The wealthy got immensely wealthier. Everyone else paid for it via rampant inflation.
By Wolf Richter for WOLF STREET.
The Fed’s own data on the distribution of wealth in the US is a quarterly report card on the Fed’s official policy goal of the “Wealth Effect.” It has now released the data for Q4. The Fed uses monetary policies, such as QE and interest rate repression, to create asset price inflation and make a relatively small number of large asset holders vastly wealthier so that they might spend more. This has been explained in numerous Fed papers, including by Janet Yellen back when she was still president of the San Francisco Fed.
The Fed’s wealth distribution data divides the US population into four groups by wealth: The “Top 1%,” the “Next 9%” (2% to 10%),” the “next 40%,” and the “bottom 50%.” My Wealth Effect Monitor divides this data by the number of households in each category, to obtain the average wealth per household in each category. Note the immense increase in the wealth for the 1% households after the Fed’s money-printing scheme and interest rate repression started in March 2020:
As you can see from the steep curve of the red line, the “Top 1%” households were the primary beneficiaries of the Fed’s policies since March 2020. These policies were designed to inflate asset prices, and only asset holders benefited from that. The more assets they held, the more they benefited.
The Census Bureau defines a household by address. Each address is one household, whoever lives there, whether they’re a three-generation family, four roommates, a married couple, or a single person.
So here is the average wealth (= assets minus debts) per household, by category in Q4, 2021:
- “Top “1%” household (red): $36.2 million.
- The 2% to 10% household (yellow): $4.68 million.
- The “next 40%” household (purple): $775,000.
- The “bottom 50%” household (green): $59,000.
But wait… durable goods.
The Fed includes durable goods in this wealth. Durable goods are motor vehicles, boats, furniture, electronics, etc. They’re consumables – unless they’re art, antiques, or classics – and their value will ultimately go to zero. For the “bottom 50%,” their durable goods account for nearly 20% of their total assets and for nearly 50% for their total wealth (assets minus debts).
The Billionaire Class got more billions.
The Fed doesn’t provide separate data on the truly rich (the 0.01%) and the Billionaire Class, a distinct royalty-like class in American society whose names often have the royal title of “billionaire” in front. They’re the biggest beneficiaries of the Fed’s monetary policies.
The top 30 US billionaires have a total wealth of $2.12 trillion, sliced into 30 slices for a wealth of $70.8 billion per billionaire, according to the Bloomberg Billionaires Index.
Compare that to the bottom half of the US population – the “bottom 50%” – who have a combined wealth of just $3.7 trillion, sliced into 165 million slices for each individual. For them, the inflated real estate prices just mean higher housing costs.
Reckless usage of percentages can kill someone.
If I give my favorite homeless guy $5, and he already has $5 in his pocket, I increased his wealth by 100%, which is a huge percentage jump in wealth. But he’s still homeless and still doesn’t have any wealth.
Percentage increases are regularly touted to show that the wealth at the bottom increased, when in fact, it increased by only minuscule amounts of dollars because the bottom 50% have so little that even a big percentage increase still amounts to nearly nothing in dollar terms, compared to the billionaire class.
When the wealth of the bottom 50% increases by 5%, they gain about $3,000. And when the average wealth of the top 30 billionaires increases by 5%, they on average gain $3,500,000,000. And the wealth disparity just blew out.
Greatest economic injustice committed in recent US history.
Since March 2020, the Fed printed $4.9 trillion and repressed short-term interest rates to near-zero in order to inflate asset prices so that the asset holders would get immensely more wealthy, in line with its doctrine of the Wealth Effect.
This act has produced the greatest economic injustice committed in recent US history.
My “Wealth Disparity Monitor” tracks that economic injustice on a quarterly basis by showing the difference in average wealth between the top 1% and the bottom 50%, per household, based on the Fed’s own data.
In 1990, the wealth disparity between the average “top 1%” household and the average “bottom 50%” household was $5 million. In Q4 2021, it ballooned by another $1.2 million from the prior quarter, and by $5.1 million year-over-year, to $36.2 million.
Since the Fed’s crazed money printing binge and interest rate repression started in March 2020, the wealth disparity between the average “top 1%” household and the average “bottom 50%” household has exploded by $11.2 million per household.
More wealth for the wealthy, paid for by crushing inflation for the rest.
The Fed’s policy of the Wealth Effect operates by creating asset price inflation through money printing and interest rate repression.
The bottom 50% of Americans — who spend all or nearly all their income on housing, transportation, food, healthcare, etc. — hold practically no stocks, no bonds, and very little real estate, according to the wealth distribution data from the Federal Reserve. When the Fed purposefully inflates those assets that only some people in society hold, it says F-U to the rest.
And this money-printing binge has now created the worst inflation in 40 years. Inflation destroys the purchasing power of the dollar, and it destroys the purchasing power of labor denominated in dollars. Just to get by, the bottom 50% spend all, or nearly all, of their income on consumer items – such as housing, transportation, and food. And they got mauled by this rampant consumer price inflation that this money printing has triggered. And they’re the ones paying for this act of the Fed to enrich the asset holders.
So average wages and salaries went up a lot, but by only a fraction of the amount that rents, and the prices of houses, used and new vehicles, gasoline, groceries, etc. shot higher. And the worker bees in this economy now have to tighten their belts further even as richest asset holders got vastly wealthier, thanks to the Fed’s policies.
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Wow, it’s almost too much to believe, but there it is, in all its color. WTF.
Yeah, the mainstream media never covers this. Wolf does a great job with this.
America is more than the 1% that the mainstream media covers 90% of their time. God Bless America.
Give up the TEE VEE I did 25 years ago and I am doing just fine!
Even the old television networks saw the writint on the wall. Endless variations of the reality television genre were their last gasp.
I am currently on old black and white TV series, crime noir and such, borrowed from local library.
LL Rogers
IMHO, TV reporters and achair wo/men are belong to ‘previleges mob with connections’ called ‘PRESSITUTES! It is being proven everyday!
The mainstream media from MSNBC to Fox News to New York times to Wall St. journal are all owned by billionaires.
Despite all this supposed “diversity” of media, all billionaire-owned media collude to censor and distract from topics that help billionaires.
It’s convenient to scapegoat the media, but how many would subscribe to a news source that only reported on the poor or those suffering? Or a TV network that had ugly news anchors? People would rather know how much toilet paper Elon Musk uses than a heartbreaking story about someone stuck in a ghetto.
Mainstream media? What about your representatives? Ever hear them complain?
andy-it’s a p-i-t-a citizen’s duty, but too many of us don’t even consider contacting/expressing concerns to our reps., let alone be able to name them when asked…
may we all find a better day.
91B20,
That’s a fool’s errand if ever I heard one.
It is exceedingly clear to me that my duly elected congressional and executive representatives in government have no interest in considering my wishes. In this brave new world, my meek and peevish voice has no bearing on the actions of those whose job it is to serve the loud and dominating influences of the rich and powerful.
Crunchy-i seem to have hit a nerve. (Or, given your expressed logic, why bother to post your ‘meek and peevish voice’ here?Have more confidence in yourself, fellow citizen!).
My apologies, in any case, though the challenges will continue to arrive…
may we all find a better day.
Well, since there’s no armed rebellion, the lower classes must enjoy their poverty.
this fiatmoney system is just so corrupt,, silver was much better with The gold standard,, silver People was much more equal
Like Incan wealth after the Spaniards arrived.
The simplicity of your graphics is elegant and exquisite. Making a picture of the correlation between a dependent variable, like the difference between wealth disparity, and the independent variable on the X access, time. The rich have gotten richer over time. My blue collar friends, who I worked my ass off to not continue to be one of them, a story for another day, like too say, no shit sherlock.
I submit that it illustrates the “too big to fail” philosophy writ large. Swaggering, pompous financial losers calling the shots, not unlike DJT.
Now they’re telling us that they are going to save us and bring inflation down to a manageable level for the average American with zero disposable income, haven’t had a raise for 30 some years.
I think that one learns to judge the resolve of another homo sapiens. I’m not feeling the vibe from Jerome. I know you promised to quit feeding the monster but you haven’t been able to move forward in a constructive manner, yet. Let’s face it Jerome, pulling the plug to end the $120 billion per month pumping machine, rather than extend it was hopeful. Not even too mention the magnitude of effort that you expended to battle the 10% inflation monster by drawing your 0.25% dagger and waiving it our menacingly, seemed like we were on the rite trajectory.
Democracy cannot survive in a society with this level of wealth and opportunity disparity. Like hate, greed destroys the vessel that contains it.
Alas, Jerome does not have the same testicular structure as his aspirational super hero, Paul Volker. Tall Paul, kicking ass and taking names.
Jerome has a bad bosses, the banking industry, who won’t let him do anything they don’t want him to do.
Like Congress, his grateful hands are tied.
Central banks have become our worst nightmare, academics selling a new way to spin history’s greatest financial failures.
How did it become so hard to be an every day guy where my faults became an issue, not the racist, homophobic thing I was raised with, more the body shaming while pointing out that we are being screwed.
It may continue until men like me are all dead, or a better society will arise as the young people take control of the world they are all bitching about.
It is a deliberate policy to benefit the people the Fed wants to benefit. I am always surprised when anyone thinks it could possibly be anything else.
I think of it like a monopoly game. A few players for whatever reason get the good properties and build hotels and income streams. A few players end up with properties that don’t generate much income. One player is the banker who wants the game to play for perpetuity. Every time one of the players is about to go bankrupt, splash the board, storm off, and end the game, the banker gives every player cheap loans and some free cash.
The game goes on a little longer. The players with little income keep having to pay the players with the best properties and hotels. They keep getting richer. The poor stay mostly about the same until once again someone is going bankrupt and they are about to quit and end the game. Then the banker who wants the game to keep going gives everyone cheaper loans and some more free cash.
Rinse was repeat.
The next question is why does the banker want the game to keep going? I suspect the answer is because he works for the US government. In turn, the USA wants its monopoly players not to fall behind the other monopoly players that are playing separate monopoly games in other countries. In all those other countries the bankers are using the same tricks to keep their games going. None of the bankers in any of the games want their players to go bankrupt, end the game, and fall behind their competitor countries.
There is one game that rules them all happening out of Davos. However, I believe it’s Dungeon and Dragons Apocalypse. They just wrote it on the Monopoly framework. After all the billionaire geeks rule this realm and explains the odd behaviors of late. Welcome to The Upside Down 2.0!
I doubt that the Fed deliberately set out to benefit billionaires. But when it slashes interest rates to ward off a depression and sky high unemployment, things sometimes turn out that way. In any event, the families of the rich and super rich of 2022 are a lot different than the ones mentioned in Ferdinand Lundberg’s book on American wealth published over 50 years ago. Back then the Duponts, auto Fords, Mellons and Rockefellers were among the richest in the country. Now, none of these families have even one member of the Forbes 400 list.
They went private is all, you just don’t get it at all!
Absolutely correct LLR.
As has been said on Wolf’s Wonder by many before you…
Good to see others understanding this.
Thank you.
You are wrong. Ford Motor Company is still a publicly held company but has lost market share over the past 50 years and there are more heirs to split the family wealth. Here is a list of the richest people in America in 1918 as compiled by Forbes: The last of the Rockefellers dropped off the list when David Rockefeller died a few years ago at the age of 101.
Anon,
Thanks for helping to dial back the discussion a bit.
Not to defend billionaires (they can pay for it) or the Fed (which at this point is neck deep in DC incompetence, corruption, and lies), but…
1) As you point out, a lot of this is much less some intentional *plan* to enrich billionaires than it is the highly predictable outcome of how DC tries to more-or-less centrally manage the economy using interest rates (ie, unbacked money printing).
