The Upside Once The Fed Destroys The Middle Class

Bear markets and bank runs aren't good for most people. But let's try to look at the upside if the Fed destroys the middle class, shall we? Thinking in extremes provides clarity to help make better decisions.

To set the stage, we know at least these three things:

  • The Fed cares more about its legacy than supporting the middle class. All the Fed Governors are rich, so they will survive just fine if the economy goes down the tubes. To them, the economy is just made out of numbers, not people.
  • We've already heard the warnings about economic devastation if the terminal Fed Funds rate goes beyond 5% and stays there despite slowing inflation. Yet, the Fed hike again by another 0.25% on May 3, 2023 to 5% – 5.25%.
  • One of the easiest ways to be a savior is to first be the destroyer. People tend to appreciate what you've done for them lately the most.

The last time the Fed Funds rate got to 5% – 5.25% was in 2007. Then the global financial crisis hit in 2008, ruining millions of lives. Although I lost about 35% of my net worth in six months, at least I started Financial Samurai in July 2009.

We cannot control what happens to us, but we can control how we respond. As a perennial optimist, let's look on the bright side if we go through another deep recession.

Effective Federal Funds Rate - 5% - 5.25%

The Benefits Of The Fed Wiping Out The Middle Class

Let me be clear. I would much prefer a bull market and a strong middle class. The middle class is the best class in the world. Even the rich prefer to be considered middle class because it feels good to be a part of the majority.

However, given the circumstances, we might as well try to list out as many positives as possible. With a Fed Funds rate range at 5% – 5.25%, we should expect more bank closures, more layoffs, and a dramatic slowdown in GDP growth over the next six months. Up to two millions jobs could be lost over the next 12 months.

1) The unhealthy desire for prestige, money, and status takes a back seat.

I'm convinced the desire for prestige and status are important factors for explaining why many in the middle class feel miserable. After all, we have the saying, “Keeping up with the Joneses,” that encapsulates this struggle.

Our living standards are as high as they've ever been. Yet we're less happy due to comparison and the constant desire for more.

When you're getting pummeled financially, you don't have the luxury of seeking prestige or status anymore. Instead, you focus on survival. And when you focus on survival, you focus on what really matters.

Middle class income range by state

2) The student loan problem might get better.

The main reason why there is a student loan problem is because too many high school students pay too much tuition for a college education that isn't worthwhile. If college overall was a good bargain, there wouldn't be so much angst about student loans. Graduates would be paid appropriately and could more easily pay the loans off.

With middle-class incomes at stake, parents and students will be forced to choose more affordable colleges or trade schools. Perhaps more colleges will also begin offering more free grants as the need goes up. Maybe more students will read more books and use AI to learn more things for free.

This better alignment with cost and benefit will do wonders for a person's finances and mental health. No longer will parents raising children in expensive cities feel as much angst for needing to accumulate generational wealth.

3) Better consumption and financial habits.

When you have less money or no money, you are forced to spend less and make do with what you have. As your frugal muscle strengthens, so will your survival skills. Ask those folks who went through the Great Depression and the 2008 Global Financial Crisis with a significant amount of assets.

Your financial habits will also improve after going through economic devastation. You will rationally survey your existing banking relationships and add to them for more peace of mind. You'll review your net worth allocation to make sure you have the appropriate risk exposure.

Once you've been through a financial crisis, you will likely be scarred for life. Some of your more disciplined financial habits will stick with you, helping you build more wealth over time.

Yield curve 10-year versus 3-month Treasury Yield Spread

4) Fewer cars, less pollution, perhaps more travel and world peace.

In America, we have a love affair with cars to the detriment of our environment. Even with the average new car price close to $50,000, we're still willing to gobble them up like pancakes.

With the Fed-destroyed middle class, there will be fewer cars on the road. Traffic will ease, car prices will come down, and consumers will save money on car-related expenses. Not enough car buyers think about insurance costs, tickets, and maintenance expenses.

Air travel and accommodations will become cheaper as well with a weaker middle class. A global financial crisis may be the best time to be a digital nomad or backpacker.

The more we see of the world, the more empathy and understanding we will have for other cultures. Having world peace saves lives.

Market expectations for Fed Funds Rate

5) A chance to start anew.

Millions of jobs will be lost once the Fed gets done tightening. As a result, millions of people will need to find new jobs. During this job-hunting process, there will be an opportunity to try something new.

