My Budget 360

The world is flush with access to capital and it is very clear that there is massive pent-up demand from the last 1.5 years because of the pandemic. As the US and other economies started to open, people have money to spend and are going out there and putting pressure on supply chains. For all the talk that inflation is relatively muted, all indicators are highlighting higher prices are here to stay at least until 2022. All we need to do is look at a few metrics and understand that there are many interconnected pieces to our global economy and complicated supply chains that serve billions of people worldwide. In the US, the typical households has additional money from stimulus and lack of other expenses because the pandemic did require many to stay relatively closed off. While some of this money went to regular households, a lot of the low-rate capital went to banks and Wall Street that are now inflating the housing market and crowding out regular buyers. So let us look at why we anticipate higher prices moving forward.

Americans for the most part generate their wealth via owning homes. Yet many younger Americans are having a tough time buying a home because of a crowding out effect from investors largely from Wall Street. I’ll start this post with some telling data: In 2008 US households had about $10 trillion in mortgage debt. Today it is $10.49 trillion for an increase of 4.9% over 13 years. Non-housing debt which is tied to wealth destroying items like cars, credit cards, and education (for some degrees) went from $2.64 trillion in 2008 to $4.14 trillion in 2021 (a 56.8% increase in the same 13 years). This is an important data point to understand since not all debt is bad. Getting a mortgage might be good since it forces you to save into your home which generally increases in price over time. However a car, credit cards to buy “stuff”, or getting a degree in a non-competitive major for $55,000 a year is all “bad” debt. You essentially have an item that goes down in value over time. So let us look at this data carefully.

As the economy starts to fully open, there are some glaring issues that are being exposed. First, there is still a deep crisis in housing on the affordability front. The Fed in partnership with big banks buying up properties, is causing major market disruptions that are pushing out regular first-time home buyers (aka younger Americans). Then you add the massive juicing of student loan debt where college costs have skyrocketed so many young Americans already have a mountain of debt before their first job. So, it is no surprise then, that half of young adults are living at home. And then you have many Americans deciding to opt for other work or quitting given the low wage economy that has created a near permanent underclass in this country. But wait, isn’t the stock market near a record high and real estate as well? First, half of Americans do not own one single stock. Second, as we just mentioned, those benefitting by higher home prices are largely baby boomers and hedge funds that are buying up properties to rent out to the new serfdom class of America, younger workers.