Sorry Losers!

By its actions, the Federal Reserve has selected a precious few winners and many, many losers.  Sadly, you are highly likely to be one of the losers.


I'm one, too, if that helps soften the blow.

But we have a lot of company. Other losers include:

  • Savers
  • Anyone with money in a checking account
  • Anyone with money in a savings account
  • Anyone with money in a CD
  • Anyone depending on bond income
  • All pensions
  • Endowments
  • First time homebuyers
  • Renters
  • Those who invest based on fundamentals
  • Everybody alive in the future, when the bills come due

Anyone on this list has been intentionally pre-selected by the Fed for losing. The Fed has done this deliberately, with full pre-knowledge that it was going to diminish the prospects of the majority in favor of the benefit of an elite few. And to make matters worse, it has no plans to -- and no clue how to -- reverse the damage it has wrought.

Everyone on the list above has been dinged by the Federal Reserve -- on purpose and by design, I will repeat -- in order to transfer wealth and purchasing power to:

  • Big banks
  • The government
  • Entities with large stock (equity) holdings
  • The wealthiest 0.1%
  • Speculators
  • Borrowers (the heavier the better)
  • Well-connected insiders whom the Fed tipped off in advance

This has, of course, not been lost on the 99.9% relegated to the loser camp. They are angry and growing more pissed off by the day.  We see this anger playing out politically, in street protests, and in growing tensions with the police. All of this is connected, of course.

Soon, more and more folks will figure out the source of the growing inequity causing this anger, and the hot new trend of the future will be Fed bashing. So you might as well get in on the ground floor...

Righteous Anger

As primates, we’re all hard-wired to expect fairness.  It’s part of being a social creature.  When we experience unfairness, we react the same way this Capuchin monkey does, although we might try to convince ourselves we do so in a more civilized manner:

But really, we're just as emotionally-driven as that poor, deprived monkey when confronted with our own circumstances of injustice.

While it's true that the world will never be completely fair, the conditions today are extremely ripe for provoking a lot of righteous populist anger.

Watching big banks commit huge felonies time and again, then get away with only paying fines that are mere blips on their earnings statements, has been difficult for me to swallow -- as it was for a large number of other people.  The recent movie The Big Short does a good job of making your blood boil on this point.

Or noting all the instances where the wealthy and powerful skate by without any real charges or penalties for their crimes, while 'regular people' have the book thrown at them by the legal system.

In fact, the rule of law in America today might as well be restated as the ‘sliding scale rule’, where the number and consequences of possible penalties that apply are inversely proportional to your net worth. Poor = more. Rich = less. 

But of all the injustices being inflicted upon us, few are more pernicious than those being committed via the Federal Reserve's monetary policy.

The Fed is playing God, picking winners and losers. And as I outlined above, nearly all of us are losers.

Housing Losers

In the aftermath of the credit crisis, the Fed has been loudly telling us that if house prices go up then the owners of those houses will feel wealthier and spend more, boosting the economy.  Or something like that.

In truth, the Fed has been acting to protect both the mortgage holders (banks, mortgage companies, Fannie, Freddie) and also its own portfolio of mortgage bonds.  Few people realize this, but the Fed is the largest landlord in America. It owns more real estate, by far, than any other entity:


Now, would you not agree that if a private entity had been entrusted with the capability of printing money out of thin air and then using it to purchase $1.78 trillion dollars’ worth of mortgage backed securities, thereby becoming the largest landlord in America, that there should have been a robust and spirited national conversation over whether or not this is a good idea? One that came with a truckload of debate, oversight and enforcement?

But there was no conversation. The Fed decided all on its own that driving up the cost of homes was the right thing to do, and they've succeeded wildly in that regard.  Winners = current homeowners who sell at these current bubble prices and then downsize.  Losers = everyone else.

Even many current homeowners who've benefited from recent price increases will lose over time. Why?  Because of higher insurance and property tax costs. 

The housing bubble that preceded 2007 has been restored by the Fed nation-wide, In dozens of cities., prices are now at or near all-time highs:


The impact of these insanely-high house prices is that ordinary people are being priced out.  Here's the extreme case of San Francisco:

The “Housing Crisis” in San Francisco Strangles Demand

Aug 16, 2016

In San Francisco, the median house price – half sell for more, half sell for less – is $1.37 million. According to Paragon Real Estate, if condos were included, the median price would drop to $1.2 million.

The median household income in San Francisco is $84,160, including households with more than one earner. So a household of two teachers with $130,000 in household income is doing pretty well, comparatively speaking.