Due to inertia, fear, laziness, or lack of motivation, millions of workers are willing to continue working at jobs they don't like. A job loss might be exactly the push you need to take a leap of faith.

I am so grateful to have negotiated a severance in 2012 at the age of 34. Despite being unemployed, I found a way to survive by doing something I love. Without the Global Financial Crisis, I would have stayed miserable at my job for another decade.

6) Less overcrowding in schools and more time with your children.

Public schools have often felt the strain of a boom economy. With an influx of more children and not enough pay to retain or attract enough teachers, classrooms get busier. Private grade schools also get more crowded and difficult to get into due to rapid wealth creation.

With a Fed-destroyed middle class, more spots will open up for all students. There may also be more teachers available given teaching is a relatively more secure profession.

In addition, if one parent loses their job, they might want to pursue homeschooling or at least provide more supplemental education.

If you are a middle-class parent who doesn't make much more than the cost of childcare, losing your job may be just the catalyst to spend more time with your kids. Once they grow up, chances are high you won't regret the time you spent with them.

7) A rekindling of current and lost relationships.

Once making money is harder to do, the natural inclination is to focus on all the things we've been neglecting for the sake of money. The best life consists of having supportive friendships and family members.

In our at times unhealthy pursuit of making money, we sometimes neglect our loved ones. It is during times of crisis that relationships grow strongest.

With more time being spent with friends and loved ones, our loneliness should naturally decline. When our loneliness declines, our happiness should commensurately increase. The 80+-year longitudinal Harvard study concludes the secret to a good life is having social connection.

Although, financial problems do strain marriages, perhaps there will be fewer divorces if couples spend more time on their relationships.

Once the Fed destroys the middle class, you can then better focus on your neglected relationships

8) A renewed focus on our health.

Some jobs are physically and/or mentally unhealthy. But we carry on because we need or want the money. However, when we are older, we may regret sacrificing our health for our jobs.

Manual labor is obviously tougher on the body than knowledge-intensive jobs. However, even knowledge-intensive jobs can take a tremendous toll on the body over time. Too much stress is a silent killer.

I went through teeth grinding, TMJ, plantar fasciitis, lower back pain, sciatica, and intense allergies for years while working in banking. A year after leaving, all of my chronic pain went away. I had been living with pain for so long I thought it to be normal. But it's not normal.

Getting laid off, furloughed, or receiving reduced hours could literally extend your life. Use your time away from work to heal your body and mind. Perhaps relocate to a state that has a higher life expectancy. Every time I get off the plane at Honolulu International Airport, my stress melts away.

9) A change in political power.

If the Fed destroys the middle class, then whichever political party is in power tends to lose. Given America is divided equally along political lines, roughly half of the country will be happier after the next Presidential election.

Changing political power often creates new ideas and compromises. The issues voters were most unhappy with get addressed. Ideally, both sides meet somewhere in the middle for the health of the nation.

For now, we have another debt ceiling debacle to deal with. If the debt ceiling isn't raised, then expect another stock market meltdown. Treasury bonds may also sell off, given Treasuries will suddenly seem more risky. As a result, mortgage rates will increase, thereby reducing the demand for real estate.

10) Borrowing costs will go back down.

If the debt ceiling does get increased, then during times of economic calamity, there will be a flight to Treasury bonds, the safest asset class. As a result, Treasury bond yields, mortgage rates and student loan rates will come down the most.

If the Fed eventually starts cutting the Fed Funds rate, then credit card rates will also decline.

As proof, the 10-year Treasury bond yield declined from 4% to 3.5% after SVB went under. In other words, SVB ended up selling ~$20 billion in bonds at the top of the market. Meanwhile, the 2-year Treasury bond yield collapsed from 5% down to 4% in the same time frame.

Given the middle-class takes on so much debt, a decline in borrowing costs is helpful. Housing is the most important asset for the middle class. As mortgage rates decline, housing prices get supported.

In fact, I see a window of opportunity to buy real estate in 2023. But the stock market and economy can't tank too hard.

11) Inflation will finally decline.

Once the middle class is beaten up, inflation will finally be conquered. Ultimately, this is what the Fed wants, which means it will finally stop hiking and maybe even start cutting.

It's too bad the Fed has to go to such extremes to contain inflation since there are exogenous variables such as international supply chain issues and wars that are unaffected by Fed hikes. Boom bust cycles are unhealthy.

