Submitted by Taps Coogan on the 11th of November 2019 to The Sounding Line.

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Wolf Richter, creator of the website Wolfstreet.com, recently discussed how accomodative monetary policy is exaggerating the wealth divide in the US by pushing up cost of living expenses for average Americans in order to inflate financial assets prices for the affluent.

Some excerpts from the Wolf Richter:

“This economy, and I will point my fingers straight at the Federal Reserve, is set up to shift an ever larger share of wealth to the top 1% and away from everyone else…”

“The bottom half of households own just 6.1% of all assets that Americans own. They own just 2.2% of all stocks and stock-mutual funds. They own just 2.7% of what the Fed calls pension entitlements… They own just 13.5% of all real-estate wealth. The own 0.1% of the private business wealth. But in terms of debt, the bottom half of households carry 36% of the total debt. So they own 6.1% of the assets and they owe 36% of the debt. And the wealth of the bottom half of households, wealth being assets minus debt, amounts to just $2 trillion or 1.9% of total household wealth.”

“The households in the bottom half of the wealth spectrum are spending all (their) money just getting to the next paycheck and the cannot invest and they cannot benefit from the Fed’s ‘ingenious’ wealth effect. The wealth effect is reserved for the already-wealthy, for those that have the most assets…”

“During the past ten years the Fed has engineered an enormous amount of asset price inflation and over those ten years, the wealth of the top 1% has soared by $18 trillion to (a total of) $34 trillion. The wealth of the next 9% has soared $16 trillion to $39 trillion. The wealth of the 50-90%, …the upper middle class, has risen by more than $13 trillion to $31 trillion. The wealth of the bottom half of households has ticked up to $2 trillion. That’s all they have…”

“So what’s going on here? …The Fed’s interest rate repression has destroyed returns on bank savings products… These types of products are a classic way of saving money at lower levels of incomes and people have mostly gotten screwed doing it…”

There is more to the discussion, so enjoy it in full above. As we have noted several times in the past, the Fed’s low interest rate policies have reduced interest income on bank savings for average Americans, who would have spent nearly all of that interest income, in order to increase stock returns for wealthy Americans who spend a far lower portion of their income. Such a program of reducing interest income for the vast majority of Americans in order to increase stock returns for wealthy individuals who are unlikely to spend that most of their wealth, can never succeed in creating broad based wealth.

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