If you care about income inequality, housing affordability, the 1%, stagnant wages, economic revolutions, or just educating yourself please read this analysis of mine on some of these topics.

When I post about how important it is for us to learn about interest rates and monetary policy, it’s because it affects most aspects of our lives.

It’s not necessarily hipsters causing rents to go up, it’s bigger than that. A lot of people talk about the “system” but don’t really know what that means. To me it means monetary and fiscal policy, specifically interest rates.

I recently posted about how the Federal Reserve (central bank) has recently begun to raise interest rates for the first time in almost 10 years. Currently interest rates are at about 1–2%.

What does this mean? It means the banks will pay you $1 dollar for every $100 you deposit for a year. BORING!!! Let’s continue…

Believe it or not this is big news because it’s a new trend in the SYSTEM we all learned to hate; it is a long term trend that will impact a new generation. Things that many of us take to be the norm will change (like getting 1% return on your savings account).

Actually, it’s more than that.

Let’s go back in time on a little ride with Marty McFly in the DeLorean…

Back in the 80s, the time of excess spending, big hair bands, and…high INTEREST RATES. How high? How about 15%? Imagine getting 15% at your bank right now.

Beginning in the early 80’s the central bank begun a NEW TREND and started to LOWER interest rates, and it continued until now. Sure there were times when it raised them a little, but the overall trend was DOWN. Now that rates are so LOW, they have signaled they will start a new TREND of UPWARD movement.

When rates are lowered, it means cheaper money to borrow for you, me and Wall Street. Most of us take advantage of this by buying homes, electronics, maxing out credit cards etc.

Wall Street, on the other hand buys stocks, bonds, and investment real estate. This is where the consolidation of WEALTH is accelerated.

Take a look at this chart of the change in interest rates. The red arrow shows the down trend of interest rates beginning in the 80s.

While the average working was earning an average salary and getting less return in their bank deposits, this is what the stock market did…~$100 turns into$1,853!!!. Try getting that at the bank.

“But… But… Jaime, if there’s so much prosperity and economic growth,

Why am I not getting paid more, I can’t afford rent, food, medical insurance, etc.?

Inflation my friend.

You see, although wages/salaries have been going up, we also have to account for PURCHASING POWER. What good is it that you get a raise of $100 if everyone in the room got one too?

And you’re all trying to rent the same loft in downtown. You end up back where you started or even worse.

Chart below

REAL Income per person (LEFT) has grown 36% since the early 80s

While…

Inflation CPI (RIGHT) has grown 300% since then

Average Income grows in phases but recently the rate at which it grows has been close to 0%!!!! Stagnant.

How does the 1% protect their asses from this happening to them? They invest in Inflation PROTECTED assets like the stock market and real estate.

What happened during the bail out of 2008–2009? It was a PERFECT storm.

Recipe:

-Lots of free money (government bailout)

-Low interest rates (3–4%) (2008–2009)

-Stock Market begins to rise after Central Bank pumps money into the stock market via “Quantitative Easing”

So what you have here is the tax payer getting F#%$ both ways. On one hand the government straight out handed Wall Street bail out money and on the other they begin printing money to prop up the stock market (which the 1%, wall street, investors etc, have their money in).

So now we are here today.

All the money has been transferred to the investor (aka the 1%), via the stock market, real estate, and low interest rates (free money for investors).

Conclusion

Now rates are starting to go UP.

This means, no more cheap money to borrow for investors, possibly falling real estate prices (harder to get loans), falling bond prices (corporations cant borrow as much money as before).

Positive side is you’ll get more on your bank deposits and if you have savings you have the upper hand on buying investments for a cheap price.

As far as your employment salary, the growth in average income historically happens during booms, so if we are heading in to a recession (per current events) then I would hold on tight for the roller coaster and tighten your seatbelts.

All this is my opinion, speculation, and analysis. Please do your own research. I hope you enjoyed this “article”.

Sources:

US Census Bureau

US Bureau of Labor Statistics

S&P 500

US Treasury

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