Fed Halts Money Printing, $41T Assets at Risk

Although American families are currently facing the impact of high inflation, it must be said that over the years, ordinary American families have enjoyed numerous benefits. One of them is the appreciation of assets brought about by the Federal Reserve's continuous printing of money.

However, now, compared to inflation, a greater risk is testing ordinary American families.

The Federal Reserve has completely shut down the printing press, and the key element supporting the continuous appreciation of American family assets has disappeared. What may follow is the risk of a significant decline in these assets.

In particular, the more than $41 trillion in real estate held by Americans is highly likely to experience a significant drop in 2023.

01. Starting the Printing Press

Let's first review the process of continuous money printing in the United States.

Since the United States broke free from the shackles of gold in the 1970s, the amount of money issued was no longer constrained by the amount of gold reserves. It can be said that the United States could issue as much as it wanted.

However, in the decades that followed, although the total amount of money in the United States continued to increase, it was still relatively restrained.

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The real turning point occurred in 2008 when the subprime mortgage crisis happened, and the United States had to start quantitative monetary easing. After one round of quantitative easing, it was found to be insufficient, so the United States continued with a second and third round of quantitative easing.

Although after 2015, the United States stopped and raised interest rates appropriately, the United States had already tasted the sweetness.So, at the onset of the COVID-19 pandemic in 2020, the United States immediately restarted the printing press, once again pumping a much larger volume of money into the market.

The flood of funds in the market led to a continuous rise in U.S. housing prices.

By the end of 2020, U.S. households held real estate valued at $33 trillion, but just one year later, this market value increased to $38.12 trillion. Then, after another six months, by the end of June this year, this amount further increased to $41.2 trillion.

It can be said that ordinary American families fully enjoyed the appreciation of assets brought about by the continuous money printing.

02, Shutting Down the Printing Press

However, the Federal Reserve has been gradually changing its monetary policy.

Starting from the end of last year, the United States first gradually reduced the previous monthly bond purchase scale of $120 billion, initially reducing by $15 billion per month, and then increasing this reduction to $30 billion per month this year.

Then, starting in March this year, the Federal Reserve entered an interest rate hiking cycle, with the initial increase being relatively mild, only 25 basis points.

During this process, U.S. housing prices continued to rise.

This is actually a process of slowly heating up, like the temperature of water gradually rising in a frog boiling process, most American families are not aware of any risks.However, data provided by the National Association of Realtors in the United States indicates that since March of this year, Chinese buyers have been continuously reducing their holdings of U.S. real estate, and the scale of sales has been continuously increasing.

It is clear that foreign investors, including Chinese buyers, have seen the potential impact of the Federal Reserve's interest rate hikes on real estate.

This scene is very similar to before 2008: mortgage interest rates in the United States are getting higher and higher, eventually leading to a subprime crisis and the collapse of the U.S. real estate market.

03, Risk Concentration

The Federal Reserve's tightening continues.

The interest rate hike in May increased to 50 basis points, and the interest rate hikes after June were all 75 basis points, and the process of quantitative tightening began on June 1.

After the Federal Reserve raised interest rates by another 75 basis points in September, the 30-year loan interest rate in the United States increased to more than 7%.

At this time, homebuyers in the United States truly realized that the risk was coming, but at this time, housing prices in the United States had been falling on a month-on-month basis for the fifth consecutive month since July.

The latest data shows that the current sales volume of houses in the United States has fallen by 35% compared with the same period last year.

It is clear that the current situation in the U.S. real estate market is that fewer and fewer people want to buy houses, and those who want to sell houses find it increasingly difficult to sell them.If we take into account the Federal Reserve's attitude towards interest rate hikes, we will find that in 2023, U.S. mortgage interest rates may still remain at a relatively high level.

Once an increasing number of American families who have already purchased homes find themselves unable to bear the monthly repayment pressure, the number of houses sold into the market may continue to increase, potentially becoming the last straw that breaks the camel's back.

If, as some Wall Street investment banks predict, housing prices fall by 20% next year, it would mean that the current $41 trillion in assets could decline by more than $8 trillion overall.

If not handled carefully, another mortgage crisis is imminent.