Push interest rates way, way down for two decades to “restart” the economy/employment (how’s that record really going after 20 yrs?) and assets will go into crazy valuation modes of boom and bust, unmoored from fundamentals (because unsophisticated DCF analysis views current interest rates as perpetual interest rates…) and
2) As the charts hint at, on the corners, as interest rate policies flip from loose to tight, those very rich asset holders take the biggest hits (percentage wise…even with big losses, they remain very, very rich). Again, this is pretty predictable.
That said, the main problem seems to be more or less perpetual ZIRP for 20 yrs (brief reversals triggering asset craterings that panic a hysterical DC into going back to ZIRP very quickly).
But all this ZIRP simply (financially) papers over the fundamental problem (that DC lacks the guts, brains, and spine to acknowledge) – the accelerating deterioration in America’s productive competitiveness.
Put bluntly, China has been kicking our ass for 20 years.
But DC, being mostly made up of fools, liars, opportunists, and smugly self-serving sh*ts, will go to almost any length to avoid the near term sacrifices necessary to address the real, long term problems.
Destroy the federal budget for 50 yrs to buy off key political support, no problem.
Destroy the currency for 12 to 20 yrs to buy a few more re-elections, no problem.
Tell the American people the truth, about themselves, impossible.
So the Fed “accidentally” benefitted the wealthy without foreknowledge or intent? Suuuuuure. If their actions were going to harm the wealthy elite, the Fed would be shut down by a SWAT Team in one minute.
Get rid of the fed, and put a financially diverse representation on a Treasury controlled money creation team of smart people that are forward thinking enough to get the job done more fairly.
Easier said than done, but people like Wolf, and many others here understand the system and could help change things.
We need more activism, considering a lot of people seem to know what is going on.
Roddy,
I wouldn’t say without foreknowledge (you can’t pursue the identical poorly performing policy maneuver for 20 years without eventually learning *something*).
And as for “intent”…I think the Fed would claim it is a largely unavoidable byproduct of trying to use a single lever (interest rates) to manipulate an economy of 330 million people (“We can’t re-ignite domestic primary investment/employment through lower rates, without simultaneously goosing the value of existing assets (frequently absurdly)””.
Personally, I disagree with this (20 years is a f’ing long time to endure more side effects than results from a given policy) but that is my guess as to how the Fed would defend its stupidity/impotence.
ImplicitI,
“put a financially diverse representation on a Treasury controlled money creation team of smart people that are forward thinking enough to get the job done more fairly.”
The Fed would say, “Tell us your magic policy alternative and we’ll try it. If there were a “smart policy” alternative in the age of the internet, why are you hiding it, Mr. Bigshot?”
My personal opinion is that perpetual ZIRP (versus say pulsed loosening and tightening) is what has led to the insane overvaluations in the capital mkts (“making the billionaires richer”).
The Fed could have wrung excess out of the system many times without lastingly damaging primary invt (I consider startups/expansions primary invts, and capital mkts of existing assets, secondary invts).
Alternatively, massive tax breaks could have been given solely to primary invts. (That is on the Treasury/Prez/Congress, though).
And I’m almost certain that over 7300 days, the Fed has *internally* formulated alternative tactics it could at least try/experiment with – but that DC politics (including an enormous current and worse future Fed debt) keeps them from trying anything else.
“I doubt that the Fed deliberately set out to benefit billionaires.”
Benefit? The Fed created hundreds of billionaires in just few years. Snapchat app is worth billions of dollars. So is Twilio, so is Snowflake, so is Etsy, whatever they are. Need I go on.
“I doubt the Fed deliberately set out to help Billionaires.”
And the check’s in the mail.
“interest rate repression started in March 2020” Interest rate repression started with Greenspan and continued with Bernanke, Yellen and Powell.
By deliberately stealing from poor savers and giving their tiny wealth to the very rich, the have gutted the core of the U.S.A.
Now, rampant inflation will increase taxes, via higher prices for Sales Taxes and bumping up poor wage earners into higher Income Tax brackets.
We have devolved all the way back to Princes in Castles and peasants grubbing for survival.
“ Benefit? The Fed created hundreds of billionaires in just few years. Snapchat app is worth billions of dollars. So is Twilio, so is Snowflake, so is Etsy, whatever they are. Need I go on.”
Well, if you’re trying to find something I use, you’re gonna have to…
Got cut off…
Your gonna have to keep going down the list…
Sorry…
Where are Rothschild clan
On the beach at Illuminati island…
Flea, didn’t you get the invitation?
COWG that was one of your best replies ,in top 5
There is only one Rothschild on the current Forbes list of world billionaires and I doubt that he is even related to the European Rothschilds. The source of his wealth (a mere $3.7 billion) is given as Facebook stock. Rothschild wealth was hit hard by two world wars, related inflation, many heirs and some divorces.
Correct, in free market top people will change because people consumption preferences change.
Vilfredo Pareto Circulation of elite and Vilfredo Pareto curve applies as we go up the pyramid of wealth. It always has. He found that 20% of the residents in every European nation he surveyed had 80% of the income.
So, 4% of the population (.2 x 20%) own 64% (.8 x 80%) of the wealth.
Let’s keep going. This means that 0.8% of the population (.2 x 4%) own 51% (.8 x 64%) of the wealth.
Key elements of the capitalist class display great continuity. In 1974, more than 100 years after John D. Rockefeller founded Standard Oil, Vice President Gerald Ford became president after Richard Nixon resigned. To fill the vice presidency, Ford chose Nelson Rockefeller, John D.’s grandson. This allowed Congress to look at his wealth. In a report for Congress, William Domhoff and Charles Schwartz detailed: “The Rockefeller fortune, although nominally distributed among many individual members of the Family, is actually coordinated under a central management” that was located on a particular floor in Rockefeller Plaza in NYC. They wrote that “fifteen employees of the Family, working out of this office, have been identified on the boards of directors of nearly 100 corporations over a number of years” and that “their combined assets add[ed] up to 70 billion dollars.” In 1992, the New York Times described how the Rockefeller foundation was safeguarding this wealth, which was estimated between $5 and $10 billion, for the fourth generation of the family.
What about today? In May, Rockefeller Financial Services sold a minority stake to RIT Capital Partners. (The “R” in RIT stands for Rothschild, a famous European capitalist family.) According to the London Telegraph, Rockefeller Financial Services had £22 billion, or about $35 billion, in assets. Venrock, whose name is an amalgam of ventures and Rockefeller, is a venture capitalist firm. It was an early backer of one of the emblems of the “new economy,” Apple Computer.
One study estimated that in 2000 the combined wealth of the Rockefellers, the Du Ponts, the Mellons, the Schwabs, the Hearsts, the Phipps (Henry Phipps was the second-largest shareholder in Carnegie Steel) was around $54 billion. The individual members of these families might not be as famous as their ancestors or the newer capitalists, and they probably prefer not to be in the news, especially after what happened to Paris Hilton. But they still own and run much of America. From the article, “The U.S. Capitalist Class, Past and Present- Who Owns America ?” 2012
https://icl-fi.org/english/wv/1010/capitalists.html
I wouldn’t argue that *some* very rich families have been able to perpetuate great wealth intergenerationally.
But…across multiple generations (say 3+) having multiple kids (3+) does its thing and tends to subdivide wealth down to much lower levels. The brain/money genes tend to dilute too and one playboy can terminate an entire branch of a rich family.
My general sense is that most mega rich families sink due to these intergenerational dynamics…the ones that don’t are in a definite minority.
Thanks MS for your due diligence on this question.
NAH c10,,, they just become more better at hiding their wealth in the many mountains of very clearly unknown unknowns in the financial paper,,, no matter if that paper is ”fiat currency” or ”derivatives of each and every kind” etc., etc…
Having worked for some of the ”old money” folks many decades ago,,, 3rd or even 5th generation of the founders of their dynasty,,, they were very clear about maintaining their wealth,,, maintaining and increasing their privacy,,, and especially increasing as best they could the intelligence, etc., of folks of both/all genders being married into the dynasty.
WE the PEONs should be so lucky/fortunate/blessed , eh
The Reece Committee Hearings Exposed America’s Major Tax-Exempt Foundations as Moving Toward a One-World State
In 1953, Carroll Reece, Congressman from Eastern Tennessee, had his committee begin an investigation into the American Establishment: the Tax-Exempt Foundations. (These are sometimes erroneously cited as the Reese Committee Hearings.) The hearings were held for two weeks. Then, without warning, the committee stopped them.
The Committee’s findings were summarized by the committee’s counsel, Rene Wormser. His book, Foundations (1958), has become a vital document in understanding the leftward drift of America’s elite. Fortunately, it is still in print.
for serious researchers into the secret take-over of the United States, beginning in 1913, this document will open a closed book in American history.
So the Fed props up the billionaires who own the media assets, which distract the hoi polloi from the shenanigans the Fed does…
Can anyone say ‘American Oligarchs’?
It is easy and perhaps excessively imputed, to impute malevolence, but, given the prevailing economic situation, what would you have suggested the FED do?
“What would you have suggested…”
See above.
In very brief,
1) Pulsed (vs. essentially continuous) ZIRP would have wrung out absurd asset overvaluations,
2) Focused tax benefits for primary investments (job creating startups) vs. Existing secondary investments (stock/bond/housing mkts),
3) Some/any evidence of alternative policy experiments at Fed or Treasury for last 20 failed years
As many have said, it’s more to do with stupidity and incompetence of these third rate hucksters than a plan. However, their cover-your-derriere plan is endless printing, and so we have a different level of stupidity.
“Never attribute to malice what can explained by stupidity.”
Robert Hanlon
I don’t even refer to it as public policy anymore, I consider it fraud, theft and economic terrorism against the people of the US. What Jerome Powell and Co. were doing was not even in their mandate. They should be arrested and charged with treason.
This inflation is the mopping up phase of the 40-year class war that most Americans lost while they were watching the culture wars on TV.
I figured out back in the year 2000 that many Americans voted against their economic interests and for their religious prejudices. They made their choices over the years and now they have to live with them. I am still benefiting from the Bush dividend tax cuts of 2003, even though I voted for Al Gore.
Many Americans do a terrible job managing their personal finances and it is not just people with low paying jobs.
Americans voting against their economic interests is usually the best option voters have. Take for example this last election where voting for candidates that promised stimulus checks would have been voting for the economic interests of the voter. All of those transfer payments are contributing to shortages, rising food costs, and rising housing costs.
Voting against your economic interest as a citizen at least means a vote for someone who isn’t pandering to the use of the redistributive powers of the government to pick winners and losers.
And in your case, dividends rose significantly in most publicly traded companies according to the NBER after those tax cuts. If you’re so butt hurt about it, why don’t you write a check to the government giving all of those extra dividends back since 2003?
“Voting against your economic interest as a citizen at least means a vote for someone who isn’t pandering to the use of the redistributive powers of the government to pick winners and losers.”
Brain dead comment. You really believe this? lmao news flash, they are all using the redistributive powers of government to pick winners and losers. The elites have been winning that game for decades. Did you not read the post you’re commenting on?
Government’s power is not about picking winners and losers.
It’s about creating a more stable and equitable society with equality of opportunities, but not outcomes.
With said efforts occurring against a backdrop of elites who constantly game and exploit the political system to their own benefit and to the detriment of the majority of citizens.
BB,
Not to insult you but that is pure BS…
Free market capitalism…
Nobody forced anybody to buy anything from anybody…
People bought Amazon Prime because they thought it benefitted them… not because of Bezos and the stock price…
People didn’t buy Microsoft because of Gates… they used it because it came free on their new PC… there were many alternatives out there but they were too lazy to find them… what they had basically free suited them just fine…
The “elites” as you call them, derived a benefit from people “buying” their products, not because anybody ( government) held a gun to their head…
Understand the basic concept of “ willing buyer, willing seller”….