The monthly mortgage payment for the median house in San Francisco, after a 20% down payment and at the prevailing rock-bottom mortgage rates, is $6,740 per month, or $80,900 per year!

So what kind of minimum qualifying household income would be required for the mortgage of a median house, plus taxes and insurance? For the US on average, $47,200 per year. In San Francisco, $269,600 per year. It would require a household of four teacher salaries!

Only the top-earning 13% of households in San Francisco can afford to buy that median house!


To recap: if you put down a 20% down payment of $250,000  (good luck saving that up, ordinary people!) for a median $1.37M house in San Francisco then the yearly mortgage cost alone would still be $80,900.

This affordability problem is so severe that regular people are moving out in droves. As a result, San Francisco is dealing with all sorts of worker shortages, including the lack of teachers mentioned in the above article.

These insanely high house prices are not some miracle of God, and it doesn't require a PhD in particle physics to understand what's causing them: the Fed specifically created the conditions to boost house prices to these levels, and has been printing up as much money as needed to accomplish this.

If you enjoy irony with your tragedy, consider the case of the planning commissioner for Palo Alto who had to move out of the area because she and her husband could no longer afford to live there:

Housing official in Silicon Valley resigns because she can't afford to live there

Aug 11, 2016

Once Kate Downing and her husband Steve did the math, it was obvious that if they wanted to raise a family, staying in Palo Alto, California, was not an option.

Although Steve, 33, works as a software engineer at a nearby Silicon Valley technology company and Kate, 31, is a product attorney at another tech firm, the cost of owning a home near their jobs has simply become too steep for them.

If they wanted to purchase their current house – which they rent with another couple for $6,200 a month total – it would cost $2.7m plus monthly mortgage and tax payments of $12,177, adding up to more than $146,000 a year.

The Downings’ housing struggle in the northern California region that is home to many of the world’s wealthiest tech companies carries a special irony due to Kate’s second job: up until this week, she served as a planning and transportation commissioner for Palo Alto – a position in which she pushed city officials to build more housing and pass pro-development policies that could help solve the growing affordability crisis.


When two upper middle class successful professionals cannot even remotely begin to make ends meet, you have a raging housing bubble on your hands.

I’m going to keep repeating this point: this is no accident.  It is not an act of God.  This is the desired outcome of a specific and targeted Federal Reserve policy that is getting exactly what it intends: Higher home prices.

As a consequence of these high prices, home ownership rates in the US have plunged to levels not seen since 1965:


Generations of homeownership have been undone in less than ten years by an activist Fed that has decided it knows who should be the winners and who should be the losers in the home buying game.

Of course, all of this is not real, long-lasting wealth. The Fed has merely blown another bubble; one that will eventually burst, creating far more pain on the downside than the pleasure enjoyed on the way up.

That’s just the nature of bubbles, as we laid out in detail in our recent report The Marginal Buyer Holds The Pin That Pops Every Asset Bubble (it's worth a read if you haven't done so yet)

It’s too bad the Fed did not learn from its prior recent bad mistakes that blew up in 2000 and 2008. I’ve taken the liberty of expressing this in chart form:

I hope that clears thing up.

There's no other way to put this, the Federal Reserve is a serial bubble blower. And sadly, the Fed is the alpha central bank in the world. It sets both the tone and the direction that the others follow. Which is why the bubbles in stocks, bonds and real estate span the globe today.  

The Fed somehow lost the institutional memory that Paul Volker embodied back in the 1970’s and 1980’s.   Volker's bitter medicine approach was replaced with a spiked punchbowl. Greenspan began the process, Bernanke cemented it, and now Yellen is busy keeping the party going long after the lights should have been turned off.

The Fed may never recover from the injustice it is creating. And good riddance.  When institutions fail so horribly they need to be disbanded and discredited so that new ideas and practices can emerge.

And interestingly, we are (finally!) beginning to see some rotten tomatoes get thrown the Fed's way. 

Is a ‘Fed discrediting cycle’ underway?  Surprisingly, the answer may be: Yes.

The Worm Turns

The reason we need to track the ‘intangibles’ like Fed credibility is precisely because the entire system of fiat money is faith-based, when you get right down to it.  We all know that on some level, but it becomes a conscious awareness once you understand how money is created in the fractional reserve banking system.

It's created when a loan is made at the bank level, as well as whenever the Fed ‘buys an asset’ which is really a fancy way of saying ‘created money out of thin air and exchanged it for debt.

Well, if the Fed has the power to create money out of thin air, that’s really an extraordinary power, right? How can we have confidence it's putting that power to the right use?

