Submitted by Charles Hugh-Smith of OfTwoMinds blog,
If housing tanks, the last prop under the veneer of middle class wealth collapses.
The Powers That Be have gone to extraordinary lengths to prop up housing by whatever means are necessary since the collapse of the housing bubble in 2008: the Federal Reserve has pushed mortgages rates down by buying mortgage-backed securities, the federal housing agencies (FHA, VA) have issued millions of low-down payment loans, and the federal government has essentially taken over the mortgage industry, backing 90+% of all mortgage loans.
Why is the status quo so keen on propping up housing? If we examine this chart of U.S. and Chinese household assets, we understand why Chinese authorities would be keen to prop up housing values–75% of China’s household assets are in real estate. Meanwhile, U.S. household assets are predominantly financial:
So why are U.S. authorities going all out to prop up housing if it represents such a modest share of total household wealth? I see two dynamics at work.
The majority of household assets are owned by the top 10%, and this includes the majority of financial assets. The top .1% own 22% of all U.S. household wealth, the top 1% own 35% and the top 10% own 75%.
Households below the top 10% may have financial assets such as insurance policies, 401K accounts or pensions funded by employers, but a house is typically the largest store of value the household owns.
If you want to make the top 1% and top 10% happy, you prop up stocks and bonds. if you want to make the 60% of the populace who own a home happy, you prop up housing.
2. Housing is the only real source of the wealth effect for households below the top 10%.
As earned income has stagnated for secular reasons (automation, rising debt service, stagnating productivity gains, advantages of capital over labor, globalization/ wage arbitrage, etc. etc.), the Status Quo has attempted to compensate for this decline in middle class earned income with gains in unearned income/wealth via asset inflation– housing being the major component of middle class wealth, and stocks/bonds to a lesser degree.
Unfortunately for the Powers That Be, their mechanisms for boosting asset prices (with the goal of generatingthe wealth effect in the middle class) also generate credit/asset bubbles.
These boom/bust cycles actually reduce middle class wealth as people buy at the top and then see their paper wealth plummet in the next crash.
This has left many middle class households either 1) too cash-poor to save money to gamble in stocks or 2) wary of investing in stocks. That leaves housing as the only possible “fix” for stagnating middle class income/wealth.
Housing doesn’t just create paper wealth; it can also boost income–via HELOCs (home equity lines of credit), cash-outs followed by a move to a lower-cost region, reverse mortgages, etc.
If housing tanks, the last prop under the veneer of middle class wealth collapses. No wonder the Powers That Be are so desperate to prop up housing. But the bubbles and busts they’ve engineered are integral to credit/asset booms; their goal–a steady, permanent rise in prices that never falters–simply isn’t possible.
Great points but negates a huge reality:
If housing tanks, local budgets and the only family supporting jobs left – government workers – tank right along with them.
Imagine the pension funds being bankrupted by market crash, then the funding for paychecks, healthcare and the retirements falling right behind them.
The horror, and wailing, will be EPIC.
Small businesses used to pay for it all, they are fading fast and barely hanging on now.
The ONLY things keeping the government union checks flowing is Walk Street and overvalued property.
This crash is going to be spectacular. And then the parasites will double down.
Now go and whine some more about the FSA, about the time WE all need it, it too will be sacrificed for the unionists and their corrupted politicians.
The Overlords won’t care, they already moved most of their wealth away, anyway.
I don’t believe for a minute that The Powers That Be have any interest in creating a wealth effect for the middle class. They are only interested in creating a wealth effect for themselves.
@TE
Real property tax forfeitures will skyrocket and county tax revenues will plummet.
Vacant land, especially in areas like Florida and Arizona, where out-of-state residents buy vacant lots for future retirement, will be especially hard hit. You want land cheap in Florida? Just wait. It’s coming.
Most large land owners (families) in Florida got their wealth after WWII when the state had taken non-taxing county properties into a statewide “trust,” during the Great Depression, in return for sharing state-generated revenues, little as it was, back to the counties.
When WWII ended, massive amounts of Florida countryside were auctioned off for pennies on the dollar to get them generating taxes again.
Those days will be returning, in some form or another al over the country.