The government didn’t game that…
People who don’t understand that basic concept have nothing, repeat, nothing to bitch about…
The majority of the citizens are dumber than a box of rocks when it comes to introspective and critical thinking…
Don’t give them more credit than they deserve…
Ask phleep…
He deals with this every day…
COWG,
“Free market capitalism…”
Hahahaha, that was funny. I’m laughing so hard my eyes got teary and I couldn’t read the rest.
On an article like this??? Hahahaha
I wish we had it. What we have is crony capitalism for the rich in normal times and socialism for the rich when things get tough and they get bailed out and made richer at every twist and turn. The Fed manipulates the most important cost of all, the cost of capital, and the Fed creates trillions of dollars to manipulate markets with. The federal government is guaranteeing many trillions of dollars of mortgages, including mortgages of landlords that own big apartment buildings, which brings the borrowing costs down. Etc. etc. There is no “free market capitalism.”
Thank you Wolf.
The Fed has deliberately violated Rule 1: “Capital must have value.”
The “cost of capital” has been driven down to zero, and lower with inflation added to the equation. Of course, not all borrowers are able to take advantage of this manipulation.
And on Rule 2: “Future capital shall have more value than current capital.”
In a few minutes this will change, but 3 Year is @ 2.58% & 30 Year is @ 2.44%.
Wolfster,
You went flying off on a tangent here…
My response was directly related to complaints about the “elites”…
And who made them “elite”…. The people who made a free and conscious choice to use the products and services ….
My point being that if you have helped these people become who they are , then you do not have a right to bitch about it…
Especially, when you have been trying to benefit from these very same “elites” by buying their stock which helped make them more elite…
So yeah, “free market”…. Nobody made you buy the products or the stock that made them “elite”… most people bought into the “elites” because they thought the “elites”were going to make them money…
The economic conditions today only came into being a short while ago…
Many non-elite have benefited from this as well…
Greed, although disguised as altruism at times, is the free market, mon frere, and that is not necessarily bad…
But let’s don’t do the greed is good thing please…
And you can’t tell me you wouldn’t be greedy either…
If the government had a program that paid you 7 million a year to dig ditches, would you not take it and leave the blog… be a fool not to… and not give a damn about those who didn’t get that job… only glad that you were smart enough to take advantage of that opportunity…
You’ve run many articles on the fall of many stocks which would have created more “elites” …what happened? …
The “free market” voted them out by not buying their products and services…
Do I have a problem with elites… not particularly… i have more of a problem with people whose greed made them that way and then complain about it…
I do see your point…. And raise you mine :)
This is easy Buffett,Bloomberg and many others bought up media companies they control content ,really not much different than China Russia
The Reece Committee Hearings (1954): How Leftist Non-Profit Foundations Undermined the Constitution
Congressman Carroll Reece investigated non-profit foundations in 1954. His findings were clear: they were run by Leftists. They were committed to the creation of a one-world government.
Dodd describes the hidden agenda of these large foundations. This agenda collapsed along with the Soviet Union on Christmas day, 1991. It was the most spectacular institutional failure in modern history. The largest and most powerful empire since the Mongols shut down peacefully. In doing so, it shut down the agendas of these foundations and related multinational corporations. They had to re-organize their agenda completely.
The West did virtually nothing to achieve this extraordinary victory. It was done behind the Iron Curtain by dedicated members of decentralized resistance movements. The looming collapse went unnoticed almost until the end, sometime around 1988 and 1989. It caught the West by surprise. Neither the internationalists nor the professional anti-Communists saw it coming.
If these same billionaires didn’t also own the media, everyone in the fed offices would have been dragged out by the hair the 1st time the fed created this boom bust cycle. (Or the 5th time or the 10th time.)
Next is part 2, the bust, where those few at the top gobble up major assets for pennies on the dollar when things fall apart and more competition vanishes. (See 2008) Eventually this path leads to one giant global montsroity which owns everything, and the billion and trillionaires each manage their own segment of it. Oh wait, were already at that part.
724 billionaires now (or recently) versus 13 in 1982 or 1983. The majority of their “wealth” is a bag of hot air because the economy hasn’t produced anything close to that kind of value add in the last 40 years, even adjusted for inflation. Anyone can verify this by looking at the ratio asset values to GDP where estimates are periodically published.
For most, it’s inflated “value” from the mania. But for many, it’s worse than that. They own large or meaningful stakes in companies that have no substance, like Uber which is a ridiculously overpriced taxi dispatch service.
If they are smart enough, they will have already diversified into other still overpriced assets that will at least hold some of its value when this house of cards collapses. My prediction is that vast majority will end up losing most of their wealth anyway, up to 90%+ in the upcoming multi-decade bear market.
It’s not possible to preserve what never actually existed.
Starting to happen. Poor Mark Zuckerberg lost 30% of his wealth in only few days. The greatest con-man of all time Elon Mask is still on the upward momentum. Jeff Bezos is suspended mid-air like Wile E. Coyote at the moment.
Exactly. The redistribution from the wealthy to working people started in the early 30s and lasted over 4 decades. All asset classes deflated together, then asset growth restarted with those owned by working folks.
Oh we’re barely there, so much further to go.
In the near future they’ll have bought up all the residential property so you can’t own real estate assets, only rent it.
They’ll take companies private so there’s no stock market to invest in. Ever wonder why you can’t buy SpaceX stock? The *right* people can and you ain’t in the club.
You won’t own anything, you’ll only be allowed to buy licenses to use products in specific ways for specific times until your rental license is up.
Neo-feudalism is our future where a small oligarchy of billionaires “owns” everything and the 99.9% of serfs are only allowed to rent pieces of whatever price the monopolists decide to charge.
Of course the stock market will survive. Where else can the hedgies dump loser companies they took private and ran recklessly into bancko? (In some cases the same companies over and over)
If all the renters of the USA work together and just don’t pay…. then what?
If it’s one person then it’s an issue, an eviction after some late fees. But if everyone doesn’t pay, then it’s popcorn time! Renter strike.
Could also build databases of large corp owned residential properties for rent and make it widely available. Then people could avoid them, or protest against them.
“ You won’t own anything, you’ll only be allowed to buy licenses to use products in specific ways for specific times until your rental license is up.”
The rise of Microsoft is your example…
Gates bought the original MS-DOS from the creator, then licensed it for what, a dollar a machine, to the PC makers…
There were several versions of DOS that were available but Gates locked up the distribution because if you wanted a different DOS, you had to pay extra…
Since everybody already had it on their machines, that’s what everybody tended to keep…
Same with the Windows follow on… if it came on your machine, you were pretty much going to stay in the Microsoft environment…
I always say the one thing Microsoft gave us was an acceptance of an 80% solution…
You computer guys who have been around since sand, feel free to correct me…
So how soon from now do the unwashed masses gather at the gated communities with torches and pitchforks?
Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.
– Adam Smith, Wealth of Nations, V, 1, ii.
When they are starving and have nothing left to lose!
I was surprised that Liberal Politician Adam Vaughan was still alive after laughing at Canadians on public television and defending the rich global elite.
When there are enough starving & homeless Canadians, the one way bus ride to Bridle Path.
There were lots of Canadians riding the rails looking for work during the Great Depression but no one stormed the estates of the Eaton family at Ardwold Gate in Toronto or the Bronfman mansion in Westmount, Quebec.
Canadian stormed the White House in 1812. Anything but the British compact elite.
I think we’re heading towards Huxley’s Brave New World, where the masses will be given enough freebies to be happy while living under a totalitarian government. I always thought it would be 1984, but it now looks like the other, with all the sex, drugs and endless entertainment to keep those at the bottom happy.
The ones at the top are the ones with all the sex, drugs, and entertainment.
Have you not seen the mega yachts being consficated?
Countries like America, Canada, the UK, EU etc have a “mating crisis” where men are falling under the socio-economic ladder, and as high as 50% of men have not dated in the past year. Meanwhile, the top 1% of men have been as good as ever.
In addition to wealth disparity, there are other disparities. Dating apps have the statistics.
The media will convince the people with torches that they are the enemy of the people with pitchforks, and they will attack each other.
It wasn’t enough for them to steal your wealth, now they want to tell you what you can and cannot eat, how to live, etc. These people need to disappear.
It’s a return to feudal times with indentured servants paying outrageous rents to landowners and minor fiefdoms (such as Blackrock). Only this time around the scenery is colorfully decorated with fast cars and smartphones instead of horses and the town crier.
You mean fast electric cars, dont you?
The Ferrari SF90 Stradale has a 4 liter twin turbo V8 and three electric motors. Not totally electric, but the addition of Maxwell’s equations puts it at the apex.
It is fast. Like, really fast fast.
Dan, Japanese have trains faster than that.
Andy,
Yes, but for six hundred grand, I could drive a Stradale.
Next they want to steal your soul
I’m not using it anyway.
> Next they want to steal your soul
I’m not using it anyway.
I sold mine to the Devil with a 12 month clawback. Just ask your local Wells Fargo bank manager for details.
It would be interesting to know the median wealth of the top 1 percent.
Agree this kind of number (such as net worth by percentile of net worth) is seldom seen. And suspect that’s partly due to the press finding it variously indigestible or unappealing to its owners, but also due to difficulty in calculating.
And agree that median values are often more illuminating than averages.
So, a median figure for the top 1% would tell us something. But would it be very surprising – that is, would it upset our preconceptions? Maybe. It would improve the accuracy of our perception of the typical one-percenter.
But I’m interested in the social and political side effects of concentrated wealth, and wonder how the 1% median wealth number could help understand that.
Given the wealth disparity even within the 1%, it would be a lot more meaningful to stratify it even further.
The main point which isn’t discussed (generally, not specifically on this website) is how this money translates into power which is what ultimately matters on this subject once the numbers get big enough.
I don’t believe very many of the billionaire class are really that influential. Sure, they can buy local influence and sometimes bribe their congressional caucus, but only a very low number are much more influential than that and not all of these people are super wealthy either.
It’s still who you know or being part of a larger group. Most of the (supposedly) super wealthy are new money. My bet is that the old money is still usually a lot more influential, most of the time.
In the “next 40%” group where the average wealth is $775K. the distribution is also still lopsidedly toward the top. According to FRED, the median household net worth was $121K in 2019.
Corporations are people too. They have robotic feelings of increasing the bottom line at all costs; that’s why we have lobbyists.
It would be interesting to see where and how much each of the 1% spend on lobbying efforts.
They must pay off the politicians to help protect the noble interests of their oligarchies and monopolies.
The many industrial complexes help keep our super wealthy overlords in control, and the peons in their place.
Please send that list to my office, so we can rush a bill to outlaw lobbying and put term limits in place.
Gotta start somewhere.
Please send that list to my office, so we can publish it asap. Than-you
As Buffett said,I quote I couldn’t spend my money in a hundred lifetimes ,also think he is one of greatest investors of all time ,just bought a insurance company for 11.6 billion with a 13 billion bond fund = genius
If you buy an insurance company, you also buy the liabilities of that insurance company, including the future payouts. So you have to look at the value of assets minus the value of liabilities to see what you get. Buffett knows this because he runs a huge insurance empire.
Wolf, is there an extra zero typo in these figures?
So here is the average wealth (= assets minus debts) per household, by category in Q4, 2021:
“Top “1%” household (red): $36.2 million.
The 2% to 10% household (yellow): $4.68 million.
The “next 40%” household (purple): $775,000.
The “bottom 50%” household (green): $59,000.
