That’s how Wolf Richter sums up the effects of the Fed’s monetary and economic policies over the past couple of decades, with emphasis on the past couple of years.
The Fed uses monetary policies … to create asset price inflation and make a relatively small number of large asset holders vastly wealthier so that they might spend more. This has been explained in numerous Fed papers, including by Janet Yellen back when she was still president of the San Francisco Fed.
The Fed’s wealth distribution data divides the US population into four groups by wealth: The “Top 1%,” the “Next 9%” (2% to 10%),” the “next 40%,” and the “bottom 50%.” My Wealth Effect Monitor divides this data by the number of households in each category, to obtain the average wealth per household in each category. Note the immense increase in the wealth for the 1% households after the Fed’s money-printing scheme and interest rate repression started in March 2020:
As you can see from the steep curve of the red line, the “Top 1%” households were the primary beneficiaries of the Fed’s policies since March 2020. These policies were designed to inflate asset prices, and only asset holders benefited from that. The more assets they held, the more they benefited.
. . .
So here is the average wealth (= assets minus debts) per household, by category in Q4, 2021:
- “Top “1%” household (red): $36.2 million.
- The 2% to 10% household (yellow): $4.68 million.
- The “next 40%” household (purple): $775,000.
- The “bottom 50%” household (green): $59,000.
. . .
If I give my favorite homeless guy $5, and he already has $5 in his pocket, I increased his wealth by 100%, which is a huge percentage jump in wealth. But he’s still homeless and still doesn’t have any wealth.
Percentage increases are regularly touted to show that the wealth at the bottom increased, when in fact, it increased by only minuscule amounts of dollars because the bottom 50% have so little that even a big percentage increase still amounts to nearly nothing in dollar terms, compared to the billionaire class.
When the wealth of the bottom 50% increases by 5%, they gain about $3,000. And when the average wealth of the top 30 billionaires increases by 5%, they on average gain $3,500,000,000. And the wealth disparity just blew out.
Since March 2020, the Fed printed $4.9 trillion and repressed short-term interest rates to near-zero in order to inflate asset prices so that the asset holders would get immensely more wealthy, in line with its doctrine of the Wealth Effect.
This act has produced the greatest economic injustice committed in recent US history … this money-printing binge has now created the worst inflation in 40 years. Inflation destroys the purchasing power of the dollar, and it destroys the purchasing power of labor denominated in dollars. Just to get by, the bottom 50% spend all, or nearly all, of their income on consumer items – such as housing, transportation, and food. And they got mauled by this rampant consumer price inflation that this money printing has triggered. And they’re the ones paying for this act of the Fed to enrich the asset holders.
There’s more at the link.
I imagine almost all my readers are, like myself and Miss D., in the “bottom 90%” of the graphic above. Welcome to the economic septic tank level, folks – courtesy of the Federal Reserve!
Peter
Chances are rather good that you, and many of your readers, are in the top 10%. It doesn't take much to get there. For a single earner in Texas, you only need to make $122,000 a year. For a married couple, if the two of you earn as little as $173,000 a year, you are in the top ten percent of wage earners.
I am fully in that top ten percent. I spend money wisely, I invest, and I work my tail end off. When we had extra, we invested it or paid extra on the mortgage, instead of buying a Rolex, jewelry, or gold teeth.
That is how my wife and I got to the point where we own two homes and are about to buy a third. Renting out the homes we don't live in provides us with more income.
We all have our side hustles. That doesn't mean that we cheated to make more than others.
Do they provide water toys at the bottom of the septic tank?
What DiveMedic said.
When you can't pay the rent, but you have a new tattoo, you have issues with your spending priorities. Lots of folks in the bottom 50% have that issue.
I too am in the top 10%. I got there by not making too many mistakes with my money.
Also: Yes, the game is rigged to help the Super Wealthy. But you can still do well, if not as well as them, if you are smart about how you play. Just because they do better than you isn't a reason to give up.
I think that this is more a case of "don't attribute to malice what can be explained by incompetence"
I think that the political class in general, and the DC bureaucrats in particular just don't have a clue how most of the country lives and how much they earn.
There was a survey recently asking students at some elite school what they thought the average annual pay was for the bottom 90% and they were saying that it was well north of $100k/year
As another example, see the recent article talking about how all the people who earn <$400k/year can deal with inflation.
for people in that mindset, the idea of people earning $50k/year is a fact they know, but they can't imagine how anyone would actually live on such a budget.
David Lang
I don't blame the "rich". the actions of gov driving inflation and feathering the pols nests has screwed many of us. My retirement income would have been adequate for my modest lifestyle if the phukers in DC weren't such liars and thieves.
I've been arguing that the FED's cheap money policies have been at the root of all of our bubbles and the root cause of the growing inequity for over 20 years. Finally more people are noticing.