There is more debt, credit, and leverage today than there was preceding the banking crisis of 2008.
No lessons were learned from that catastrophe as trillions of taxpayer dollars were provided in the form of bank bailouts from the US Federal Reserve.
Despite their name, US Federal Reserve Banks are not part of the federal government and they are not banks. For the past 11 years, the Federal Reserve has been run by non-elected officials, Ben Bernanke and Janet Yellen (career academics), alongside a host of X Goldman and JP Morgan bankers. Since 2007, these non-elected bankers have provided banks “temporary, emergency liquidity measures.” Since when is eight years temporary?
Banks have continued to lend trillions and trillions of dollars to fund the construction of grotesquely overpriced residential and commercial properties around the world. The trillions of dollars given in bank bailouts are a perfect example of government “pay-to-play.”
When giving out this money, most bankers are making at least three flawed assumptions:
1. Real estate prices will always go up. Clearly, this is the denial phase of “a bubble mentality.”
2. Rents will always keep rising. Rents peaked a few years ago. There is a massive oversupply of high-end residential and commercial properties on the market while real wages have declined. This is a sign that a crash is imminent.
3. The Federal Reserve will always bail them out. With zero transparency or an audit the Federal Reserve’s balance sheet has ballooned from 500 billion to nearly 5 trillion in a short period. The Federal Reserve doesn’t have the money to keep bailing companies out.
The Federal Reserve has become nothing more than a rogue hedge fund taking leveraged, wildly speculative, gargantuan and high-risk positions in bonds and mortgages. Next up, the Fed will angle to dump these toxic real estate assets in your pension fund.
There are several steps that need to be taken to address this situation and save your pensions:
1. The President and Congress need to order an immediate audit of the Fed.
2. The Fed’s positions need to be unwound.
3. No more taxpayer funded bailouts – save your pension!
Capitalism without bankruptcy is like Catholicism without hell. Constantly printing more money will not end in prosperity, but in ruin. The coming collapse will be much worse than in 2008-2009 because the debt is so much larger and the Federal Reserve has run out of bullets.
Since the 1980s, we have seen real average wages decline, college tuition skyrocket nearly 2,000 percent, and housing prices hitting all-time new highs while high-paying jobs have disappeared. Rents have risen so much that many small businesses are no longer economically viable.
The situation doesn’t look any better for graduates. Graduates entering the jobs market have nearly $250,000 in student debt. A graduate may get a job in Manhattan for $40,000 a year ($3,333 a month before tax) but rent on a studio apartment costs $3,000 a month.
The numbers just don’t add up anymore.
Rents are not linear; they have peaks and valleys. We are now way beyond extreme bubble territory with residential and commercial rents, but banks keep lending, builders keep building, and businesses keep closing as the economy stagnates and wages decline.
Follow Mitch Feierstein on Twitter: @PlanetPonzi