No. But note that this includes durable goods. So for the bottom 50%, it includes cars, furniture, appliances, electronics, etc.
Absolute numbers matter when calculating ROI. Maintaining a minimal positive ROI is required to preserve asset values. The top 1% needs to see $360 billion in returns just to maintain an ROI of 1%, which is actually a negative return in ‘real’ terms.
Likewise, interest payments on the Federal debt are now over $3000 per working person. With total assets by all holders now estimated at $64 trillion, $640 billion per year must be paid out of earned income just to maintain a nominal ROI of 1%.
Everything is about flow. If the flows that sustain ROI go down, the foundation to the house of cards begins to quake. This has happened several times in the last 20 years or so. Once things get so top-heavy, the only options are drops in the value of assets (and probable recession) or inflationary monetary policy.
Once in that trap of top-heaviness – something that those folks in the 30s and 40s tried to avoid with all those financial regulations and progressive tax rates that have been gutted in the last 40 years – there is no painless way out. The least painful strategy is to kick the can by pumping up the money supply to support nominal ROI.
So in these ways, absolute values do matter. They only stop mattering when looking at the value of those dollars relative to commodity and labor costs, something that affects those without assets far more than those who have many.
“Beware, fellow plutocrats, the pitchforks are coming”, Nick Hanauer.
They know history quite well. The pitchfork crowd causes aruckus every once in a while, but never achieve fundamental change. In most cases, the pain inflicted on them in retribution is greater than they were able to inflict.
Violence is only truly effective when administered by those with much power. Otherwise, it’s hardly different than a toddler throwing a violent tantrum. Annoying and possibly destructive, but changes very little.
Wolf, just a remark about the wealth monitor graph that’s been really bothering me, and I’m sure some other long time readers as well.
Could you please plot the data with different wealth scales for each household category for the Y axis? I am sure that will only prove your point better. But hey, men of science gotta be rigorous.
Another way would be to plot the data with relative weight of each category in the total US household wealth or better yet, relative change compared to last quarter/year à la CPI.
In a highly inflationary environment… absolute numbers don’t mean much anymore and relative information is everything.
Merci beaucoup
> absolute numbers don’t mean much anymore and relative information is everything.
Good point. The graphics emphasize one relative disparity but I can look around me and see not everyone is in squalor, as they might be read to suggest, by the relative compression at the bottom. Something on purchasing power decade by decade would be helpful too.
Yes a logarithmic scale would be great for the y axis
I was going to ask about the “logarithmic” y axis.
It’s interesting that if you divide the the “Wealth Disparity Monitor” chart 1989 to 2021 graph into 2 equal timeframes:
1989 to 2005:
Increase from 5 Million to 14 Million (180% increase)
2006 to 2021:
Increase from 14 Million to 36 Million (157% increase)
So the last 15 years were slightly less bad than the 1989 to 2005 period?!
Also, if the “pullback” in 2007 to 2009 is any guide, the upcoming reversion in the wealth effect should be a doozy: maybe 20%, would knock the effect back to 27 Million.
Thanks Wolf for including the link to Wealth Effect” article, which succinctly reveals just how manipulative the Fed really is.
One other thing: my take is that the Fed’s ultimate goal is NOT to help the rich, but to help the Fed’s dual constituencies: the Politicians, and the Bankers. The rest of us suffer the consequences of endless deficits and declining purchasing power.
Oops: 25% would knock back the effect to 27 Million (Where I wrote 20%)
Andrew,
You’re being sarcastic, right? Log scales are used in finance specifically to hide this type of reality, namely the cumulative effects of wealth where wealth begets more wealth during times of asset price inflation. The cumulative effects of wealth is what creates this wealth disparity.
Wolf-
Probably an obtuse question, but I’m trying to understand if the problem of growing wealth disparity is getting progressively worse, as it appears visually in your “Wealth Disparity Monitor,” or if it is a cumulative but linear problem that corrects itself with the asset price correction most commenters predict?
Perhaps a different way to ask: does a major asset price depression correct (or at least interrupt) the growth in wealth disparity, or might it actually enhance the problem?
Thanks
John H.
Yes, a 50% decline in asset prices across the board would cut the wealth disparity roughly in half — back where it was a few years ago. For society overall, this would be hugely beneficial, including because it would stop inflation in its tracks and would bring down the costs of living for lots of people, including housing costs, though there would be a lot of wailing and gnashing of teeth among asset holders, who’ve gotten bailed out at every twist and turn.
I’ve been posting this monitor every quarter starting mid-2021, and will continue to do so. If we get a visible decline in wealth disparity, I will make sure to point it out in the headline.
We’ve had this discussion before. Wouldn’t that actually make the difference seem LESS extreme?
Hussman believes price to sales is better long term valuation metric because profit margins tend to mean revert. We might be going through a pendulum shift politically where labor has more power and profit margins get cut in half making stocks revert back to normal P/S of one.
Frengineer,
Would you like me to use chart tricks to hide reality? Use a different scale for each category to hide the wealth disparity between them? Use log scales to completely hide the reality? Log scales are used to hide the cumulative effects of wealth where wealth begets more wealth, which creates this wealth disparity. And you want me to adjust the numbers to asset price inflation, which would turn the top near-exponential curve into a straight line, because that’s what it represents? There would be a million ways to hide this reality in a chart.
This is the un-adjusted reality.
Look at the second chart near the bottom. This is wealth disparity in dollars between the 1% and the bottom 50%.
I know it hurts. But that’s what it is. People — including you — need to see it and understand what is going on and not try to use chart tricks to cover it up or to justify it.
Since we’re asking nicely…
Can you adjust the chart so I’m in the top 10% so I can show the lady at the bank….
A very small request that would benefit me greatly….
Thank you… :)
Working on it.
Great job Wolf. Great data. Might be getting poorer by the day but I sure love consuming your data and reading the colorful comments.
One more year of this inflation rate, and people will just start stealing as a way of life. If you are a small business owner selling goods, close your doors now.
Depending on which city you live in, this has already been transpiring.
a muffler repair shop i have frequented throughout the past 35 years and the owner said “i had my best year last year”. i was there to get a catalytic converter (not due to theft). a veteran police officer was gunned down by a 17 year old trying to stop thieves in a shopping center this week in the same large city. they were stealing catalytic converters. we are already there imo. theft and gun violence are raging in my murder capital.
I’m in Houston and this crap is going on everywhere.
JeffD,
For about the last 40 years, most illegal drugs have been purchased with proceeds from stolen goods…
I’m glad you said MOST because when my kids were buying that crap they were using my money.
Not that I know this personally…
But there were times when you needed something, say a new “dishwasher”, and “poof”, if you knew the right people, said requested item would magically be available, brand new in the box…
Effing incredible, I would say…
Just another day in paradise, would be the response…
Capitalism 101…
All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.
– Adam Smith, Wealth of Nations, III, iv
Thanks for the Adam Smith quotes!
Wherever there is great property, there is great inequality… for one very rich man, there must be at least five hundred poor.
– Adam Smith, Wealth of Nations, V, 1, ii.
yvw
Since the pandemic began, a new billionaire has been created every 26 hours. Income Inequality is deadly. It contributes to the deaths of at least 21,300 people each day— or one person every four seconds. With the massive food shortages next year (rising costs and fertilizer and seed shortages) many nations will be in absolute turmoil — the pitchforks and the mobs will be global.
@ Seattle Guy
You are absolutely correct.
Even before the food shortages related to the Ukraine war, more people died of starvation globally than died of Covid during the pandemic according to Oxfam.
The Arab Spring events are going to to look tame in comparison to what is coming if a lot of things don’t get better very soon.
Wolf,
Excellent post, and I really like what you said at the beginning:
“The Fed’s own data on the distribution of wealth in the US is a quarterly report card on the Fed’s official policy goal of the “Wealth Effect.” It has now released the data for Q4. The Fed uses monetary policies, such as QE and interest rate repression, to create asset price inflation and make a relatively small number of large asset holders vastly wealthier so that – “THEY MIGHT SPEND MORE” – (I made the last part in capitals)
Ahhhh – the good ole “Trickle Down Theory” that has been proven not to work as Pres Hoover found out and many others politicos who seem to believe it works, – but doesn’t for the common folks who get hurt the most, and bear the burden of “Champaign spending” for the rich.
Other countries have tried this and failed as many studies have shown.
A repeat of history is on it’s way, or I should say we are in the midst of a a profound correction, transition, except this time it’s compounded by unknown geo-political factors, political unrest, supply issues, monetary war, pandemic, and a war that may expand beyond Ukraine, – with devastating consequences for all.
So many dislocations have been teed up now. What is tragic is the human energy that could have gone into community, that may well now go into conflict. The young people I teach in college are willing to be reasonable and participate, if any reasonable path appears before them. I fear this will disappear, their good will and the willingness to play by the rulebook, the rule of law. What will appear will be bitterness. We at the precarious lower edge of the remaining middle class are in the thick of it — we have no second homes in Wyoming to retreat to!
For anyone falling into the culture wars and demonizing me as a gov employee: I have a law degree and many years former practice in law, and have taught college 37 years. My salary and benefits are, seriously, no exaggeration whatsoever, in the working-poor range. I do what I do (teach business law) because it makes me a contributing member of society, because it has meaning.
The cheap-seats culture war is how the masters of the universe will keep us squabbling and distracted, and set us against each other.
“The cheap-seats culture war is how the masters of the universe will keep us squabbling and distracted, and set us against each other.”
Excellent point. Media is very good at feeding people on both sides of the political spectrum what they want to hear.
Much of the rancor is over issues of little importance. It’s the Hatfields and McCoys fighting over meaningless stuff. Meanwhile the primary elections are visibly corrupt. How did the person running 9th in the presidential primaries win the nomination? The election prior to this one was also corrupt.
Never heard much about that from the media. That’s why nothing ever changes in gov’t. All the same old cronies in power.
Well, at least here in Murica – land of TV pHarma ads and big-ass pickups, the red apes fling poo, as the blue simps return the favor … All for show, of course, as they divy the gifted proceeds behind the media-wide cloaking device(s).
So the question basically becomes: ‘Who picks Your Jingo? .. and do You buy into it..
What is tragic is that the resources that went into the war in Iraq could have been used to improve life in the US for millions of Americans. Even after the fiascos in Iraq and Afghanistan, the US continued to interfere in the affairs of foreign countries who elected leaders that the US did not like.
Well this time the Europeans, Americans, Japanese, and the poor in the rest of the world are going to end up paying for in higher prices for everything.
The developed countries deserve it too.
I hope it gets so bad in the developed countries that there is real reform as a result, but too bad that people in other parts of the will face hunger and starvation.
The politicians in the developed world could care les about people in the third world and their problems.
Been listening to Lacy Hunt as much as possible. He has very unique background and phd in economics plus is 80 years old so he should have learned a little.
His basic thesis is (Japan, China, Europe and US have too much debt in that order) and demographics are poor so growth rates will be lower and lower. Central banks playing money games can’t fix the problem. Only answer is the politically unsavory one of less consumption and more savings to increase capital investment and build productivity so debt service doesn’t slowly asphyxiate us.
The problem with increasing capital investment and productivity is that economic systems are rigged to guarantee the proceeds benefit only the parasites at the top. Hunt is blinkered, promotes the interests of the <1% and is on the Ruthless Exploiter side of the class war.
More "growth" cannot be the answer: humanity resembles nothing so much as a bacterial culture that has used up its petri dish, plundering what's left of its resources and choking on its own waste production. "Growth" is the ideology of the cancer cell.
What part of "unsustainable" didn't you understand?
What part of “less consumption” don’t you understand? That’s fundamental to any notion of sustainability.
