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Does the Fed exacerbate income inequality? "The relentless expansion of credit by the Fed...

Does the Fed exacerbate income inequality? "The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power," Mark Spitznagel writes. "This coercive redistribution has been a far more egregious source of disparity than the president's presumption of tax unfairness... or deregulation." Even Paul Krugman isn't buying it.
Comments (15)
  • Tom Armistead
    , contributor
    Comments (5719) | Send Message
    Spitznagel makes a lot of sense. Plus Bernanke has been very explicit in saying that he intended to increase asset prices, and specifically share prices, to get the good old trickle down going. The trickle down effect is weak, very weak. Well increased asset prices benefit asset owners, that would be the rich.


    Krugman is a far left economist, and can be expected to reliably contradict anything that appears in a far right rag, such as the WSJ. He favors stimulus, and more stimulus, and will support any form of it, meanwhile twisting logic like a pretzel.


    There is a difference between monetary stimulus and fiscal stimulus. Fiscal policy has been the victim of ideological intransigence and pork-barrel politics, and has not been conducted for the public good for decades.


    So we're stuck with monetary stimulus, and that benefits the wealthy, as any fool knows. So the only way to square the circle is to tax the wealthy.
    21 Apr 2012, 10:28 AM Reply Like
  • IncomeYield
    , contributor
    Comments (2346) | Send Message
    You mean, "it takes money to make money" ?


    What a revelation! And they give out Ph.Ds for this stuff.


    Note also the corollary -- "it takes money to lose money".
    21 Apr 2012, 11:06 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9973) | Send Message
    Both true. But would it not be rational to let the free markets work the way they are supposed to work. Let bankrupt entities go bankrupt. Let market competition work.


    The Fed and politicians are just pawns of big corporate america and have overridden the free market system to prop up a narrow elite both with monetary and fiscal policy for decades. More so than usual even since 2008/09.


    More free market based approaches worked out just fine in both Sweden and Iceland's cases. But the Fed and ECB nor are the politicians prepared to accept such an approach. The wealthy and corporate donors won't permit it.
    22 Apr 2012, 12:27 AM Reply Like
  • westcoastinvests
    , contributor
    Comments (46) | Send Message
    I have been saying this about the Fed for the past two years.
    21 Apr 2012, 10:36 AM Reply Like
  • Fueled By Randomness
    , contributor
    Comments (292) | Send Message
    He's right. Fiat money creation most benefits those nearest the source, the crony capitalists. They get the most value out of it before it ripples thru the economy and dilutes the existing money supply. They buy assets at lower prices as the cash they use cheapens the currency. By the time non-crony businesses and consumers, which are much further away from the Fed's teat, see the "benefits" of the additional currency, prices have already been driven up. Taxing the "rich" is a red herring as the DC manipulators wish to define everybody making over $250 K (or 200 or 150 or whatever it is this week) as "rich". All "rich" are not equal. The cronies argue publicly for raising taxes while privately buying new tax breaks to avoid them. What we really need to do is bust up crony capitalism and tax the cronies.
    21 Apr 2012, 10:48 AM Reply Like
  • into dark shadows
    , contributor
    Comments (381) | Send Message
    More to the point, America is NOT buying Paul Krugman and his socialist policies!
    The progressive / communist experiment always ends the same way,
    In tears!


    Those of us who were skeptical of Obama, but were however reluctantly,(I'm number one here) were going to at least hear him out, I watched his first foreign comments in Egypt at 5:30 a.m. E.S.T. and was horrified as he made every apology under the sun for our great republic!


    Then there are those who were swept up in the mass adulation, the over the top media fill of chants of "Messiah" and fainting in crowds!
    To some faithful, Obama was seen as the second coming!
    But the horrible bubble of Bernanke and Greenspan before him, tested Obama as 9/11 tested Bush!
    The results could not be starker!


    Under Obama, the fed, who had some sort of global respect and as such had instilled a certain level of "TRUST" in the 230 year old rule of law with regard to our financial institutions! Has oblietrated any sense of "Respect", "Honor" and tradition that made us a "Free Market Capatilist Society" ruled by the "Law's of God" this country was founded on!


    As Bernard turned Japanese, (Japan to this day is mired in a deflationary / depressionary morass of their own making) followed our Japanese brother straight down the path of ever increasing intrusion into our "Once Free Market System", the investor class said,"Not Again" and has bailed out!


    What we find ourselves in is a perversion, a perversion that the masses,(Wall Street Charlatans) will demand on Tuesday for evermore "DOPE" in the sense of another fix from Bernanke and his QE filled works!
    Never mind the QE will rot the standard of living of every hard working American,(that is NOT you O.W.S.),and your union led minions, but the honest law abiding working slob!


    The fate is still ours, we are the one,
    the individual!
    It all starts with YOU!
    Will you hear the call?
    Will there be time to rescue our republic and educate our children?
    Critical thinking?
    Is that still something we have time to resurrect and instill into our little ones?


    We will not comply!
    America does not comply!
    American's are awakening, we are not to be fooled again!


    Fool me once shame on me,
    Fool me twice, shame on you!


