Gimme a break, will ya? Wherein I rant, supported by the Fed’s own data.
By Wolf Richter for WOLF STREET.
In an op-ed today in the Wall Street Journal, Fed Chair Jerome Powell rationalized and defended the Fed’s ultra-radical, previously unthinkably monstrous, and super-fast bailout of asset holders starting a year ago, when within three months the Fed created $3 trillion and purchased assets with them, and created the biggest media hoopla about those purchases and many more trillions in future purchases, in order to inflate asset prices further, and make asset holders immensely rich.
It was a huge success. Asset prices nearly across the board surged way past the levels before the crisis, and those holding them got a lot richer, very fast.
And Powell therefore concluded his op-ed with this line: “I truly believe that we will emerge from this crisis stronger and better, as we have done so often before.”
The “we” being the asset holders, the richest asset holders at the very top; and the “we” excluding the bottom 50% of Americans, according to the Fed’s own data, which we’ll get to in a moment.
The reports and data are coming out of the woodwork from all directions. Oxfam said that the combined wealth of the world’s top 10 billionaires has skyrocketed by $540 billion since the crisis began. GOBankingRates came up with a list of the biggest gainers in net worth between March 18, 2020, and October 7. The Americans on this list:
- Jeff Bezos (+$72.6 billion);
- Elon Musk (+$63.3 billion);
- Mark Zuckerberg (+$42.1 billion);
- MacKenzie Scott (+$23.6 billion);
- Steve Ballmer (+$18.5 billion);
- Larry Ellison (+$19.9 billion);
- Nike founder Phil Knight & Family (+$19.8 billion);
- Bill Gates ($17.8 billion); Michael Dell (+$15.6 billion)
The Fed’s own data on the Fed’s handiwork: ballooning wealth disparity.
The Federal Reserve collects data on its handiwork of creating the greatest wealth disparity of all times, and Powell surely has looked at these reports put together by the outfit he runs. According to which the total wealth (assets minus debt) spreads out this way:
Let’s dive into the Fed’s handiwork a little more deeply, which gets worse the deeper we dive:
- The top 10% in Q4 2020 were $8.01 trillion richer than before the crisis; half of those gains ($4 trillion) were pocketed by the top 1%.
- The bottom 50% gained only $471 billion in wealth, spread across half of the US population.
- The wealth disparity between the top 10% and the bottom 50% ballooned by $7.5 trillion during the crisis.
Even worse: The wealth disparity per capita.
If the US population is 330 million, then 1% = 3.3 million people; and 50% = 165 million people. And so, per capita, at those levels (wealth = assets minus debt):
- Wealth of the 1% = $11,700,814 per person (up by $1.22 million from Q4 2019)
- Wealth of the bottom 50% = $15,065 per person (up by $2,851 from Q4 2019)
And so from Q4 2019 to Q4 2020, the wealth disparity between the 1% and the bottom 50% has ballooned by $1.1 million per person.
Even worse: Most of the “wealth” of the bottom 50% is in cars and other stuff, not actual assets.
The Fed’s measure of “wealth” includes the value of cars, dishwashers, furniture, smartphones, and other consumer durable goods that people have. But durable goods are not assets that earn a return or grow in value. They’re consumption items, and their value shrinks over time to zero or salvage value.
Per capita at the bottom 50%, the value of durable goods averages $8,920 per person, or nearly 60% of their total wealth. That portion of their wealth cannot earn a return or grow in value.
Their wealth related to actual assets that can earn a return is just $6,140 per person of the bottom 50%. These crumbs may be inadvertently increased by the Fed’s asset bubble. So if asset prices surge by 20% across the board, the bottom 50% would pocket just $1,228, while someone worth $2 billion would pocket $400 million.
This potential income doesn’t even include the powerful impact of leverage, to which the top 10% have much greater and cheaper access than the bottom 50%.
In other words, according to the Fed’s own data, the bottom 50% have nearly no income-producing assets, and cannot gain any measurable wealth from the Fed’s shenanigans.
The year’s gain in durable goods that the bottom 50% own is likely attributable to the factors we have observed for months: Stimulus payments, extra unemployment payments, and the shift in spending from services (flights, hotels, cruises, restaurants, sports events, movie theaters, haircuts, etc.) to durable goods that triggered the record spike in spending on durable goods.
The bottom 50% spent this money on durable goods, and now the Fed counts this stuff as an increase in “wealth.” And this money came from the government and from a shift in spending, and not from the Fed.
Even worse: ownership of stocks and equity funds.
- The top 10% own $29.6 trillion in stocks and equity funds, or 88.5% of the total, or $10 million per person.
- The bottom 90% own 3.8 trillion, or 11.5% of the total, or $11,600 per person
- The bottom 50% don’t own hardly any stocks, just $190 billion, or $1,150 per person.
So when the Fed decided to create the largest asset bubble the world has ever seen, it knew who owned those assets, and who would benefit. The Fed itself is generating the reports on who owns these assets and who therefore benefits from policies that inflate these assets.
Mr. Powell, do you see that we see that you see that we know that inflating asset bubbles is designed from get-go to inflate the wealth of the very rich, and the remainder of the Americans get to eat dust?
Even worse: for the Bottom 50%, life gets more expensive.
There are the negative consequences of the Fed’s asset bubble policies for the bottom 50%: Life gets more expensive. Housing costs surge, and other prices surge too, and buying those durable goods gets more expensive, and thereby the Fed, with its inflation goals, is cutting the purchasing power of labor of the bottom 50%.
Those are the consequences of the Fed’s policies. And the Fed is assiduously tracking and touting those consequences.
Even worse: Congress.
Of course, Congress could crack down on the Fed. But the members of Congress are either already in the top 10% or are trying to get there asap when they join Congress, and so they too benefit from the Fed’s policies, and will therefore never crack down on the Fed, regardless of what their stated policies may be.
End of rant.
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