Because all fiat currency (I hesitate to call it ‘money’ as it lacks the essential ‘store of value’ feature) is nothing more than an agreement between ourselves, it’s vital that trust and transparency be part of that arrangement.

But the current system goes out of its way to keep the public in the dark about how it works.

Even though money (er, currency) creation is a rather simple thing to explain, as I’ve done in the Crash course (Chapter 7: Money creation in Banks and Chapter 8: The Fed), it is not taught in schoolsAt any level.

In over 10 years of presenting this material publicly, I've not yet once run into a single person who has claimed to have learned about money creation in a public school or major college as part of the ordinary curriculum.  Not one.  Homeschoolers? Yes, all the time.  Self-taught? Sure, them too.

Now ask yourself why something so important and yet simple to explain is not taught at practically any ‘place of learning’ throughout the land?  The only reason I can think of is that it is considered too dangerous by those in charge.

After all, how can you keep a workforce chained to a paycheck model once they find out that the Fed simply prints up dollars by the trillions and hands them out to their closest friends, relatives, and revolving door colleagues?

Kinda makes me recall the bank scene from this old SNL skit with Eddie Murphy titled White Like Me:

Or perhaps we can understand why currency creation is not taught through this old quote from Henry Ford:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.


I think old Henry also nailed it. The privilege and advantages enjoyed by those running our banking and monetary systems functions are deeply unfair. If those in charge of them want to keep their heads, its best to keep the public in the dark as much as possible.

Well, I think the cat’s out of the bag, and I base that on two exceptional recent events.  The first was the ill-fated launching of a Fed Facebook page, by the Fed, and the second was a real turnabout article penned in the WSJ by none other than perennial Fed insider/toady John Hilsenrath.

In Part 2: This Is How Sentiment Shifts And Markets Crash, we look at how the previously-bulletproof faith in the Federal Reserve is quickly eroding. As with all belief systems, once sentiment shifts below a critical threshold, everything gets called into question. Suddenly, it's obvious to all the emperor was naked.

The demise of faith in the Fed is an essential milestone on the way to the long-overdue market correction. Once the markets no longer trust the Fed can keep the party going, the stampede for the exit will one for the history books. 

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)


This is a companion discussion topic for the original entry at

And counterbalancing the Capuchin monkey rage we have the fact that humans are Neotenic . We  maintain childlike features throughout life. A trust that "Daddy and Mommy" will take care of us. Unlike the Capuchin  monkey who is under no such illusion. 
This Neoteny has evolutionary advantage in that it makes us more biddible and supports civilization. On the other hand it also forms us into armies, to do our Masters' murderous bidding.

This video explains why.  One of the most informative videos you will ever watch.

For those of us who prefer to read (skim) than listen to the video, here is the transcript of How Big Oil Conquered The World from the Corbettreport.
Awesome recap of the history of the rise of the oil barons.


In over 10 years of presenting this material publicly, I've not yet once run into a single person who has claimed to have learned about money creation in a public school or major college as part of the ordinary curriculum.


Sorry Chris.  I learned about money creation, almost the same way you present it, in two separate buisness economic courses, whilst working on a BA in Accounting in the early 1970s.  It was taught in conjunction with the formula on how to calculate the US money supply, M1, etc.

What was not taught, to my recollection, was the inherent flaw built into money creation, that you teach so well.  Simply put, the money supply has to grow every year by the annual total amount of interest payments in order for the economy to simply remain flat.

The dilemma that did hit home for me in the 1970s was that companies typically strived for perpetual growth such as 5% per year indefinitely.  I remember sitting in class thinking, if a single company achieved perpetual 5% growth without interruption, then they would eventually own and become the entire economy.

That is when I recognized my Malthusian disposition, although I knew nothing of Thomas Robert Malthus at the time.  I also intuited somehow that my thinking was not being shared by the rest of the class or the instructor.

This simple fact was not alluded to a single time in either BA or MBA classes.  During 37 years working in the private sector, it was mentioned in a speech once by an executive and then immediately dismissed as irrelevant to the companies budget for 3% cost reductions year after year after year after year.

If you wonder why products you buy these days are so cheap, it's because companies have perpetual cost reduction goals built into their budgets.  Companies put less emphasis in product quality than in achieving budgeted cost reduction goals.

Similar to the fact that maintaining housing values benefits the banking sector and not the homeowner, federal crop insurance is designed to protect bankers and agribusiness, not farmers.  Payouts are just enough to pay off crop inputs for another year and leave nothing to live on.

