The Myth of Gay Affluence....? 3

COMPLETED 26 JUNE 2014 FOR FURTHER READING.......

11.   The Rise of the Upper Middle Class and The Rich

How did the Top 1%, the Top 0.1% and the Top 0.01% get so rich so quickly...? OK...we'll tell ya....

Since 2001 God's Own Country slashed interest rates to virtually zero.  That makes Debt i.e. credit, really cheap.  It becomes especially cheap for financiers and speculators.  They take that cheap money and dump it anywhere they can looking for Fast And Furious returns. 

Their favourite places...?

1. The real estate market; and 
2. The stock market;

1.   Real Estate Market in the US

Since real estate is the main asset of the middle class, this new, cheap money pours in - and starts to inflate the asset.  The financiers and speculator DO NOT  regard real estate as an "asset".  THEY REGARD IT AS A TRADE I.E. BUY LOW SELL HIGH.  In other words, they generate momentum through speculation.  Everybody gets sucked into playing musical chairs - buying a place with a low down payment, either in cash or at a cheap interest rate, getting a "low interest" mortgage on the balance and then selling the place as soon as possible at a higher price to the next fool, and so on - before the music stops. They were not generating income or savings. They were looking to make a quick capital gain.

As Charles Hugh Smith correctly observes, when investment returns exceed economic growth, the rich get richer. And that increases Income Inequality.

The banks love it:

• They get a cut on the mortgage fees;
• Since interest rates are so low, they can offer more loans like home improvement or home equity to the same greedy buyer;
• They "securitize" the loans i.e. the infamous packaging, slicing and dicing of individual loans that were backed by "assets" like pool tables and flat screen TVs and selling them via Fraud Street to "sophisticated investors";

Pretty soon, people discover.......they don't own an asset.  They own debt.

When a credit-driven, highly speculative and highly leveraged real estate bubble burst, lots of people (mainly the middle class, got wiped out). The financiers and speculators simply knew how to move faster in the bubble market and moved on to the stock market to create the next asset bubble.

The Fed stepped in, picked up a Trillion in mortgages to revive the housing market, which it did, and then discovered that if it slackened off buying up mortgages, housing would slump.

So... is the US housing market on life support....?  Probably.  Have a look.....

2.   US Stock Market

Wanna see what a stock market juiced up on low interest rates and Quantitative Easing looks like courtesy of financial speculation....?

Impressive huh...?

Except that it's not supported by economic fundamentals of the US.  In fact, the stock market is directly contrary to what it should be.  And right now, people are still piling in.  Just like in real estate, the "wealth effect" is being artificially created.  When the crash happens, it will be far more catastrophic than 2008.

Again, as pointed out earlier in this series, wages for the middle class Yank have not gone up much since unemployment has not yet stabilized.  Massive amounts of credit at low interest rates. did not result in higher wages or increased consumer spending. (In fact, US savings rates have increased). Plus, Quantitative Easing has resulted in spikes of consumer inflation. That eats into savings and earnings immediately.

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