Hey Bead, ten million people die of starvation every year. They have the ‘less consumption’ thing down. Doubling that number a few times won’t compensate for the ‘more consumption’ thing on the other end of the scale. The billionaire class doesn’t tighten its belt. They order bigger superyachts. You and Lacy Hunt would never admit it, but you both know that austerity is strictly for the proletariat.
You should be noted
that the “less consumption” has to occur at the top level. Those in the bottom half are barely consuming the minimum necessary to survive.
Love your comment.
Hunt overlooked the point that all the profit was pushed up the ladder and all the debt kicked down the stairs. He’s going to need luck selling austerity to people who are broke and pissed.
We can grow wealthier and live much lighter on the earth 🌎. Buckminster Fuller devoted his life to demonstrating the principle of ephemeralization. Capital investment IS required, so we can replace harmful technologies.
I agree with Hunt on most of his points
In his interview with Danielle Di Martino booth last fall one of the more salient points of his conversations were about how trillions could have been put to far more productive use by retooling skills of Americans
Imagine if the trillions wasted from 2020-2021 went to providing free worker training and education?
We would have had far less crime, people would be far better off and in position to pivot to different jobs and industries, and perhaps even some economic growth could have come out of fewer unfilled jobs
But that would never happen. Politicians wouldn’t be able to sell that and people don’t have the personal motivation or drive to do such things due to laziness
Right. People who struggle to hold down three part-time jobs have only their own laziness to blame for their poverty, as do unemployed STEM graduates.
Blaming the victim is a form of the petitio principii fallacy favored by mouthpieces of the ruling class, and only less popular than the Straw Man fallacy.
Minus ten.
I’ve just finished prepping and planting this year’s spring vegie crop, pruned and fertilized (with polecat’s proprietary compost blend) the various berries and fruit trees, with the hens a layin .. and the honeybees having come out of winter dormancy like there’s no tomorrow .. so I Be A Richman! ‘;]
.. at least for another turn the seasons – something many ‘high ass et’ folk can’t begin to grok .. as they’ve no idea how to create/husband any of the above, should their ego-inflated lives ever falter down to depend on it! I do this on a typical city lot..
I should add that we’re on the low end of that household ‘wealth’ chart Wolf provided, and should things really come unglued .. then possession will remain MY 9/10s of the forth turning law .. the .gov pmcs will have to go pound sand!
“ I’ve just finished prepping and planting this year’s spring vegie crop, pruned and fertilized (with polecat’s proprietary compost blend)”
Polecat,
You can’t fool old country folk…
We know the septic drain field runs through the garden…
“Kids, the corn isn’t growing very good, we’re having broccoli for dinner”
:)
Well COWG, IF things get as hinky as I think they will, then .. those of us anyway who survive the fall/disruptions of both government ‘discombobulations’ and ‘essential’ goods – be they imported or domestic – may have to get over the ickyness factor of creating humanure to supplement whatever other kinds of fert obtainable to grow our own food as to not starve! Hell, some professions of old may very well become fashionable again.
‘Make Nightsoil Great Again’
Betcha haven’t seen THAT emblazoned on a cap .. Yet!
Polecat,
I want a big red cap that says on the front, “ Recycling before recycling was cool”….
And on the back , “Ask me what I mean”…
Good on ya, brother!
“Imagine if the trillions wasted from 2020-2021 went to providing free worker training and education?”
New Mexico just started a free college program for all residents at a time when college and vocational enrollments are declining. It is the most comprehensive program in the country and one to watch. I hope it is wildly successful…
training and education for what? There was a time when the best lessons learned were in the workplace. If you transfer the workplace to China, there goes that end.
cb-agree, but much of the overseas transfer followed many, many workplaces eschewing ANY serious investment in employee training/education/retention…
may we all find a better day.
Whenever I read about supposed solutions, it’s always in the unspoken context of escaping the consequences of previously living collectively beyond society’s means. That’s what has happened as evidenced by current debt levels.
There is no escaping it. Redistributing the wealth of the (supposedly) super rich makes good politics and will make a lot of people feel better. It won’t do much to keep the majority of the population’s living standards from declining or crashing. This inflated fake wealth can’t be redistributed to the population and then used at any scale in the real economy, as the production doesn’t exist to absorb it at anywhere near current prices.
In making these comments, this doesn’t mean I agree with the FRB’s monetary policy (I do not) and it doesn’t mean I agree with the ability of the rich to buy political influence either.
I just know that no matter what solution anyone proposes (here or anywhere) won’t make prevent collective future living standards from declining or crashing at this point because it will not.
There is never something for nothing. The inflated debts which substantially represent excessive past consumption must be paid through lower future living standards.
AF
“Declining living standards”….
Truly a vague statement……whatever could it mean ?
Here is something much more concrete……Prepare to live as the Amish do.
Very true. The financial economy is most sound when it is most aligned with the production economy. When they are out of whack, problems develop in the fiancial economy that can then impact the production economy, depending on how they are addressed.
The US has long been using debt to pay for the avalanche of products we receive from overseas. We will never pay off those debts. Nor do most holders of that debt expect us to. Most just want us to make good on the interest payments, thus preserving some measure of the value of those holdings.
The FRB will assuredly choose to print up more money rather than let the Fed Gov default on its debt servicing.
A grand crash that quickly resets everything is unlikely in the US. Rather, the bottom half will be slowly but steadily squeezed. Government subsidies to the bottom will mitigate that to some extent, but will also lead to more inflation. The inflation will in turn hit poorer nations and the poorer folks in the nations of major trade partners even harder.
Once wealth accumulation becomes top-heavy, at the top, it is just about impossible to reverse it without, as always, inflicting much pain on the bottom.
This is in line with the universal fact of all hierarchical systems that the people at the bottom always pay the most, one way or another, for the mistakes and excesses of those at the top.
As I’ve said before, Hunt is a former central banker who believes in central bank control, avoiding defaults and recessions, and servicing debts until the cows come home. That’s why he recommends buying 30-year treasuries that pay 2%.
Multiply Hunt’s imagination by 100, then we’ll be entering the zone of reality. It starts with a disgruntled population taking control from central bankers as a result of massive wealth disparity.
The only way to decrease wealth disparity is to let asset prices drop, let speculators default on debts, let under-capitalized banks fail, and enforce progressive tax rates. Also, all the too-big-to-fail entities in all industries need to be broken up. That would finally give prudent savers and decision-makers a say in our economy. People and companies would actually be able to invest with an expectation of reasonable return over time, without fear of a 75% price crash.
We need to take a 40% price crash to avoid an 80% price crash down the road.
Crypto offers an actual possibility of subverting the power of central banks. Hence, it will be regulated and controlled until it no longer offers that possibilty.
It should be pretty clear by now that the folks running the show here are deadset on US hegemony over the global financial system. No amount of ‘sacrifice’ by the average sorts is too much in service of that goal.
Brian Dawson,
There are now 9,849 cryptos out there. There are more cryptos out there than casinos in the entire world. They’re just gambling tokens. And bitcoin is down 18% year-over-year and 30% from November. The house always wins in casinos.
It’s bitcoin or nothing. Get the word crypto out of your vocabulary.
I bought 16 nothings today.
Glad I bought nothings. Bitcoin isn’t doing very well, as you know. It’s down 20% year-over-year on top of having lost 8% due to inflation. Bitcoin is really a shitty hedge against inflation. I prefer the nothings.
Bobber said: “The only way to decrease wealth disparity is to let asset prices drop”
—————————————-
How does that undo wealth disparity if the same entities own the assets. Concentrated wealth and power ruins free society and free markets. When asset ownership is concentrated, asset owners rule non owners.
With asset prices lower, defaults occur, and ownership changes hands. New players and new generations are able to gain asset ownership. Assets are transferred from speculators and bad players to steadier hands.
@Bobber –
I am enjoying your commentary in this thread, and you might be right. I doubt it on a big picture basis. A few assets might be jostled about, but I think those steadier hands are typically the well healed.
bobber has it correct in my very very extensive reading of her and history!
Given the opportunity to SAVE,,, each and every “Little Old Lady — of each and every AGE and gender to be sure” will save their gold in the good times/booms,,, and then buy real assets in the busts/bank runs.”
THAT was the clear message that was the foundation of the FRB; after all, we cannot have WE the PEONs literally out foxing the banksters,,, can WE???
Now that we have $600 TRILLION of ”paper wealth” of all kinds,,, this lesson should have been learned, and likely WAS and IS being learned by the LOLadies of all kinds…
Good Luck to all who will continue to gamble in the casinos of SMs, etc., etc.
And, May the GREAT SPIRITS bless us all.
I made the mistake of listening to Lacy too as he sounds very knowledgeable but he was blatantly wrong on inflation.
How can such smart and experienced people be so wrong?
Lacy had a strong narrative and nice charts showing how deflation was the way ahead and the money injected by Fed and government programs was insufficient to stall deflation.
He only saw inflation if the Fed mandate was changed and her liabilities became money.
I wish he had the courage to come out and say he was plainly wrong.
It goes to show that in those matters, no one really knows anything, no one.
“It goes to show that in those matters, no one really knows anything, no one.”
Of course they do. They just lie, that’s all…
Oldschool said: “Only answer is the politically unsavory one of less consumption and more savings to increase capital investment and build productivity so debt service doesn’t slowly asphyxiate us.”
——————————————–
What does savings have to do with capital investment in a system where money can be created at will?
It would be interesting to be able to compare asset growth rates now to the 1920s and or the 1970s
The 1920’s was a time of great asset appreciation, the 1970’s was not.
Inflation and housing went through the roof in the late 70’s in southern California.
This is the most asset inflation in history. David Stockman has dug into all this data. Michael Oliver also shows this in his MSA momentum charts. Wolf’s work shows this as well.
Ooooh,
Stockman…
Go back and read the crap he and Reagan did…
Ever wonder why his only job is to sell bullshit for advertising…
BTW, Santa Claus is real..
If that helps
Is there an end to this and if yes, when that’s going to be?
Yes and now.
“Is there an end to this and if yes, when that’s going to be?”
It does not pay a prophet to be too specific.
The Collapse is a process, not an event. TPTB are preparing for it with their own processes, and there have been numerous milestones over the last forty years: regulatory capture, assorted tax gifts and other favorable legislation, the Citizens United decision, and so forth. There are extensive lists.
They’re grabbing everything they can like there’s no tomorrow, because they know that someday soon there won’t be one. These guys are anything but stupid, and they plan to survive the worst in style.
There have been numerous explanations, going back all the way to Jefferson and Adam Smith, as well as more recent expert expositors. For example:
“… the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”
Quigley, Carroll. ‘Tragedy and Hope: A History of the World in Our Time’. New York: Macmillan, 1966. Print.
It gets worse the more you look at it.
Around 90 million people die every year of preventable disease and starvation, and those numbers are projected to start ramping up about 2030. It’ll be ugly. After that, it’ll be weird ugly. You might like to consider investing in productive resources, rather than financial instruments.
What does the 1% invest in that the 2-9% does not?
Politicians
Bingo!
Govt supports big corporate spending and corporations give big donations. The latest smash and grab coming from DC should be a doozy.
Excellent! The whole situation in one word.
Yes, and it’s the only possible outcome from activist big government fiscal and tax policy.
There is no such thing as activist big government existing for the benefit of the majority.
The only option to drastically reduce (not end) “pay to play” is to radically shrink the scale of government so that it has a lot less to sell.
AF
Let’s start with the Pentagon.
Also all those overcharging military contractors.
I agree. Foreign policy needs to radically change and defense spending with it.
Yeah .. we could convert the Pentagram into one giant shopping mall instead…..
oh wait!
.. perhaps, on further thought, an enormous ashtray might be a better use of said space .. let’s do That!