Ladies , Ladies …. you do realize when this crash happens you will probably end up poor or poorer.There’s going to be a hurricane of crime and violence . Will be nowhere for you to run of hide .Will your husband or boyfriend protect you? Will they fight for you ?Do you have a big dog ?What will you do ?Please tell us
The economy is a fat Socialist Rube Goldberg “goldbrick” machine supported by a thread of only 143 million employed Americans out of 322 million tied to a hot air (bubble) balloon that is burning printed money to stay afloat. It is now supporting countless welfare, Affirmative Action and Diversity programs, illegal immigration out the wazoo; “food stamps” & WIC; loans for new cars for everybody; loans for homes or Section 8 for everybody; college loans for 60% of the youth; Obamacare and Medicaid; the whole bloated Federal government (welfare) jobs & grants/loans to states & minority enterprises; and grants/loans to Obama’s favorite corporations and nations (including terrorist). Obama doesn’t really care about budgets, ceilings and accounting or default as long as the Federal Reserve keeps sending electronic money to his Treasury. The end will be like a huge wreck of Western Socialist train cars slamming into each other: inflation bang! deflation bang! inflation bang…then a thread snap and welcome to the US of Zimbabwe.
@bb
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Pirate Jo says: “I don’t believe for a minute that The Powers That Be have any interest in creating a wealth effect for the middle class. They are only interested in creating a wealth effect for themselves.”
Of course that’s all they want…but the answer is so simple it evades almost everyone: we simply must change the way we define wealth. Most people are only capable of thinking of wealth in terms of fiat (or other paper) or possessions.
This is what fundamentally must change…but the only way that it can is through tremendous widespread suffering to remind us of the things that really matter.
bb, I’m not too awfully frightened of crime.
Even if my boyfriend had not died, he could not protect me.
Your only protection in a collapse will be the community you have around you, and being able to live defensively. As a lifelong denizen of large midwestern cities, I know how to do that. Lay low. Live in a dwelling above ground behind solid-core, deadbolted doors. Don’t flash your wealth on the street. Be wary of strangers. Don’t get too friendly until you have extremely solid reasons to trust a person and know his or her background extremely well. Consider that most people out here are distinctly not your friends till they offer solid proof otherwise. Don’t teach your daughters to believe that the world loves them and that all they have to do is smile and talk sweet to make their way in the world.
Women tend to cope with collapse pretty well, possibly because most of us accept that we’re never going to be masters of the universe no matter what. We can get by on very little. Most of us, except the very young, have a very good “feel” for the situation we’re in, and know how to avoid dangerous situations, which is possibly why not only are most murder victims male, but so are most street crime victims.
Just watch who you let get close to you. The people close to her are the biggest threat to a woman.
@bb, your faith that we can save this country is precious. And talking about facts does not mean I WANT collapse. I have children and a precious granddaughter, the last thing I want is for this puppy to go down.
But I’m a numbers person, and the MATH tells me we are screwed. It’s not a wish, nor a hope. Heck, it’s not even a fear. It’s a combination of MATH and historical human behavior.
As for “protecting” me, puh-lease. I’m the one that has hunted and shot guns for practically my entire life. I’m the one that has a slingshot and crossbow and practices. I’m the one that has slaughtered, and preserved, animals, lived on a working farm and produced and saved food from a garden. Not the man in my life. As for hand to hand combat, I can only hope my 56 year old, 155 lb, 5’6″ husband would live through it.
Your f’d up dreams of Rambo notwithstanding, most American men have been chemically and emotionally castrated, heroes of the Silent Generation they are not.
You so amuse me.
@Chicago, I am so very sorry to hear of your loss. Prayers and love to you
@TE
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@Backtable, should have mentioned that most of the men here are still real men. Most.
And tell me that the PC crap in schools, the PC crap in most homes, AND the constant ingestion of foods/chemicals scientifically PROVEN to increase estrogen haven’t physically castrated our men.
If you have a big gut, your body is producing massive amounts of estrogen. Which probably helps to explain a huge percentage of obesity, depression and the numbers of erectile dysfunction drugs sold every year. Taking testosterone is NOT a good way to fix it. I’m not going to go into the ways to fix it, as it disagrees with all the medical myths that so many in this country hold dear.