Many of us have the ability to combat inflation as well. It is clear inflation peaked in mid-2022, yet the Fed wants to continue to hike the Fed Funds rate to crush the middle class.

CPI Inflation by month since 2022
CPI (Inflation) – The Fed still wants to hike despite CPI coming down

12) Easier to generate more passive income and retire earlier

The good thing about higher rates is that it's easier to generate more passive income. Earning more passive income also makes it easier to take things down or retire earlier if you wish.

Before the Fed started aggressively hiking rates in 2022, money market funds were paying less than 1%. Today, you can easily find money market funds that are paying over 4%. Treasury bills are also now paying over 5%.

With higher risk-free returns, there's no need to take as much risk with our investments. As a result, more people will feel less stressed about the gyrations of the stock market or the uncertainty of the economy.

Listen to how nervous and uncertain Jerome Powell is in his presser on May 3, 2023. The more “you know” he says, the more it sounds like he’s lying as PacWest Bank also fails.

The Key Is To Be Slightly Above Middle Class

Although being a part of the middle class is great, it's better to be slightly above the middle class to outperform during a Fed-induced economic crisis. Upper-middle-class sounds a little snooty. Hence, the proper term is to be apart of the mass affluent.

If you are a part of the mass affluent class, then you have an above average net worth and above average income for your age. For the median 38-year-old in America, we're talking about a net worth of around $250,000 – $400,000 and an income of between $80,000 – $150,000.

With mass affluent money, you are able to survive unemployment longer and/or take advantage of better prices and opportunities during a downturn. The opportune time to take a sabbatical is when the economy is shaky.

But the real key is to hold onto your job and not have to sell assets at fire sale prices. If you can hold onto your seat during a bear market, you will better be able to reap the rewards during an eventual bull market.

Let's hope 5% – 5.25% on the Fed Funds rate is the highest the Fed will go in this rate-hike cycle. Otherwise, prepare for the worst.

Reader Questions And Suggestions

What are some other upsides if the Fed decimates the middle class? I'd love to get as many positives on the list as possible.

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80 thoughts on “The Upside Once The Fed Destroys The Middle Class”

  1. The Social Capitlaist

    Love the update; and irony. The article pre-supposes a world where we are “better off” when we are worse off – somewhat a yin and yang. But the core to me is that you see Powell/Fed as a destructive force for economy. Clearly, he bent to political pressure in 2019, again in ’21 and now he’s playing hardball with some arbitrary 2% goal never stated by Volcker.
    Imagine a world where we had real interest rates in 2020 and could have lowered them rather than having to begin QE and a world where QT stopped before March ’22. His asset bubble and pin pop has hurt many of us and will continue to do so. But clearly, tis is a power trip.
    But hey, maybe it will push more people out of cars (including me). We really do need to kill suburbia before it kills us.

  2. Not everyone is invested in asset classes that suffer during high interest rates. There is a real concern of social instability if we expect people making modest hourly wages living paycheck to paycheck to pay 15% more for their lifestyles over a two year period and chalk up gradual disinflation instead of deflation to baseline as a win. Consumer debt has exploded. I’d like my portfolio to grow on easy money for another ten years, but I also don’t want my city to burn down. Society can weather twice the unemployment easily, but I’m not sure how it will weather working people being priced out of basic standards of living so those with rate sensitive assets can outpace them so quickly again. Recipe for disaster. Wish the fed would raise higher and for longer.

      1. I hold 15% stocks 75% six and three month treasuries, 10% cash and am doing fine. It is kind of nice to see a return like this in risk free instruments. If we stayed at 5% for a decade I’d happily ladder. It wouldn’t be that far off from S&P over time, has some tax advantage along with the the disadvantage, and while not exciting, won’t flash crash my net worth in a storm of AI fueled selloffs during the next inevitable crisis. If you price in lower cost of goods, lack of higher baseline inflation, and asset price stability (which would stabilize supply etc), you could made a case pre Greenspan/Bernanke FED had its benefits. Even with unemployment higher, people reorganizing around jobs with real economic impact is healthy for GDP/real economy in the long run too.

          1. I’m 39 and single but am keeping things tight while a take a break from tech and spend a year or two at a non profit I believe in. Relatively low net worth (for tech) at 1.2 mil. Maybe temporarily half retired? I’ll likely get more aggressive when I head back into private sector, but until then, it’s do no harm.