Thanks for publishing an article on economics that counters the spam being put out by extremely filthy rich oligarchs and their paid professional liars.
And you can clearly see the great difference different political parties being in charge makes. So VOTE yourselves out of this! /s
Sadly, both parties seem to agree that a command economy through central banking, interest rate manipulation and monetary meddling is a workable AND sustainable solution to the economic problem.
Keynes is dead, but his offspring has grown into a giant.
OK, and what are the feasible alternatives?
Duh.
Hate to be a smartaxxe, but isn’t it obvious?
Recession, asset price discovery, followed by sustainable growth.
Contrary to central bank thinking, recessions ARE necessary. Speculative asset pricing is NOT normal.
John H. wrote:”Keynes is dead, but his offspring has grown into a giant.”
Keynes is indeed dead. But I don’t think you know anything about his theories.
He wanted to have the government to spend on the Poors during Hard Times, and balance the budget when things were good.
He never said to subsidize the wealthy and hope that it would trickle down.
Old Ghost-
Keynes was in favor of removing the mechanisms of discipline in federal spending in an attempt to preserve jobs.
Stimulative spending, though perhaps laudatory in the short run, has proved unsustainable in the long run. Fiscal stimulus, like monetary stimulus, leads to exactly the kind of excesses we’re experiencing today.
The idea of more govt spending in down cycles, and then returning to a balanced budget in good times sounds great on paper… but it never really worked that way, did it? And here we are.
“The question of Keynes’s role in history is essentially one of how his teaching could succeed once more in opening the floodgates of inflation after it had become generally recognized that the temporary gain in employment achieved by credit expansion had necessarily to be paid for by even more severe unemployment at a later stage.”
-F.A. Hayek
“The Collected Works of F.A. Hayek, Vol. 9: – Contra Keynes and Cambridge, edited by Bruce Caldwell
This isn’t Keynes, buy a Keynesian:
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”
– Paul Krugman, N.Y. Times, Op-ed, August 8, 2002
Krugman, like Keynes, wanted to have the govt “spend on the Poors,” as you aptly out it. His prescription came to fruition, and GFC proved Hayek right, I’d say.
John H. wrote: “Krugman, like Keynes, wanted to have the govt “spend on the Poors,” as you aptly out it. His prescription came to fruition, and GFC proved Hayek right, I’d say.”
So…….now you have confused Krugman with Keynes. You really know nothing about economics, or the history thereof.
Krugman bailed out your wealthy friends, the TBTF banks. I would call him a trickle down guy.
Keynes wanted to put the Poors to work. Sure, some of it would have been make work. But Keynes knew it would trickle up. Big difference.
Hayek was a bought and paid for propagandist by the Super Rich of his day. Their only goal was to destroy the New Deal. Hayek’s books are propaganda. You can throw his books in the trash.
OG-
On your direction, I will dispense with Hayek. Also Hutt, Huerta De Soto, Salerno, Hazlitt, Groseclose, Palyi, and of course Mises… and that rapscalion Rothbard!
I will hang on to my copies of the General Theory and Economic Consequences of the Peace, along with Picketty, Moulton, Boulding, Samuelson (oh, I might have tossed that already), Alvin Hanson, and Heller.
Not sure what to do with Wapshott or old printings of Alexander Gray…
The gig is about up. The rock and hard place are converging quickly. I suspect the housing market will have to be allowed to crash. The inflationary policies and interest rate repression have chased just about everyone into real estate from big hedge funds to grandma looking for enough passive income on life savings to get by to foreigners. The GED has killed just about evey other conservative safe investment option. If they don’t pop it and chase all the investors and speculators out then SSI payments will need to adjust up dramatically and there will be massive civil unrest and social decay due to inability for regular people to secure housing. Big cities are already having this problem and it has been spreading rapidly to the smaller ones.
FED (not GED) autocorrect strikes again
I’m in this boat myself. Before my last real estate purchase the tellers at my bank would look at my balance and ask if I had considered x, y, z at their bank almost every time I came in. I’d ask if any of their rates were above 2 percent. No? Then why are you asking me to potentially impair the liquidity of my cash even a tiny amount for yields well below what I get for maybe an hour or two at work?
If savings interest were 5-6 percent like when I was a kid I’d just leave the money in the bank. Landlording is a tricky and often frustrating way to make money. Not my preference but at present one of the few options.
Not a Keynes fan but to be fair we’ve never been truly Keynesian, just the “spendy” part. The savings for a rainy day that Keynes advocated during the good times never happened because all we did was borrow and spend.
Central planning is a Marxist concept. The central banks are politburos.
I can clearly see that it is a fiction that the party in charge makes a difference.
Problem is we fail to realize they are 2 giant monopolies backed by the lords of silicon valley. 3rd party? Will be laughed off of MSM.
Silicon valley? Their wealth pales in comparison to bankers
Everyone knows bankers rule the world
Why would a third party make a difference?
European countries have many more parties. Is there a single one of any relevance that hasn’t already been captured by the money interests?
I can think of maybe one (in France) but not even sure about that.
Peanut Gallery
I am guessing the bankers include the behemoth Private Equity / Hedge Funds like Blackrock. I think they control 7 trillion or more.
They are just buying up property left and right.
One of the greatest economic virtual of the U.S. Government in the past was to limit monopolies.
They do nothing to stop monopolies now.
It is time for people to start forming coops owned by the people.
Representative democracy no longer exists in the USA, unless by “representative democracy” you mean that the politicians in Washington represent their own interests and those of the oligarchs.
The total market value for all stocks is now over $40 trillion in the US and there is NO WAY THAT CAN BE EVER CASHIERED OUT when the US Money Supply is less than $22 trillion. And the valuation for stocks obviously doesn’t take into account the valuation for bonds which are now in the $60 trillion range with around $30 trillion in US Treasures and another $30 trillion or so in corporate bondss. And that is leaving aside the value of all real estate in the US. So just how can the US function on such a tiny money supply of only $22 trillion relative to the ‘value’ of other assets? And just why is the Federal Reserve being blamed this manic speculative rise in the ‘value’ of those other assets when the actual money supply as measured by M2 is so small in 2022?
It’s about artificially repressed interest rates that cause a reach for yield, in addition to the money supply.
This is the second time you’ve disregarded the obvious in this tread.
“The total market value for all stocks is now over $40 trillion in the US and there is NO WAY THAT CAN BE EVER CASHIERED OUT when the US Money Supply is less than $22 trillion.”
Well, the tragedy is the fake $40 T valuation, that is what has to be fixed.
But the stimulus and handouts during the pandemic have proven most people are gluttons and spoiled crybabies anyway. Got free money? Blow it on unneeded inflated priced junk instead of more important things.
Some used the funds to get a little further ahead and stay ahead, most didn’t. Yeah, stuff is more expensive, but it all depends more on if you are loaded down with ungodly payments for new trucks and having to fill them up with $5 gas to continue the fun.
Anyone prudent nowadays that is happy with what they already have just wish, was it Jefferson who said–
people most want the freedom to be left the hell alone.
Brant-a problem with thinking one can just be ‘left alone’ (and i don’t quibble with the sentiment) is that the world-eventually, unbidden, and wearing a myriad of dress, WILL cross your doorstep…
may we all find a better day.
I’ve heard that the Ontario government is planning to freeze or cut welfare (Ontario Works) and disability (ODSP) rates to give to the wealthy via tax breaks.
Capital, land, and labor form the price of everything.
The US has a debt based monetary system, and all borrowing requires collateral when issuing the debt. Indentured servitude is outlawed in the US so you can’t collateralize labor when borrowing.
Therefore, when the US borrows trillions, it collateralizes securities, where those securities represent what we consider to be capital. When other entities borrow, they collateralize securities representing land and capital. This pushes up the price of land and capital, and the real price of labor falls in relation. Thus you get low unemployment as asset prices move steadily upward.
Not the way the constitution established the monetary system, but that’s the way it currently is.
Aren’t student loans a form of collateralized labor?
Can’t be discharged in bankruptcy. Unsecured.
The whole idea of debt is that borrowing should earn a return that more than pays the debt service. A lot of student loans were unproductive as the loan didn’t help the person get a better job and will eventually be defaulted on with taxpayer picking up the tab.
A lot of spending OPM is nonproductive debt. A dollar spent poorly is not the same as a dollar spent wisely.
This is exactly why the government should not back student loans, or any other loans. It disconnects the decision to lend from the consequences of doing so.
Wrong, most debt isn’t collateralized, unless by “collateral” you mean future cash flow. That’s not real collateral since creditors don’t have much and usually anything they can seize.to satisfy repayment.
The low proportion of debt with actual collateral is inflated by the mania. Sure, real estate mortgages are collateralized, but much or most of it is at bubble level prices. Car loans by a depreciating “asset” where the borrower is in the hole most of the loan term.
The majority of supposedly collateralized lending is with someone else’s debt (such as asset based securitization) or ridiculously inflated stocks. Or, re-hypothecated “assets”.
It’s a house of cards.
I will concede I’m wrong when you show me what material loans the federal reserve board makes unsecured and when the treasury issues federal reserve notes to the federal reserve board unsecured. That is my point.
12 USC §412 is a good starting point.
Your initial post didn’t
Your prior post didn’t mention Federal Reserve lending.
And even if you had, it’s still an immaterial proportion of all USD lending.
You are still wrong.
“ Capital, land, and labor form the price of everything.”
Wrong… what a willing buyer will pay a willing seller forms the price of everything…
“ The US has a debt based monetary system, and all borrowing requires collateral when issuing the debt. Indentured servitude is outlawed in the US so you can’t collateralize labor when borrowing.”
Wrong again, Aaron…
Labor certainly can be collateralized as is done everyday with many forms of lending.. one of the earliest examples would be the “company store”…
“ When other entities borrow, they collateralize securities representing land and capital. This pushes up the price of land and capital, and the real price of labor falls in relation…”
Many tech and internet companies have monetized an “idea”, nothing physical… hoping to capitalize the flow of money (primarily the “eyeballs”) and ad revenue, versus land and capital…
Augustus is correct…
It should at least be mentioned that YE 2021 is near what may be an asset bubble peak. When the bubble breaks, the richest people will also lose the most. This especially applies to the chart that begins in 1989.
Having the data stop at YE 2021 inadvertently (I assume) exaggerates the wealth gap, when a fair comparison would be using a 10 year moving average.
Even with a 10 year moving average, the wealth gap would still make a lot of people lose interest in capitalism.
N the rich connected don’t lose money they’ll short the markets and make a legal killing= more money
Baloney.
The rich own most of the financial assets when they are high priced (bubble peak), medium priced and low priced (bear market trough).
Their wealth, as a group, rises and falls with asset prices. There may be a few who make big profits with short sales, but not many.
Nope. Most of the ‘wealth’ of the richest folks is in stocks in which they are ‘long’ in stocks. Very few of those people – except a minority in hedge funds play the shorting game in stocks.
A few of the ultrawealthy will preserve their wealth by shorting the bubble, as John Paulson did during the real estate bubble. Most can’t, for various reasons. A few more are long precious metals and commodities, e.g., Jim Rogers, Eric Sprott. The ultrarich will sustain the greatest losses in the asset trainwreck, and that is happening now. Diversification won’t help, because all assets are inflated by the megabubble.
If so, then what would they be ‘interested’ in?
Fed Zirp policy has a perverse out come. If a long bond only pays 1% then that means people are willing to accept lower returns on risky assets and you can get crazy values in the junk bond and equity markets as a 10% hurdle rate is tossed aside for a 3 – 4% hurdle rate in other words assets valued 2.5 – 3.3 times normal values.
Why do that? Central bankers’ have shown they will do anything to preserve existing wealth and avoid recession.
