One who intends to leave others better off for his having existed.

11/1/14

The source of America's record wealth inequality = Central Bank Money Printing

"Earlier this week the Fed's QE3 ended... and less than 48 hours later the Bank of Japan boosted its own bond (and stock) monetization program. The good news is that by now it is clear to everyone, including CNBC, that the world is so addicted to some form of global central bank liquidity injection that the mere thought of going without a monetary policy "flow" backstop can only last for a couple of days.

Why is that?

That answer, by now, is also obvious: the "wealth effect", i.e., the rich getting richer and leading to wealth inequality that surpassed the levels of either the pre-Great Depression days, and according to some, the pre-French revolution.

QE vastly benefits those at the top of the economic food chain
in exchange for higher costs of living for most below.

...JPMorgan did the math

...according to many the current PE, when one strips away the non-GAAP gibberish of the ...those hundreds of billions in recurring, ordinary course of business "one-time, non-recurring" legal charges for America's criminal banks, is about 19, which means 9 points of S&P PE expansion, or about 1100 S&P points, which also means that virtually the entire increase since the lows of 2009 has been due to the Fed...

Top executives of the global financial industry 
which helped cause the financial crisis in the first place, 
have been some of the biggest beneficiaries of QE
along with the paid for politicians and government insiders
at the expense of everyone else below on the wealth ladder.

...Another way of showing this finding is with the Household Net Worth chart from the Fed's quarterly Flow of Funds report....



Since the end of the first quarter of 2009 -- when the stock market bottomed -- households' collective net worth has increased by $26.5 trillion. More than 75% of that increase -- $20.1 trillion -- reflects the change in market value of assets...

Of various classes of financial assets, equities held directly by households increased in value the most over the last six years, rising in value by $9.2 trillion...


Not that many households hold equities directly, however. (And it's important to remember that the household data in the Z.1 report includes holdings of hedge funds, private equity funds and personal trusts.)

The Fed's 2013 Survey of Consumer Finances showed that just 13.8% of families held stocks directly in 2013, down from 17.9% in 2007 before the financial crisis. 

...direct holdings of stocks by income percentile in each of the SCFs since 1989.


The share of all families holding stocks directly peaked in 2001, after the dot-com bubble.

The share of families holdings stocks declined for most income percentiles from 2001 to 2013, even those families in the 90-100th income percentile.

Bottom line: the gains in net worth associated with holding stocks directly have been concentrated among a relatively small number of households."


At the top.

http://www.zerohedge.com/news/2014-11-01/qe-added-9-trillion-equity-wealth-or-32-surrent-sp500-level-jpmorgan-finds
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Our kids will inherit this mess, as we betrayed their future
for a more pleasant feeling present.



"...since 2007 wealth has continued to increase for the very rich while it has plummeted for everyone else. This is the largest reversal of fortune in modern history for the bottom 90% of the population and it is ongoing. The decline is directly tied to the housing boom and bust engineered by Wall Street banks that were deregulated by the (Bill) Clinton administration and resolved and covered up by the Barack Obama administration. The top 0.01% whose fortunes have recovered includes the very financiers responsible for the loss of wealth of so many others. The right scale is the bottom 90% and the left scale is the top 0.01%. Source: Emmanuel Saez.



...QE lowers the absolute level of interest rates and it also lowers the relative rate of interest by making risky assets more attractive. In recent years corporations have borrowed overwhelmingly to buy back corporate stock. This raises the value of stock by reducing the supply. It also raises corporate earnings and enriches corporate executives whose Boards grant them billions in stock options. But increased leverage also increases systemic risk by lowering the ability of corporations to weather economic downturns. This is to say that executives are burdening ‘their’ companies with debt in order to pay themselves exorbitant bonuses. Left scale is corporate debt / GDP and the right scale is the Baa interest rate. Sources: SIMFA, St. Louis Fed."



"U.S. corporations have been gorging themselves on cheap debt provided by the flood of money from QE. ...U.S. corporations have used the bulk of the money borrowed since 2009 to buy back stock. Stock buybacks boost the value of the stock options that executives and corporate boards have awarded themselves. The rise in debt leaves behind highly leveraged corporations that are more prone to bankruptcy in the next inevitable economic downturn. Source: SIMFA."

http://www.counterpunch.org/2014/10/31/qe-debt-and-the-myth-of-a-liberal-left/
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The result = Cognitive Dissonance;



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