Mish Shedlock explains:

At every crisis, the Fed stepped on the gas inflating the economy. Unions benefited as wages rose along with the price of everything. However, eventually there comes a time when no one is willing to pay those wages. That has obviously happened. Yet because or the Fed’s expansionary policy, prices of houses and goods and services continued to rise, outstripping wages.

The only people who really benefited from the Fed’s expansionary policies were the bank executives, the fat cats on Wall Street, and government bodies who taxed rising property values and took a chunk out of everything people made via sales taxes, income taxes, and property taxes.

Even during the boom years, one of the dirty secrets of the economy was that middle and lower-class wages were not keeping up with inflation. If families weren’t feeling pain commensurate to the degrading economic position, it was because they kept their cash flows up by going heavily into debt with credit card and mortgages. Now that the bubble has burst, many Americans are finding out just how impoverished they really are. But what has to be kept in mind, always, is that this impoverishment is not a function of the burst, it’s a product of the original bubble, which inflated housing prices into the stratosphere and induced Americans to live by debt. The only alternative to a painful correction would be inflating a bigger bubble for a longer time, and that’s just what Obama and Bernanke want to do. But any re-inflation will ultimately burst, and the bigger the bubble, the more wrenching the return to reality will be.