I like the chart as is. It better reflects the central bank policy we are forced to live with every day. In their view, there will never be a recession or a material drop in asset prices.
This is a great article, and the subject is getting little coverage at other financial websites.
I imagine the numbers atre very rough estimates, not easy for a person to caulate their own wealth.
A possible big story heating up now: Putin’s battle with he EU — demanding payments for natural gas in rubles. The EU refusing, claiming that’s blackmail, and their contracts call for paying in Euros. Putin does not seem like the kind of dictator to demand something, and then quickly back down, saying “never mind”. So this could be a big deal for Germany and other EU nations.
Wolf, can you do an article on investing on TreasuryDirect? My goal is simply value preservation. There are too many choices and it’s difficult to navigate. I read somewhere that TIPS work best in a environment of high inflation and rising interest rates. How about TIPS funds? Any tips?
You need to research TIPS carefully. They’re not for everyone, for a variety of reasons. Investopedia is a good place to start for a summary of the pros and cons of TIPS.
Bottom line……JP did his job. Reconfirmed by the Congress.
Hired by the rich, to protect the rich. Yep, those votes you cast mean so much. They still have not approached balancing Social security or medicare……while they throw cash at all their friends…..and this is the congress that is supposed to care about the middle class…….can’t wait to see what happens when the guys who supposedly are opposed to SS take over.
I find it curious that what seems to be ignored in the diatribe against low interest rates is that the poor do not lend money they borrow money because they have no money to lend. It is the rich that have money to lend and therefore should be hurt by low interest rates not the poor. For whom a low interest rate can mean the difference between qualifying for a mortgage to buy their first home and not qualifying for a mortgage.
fred:
Low interest rates only benefit the poor in times of stable prices. Interest rates fluctuate… and as anyone should know, it’s not the “payment” that matters, but the price paid. It’s easier to pay off a $250K house than it is a $500K house with all things being equal.
But most people have been taught to buy a payment and that is usually not the best path to prosperity.
The Federal Reserve shouldn’t be monkeying with interest rates in the first place. When they reduce interest rates below market rates, they only encourage poor folk to take on excessive debt. They’ll never get ahead. At the same time, it encourages a “reach for yield” and excessive speculative, while punishing prudent investors with a long-term view.
The best way to help the poor is fiscal and tax policy. It’s much more targeted. Central bankers need to stay out of matters they don’t have the tools to deal with. And, as an unelected body, they should’t be “filling in” for legislators. Legislators should manage how wealth is earned and distributed in our economy, not the Federal Reserve. If you don’t like the job they are doing, vote them out.
At most, the Federal Reserve only sets POLICY GUIDANCE INTEREST RATES, and never sets any interest rates that matter in the US economy. In fact, it only sets / influence 3 rates:
1) Federal Funds Rate (advisory interbank overnight lending rate)
2) Federal Discount Rate (rarely used bank borrowing rate direct from the Federal Reserve which is set at 0.5% higher than the Federal Funds Rate)
3) IOER (Interest on Excess Reserves Rate paid to banks by the Federal Reserve for excess funds they have in reserve accounts inside the Federal Reserve.
None of these rates have anything to do with what the US federal government pays in interest on US government which which is set in the free and enormous US Treasury markets for each duration of US Treasury bonds, bills, and notes that run from 1 month to 30 year maturities.
If the Fed cannot influence long-term rates, why does it buy treasury bonds and MBS in the first place?
The Fed drives the market, and the Fed knows it. Wall Street knows it.
The Federal Reserve only owns about 14% of outstanding US Treasuries. The US government itself is the largest holder of US Treasuries through the Social Security and Medicare Trust Funds to the tune of around $6 trillion which is around 20%. The Federal Reserve’s influence is far less than the other 86% of bidders who buy US Treasuries which are seen as the safest and most secure investments in the world and which are seen as US cash equivalents.
SoCalBeachDude,
Your first comment:
I’m so tired of still having to read this million-times-debunked nonsense that is getting spread around out there.
1. You’re uninformed about the rates that the Fed controls: It controls 5 (five) rates not 3. You left out the two most important rates, that hugely matter because they put a floor and a ceiling on the rates in the multi-trillion-dollar repo market, which is THE most important short-term funding market:
— the interest it charges on Repos (0.50%)
— the interest it pays on Overnight Reverse Repos (0.30%).
2. Fed “follows” the 3-month yield = BS because…
One of the Fed’s fundamental operating procedures is that the Fed tells the market what it is going to do MONTHS ahead of time. With this Fed (not the Fed from 50 years ago), there are no surprises.
To communicate what it will do, the Fed uses the “dot plot,” speeches by Fed governors, Powell’s testimony before Congress, the FOMC minutes, etc.
For example, by mid-December, we knew the Fed would hike by 25 basis points in March. This was widely communicated. And I wrote about it at the time. Just because you didn’t read it, doesn’t mean it doesn’t exist.
Even though everyone but you knew in December already that the Fed would hike rates on March 16, the 3-month yield at the time as 0.05% and did not budge. So the Fed didn’t follow neither your silly theory nor the three-month yield.
You need to understand that 3-month maturities in mid-December would mature just before the rate hike. So for them, the rate hike was irrelevant.
By mid-January, Powell confirmed the rate-hike date: March 16. The 3-month yield then started rising – and the then 3-month maturities would actually touch March 16 and mature in April.
And the 3-month yield continued to rise as the rate hike date got closer. By March 15, the 3-month maturities finally priced in the Fed’s rate hike on March 16. These three-month maturities will would mature in mid-June.
You need to know how bonds operate to understand that 3-month remaining maturities couldn’t care less what happens in four months. But they do care what happens in two months.
A 10-year note that matures in three months trades like a three-month bill. No one cares what happens in four months because by then, they’d gotten paid face value and interest and were out of it.
Short-term yields will gradually approach the raised target range and when the Fed officially makes the announcement, everyone has priced all this in because the Fed has told the world what it will do weeks and months ahead of time.
On paper, some fools who refuse to see how the Fed operates assume that because the 3-month yield started rising two months ahead of the rate hike, that the Fed follows the 3-month yield.
But this theory is BS. The short-term market follows what the Fed says in the prior weeks and months. You’re just not paying attention, and you’re not reading may articles that are telling you months ahead of time what the Fed will do, long before the 3-month yield starts moving.
Your second comment:
“The Federal Reserve only owns about 14% of outstanding”
This is also wrong. The Fed holds $5.76 trillion in Treasury securities, which is 19.1% of all Treasury debt (including the debt held by the SS trust fund, etc.) and 24% of all publicly traded Treasury securities.
SoCalBeachDude,
You sidestepped my question. Why does the Fed buy MBS and bonds if it cannot influence interest rates?
It’s a simple question.
Why is the 4wk Treasury yield so far below Fed Funds rate? It makes no sense to me why that yield is not *at least* the lower bound of the Fed Funds range.
The best way to help the poor is to not be one of them.
Hal, would you please open the poor-bay door now..
I’m sorry, polecat. I can’t do that.
The actual poor aren’t borrowing at low rates and never did, unless it’s subsidized by the government such as mortgages or student loans.
fred carach,
Hahahaha, that was funny. The rich borrow more money than anyone else. They owe huge amounts of money. They’re heavily leveraged. They borrow money against their assets, instead of selling their assets and paying taxes on them. Their companies borrow money. Their entire empires borrow money.
And low interest rates inflate asset prices, including home prices: that’s why many people cannot afford to buy a home anymore, because low interest rates have exploded the prices of homes. Duh.
Which implies that high asset prices plus leverage should be a disaster for the super rich during stagflation.
I think about this every time someone brags about buying single family rentals using the income stream from other rentals bought on leverage. It’s easy to be a real estate genius in a bull market for real estate and low rates.
But when your tenants move out due to inability to keep pace with inflation and the rental market falls, you’ve got notes to pay but not enough income stream to service the debt and maintenance.
I saw this during the GFC. I had friends with several SFH rentals whose first indication of trouble was when the rent wasn’t paid. The tenants would just move out without notice. What are you going to do about it? Sue people with no assets and no forwarding address?
Or a strip mall. What do you hope to recover from a failed pizza place that probably has a bank loan?
Great point that some outsider non rental owners may not have experience with. When a tenant leave you have to re-habilitate the property at your expense. Then list it. Then find a candidate who passes a form of background check. At that point you begin to have positive cash flow (hopefully). It is painful to change tenants. Worse if the previous renters left some problems behind issues. Rental properties are a dream in the rear-view mirror. While a PITA while in the middle of juggling the chaos.
What’s even worse is when tenants refuse to pay rent AND refuse to move out AND have some sort of free to them legal representation AND fight every move a property owner does in court for years and years and years…
Have known purchasers of homes to pay HUGELY to get tenants to leave,,, one in particular who bought a very nice house that had been divided into 8 apartments during WW2 ending up paying almost $100K,,, and that was forty years ago, when a dollar was worth at least a quarter.
(BTW, they just sold that home for approximately $2.5MM, about 3 times their total cost)
Stickman called it right in 2009. Once you go Zirp the money goes to leveraged gambling on Wall Street and not capital investment in real plant and equipment.
Stockman is still nailing it. I subscribe to his daily commentary.
When comparing “wealth” one would have to account for the lump sum equivalent of transfer payments for the lower 50%. Say, you are getting $3,000/month worth of transfer payments (unemployment, Medicaid, childcare, food stamps, housing subsidy, etc). At 2% interest rate this is the equivalent of $1.8M of “wealth” provided by the tax payer. Quite substantial.
The real losers are families just above the cut off line where all the transfer payments peter out, i.e. the lower middle class.
Sure, but then you’d have to capitilize transfer payments to everybody, including the many wealthy people who benefit from unfunded tax cuts.
If we took all the unfunded tax savings of the top 10% and multiplied it by 50 (2% discounting), by how much would their wealth increase?
I’m all for tax cuts, but not unfunded tax cuts. Unfunded tax cuts have the same impact on our fiscal situation as runaway spending.
Absolutely. I call them ‘the working poor’. As a guesstimate, I’d say they are somewhere between the 25th and 50th percentile in income, but much depends on marital status and number of kids.
They are the folks that Democrats used to champion but have all but abandoned. These days, Democrats offer subsidies to breeders, the mostly non-working poor and the well-off (for the trickle-down effect).
Good point!
It’s all about buying votes. Period.
There used to be an obvious dividing line between the tele- evangelical wanting that $20 to save you and the politicians…
Not any more…
How can 19 unelected and unaccountable people at the FOMC decide at a whim to double the quantity of money of the nation without any corresponding increase in output be compatible with our democracy/constitution ?
Why do we need elections? It’s all a clown show.
Mind blowing that no one seems to be talking about the biggest financial crime in the history of this nation.
It’s done under the guise of “emergency measures”. Apparently, we’ve been in an emergency since 2007.
Lately, it’s all about “pandemic recovery”, but it’s shifting to “geopolitical risk”. There’s always an excuse to inflate and spend. Central bankers run the world as though every inconvenience requires an urgent monetary solution.
The Federal Open Market Committee (FOMC) consists of twelve members–the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. They are very knowledgeable folks who try to make the best and most reasonable and prudent decisions for the Federal Reserve.
Ha! Get your nose out of the books, and face reality!
My analysis for how it happened–and what might be done to fix it:
The economic establishment found in the 1930’s that it was very helpful to insure the top 50% with deposit insurance. That helped a lot of people who were just middle class. IMO it should NEVER have gone beyond protecting more than $0.5-$10M of wealth.