    May the good lord watch over this fragile little experiment in freedom we call America
    21 Apr 2012, 11:02 AM Reply Like
  • wyostocks
    , contributor
    Comments (8869) | Send Message
    Ben has been on a program to destroy the middle classes and especially the seniors since 2008.
    His policy of zero rates for the bankers so they can charge 29% on credit cards should be enough to put an end to his reign of terror.
    21 Apr 2012, 12:20 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4097) | Send Message
    The plan is simple. Eliminate the middle class and 99.9% of the populous become dependent on government.This has been the goal of the Fabian Socialists, Progressives and Communists from the beginning. Obama is their current useful idiot. The process does not end until private property is eliminated.
    21 Apr 2012, 01:45 PM Reply Like
  • Terry330
    , contributor
    Comments (870) | Send Message
    The wealthy elite plan is to take even more from working Americans, their poster boy is Mitt Romney. Krugman is right and the wealthy try to silence him.
    21 Apr 2012, 02:15 PM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
    I don't blame the Fed. I blame DC. Its fiscal policy insanity that forces the Fed to remain accommodative.


    We could, of course, switch up the cart and horse and say it was the Fed's low rates that allowed DC to swell, but that's not correct. The promises(lies) from DC have always come first. Low rates have followed.


    Low rates had to follow. There was never any other way to support the lies. You had to borrow to prop up the politicians.


    And this is how its worked forever... until demographics caught up with us as is happening now.


    Inflation is the direct by-product of Bush and Obama's vowels. Bernanke is just the backstop.
    21 Apr 2012, 03:08 PM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
    What's sadly hilarious to me are that the voters fall for it.


    They vote for free stuff not realizing that inflation is the in-built tax that they will pay for said 'free' stuff. Yes, of course, they are idiots. The politicians know they are idiots.


    Did I say this was sad and pathetic? Yes, I think I did.
    21 Apr 2012, 03:10 PM Reply Like
  • David Jackson
    , contributor
    Comments (1248) | Send Message
    Leaving aside the politics, artificially low interest rates probably have multiple effects, some of which benefit less wealthy people more and some of which benefit wealthier people more.


    First, we need to separate out the impact of low rates on financial assets and the impact on the real economy.


    1. Impact on the real economy
    If low rates benefit the real economy, eg. by increasing employment and fixed investment, then who benefits more? My guess is less wealthy families benefit more from this, but I'm not sure; interested to hear views on that.


    2. Impact on financial assets
    While there are many retirees who rely on interest income or dividend income, and wouldn't consider themselves wealthy, statistically most financial assets and net cash balances are owned by the wealthy. Most Americans have little in the way of savings, but do have debt such as credit card debt or mortgage debt.


    Low interest rates mean lower payments for all the families with debt (eg. via mortgage refinancings and lower credit card payments).


    Low interest rates mean lower earned interest for the wealthy.


    However, if low interest rates boost asset prices, that benefits the wealthy. One question is: what's the impact of persistently low rates? Perhaps the constant reduction in interest payments offsets a step increase in asset prices when rates are cut.


    Overall, I'm not sure of the net effect of low rates on the wealthy, but it does seem to be the case that low rates help lower income families dependent on employment and making payments on debt.
    21 Apr 2012, 04:28 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4097) | Send Message
    The Fed is owned by the big banks, including Rothschilds. The banks have been recapitalized thanks to the federal gov't which does the bidding of its banker masters. The banks also take the collateral when the loans default. They win either way. If the politicians want socialism, the bankers don't care. They control the money. As Baron Rothschild famously said, I care not who makes a country's laws as long as I control the money. Globalization is the ultimate goal.
    21 Apr 2012, 04:35 PM Reply Like
  • neutrinoman
    , contributor
    Comments (700) | Send Message
    This is a very interesting question that is only now getting the attention it deserves. Swiss gold-bug and "hard money" man Marc Faber has been saying something similar for a number of years, without his audience fully understanding him.


    We saw something similar in the 1970s. Pure inflationary policies (straight money printing) were motivated by the need to monetize the debt of a rapidly expanding government. It was supposedly a "liberal" policy designed to help ordinary people -- it was anything but that. Middle and upper class people have knowledge and techniques to protect their wealth that working class and poor people usually lack. Price inflation, especially of commodities, is more devastating the farther down the income scale you go, as we saw last year or in 2007-8 with the sharp rise in energy and food prices. The 1970s was the first postwar decade of rising income inequality, which has been growing now for 40+ years.


    In a long era of credit expansion (where price inflation impacts are delayed or displaced to other countries), crony capitalism comes to the fore -- after all, apart from government itself, the biggest beneficiaries of such cheap credit policies are well-connected actors closest to the source of cheap credit: the Fed, followed by the major banks and the "primary dealers" of US Treasury and agency bonds and all those who do business with them. The origins of this corrupt system lie in the early and mid-90s, when the push started to consolidate the US banking system and to spread cheap mortgage credit far and wide. Many are to blame -- no one more than Greenspan -- but see, e.g., Morgenson and Rosner's Reckless Endangerment for how it worked in the case of Fannie and Freddie and whom it enriched, with taxpayer backing.


    And yes, Krugman is a wacked-out kook -- it's hard to understand why anyone listens to him. His pet theories are coming apart in Europe and will soon be coming apart in Krugman and Bernanke's great test bed of bad Keynesian policies, Japan.


    P.S. The Fed is owned, technically, by all Federally chartered banks, a list that does NOT include the Rothschilds' modest private bank (which is in Europe). The Fed's policies are controlled by its politically appointed boards and heavily influenced by the political class in Washington and Wall Street banks in New York.
    22 Apr 2012, 02:35 AM Reply Like
    , contributor
    Comments (10683) | Send Message
    My recollection is that the Fed's member banks do own stock but do not own "all" the stock.
    22 Apr 2012, 12:25 PM Reply Like
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