George Mentz: $10,000,000 of destroyed American wealth; More collateral damage to come
The Federal Reserve has raised lending rates by 0.5% now that inflation is at 8.5%.[i] Meanwhile, the value of the stock market and housing market has declined by around $10 trillion or more.
CNN says there has been more than $7 trillion in US stock market wealth lost this year. This $7 trillion loss in US stock market wealth can be partly attributed to the Federal Reserve raising lending costs for publicly traded companies and publicly traded tech companies.[ii] To make matters worse, another trillion dollars of US cryptocurrency wealth has been lost to a bad economy in recent months.[iii]
Last week, the tech market lost another $1 trillion in value.[iv] Some experts now say the United States has lost an additional $3.7 trillion in revenue during the pandemic over the past two years.[v]
This loss of wealth and rate will immediately affect the following:
1. The amount of assets available to citizens and their ability to borrow are reduced due to the loss of household wealth and rising interest rates.
2. Residential mortgage costs have risen 57% this year, with mortgage rates rising to 5.5% from 3.5% this year. Thus, the ability to buy a house has changed dramatically.[vi]
3. The ability to take vacations is reduced with energy prices up 100% and the effect of inflation on wages.[vii]
4. The ability to send children to a good school or college is reduced. The chance of getting a home in a quality neighborhood with good public schools has dropped significantly over the past few months.
5. Credit card holders are paying at least 2% more for their debts. The average debt of an American family is $6,270.[viii]
6. There is a new mortgage payment crisis with those with home equity loans and adjustable mortgage rates. ARM adjustable rate mortgages can represent well over 10% of home loans in the United States. [ix] [x]
7. Student loan holders with debt from top schools may default because the average student has $25-50,000 in debt with $1.7 trillion in debt nationwide and $44 million in student debt .[xi] The vast majority of student debt is held by Caucasians. 46.7% of federal student loan debt belongs to graduate, master’s, or doctoral borrowers.[xii]
8. Workers are losing money because wages cannot keep up with inflation in housing, energy, food and health care costs.[xiii]
9. Rising Federal Reserve lending rates have pushed up the cost of running the government and increased interest payments by the government.[xiv]
The dirty secret is that energy costs have gone up 100%, and these energy prices are the #1 factor in the CPI consumer price index affecting everything consumers buy. . With overvalued energy, inflation will never go down.[xv]
Key takeaways and economic facts:
1. QE or Quantitative Easing has increased disposable income on the high street, but the main reason for inflation is the cost of housing, energy, food, childcare, health care and education.[xvi]
2. Inflation cannot be temporary with $5 a gallon gas and home heating bills rising by more than 100%.
3. Ukraine is not a viable excuse for inflation because many countries do not have the same problems as the United States.[xvii]
4. At this point, any government that locks down is asking for a hard, targeted recession or depression on its constituents.
5. The federal debt has risen from 30% of GDP to over 100%, where interest rates on rising debt service can undermine the vitality of government function.
6. Housing accounts for 32.7% of the Consumer Price Index CPI
7. Energy represents 7.5% of the CPI.
8. Used car prices rose 37%, with autos accounting for 7.3% of the CPI.[xviii]
9. Unfortunately, the Fed cannot control inflation without causing collateral damage. Interest rate hikes only add fuel to the fire.[xix]
10. In my view, the Fed’s late intervention is too little too late. The risk of a hard landing has increased. The markets reflect this increased risk. #inflation #fed #deficit #rate hike
In economic parlance, stagflation or recession inflation is a situation in which the economy and growth slow down, core inflation is high, CPI goods prices rise, while unemployment rates are high and millions of people are out of work. Of course, actions that can reduce inflation tend to exacerbate unemployment and weaken the discretionary income of working families.
In short, targeted interest rate cuts may be the only way to solve this problem. In addition, targeted productivity tax incentives or tax credits may also be the only other strategy to rescue the working family.
George Mentz JD MBA CILS is CWM Chartered Wealth Manager ®, Global Speaker – Educator, Tax Economist, International Lawyer and CEO of GAFM Global Academy of Finance & Management ®. GAFM is an ESQ EU accredited graduate body that provides certification training in over 150 countries to ISO 21001 and ISO 9001 standards. Mentz is also an award-winning author and certified law professor in wealth management in the United States. .
[i] Inflation hits fastest pace since 1981, at 8.5% through March – The New York Times (nytimes.com)
[ii] More than $7 trillion has been wiped out of the stock market this year – CNN
[iii] How over $1 trillion worth of crypto disappeared in just six months – WSJ
[iv] Tech giants have lost more than $1 trillion in value over the past three trading days (cnbc.com)
[v] Workers have lost $3.7 trillion in income during the pandemic (businessinsider.com)
[vi] Mortgage rates climb to 5.30% after Fed rate hike | Mortgage advisor (mpamag.com)
[vii] U.S. gasoline weekly retail prices for all grades and formulations (dollars per gallon) (eia.gov)
[viii] Average Credit Card Debt in America: 2021 – ValuePenguin
[ix] Adjustable rate mortgages rise as interest rates rise – fueled the 2008 financial crisis (esquire.com)
[x] Adjustable Loans Make Up Largest Share of US Mortgages Since 2008 – Bloomberg
[xi] Average US Student Loan Debt: Facts and Figures – ValuePenguin
[xii] Average Graduate Student Loan Debt : for masters and doctorates (educationdata.org)
[xiii] Why pay rises aren’t keeping pace with inflation (forbes.com)
[xiv] Higher interest rates and the national debt (pgpf.org)
[xv] President Costanza tackles inflation – WSJ
[xvi] The most common and highest expenses of the family budget | Money Budget – The Nest
[xvii] Inflation rate by country 2022 (worldpopulationreview.com)
[xviii] What’s in the Consumer Price Index? | Pew Research Center
[xix] Steil: National Debt Interest Payments Could Reach $1 Trillion | MacIver Institute
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