Fed Policy Driving the Expansion of the Wealth Gap

Fed Policy Driving the Expansion of the Wealth Gap

It has hardly gone unnoticed by Americans that we consumers are experiencing loss of income and purchasing power while wealth inequality continues to rise.  

In fact AUN recenty did a story on how for the first time ever the wealth of the upper 1% is rising while at the same time the wealth of the lower 90% is declining.  Although we have seen them outpace each other rising or falling, we have never seen them going in opposite directions.  See that story HERE.  

The Fed is acknowledging this problem with “deep concern”, but what is remarkable is their feigning ignorance as to how their own policies are driving it.

The Fed is deliberately stealing from savers

By Chris Martenson

Recently Janet Yellen expressed both concern and puzzlement over the rising wealth inequality in America.

I found her speech to be disingenuous and disturbing. Why? Because it is the Fed’s very own policies that are driving the expansion of the wealth gap. Read Yellen’s speech.

Either Yellen thinks we cannot be trusted with the truth (worrisome), or the Fed is clueless as to how its own policies operate (scarier).

The academic name for the Fed’s current policy is financial repression. But a more apt name would be “Throw granny under the bus,” because the program boils down to taking from savers and fixed-income recipients and transferring that purchasing power to other entities.

The cornerstone element of financial repression is negative real interest rates, of which the Federal Reserve is the prime architect and owner.

From the start of the Fed’s post-crisis intervention through 2013, the total cost of these negative real interest rates was over $750 billion just to savers alone. The loss of income to fixed-income investments (such as bonds held in pensions and money markets) was even larger.

It’s actually more appropriate to ask if the Federal Reserve is compatible with values rooted in our nation’s history.

But here’s the rub. That loss of income and purchasing power didn’t just vanish. It was transferred from pocket A to pocket B.

It magically appeared again in record Wall Street banking bonuses, in shrinking government deficits (due to lower than normal interest rates), in rising corporate profits (mainly benefiting the already rich), in record stock buybacks (ditto), and in rising wealth inequality.

More directly, when the Fed buys financial assets with printed money and — by definition — drives up the price of those assets, it cannot then act mystified why the main owners of financial assets have grown wealthier. Doing so simply insults our intelligence.

With that as background, I found myself struggling to remain calm as I read Yellen’s recent remarks.

Continue Reading at MarketWatch


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