  3. If it weren’t for the yield curve inversion and if I could get 5-6% for 30 years, I think I would move almost all of my retirement into that. It boggles the mind to know that people were able to get something like 15% in 1980. That has to be one of the best-returning assets of all time.

  4. 5% interest rate isn’t that attractive when there is 5% inflation. Real interest rate is 0%, not to mention you probably earn negative real returns when you factor in tax.

    1. Do you think inflation will stay at 5% over the next 12 to 24 months? What if risk assets, like stocks, go down 5 to 10% over the next 12 months? Will a 5% risk-free return be more attractive? Do you think the S&P 500 will rise by more than 5% over the next 12 months from here?

      These are questions, you and every investor needs to ask themselves. And I’m curious to know your answers. Thanks.

      1. All good questions. I’m frankly not that positive on the stock market either in next 12 months as I personally have a decent amount of cash holding myself waiting for stocks to drop so I can invest opportunistically. However, I see cash more as optionality to invest, particularly in volatile times. Cash for the last 20 years generally only have 1-2% real interest rate yield (inflation and interest rates are usually correlated), while stocks for the long-term can get you 5-7% real post-inflation returns.

        Of course investing in stocks or cash really depends on your risk tolerance and your stage in life, no right or wrong answer

        1. But the risk for your return now on cash is over 5%. So do you believe Startz will be more than 5% higher from these levels?

          The people who held a lot of cash in 2022, even with a 0.1% interest rate, perform the S&P 500 by 19.7%.

          1. Curtis Leung

            In the long-term, stocks will absolutely outperform cash. In the short-term, it’s a betting game. If Warren Buffett can’t guess the near term, who I am to predict? However, more for my own amusement, I’m betting for a stock market drop within next 12 months given the impending recession with the interest rate hikes, geopolitical uncertainty, Taiwan / US elections next year that would cause even more geopolitical tensions, that’s why I’m holding more cash than usual now. But it’s a betting game, at the end it’s better to be in stock so I’ll eventually cave to stocks :)

            1. Got it. So it sounds like you like the 5% risk-free return after all. It’s great to go through these exercises to help investors think instead of just having a knee-jerk reaction.

              Are you retired or working a day job?

              1. Yup, I do like cash in the near term, and I relish the flexibility of day-by-day interest income returns from brokerage websites like interactive brokers.

                I work in IBD division of an i-bank, not a good year at all, worse than 2022. Hence my propensity in holding more cash, I’m seeing the negative investor sentiment live in action every day.

  5. The middle class can never disappear. The current definition of middle class is based on arbitrary numbers and this can indefinitely go on.

    People who bought expensive assets are going to be punished, this happens regularly. Fire men and woman are going back to work, rich people never had to work. Nothing special here. And the life continues.

  6. “If,” [“the management consultant”] said tersely, “we could for a moment move on to the subject of fiscal policy. . .”
    “Fiscal policy!” whooped Ford Prefect. “Fiscal policy!”
    The management consultant gave him a look that only a lungfish could have copied.
    “Fiscal policy. . .” he repeated, “that is what I said.”
    “How can you have money,” demanded Ford, “if none of you actually produces anything? It doesn’t grow on trees you know.”
    “If you would allow me to continue.. .”
    Ford nodded dejectedly.
    “Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich.”
    Ford stared in disbelief at the crowd who were murmuring appreciatively at this and greedily fingering the wads of leaves with which their track suits were stuffed.
    “But we have also,” continued the management consultant, “run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying one ship’s peanut.”
    Murmurs of alarm came from the crowd. The management consultant waved them down.
    “So in order to obviate this problem,” he continued, “and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and. . .er, burn down all the forests. I think you’ll all agree that’s a sensible move under the circumstances.”
    The crowd seemed a little uncertain about this for a second or two until someone pointed out how much this would increase the value of the leaves in their pockets whereupon they let out whoops of delight and gave the management consultant a standing ovation. The accountants among them looked forward to a profitable autumn aloft and it got an appreciative round from the crowd.”

    ― Douglas Adams, The Restaurant at the End of the Universe

  7. I’m preparing for a nasty recession as much as we can. Not only do we have a higher than historical average % of the number of yield curve inversions out there, we have one of the deepest yield curve inversions in the past 4 decades.

    I’m spending as little as I can!! I checked my odometer and I literally only drove 6k miles *in the entire year*.

