George Mentz: $10T in US Wealth Wiped Out; Further Collateral Damage Ahead

The Federal Reserve has hiked lending rates by 0.5% now that inflation is 8.5%.^[i] In the meantime, the value of the stock market and housing market has been diminished by approximately $10 trillion or more.

CNN claims that there has been over $7 Trillion is U.S. stock market wealth lost this year. This $7 trillion loss in stock wealth in the United States can be partially attributed to the Federal Reserve raising lending costs on publicly traded companies and technology companies traded on the stock exchanges.^[ii] To make things worse, another $1 trillion in U.S. wealth in cryptocurrency has been lost in a bad economy in recent months.^[iii]

This past week, the technology market lost a further $1 trillion in value.^[iv] Some experts now claim that the USA lost another $3.7 trillion in earnings during the pandemic over the last two years.^[v]

This loss of wealth and rates will immediately hurt the following:

1. The amount of spendable assets of citizens and ability to borrow is reduced from the loss of household wealth and higher rates.

2. Home mortgage lending costs are up 57% this year with mortgage rates blowing up to 5.5% from 3.5% this year. Thus, the ability to buy a home has changed drastically.^[vi]

3. Ability to take a vacation is reduced with energy prices up 100% effectively and the effect of inflation on wages.^[vii]

4. Ability to send children to a good school or college is lessened. The possibility of getting a home in a quality neighborhood with good public schools is down dramatically in the last few months.

5. Credit card holders are paying at least 2% more for debt. The average debt of a U.S. family is $6,270.^[viii]

6. There is a new mortgage payments crisis with those having home equity loans & adjustable mortgage rates. ARM Adjustable Rate Mortgages may be well over 10% of the home loans in the USA. ^[ix] ^[x]

7. Student loan holders with debt from top schools may default as average student has $25-50,000 in debt with 1.7 trillion in debt nationwide and 44 million with student debt.^[xi] The vast majority of student debt is held by Caucasians. 46.7% of federal student loan debt belongs to graduate school, masters or doctorate degree borrowers.^[xii]

8. Workers are losing money as wages can’t keep up with inflation costs on housing, energy, food and health care.^[xiii]

9. Higher Federal Reserve lending rates have jacked up the cost of running government and hiked interest payments by government.^[xiv]

The dirty secret is that energy costs are up 100%, and these energy prices are the #1 factor in the CPI Consumer Price Index affecting everything else consumers buy. With over-priced energy, inflation will never go down.^[xv]

Key Economic Takeaways & Facts:

1. QE or Quantitative Easing did increase disposable income on main street, but the primary reason for inflation are the costs of: housing, energy, food, child care, health care, and education.^[xvi]

2. Inflation can’t be temporary with $5 dollar a gallon gas and home heating bills up over 100%.

3. Ukraine is not a viable excuse to inflation as many nations are not experiencing the same problems as the USA.^[xvii]

4. At this point, any government that locks down business is asking for a hard-core, targeted recession or depression upon their constituents.

5. Federal debt has grown from 30% of GDP to over 100% where interest rates on increased debt service can suck the vitality out of the function of government.

6. Housing is 32.7% of the Consumer Price Index CPI

7. Energy is a whopping 7.5% of the CPI.

8. Used car prices are up 37% — where autos make up 7.3% of CPI.^[xviii]

9. Sadly, the Fed can’t control inflation without causing collateral damage. Interest rate hikes only throw fuel on the fire.^[xix]

10. In my opinion, the Fed’s belated intervention is too little too late. The risk of a hard landing has increased. Markets are reflecting this increased risk. #inflation #fed #deficit #ratehike

In economic parlance, stagflation or recessionary-inflation is a situation where the economy & growth slows down, core inflation is high, prices for CPI goods are rising all while the unemployment rates are high with millions not working. Of course, actions that may lower inflation tend to exacerbate unemployment and weaken discretionary income of working families.

In sum, targeted interest rate reductions may be the only way to dig out of this problem. Further, targeted tax productivity incentives or tax credits may also be the only other strategy to save the working family.

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George Mentz JD MBA CILS is a CWM Chartered Wealth Manager ®, global speaker - educator, tax-economist, international lawyer and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is an ESQ EU accredited graduate body that offers certification training in 150+ nations under ISO 21001 and ISO 9001 standards. Mentz is also an award winning author and graduate law professor of wealth management in the USA.

^[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 from the stock market this year - CNN

^[iii] How More Than $1 Trillion of Crypto Vanished in Just Six Months - WSJ

^[iv] Tech giants lost over $1 trillion in value in last three trading days (cnbc.com)

^[v] Workers Lost $3.7 Trillion in Earnings During the Pandemic (businessinsider.com)

^[vi] Mortgage rates climb to 5.30% after Fed rate hike | Mortgage Professional (mpamag.com)

^[vii] Weekly U.S. All Grades All Formulations Retail Gasoline Prices (Dollars per Gallon) (eia.gov)

^[viii] Average Credit Card Debt in America: 2021 - ValuePenguin

^[ix] Adjustable-Rate Mortgages Surge as Interest Rates Rise - Fueled 2008 Financial Crisis (esquire.com)

^[x] Adjustable Loans Form Largest Share of US Mortgages Since 2008 - Bloomberg

^[xi] Average Student Loan Debt in America: Facts & Figures - ValuePenguin

^[xii] Average Graduate Student Loan Debt [2022]: for Master's & PhD (educationdata.org)