Yves is here. Wolf’s description of the impact of Covid’s economic policy is correct, even if he is a little bit off the ground in terms of reasons. There is a saying that goes like this: “White-collar employees must stay at home, and low-income employees bring things to them.” Ultra-low interest rates are the interest rate that the Fed likes to use in crises because it is fast and easy, making the rich. Benefits, especially leveraged speculators (private equity, real estate, hedge funds), but not many ordinary people. At the same time, officials have adopted a “let us ripped off” policy, even when making some other gestures. This can lead to disruptions in the supply chain, which can increase prices, especially for necessities such as food. The fact that bad weather (usually driven by climate change) also pushes up agricultural prices does not help.

Wolf Richter, editor Wolf street. Originally published on Wolf street

My “wealth effect monitor” uses quarterly data on household wealth released by the Federal Reserve. After the Fed released the overall data for the third quarter in early December, it has now released “1%”, “2% to 9%”, “next 40%” (top 10% to 50%) and “bottom 50%”. %”.

Wealth here is defined as assets minus debts. 1% of the population’s wealth (43.9 trillion US dollars according to the Federal Reserve) is owned by 1% of the population. The wealth of the “bottom 50%” (only US$3.4 trillion) is divided among half of the population. My Wealth Effect Monitor goes one step further, tracking the wealth of ordinary households in each category.

After soaring in the first five quarters, the average wealth of the 1% category increased by only US$121,000 in the third quarter over the second quarter, reaching US$34,478,000 per household (red line). In the bottom 50% of the categories, the average wealth increased by $6,800 and $53,600 (green line). Get this: Approximately half of the bottom 50% of the “wealth” is the value of consumer durables, such as automobiles and electrical appliances. Even the top 2% to 9% (yellow) are completely left behind by the explosive growth of wealth by 1%:

Please note that the wealth of 1% of households has increased significantly after the Federal Reserve implemented its banknote printing plan and interest rate suppression in March 2020.

The Census Bureau defines a family as a person who lives at one address, whether they are a three-generation family, five roommates, or one person. According to census estimates, there were 127.4 million households in the United States in the third quarter.

The top 1% of households are the main beneficiaries of Fed policy during the pandemic. They have benefited a lot since the financial crisis. They benefit the most when the Federal Reserve prints money (QE), which aims to drive up asset prices so that those who hold the most assets benefit the most. This is not a secret.This is the official policy of the Federal Reserve The expected results of these official policies are officially called the “wealth effect.”

Billionaires get more billions, half of Americans get peanuts

The Fed does not provide separate data on the real rich (0.01%) and the billionaire class. The billionaire class is a different class of American society, and its members are often named in the media as specific “billionaires”. title. They are the main beneficiaries of the Federal Reserve’s monetary policy.

According to the Bloomberg Billionaire Index, the total value of the top 30 billionaires in the United States is $2.23 trillion. On average, this is equivalent to US$74.5 billion for each of the top 30 richest billionaires in the United States. Three months ago, the average worth of the top 30 billionaires in the United States was US$69.2 billion. Therefore, in three months, the billionaires among the top 30 billionaires in the United States earned an average of US$5.3 billion in wealth per person.

But the bottom 50% of households, the large group of Americans, only increased their wealth by an average of only $6,900 in the third quarter. The wealth gap between the top billionaires and the bottom 50% has exploded.

You can kill someone by using percentages recklessly. If I give a homeless person 5 dollars and he already has 5 dollars in his pocket, I increase his wealth by 100%. But he is still homeless and still has no wealth. Percentage growth is touted as a way to indicate the increase in bottom-level wealth, but in fact, it only increases the peanuts, because compared with the billionaire class, the bottom 50% of the wealth growth is very small, and even large percentage growth is still almost zero.

According to the Bloomberg Billionaire Index, the average wealth of the top 30 billionaires in the United States has increased by 7.6% in the past quarter. This is equivalent to an increase of $5.3 billion per billionaire. Because of the rise in asset prices in a quarter, this is a huge sum of money for a person.

The average wealth of the bottom 50% increased by 14% this quarter. But this is only $6,900, further widening the gap between rich and poor between them and billionaires to billions per household!

In each type of wealth, the range of wealth is huge. The top 1% range from ordinary rich people to tens of billions of dollars. The bottom 50% range from extreme poverty to those who are satisfied with humble houses, small 401k and some durable goods, and are burdened with large amounts of debt.

The Fed goes all out to resolve the gap between the rich and the poor

Since March 2020, the Federal Reserve has printed US$4.8 trillion and reduced short-term interest rates to near zero. Its sole purpose is to raise asset prices on a large scale, thereby enriching asset holders. For a long time, the Fed has adhered to the doctrine of printing money and suppressing interest rates to make already wealthy people richer, thereby creating economic activity.

This doctrine is called Wealth effect, And caused the biggest economic injustice in the modern history of the United States.

My “Wealth Gap Monitor” (pictured below) tracks economic injustice by using the Federal Reserve’s own data to show the wealth difference between the highest income 1% and the lowest 50% on a per household basis.

As early as 1990, the wealth gap between the 50% households with the lowest average income and the 1% households with the highest average income was US$5 million. By the third quarter of 2021, the gap between the rich and the poor had widened by nearly 600%, reaching US$34.4 million.

This is a good way for a few people at the Fed to tear apart the entire society. On the contrary, a sharp decline in the market and asset prices returning to levels a few years ago will repair some of the damage that these terrible policies have caused to American society.

The Fed makes the rich richer, and the bottom 50% pays for it through inflation

The Fed’s policy is designed to cause asset price inflation. Asset holders become richer. This is the purpose. The more they have, the more they will benefit from asset price inflation.

The bottom 50% had almost nothing in assets—for example, they held an average of only $4,077 in stocks per household in the third quarter—and they were hit. This has been the case for decades, but during the pandemic, the Fed started a historic money-printing frenzy, and the results of this absurd wealth gap are now everywhere.

But for the bottom 50%, this historic money printing frenzy has now created The worst inflation in 40 years. Inflation means that the U.S. dollar loses purchasing power. But for the bottom 50%, their dollar-denominated labor loses purchasing power in housing, food, and cars. Therefore, the bottom 50% of people begin to tighten their waistbands to bring about the effect of paying wealth.