    I’m glad I put in the legwork 8 months earlier.

  8. Are you concerned about the new bill that would ban Congress from owning stocks? When the Fed bankers sold their stocks, the market tanked. Could provide plausible deniability.

  9. Hard to believe they raised again. I will do my best to make the most of higher treasury and CD rates though. I am preparing for an ugly remainder of the year and am happily decreasing my equity exposure and putting more money into risk-free/low-risk assets.

  10. I believe that you are also underestimating the effect from the dollar losing its standing as the world’s reserve currency. After Biden, for all practical purposes, stole Russia’s dollar reserves, it will be much less likely that moving forward, that many countries will ever have faith in the US again. Many countries are already beginning to trade among themselves using their own currencies.

    The dollar has taken a huge hit in the last year. I reside in Mexico and the peso has risen over 12% in just one year. Inflation in Mexico is just as bad as in the US if not worse. Coupled with the weak dollar my cost of living has increased substantially.

    1. The US dollar strength or weakness remains to be seen. Higher interest rates in America attracts more global capital. More capital buying US assets will increase the value of the dollar.

      The US dollar has been pretty strong since 2020.

  11. The Fed needs to stay the course and continue raising rates to kill inflation. Will it be painful? Yes, but it’s time that we take our medicine and stop kicking the can down the road like we have been since ’08. Zirp and qe gave us crypto Ponzi schemes and all manor of silly business plans and schemes and a new housing bubble. How will we know when it’s time to become more dovish on rates again? When crapto is completely shaken out and it’s adherents give up on it.

  12. I’m not sure about a FED legacy. They have a long consistent history of not being able to make moderate policy adjustments and avoid financial chaos. In October 2021 it was clear inflation was here to stay. A relatively small 25 basis points increase at that time may have avoided all the current drama. How Powell was re-confirmed by the current administration is hard to understand. Add to that one of his most senior team members (Atlanta FED president) is under investigation for improper trading, and the current treasury secretary is certainly well past her use by date. What a mess!

    It’s unfortunate what has happened to some cities since the pandemic and a dramatic tightening in monetary policy is just making it worse. I’m really concerned about what lies ahead for cities like San Francisco that are not safe, dirty and are not business friendly. Downtown is a ghost town and the public transit system is a free-for-all. Who wants to be ‘mass affluent’ in a city that is falling apart?

    Things are going to be tough for some time.

  13. Andrew O’Connor

    I love your blog and perspective, Sam — it’s really helped me craft a North Star for myself and my wife and I are very fortunate.

    I agree in the long run, the short term pain for our society will be good — the systemic changes that can happen for political and higher education are great.

    But please make no mistake — some may find positives and make lemonade like #’s 6-8, but only those that otherwise would be moving forward out of the middle class regardless of macro trends. My perspective is informed by someone who grew up in dysfunction and with an abundance of grace found my way out. Unfortunately, the vast majority of those that don’t have the internalized abundant world views that we have been fortunate to develop will react to additional financial stress in not the “best” ways from out perspective. A lot of people are going to go through a lot of pain, and they will be pulling their kids and families along with them. Divorces will increase, unhealthy lifestyle habits will increase. We as a society don’t have the resilience skill set to deal with this. It’s going to be hard to watch as it plays out.

    And, in agreement in the bigger picture optimism: maybe further down the line, it will be seen as a necessary process for change.

    1. Yes there will be pain and it makes me feel sad. As a result, I’ve decided to look on the positive. B/c I’ve gone through this similar situation before in 2008-2009. Same fears and worries. But now with even more at stake.

      Over the long term, we rationally take steps to improve our lives. But in the short term, we have to feel the pain to permanently change for the better.

  14. Is it better to run your own business which you enjoy, and be capped at around $130k net or become a banker etc which long term can be 2+ times as much yearly. But the hours are much longer, etc.

    I’m currently in this situation and not sure which route is the best. I’d appreciate any advice thank you!

  15. Ok Sam, I’ve got the biggest positive of all for the middle class getting destroyed.

    If/when the middle class gets theirs…….our two-party political system, that the powers that be have been using to control us for centuries, will finally be destroyed!!!

    Just think about it. They have convinced Americans that there’s only two ways to think about any issue. AND WE’VE FALLEN FOR IT!!!

    If the government destroys the middle class, the lower class and former middle class will FINALLY destroy this manipulative, fear-mongering, divisive two-party mockery of a democracy.