Thanks. That puts a few elements that I have bits and pieces of into a larger context.

When we have positive interest rates this reflects the big banks’ have confidence that they will get money out of an economy. When the rates go negative the bankers know they can no longer trust the economy to give them money, so they have to start vacuuming up hard assets to replace income.

21mins in…

One of my pet hates I'm afraid.  Interest money is created in advance by banks when they pay for goods and services, bonuses, wages, asset purchases and any other costs associated with running a bank. If you disagree with me then please tell me how banks pay for all their costs and asset purchases.

Home prices are out of whack with incomes for sure.  Either prices crash or incomes explode to bring them back into line.  I'm trying to imagine how the latter scenario could prevail. 
Here does.  Economy tanks, debts become unsupportable for the people holding the debts (students, homeowners without jobs etc) and because the richest 1% are hoarding most of the money in circulation. The Fed prints money and bails out everyone (the famous Benanke helicopter money put).  You get massive inflation because this is debt free money given to everyone.  Not only do debt levels get reduced but wages will track inflation to some degree.

Hence wage inflation brings incomes in line with home prices.

Obviously the losers will be the richest 1% which will see the purchasing power of their hoarded money get reduced. Hence this will be the very last resort for the Fed.  Interest rates would rise significantly I should imagine.

Everyone will be greatly enriched by reading this candidates proposals. 



Winners = current homeowners who sell at these current bubble prices and then downsize.  Losers = everyone else.
One the Sidelines: people who've paid off cheaper small homes they bought as a place to live rather than an investment.

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Chris, there is at least ONE teacher instructing students on the true nature of money creation. Granted, it's a private school elective on "economics," but i use the Crash Course videos and I teach them the true nature of the Fed's actions. It may be too little too late, but your message has reached some teachers, and I'm doing my damn best to bring other teachers the message. We're not all following "the script" given us by the higher-ups.

I think this chart says it all.
Rising Tide of Negative Interest Rates

Rates will continue to go negative as more of the world debt becomes unservicable.

In my opinion, its no longer worth investing capital as the return is nearly nothing and the risks of losing principal, is enormous. FWIW: This is the yeat I stopped saving and investing and started spending. I am converting my capital into assets that enable me to be self-reliant: rural farm land, farming equipment, tools, consumables. Once the Fed returns to QE the value of money and capital will contiue to lose valve and the cost of assets will begin rising again.

I don't think a dip in Real estate will last long as the Fed will just step in and start buying. Those with Real estate will be reluctant to sell and so will the banks (knowning the Fed is going return to QE). So if your thinking of waiting to buy during the next dip, good luck!

Of the one items that is likely to decline would be the US dollar once it returns to QE.

Reading this article, helps me think about the guys discussing politics in a cafe in Rome, during the downfall of Rome. They had pretty much these conversations, corruption, war plunder, currency debasement. etc…
Their discussions where fascinating and entertaining, however no amount of discussion will save the system, we are too far down the rabbit hole.

Just like Rome was during the 1000 year decline. Nothing could pull it from the crash landing. The ingredients for the crash where baked in.

Empires fall, others and born and re-born.

Staying within the kingdom hoping to wing it through, was the death sentence of many…

Well, bless you for teaching that.  And Les, it's good to know you were taught the mechanics of money creation.  

I've asked a lot of audiences over time, after going through money creation, how many recall being taught that in school and I've yet to have a hand go up. 

Here in our very elite, self-selected community I am encouraged to find a few examples…but the larger framing here is that it is very, very uncommon to encounter someone who knows how the simple, but wildly important process of money creation works.

A simple oversight on the part of the educational system?

If it is, then I believe the explanation for that must be written on the other side of the purchase & sales agreement I have for the Brooklyn Bridge I acquired on my last trip to the Big Apple…let me see if I can find it…

Thanks again Snydeman!

Stop and look at the bubble gif. First thing I notice is that the wave starts perpendicular to the projectile, but is actually faster than the projectile and overtakes it.
Second thing I notice is that the associated bubbles do NOT burst. They are shaken, but have their own self-contained structure. However, both associated bubbles are given some velocity by the wavefront; the larger is badly contorted by the main burst, but still survives.
Third thing I notice is that the bursting bubble erupts into a spray of little droplets.
Next, I notice that the wavefront is faster on top than below, so that the line of action sweeps in a convex-up arc.
Then, too, some of the droplets follow the projectile; most just fall out.
I’m not going to assume that this all has parallels in economic bubble bursts, but some of it may.