Chart 1 – Housing starts and permits

housing starts and building permits

We first start with the collapse in the housing market.  This is a giant part of the economy because residential housing has always been a key player in any economic recovery.  Housing starts have collapsed to levels last seen in the Great Depression.  The chart above is instrumental to understanding the massive lag that housing will have on the economy.

For example, at one point housing starts were running over 2,000,000+ homes per year.  This incredible pace is now down to 500,000 and is slightly picking up.  This is a key indicator to look at since builders are on the ground and have a better sense of demand.  With many baby boomers downsizing and more foreclosures coming online, there is little reason to assume a major burst in residential building activity is in the cards for the short-term.  As a matter of fact the odds are this may move lower in the next couple of years.

Chart 2 – Home prices continue to move lower

case shiller 2012 prices

More on the housing front, most Americans carry most of their net worth in real estate equity.  Well when home prices are down by over 33 percent from the peak you begin to understand that the vast majority of American households have seen their largest asset class crash.  Over $7 trillion dollars in perceived housing wealth is now gone.  The above chart is important because it highlights the reality that those in the home buying market are there but are willing to pay only a lower price.  Do you think that the average per capita income of $25,000 a year has something to do with this as well?

When you look at charts like the above you realize that we are witnessing a lost decade in our housing market.  The odds of having two lost decades are very strong.  Why?  Typically housing values went up with household incomes.  Where are we seeing wages increase?  To the contrary global economic pressures are pushing wages even lower.  Without sustained household income growth there is little reason to believe real estate values will move up.  This also goes with the first chart since builders want to maximize their return and to compete with current foreclosures at much lower prices is still not worth their time.  Otherwise, we would see home builder permit activity blast off.

Chart 3 – Inflation is picking up outside of housing

consumer prices minus housing 2012

Inflation excluding housing has picked up some significant speed.  Since the lows of the recession inflation is running at roughly 4 percent excluding housing.  Since household wages are stagnant this mean Americans are becoming poorer simply by the momentum of inflation.  Each dollar you get is purchasing much less.  This must come as no surprise.   Just go to your local grocery and see if prices are falling.  Try taking a look at the tuition for colleges and see if prices are lower.  Things are getting more expensive because actions taken by the Fed to aid their banking colleagues are simply devaluing the dollar.  This is the hidden cost of the Fed and banking bailouts that rarely hit the media.  They just assume inflation is a natural part of any economic system.

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