The war of words between President Donald Trump and Fed Chairman Jerome Powell has been revealed as largely histrionic. Like their predecessors—Richard Nixon and Arthur Burns—over 50 years ago, Trump and Powell have been acting out a performative charade regarding when and to what extent artificially low interest rates should go even lower in the midst of persistent inflation. The supposed sparring between Trump and Powell merely guarantees the result both want—more easy money.
In a recent speech at the obnoxious Jackson Hole symposium, Powell incredibly stated that current monetary policy was “restrictive.” He followed that up with veritable chum for easy money sharks: “…the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Translation: the Fed intends to resume cutting interest rates at the next September meeting. Per the online betting marketplace Kalshi, the odds of a September rate cut immediately shot up from 59 percent to 81 percent. But whether or not Powell and the Fed cut rates in September is almost irrelevant. One need only open his eyes to see the matter clearly.
Money Everywhere
As of this writing, US stock markets are at all-time highs, with valuations (as measured by the CAPE ratio) at levels only seen once before—during the peak of the dot-com bubble in 1999. Within this milieu, margin debt has also hit an all-time high in July, meaning that investors are taking loans to speculate in stocks while ignoring the magnified risk therein.
Junk bonds—a euphemism for sub-prime corporate debt—trade at spreads as tight as they’ve ever been. In other words, investors in the risky debt of poorly performing companies are willing to accept pitifully meager returns in exchange for excessive credit risk.
The junkiest bonds of all—US Treasuries—yield essentially zero when a realistic measure of price inflation is used as the discount rate. Poorly performing companies at least have a product to offer. The US government, on the other hand, revels in the devaluation of the instrument—the US dollar—with which it pays its debts. For investors in US sovereign bonds, default and repayment are functionally indistinguishable.
Home prices are at all-time highs, with the home-price-to-income ratio near 7.5x, itself an all-time high. As a result of this imbalance, the average first-time homebuyer is now a record 38 years old. Clearly, the young are finding their options limited by home price inflation, which is leading to muted and delayed family formation.
The money supply (“M2”) has grown by 5 percent in the last 12 months, the very definition of inflation. Simultaneously, even government measures of price inflation have accelerated. CPI—the absurdly sandbagged and impractical measure of US consumer price inflation—has been above the Fed’s 2 percent target for nearly five years straight. The most recent reading showed annualized month-over-month CPI at 4.1 percent while the Producer Price Index (“PPI”)—a measure of wholesale price inflation—showed an annualized month-over-month reading of a whopping 11.5 percent.
The True Cost of Cheap Money
In the midst of this rapidly-inflating asset market and the undeniably loose monetary conditions fostered by the US government and the Fed, it behooves the rational observer to ask not just the obvious cui bono questions, but who foots the bill for this policy? Cui malo? The answer is that the average American, or the “middle class,” is the host on which the easy money parasite feeds.
Since 2008, government statistics suggest that median nominal wages have risen at an average annual pace of 3.0 percent, compared to 2.3 percent for CPI over the same period. This indicates that real wages have increased by a meager 0.7 percent annually over that timeframe. But in surveying the major expense categories for average Americans, has anything increased by only 2.3 percent per year over that period?
Apartment rent, measured nationally, has increased by 4.1 percent annually and home prices have increased by 4.2 percent annually, despite dipping significantly from 2007-2011. Home insurance is up 3.0 percent annually. Health insurance is up 5.0 percent annually. Prices for eggs and beef—basic staples of a healthy diet—are up 6.8 percent and roughly 5.0 percent (depending on the type of beef) annually, respectively.
Based on the latest available data, the average cost for a one-week vacation in the US for a family of four is roughly $8,000. That figure also happens to match the median balance of savings in the country. As a result, middle class families have a choice—enjoy a family trip and drain the savings account, or skip the leisure and keep the thinnest sliver of financial cushion in case of emergency.
In the background, the federal government continues to spend and borrow like a deranged madman, ensuring ever more inflation and dollar debasement in the future. The Trump administration is well on its way to a $2 trillion deficit this fiscal year and a $44 trillion debt balance by the time Trump leaves office in early 2029.
This dynamic is not a real problem for the asset-rich, but for the middle class it is an unrelenting pressure. Lacking assets and the resources to acquire them—recall that the median savings balance is $8,000—average Americans face the prospect of falling further behind as inflation tenaciously undermines their quality of life. In a desperate effort to keep up, many have turned to borrowing and then speculating in asset markets with the proceeds.
This toxic combination of leverage, lack of investment risk awareness, and the need to “stretch for yield” in the absence of sufficient savings rates has already led to widespread wealth destruction for average Americans. In the apartment investment market, for example, mom-and-pop investors have lost tens of billions of dollars in equity. After soliciting those funds, unscrupulous “syndicators” combined them with risky bridge loans to buy swaths of apartment properties which immediately collapsed in value when short-term interest rates began increasing in 2022. Other asset markets are in similarly perilous shape, and the average American investor does not have the benefit of a US Treasury bailout. In fact, any bailout will be at their expense.
The Long Con
At this stage, there is little that can be done to avoid a reckoning, but—contrary to popular belief—it is unlikely to take the form of a distinct, sudden crash. Rather, we are in the middle of that reckoning now—a slow and continuous degradation of life quality for the majority of the population.
Much like the similar, gradual-but-undeniable collapse of Britain over the course of the 20th century, the result of this process is a society increasingly devoid of productive virtue, with a contempt for individual freedom. In their place will continue to grow a pernicious central state apparatus obsessed with warfare, “social justice” for pet groups, and economic theories developed by the dimwitted and immoral.
The robbery of the middle class by the political class is not accidental. It is the inevitable corollary of inflation, a policy willfully chosen by the state.
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