    1. If it is destroyed, what system do you hope will take its place? What do you think WILL take its place?

      1. I don’t know Kevin. All I do know is that the country needs more than just two choices when dealing with major issues. Imagine that everytime you went to a store to buy clothes you only had two choices. Shoes? They only have two choices. Shirts? They only have two choices.

        That’s what we’re dealing with. Idealogies? we only have two choices. Leadership strategies? We only have two choices.

        The destruction of the Middle Class will force people to demand more from its leaders.

        1. Yeah, but the reason we only have 2 is a product of collaborative balance. In Canada and parts of Europe, where there are 5-6 parties to vote for, you can win an election with ~20% of the vote. Within our Democratic and Republican parties, you have a wide range of political standings. Compare Democrats AOC to Joe Manchin, or Republicans Mitt Romney to Marjorie Taylor Greene. The same spread occurs in the Presidential primaries. Heck, it took 15 rounds of voting before congress elected a Speaker of the House… which is how it should be. I’d rather nothing moved at the federal level unless it has been agreed upon by a wide range of representation in Congress. The real trouble happens when Congress people tow the party line blindly or in exchange for favors. That, along with lobbying, probably needs to be curtailed.

          In essence, we have all the positives of a multi-party system without the possibility of a small minority holding all the power.

          I’m not saying the US political system is without major flaws, but it’s certainly better than any alternative humans have been able to conjure up.

  16. Another benefit could be the comeback of meritocracy. Diversity, equity, and inclusion might sound nice when companies are flush with cash but in times of survival you go with the people who can produce.

    Obviously, Stanford is the exception.

    1. Stanford is the only “exception” you can think of? Really? Was there diversity, equity, and inclusion on Wall Street in 2008 when they created the Great Recession? (or any other recession, for that matter) I don’t think so.

      1. Hi Alvin,

        Stanford was just the most recent example, definitely not the only.

        I’m not sure what you’re trying to say regarding the 08 crisis relating to DEI. Are you saying if we had more DEI in 08 that the crisis wouldn’t have been so bad?

        1. Not at all Bill. Your original post sounded like you were saying that companies would fare better financially if they didn’t focus on DEI. I’m just saying that DEI didn’t have anything to do with the financial crises of any major bank or corporation live SVB or the 08 crises.

          Poor financial decisions is what is causing the bank run and the 08 crises. And it will be poor financial decisions that do the middle class in as well. Not DEI.

      2. Did Wall St create that? The banks pushed subprime loans and it would be fair to say the feds were complicit.

    2. DEI initiatives will probably take a back seat to the survival of a company. And for those who feel they haven’t gotten a fair shake, despite having the best performance or grades, there may be more opportunities.

      However, my focus of this post is on the benefits of the middle class. And underrepresented groups may get hurt even more as the Fed continues to hike.

  17. It’s true. Fed chair Jerome Powell is worth over $100 million. What the hell does he care if the middle class gets crushed so long as he can contain inflation?

    If the federal reserve chair was worth $500,000 and was an ex-professor in Economics who made $125,000 a year, I think the federal reserve would be much more careful and caring of the population at large.

    Being worth $100+ million and being an ex-partner at Carlyle group is a completely different stratosphere for 99.999% of the population.

    Voters and politicians, beware.

  18. There needs to be more marketing and commercials around saving and investing from broker companies, retirement companies, influencers etc. This should replace the current marketing and commercials on spending your money on the latest styles, cars, cuisines, housing updates etc. etc.

    The knowledge of knowing the upside for investing could be more powerful than the fear of not having enough. And this can help the middle class.

    1. Indian Tiger

      Very well said! Totally agree with this!

      Why the heck can’t kids be taught basic financial planning and compounding in high school itself!?

  19. Eric Meyers

    So do you think we need the Fed? I’ve heard a lot of compelling arguments that we could automate inflation to 2% and fire everyone that works over there.

  20. Joe Sinclair

    Joe Biden strikes again. NO taxpayer money will be used to bailout SVB. WTF????? How can democrats lie like this? It’s sad really. Trump really was right.

      1. Have you heard of the FDIC or NCUA? Banks pay premiums to support an insurance fund in case of bank failures. The government will make a profit on any assets that they purchase just like in 2008 when George W. Bush was in charge. The government made money by buying up shares in the nation’s biggest banks and they will do it again if necessary.

        What is the other solution? Let stock traders destroy the US banking system? You know what that would mean right? If there are no private banks then the government becomes the bank and they can run it better. The US has paid it’s bills every week and month on time since 1789. No other nation has ever done that for this long. The US has a AAA credit rating and could borrow hundreds of trillions if necessary. The US government has hundreds of trillions in assets including the one you are using now. The government owns the Internet infrastructure for the world. How much is that worth on the open market?

    1. Tony Robinson

      The shareholders (owners) of the banks are not getting bailed out. They lost their investment. The bank depositors are being insured. The money to do this is coming from the Federal Deposit Insurance Corporation. The operative word is insurance, which is funded by fees paid by all banks. Just like you have car or home insurance where you pay a fee to protect yourself if you have a wreck or a fire.

      1. When Yellin decided to insure all deposits, rather than complying with the $250k limit, she made a mockery of the system. Those with larger accounts knew the limits yet ignored them and now all of us who have money deposited in the banks are paying for it.
        The banks do not print money out of thin air, those fees paid for FDIC insurance are passed on to all of the depositors in one or another. I should not have to pay for the actions of those either too lazy or naïve to understand the implications of depositing money about FDIC limits.

  21. As someone in their mid-30s that has read about previous recessions and financial crises, but not experienced one as a professional outside of the COVID 2020 recession, this his been a “much needed” dose of reality for me and some of my peers (if they don’t mind me speaking for them). I mean this strictly speaking from the perspective of valuing assets – I would never wish financial distress or ruin on anybody. It was difficult to compete during the run up of the 2010s into 2022 without leaning in on cap rates / multiples, underwrite revenue growth with minimal inflation, and underwrite cheap debt. Without good first-hand perspective of other market turnarounds, you could start to convince yourself it will be like that forever. However, looking back even a short amount of time it’s painfully obvious that some folks were too aggressive, took risks they shouldn’t on things like uncapped interest rate exposure risk, and there will be consequences.

  22. Great article Sam, I would argue the middle class is already destroyed and the US is not an economic super power anymore for people under the age of 35. The 1990’s was the last and final Golden age for the American middle class. The United States had a massive budget surplus, wages were rising for all groups of people during that time. I remember they doubled the minimum wage and you could actually buy things with the increase. Gas was under $1 a gallon because the Saudis wanted to Thank America for Desert Storm.

    Then the tech bubble burst and instead of continuing to build the middle class the nation cut taxes and started a multi-trillion dollar war in the Middle East. The massive budget surplus disappeared and for the first time in American history we got nothing for all of the government deficit spending.

    Fast forward and now with the Covid disaster where 1 million people died, what did the country get for the latest $10 Trillion in debt? A hyper inflated housing market and the crypto bubble that wiped out $2 Trillion in excess capital that should have been spent on increasing available housing and building modern infrastructure across the country.

    We are in late stage capitalism and if this nation does not spend money on the next generation they will demand a new political order that benefits them at the expense of the older generations. There is no excuse in the richest country in the history of the world that we can’t provide housing and good jobs for all of the people who live here. We have the resources and we have the technology, but this nation no longer invests in it’s children and it will bring the house of cards down very soon if not corrected. I believe it will be. Our nation always does the right thing after we exhaust all other options. This time will be the same. The middle class can be sustained and built up again with some minor changes in taxation and investment in the right areas.

    1. I totally agree with your post. The Boomers (the generation with the most power and wealth) has made a deliberate decision to not invest in the younger generations. This is the first time in modern history that the country has taken this stance.

      This strategy will prove to be costly.

    2. The Social Capitalist

      Spot on; and those most impacted in late stage Capitalism refuse to see it. While we pour trillions to the Aged (8.7% COLA, anyone, prescription drug payments), we fail to reign in deficit spending (the military, but soon to be a growing net interest and SS and Medicare).
      Good news not, states are privatizing public funds for education. It worked so well for hospitals and health insurance, let’s give it a go for our kids, too! No, they aren’t fools, they’re greedy and power hungry. All markers of the monopolistic house of cards. But the damage is real and will continue to be, unless we actually tax those who “earned” their money on our backs, (hello to you tax break billionaires Musk, Bezos, etc.) who have destroyed small business through political machination.
      FS, may be right. Maybe there is a good side, but the entire article plays more like satire than sanguine.

      1. Yeah, those terrible old people. I will tell you that my CSRS pension won’t even cover my property taxes. As far as government services, have you ever tried calling the IRS or OPM? DMV?

        If you’re wondering, EU manages with high VAT taxes. I’m willing to consider if it helps, but then again, look at France this week. Rioting because the retirement age has to go up. Yet I am not even sure if they have enough jobs for them.

    3. The Alchemist

      Don’t forget the hollowing out that occurred as manufacturing jobs were gradually shipped offshore. These days it sorta feels like the US is Renfield to China’s Dracula.

  23. Sam, I really appreciate how you explain these current events in a way that truly helps us understand what is going on. Thank you! Look forward to your next podcast and post

  24. We sorely need financial literacy to increase across the United States. 70%+of people living paycheck to paycheck now. Schools K through 12th grade and colleges are starting to realize that. The nuclear family is not coming back. We need newsletters like this in classrooms.
    For people who had grandparents, parents, teachers, etc. that lived through the 1930s, 1970s through early 1980s, early 1990s, early 2000s, and late 2000s, early 2010s, they are probably better for it. Excellent post, though painful for those who did not save for a rainy day.

  25. We sorely need financial literacy to increase across the United States. 70%+of people living paycheck to paycheck now. Schools K through 12th grade and colleges are starting to realize that. The nuclear family is not coming back. We need newsletters like this in classrooms.
    For people who had grandparents, parents, teachers, etc. that lived through the 1930s, 1970s through early 1980s, early 1990s, early 2000s, and late 2000s, early 2010s, they are probably better for it. Excellent post, though painful for those who did not save for a rainy day.

  26. Considering that the government uses up 30 to 40 percent of GDP to run, wouldn’t it help for them to cut the budget by 10 percent? That way, each department in the federal government can cut 10 percent of their employees and spend less. It would help the fed get to the unemployment numbers they are wanting to see and cut spending, which would reduce inflation. Who agrees? Anyone disagree? It always seems that the government and politicians always want to make private industry suffer in terms of raising taxes and doing the job losses. Why doesn’t the government make some cuts this time around?

  27. I find the generalizations about groups of people (like the Fed in this case) to be turn-off. Maybe I am naïve, but do I feel that all of the Fed just cares about their legacy? No. Do some do, maybe. Do they all want to destroy the Middle Class, I do not think so.

      1. There is a chasm between 7% inflation and being employed and being unemployed. But runaway inflation eventually means even the wealthy will have their savings eroded. That’s what keeps them up at night. Keeping the world order between the classes is worth a few million or 10 million lost jobs and livelihoods. You’ve given us some examples of personal upsides of the destruction. But there really isn’t anything positive about the fed or what they do beyond keeping it trying to keep inflation in check. The positivity or happiness we find along the way is us doing our best to adapt.

  28. But, the Fed insists it is raising interest rates to HELP the middle class. Jerome and his buddies, say inflation is a killer for the middle class, whereas, the wealthy aren’t affected as much by inflation.

  29. David Begeman

    Hi Sam

    I recall you mentioned 3900 on the s&p was the number you said you will put money to work. Do you still look at that number ( gone through it) or revise it?

      1. Thanks for post Sam. Doesn’t S&P usually bottom 6 months after a recession on average or is it 6 months prior? Are you thinking we’re already in a recession now and thus the October lows were the bottom, hence the reason to leg in under 3900? Thanks again!

  30. Fed defender

    As someone with half my net worth in Treasuries, I’m fine with the Fed continuing to hike rates. More income for me. Better bargain prices in the future.

    The best thing is if we have more Fed defenders to continue pressuring the Fed to raise rates. Gives the well off even a greater ability to take market share and build wealth for our families long term.

    Let the overconsumers get squeezed due to more rate hikes. The disciplined will survive and thrive.

  31. I like how you always seek out the positives in every situation. Things are very dicey right now and could quickly go from bad to a complete sh— show. BUT, if we can find the good in a negative situation, we’ll come out ahead in the long run. And we’ll also be able to cope with things much better in the short run as well. So thank you for your optimism!

  32. Inflation being what it is, the Fed is trying to balance between continued high inflation or widespread deleveraging by raising rates as predictably as possible.

    Without the power to de-regulate commerce, is there any more the Fed should be doing to avoid either of the above scenarios?

  33. I’ve been reading you for so, so many years now. And I still just reallly appreciate it. Thank you and keep going.

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