That developed gradually to Bernanke’s and the Fed’s well meaning, but disastrous beginning to QE in the 2010’s after 2007–He thought he was SAVING THE WORLD (from risk!!) — the objective was to protect EVERYONE including the already absurdly rich from risk. Then to Powell’s completely crazy $120B/month– for what purpose, never well explained– that “saved” the bond and stock markets which by any reasonable logic should have collapsed a long time ago without the money spigot going wild.
The objective was to ELIMINATE RISK from finance.
I now see no way to fix it, except with INFLATION SO HUGE (i.e. unavoidable huge wealth tax) that it will finally wipe out the absurd wealth of those with more than $10M to $1T or so. That would of course be a financial atomic bomb for everyone else too. But our $US dollar money system has already been trashed beyond possible recovery.
It will require a new US currency that will allow people to start over again, but which would allows our present “funny money” up to $1M or so to be converted to the new more responsible money.
Agree with your analysis but want to point out that federal tax encouragements for regular folks to “save for retirement” via tax-deferred market investment vehicles effectively linked the financial fortunes of tens of millions of regular folks with that of the wealthy.
When the crisis of 2008 occured, most of the middle class had far more ‘invested’ in the ‘markets’ than in FDIC insured bank accounts. Most of them saw that big bailout as helping them, which it did.
Had things gone as those folks in the 30s had planned, the greatest losses in an asset bubble burst would be sustained by the wealthy and government money would have been only used to preserve the wealth of the regular folks.
The culture wars are distraction, but the middle class on up’s tendency to ally themselves with the interests of the wealthy has much more to do with the fact that see themselves as being in the same boat (investement markets) as the wealthy.
The finance industry has been extremely successful in advancing its own interests over the last 40 years.
BrianD-excellent observation of the phenomenon of the perception of ‘class’ and human psychology…
may we all find a better day.
The US Dollar is doing extremely well and is by far the best and most utilized currency in the world with all commodities priced globally in US dollars and it is now just under 100 on the DXY and will do fine for the foreseeable future as the best global currency.
Millions of homeless, poor, debt-slaves, wage-slaves and globalist elites applaud your observation.
The US as it exists today cannot survive what you describe. “Inflation so huge” is hyperinflation which would destroy most of what’s left of the middle class with it.
I agree with you, Augustus,
The US could not likely survive with such hyperinflation. Unless, like the Germans in the 1920, they dumped the old money and went to a new one–which also was horrible for Germany.
BUT to save the situation: together with having a new currency it would have to allow each person to convert a LIMITED total amount of worthless old cash per person, to the new currency.
My thought: Then keep the old and new currency as options. With the old likely going to hell in a handbasket–
So if you sold your house, you could specify getting cash either from either the old or the new currency. But the amount of new you could hold would be limited. But the old–have as much as you want. Bonds could be purchased with either option.
To be clear: I didn’t mention that I think such new currency to work with my suggested plan would have to be digital to make it limited. But, for those who don’t like that option would still have the old alternative dollar.
Maybe the time has come for the U.S. to transform into something else(s)..
Wouldn’t be first time for such an event. Now, if we could separate peacefully.. without festering into civil strife.
Some social science types, probably more ”political science” oriented, have predicted a while back that USA will divide into 5 separate nations within this century…
Not a totally bad idea IMO, but the problem would be similar to the terrible mess created by the division of India when the British finally gave up. And a lot of that mess continues today, 70+ years later, in the world’s largest democracy.
IOW, looking only at a few of USA states with the largest populations how would the liberal/left leaning folks be divided from the right leaning folks, etc., etc.?
Certainly would not be easy to do it with any degree of fairness, eh?
What’s also interesting is that effective tax rates for the top 1 percent essentially hovers in the same range for the last 50 years (according to the IRS statistics). It seems like no matter the tax rate advertised, the top 1 percent always pays the same effective rate on their income.
That got my curiosity up. When I googled the effective tax rate for Billionaires, what came up suggests they pay a percentage close to what a wageslave pays into social security
“The analysis suggests that the wealthiest 400 households in America — those with net worth ranging between $2.1 billion and $160 billion — pay an effective federal income tax rate of just over 8 percent per year on average.Oct 28, 2021 “
Hey wolf, how did you calculate these raw numbers? Reading the 2020 FED wealth survey the numbers seem to be
2-9% – about $2.5 million (your article says $4.68 million)
“Next 40% – about $300k (your article says $775,000)
I know wealth has increased in 2 years but it hasn’t doubled, has it?
A,
Not sure what you’re looking at, per capita maybe. This is per household.
There are 126.6 million households (rolling 12-month average to iron out the month to month variation in the estimates). The 2% to 10% comprise 9% of total households = 11.39 million.
Total wealth of the 2-10% = $53.3 trillion (raw number from the Fed).
$53.3 trillion divided by 11.39 million households = $4.68 million average per household of the 2%-10%.
The federal reserve SCF surveys similar information but presents different data. I wonder which is correct.
https://www.federalreserve.gov/econres/scf/dataviz/scf/chart/#series:Net_Worth;demographic:nwcat;population:all;units:median;range:1989,2019
A,
The chart you linked only goes through 2019 — it ends wisely before the big money-printing spree started in March 2020. My data is through Q4 2021.
The chart you linked divides the categories differently: in my chart, it’s the “top 1%.” The top category in the chart you linked is the top 10%
So what you’re looking at in the chart that you linked is the wealth of the top 10% in 2019. Not every useful today. But glad you enjoyed it. What I show you is the “top 1% in Q4 2021.
Also the chart you linked is annual every three years. So 2019, 2016, 2013 etc. Maybe we’ll get another one for 2022 sometime in 2023.
BTW, unrelated, the Federal Reserve’s website was down for at least two hours and I couldn’t get to this chart or anything else on its website until just now :-]
This can only be solved with punitive taxation on the top 1% and especially billionaires. Any conversation about monetary policy without acknowledging there has been zero fiscal policy from our government, is being dishonest, at best…and this is a fiscal and taxation problem.
Stonedwino,
This can be easily solved if the Fed sheds $6 trillion in assets and raises its policy rates close to the rate of inflation. This wealth disparity will shrivel. Just watch.
I don’t believe the FED is going to do that.
Money supply up 7% in February
My interpretation of what Wolf said is that the Fed is the cause of wealth inequality, not an outfit looking for a solution. Again, my thoughts, not necessarily Wolf’s.
What would happen to all the hard assets the top 1% owns (ie farm land, buildings, distribution channels, etc) and the companies the top 1% owns. Would they just shrivel away?
Sure, the valuation of owned things might change, but does the composition of ownership change? The asset grab has already taken place, and the Banker/FED/WallStreet/Government crowd has been complicit. In this country, owners are served by non-owners.
Would the relationship between debt and wage slaves working to provide goods, services, security and leisure to the top 1% change?
I hope the rich and their government cronies are not trying to kill their golden goose: the middle class
A household with $775k of wealth is in the top 5% of all households worldwide.
A household with $59k of wealth is in the top 30% of all households worldwide.
Dr Pangloss is back !!!!
The poor of our country, including the homeless, have far superior lifestyles then those in middle class of third world countries. It is a lot to get our head around, but it is fact. It always pauses my anxiety over financial well-being to realize we really are blessed in first world countries. Thanks for the reminder!
“The poor of our country, including the homeless, have far superior lifestyles then those in middle class of third world countries.”
That’s the stupidest thing I’ve seen in the comments here, and I’ve seen a lot of them. Clearly, YOU HAVE NO IDEA how the middle class of third-world countries lives.
GC
Perhaps the time has come for you to obtain a passport and actually visit some other first, second and third world countries.
Bet you will be very surprised.
missing /s ?
This is great data, Wolf!
Some points I noticed:
During the 2008 GFC, the top 1% saw their net worth drop nearly 28%.
The other 99% showed barely a blip in % losses to their net worth. If
history repeats itself, based on the charts, the top 1% could lose a
significant amount in the next few years. It depends on the Fed. Of course, losing 28% of $36M still leaves them with $26M. Hardly roughing it.
Based on the economy and the amount of spending I see on expensive ski vacations, buying real estate rentals, investing in REITs, investing in other speculative investments, the 50%-99% are doing very well. These are the high paid professionals of the middle class. Engineers, accountants, lawyers, traveling nurses, small business owners, plumbers, electricians, …… This time, they benefited from this asset run-up but they may fall harder along with the top 1% if 2008 repeats itself. 28% of 1M = ~ 300K loss. Enough to pay off the house or send the kids to college. Enough to have to postpone retirement and keep working.
The lower 20% are getting entitlements and are surviving better than they once were. I am guessing on this. Possibly not better if they are homeless and never received entitlements or medical help.
The 20%-50% lower middle class are getting squeezed. Hourly wage workers who are renting, no benefits, high inflation, and they missed out on the “great” Fed asset run-up.
The politicians only care about the getting 51% of the votes. The 20%-50% are eating cake.
“The politicians only care about the getting 51% of the votes.”
Which is why I say we have only one party – the “get re-elected” party. We just get to decide which rat nest will run the country.
Where is the political party that is both anti-abortion and anti-guns, or pro-abortion and pro-guns? There are no other real options.
How about the FOAD Party .. whose campaign slogan is “We’re Here to Help!”
Has a ring to it, don’t ya think?
There are well more than 100 legitimate recognized political parties in the US but the problem is that none of them other than Republicans or Democrats can generate more than about 2% of the vote.
Very important point. The lower 50-80% have been totally abandoned. The end of the financial asset megabubble means that the economy will abandon Wall Street and return to Main Street. The working poor will benefit, as occurred from the 30s to 70s.
“ The lower 50-80% have been totally abandoned”
LH,
Slightly disagree…
This group believed the hype that was sold to them… that they deserved a life and lifestyle that wasn’t truthfully available to them… and only attainable through massive giveaways helped by Fed and government policies…
They will become poorer because of it…
They will find out that yes, your car can be repossessed, yes, you can get tossed out of your home, yes, you do have to pay back that student loan, yes, you won’t be able to afford a whole host of things you think are due you, just because you’re alive…
That’s going to be a harsh wake-up call for many, many people…
It’s going to be sad in a lot of ways, but when you give great amounts of money to people who aren’t qualified to to use it and do not have to account for its use, what can you expect…
Some of them have massive debt due to spending beyond their means on car loans, student loans, and whatever other vices they have, Starbucks, alcohol, meth. I’ll leave them to Dave Ramsey. I think they are a minority.
I believe many hourly wage employees working 1-2 part time jobs to pay the rent that went up 50% with no benefits, stock purchase plans, stock RSUs, 401K’s, or even health benefits are the majority. The step to take a loan off a credit card at 30% to pay for food, rent, or a medical bill may dump them into the first category.
They are getting squeezed.
They missed out on this great Fed ramp-up.
They will suffer less if it comes crashing down (unless it is a job loss recession). They may even get a rent cut if the market is flooded RE from landlords trying to get out of the business.
Hey Wolf, Totally unexpected! The serf chattel BLAMING THE MESSENGER with cringey pleas for log charts, massaging of stats, parsing the facts, outright denial of reality. Stockholm Syndrome write large amongst your readers? Howling at the moon?
Who is the messenger and what is the message?
I don’t see any Stockholm Syndrome here. The participants are overwhelmingly against their oppressors.
“pleas for log charts, massaging of stats, parsing the facts, outright denial of reality”
Examples please? All I hear from your post is incoherent babble.
There are some further up, and I replied to them.
As the majority of the World’s Wealth falls into the “Higher, Tighter, Righter Hands” of the Poppy Bush dream, it just might finally dawn on the dullest of the dull to look to a 21st Century Gaius Marius to print a Proscription List as a simple, popular solution to shuffle the deck for a New Deal.
Will it make matters a whole lot worse, like Russia in 1917?
Undoubtedly.
Will it come to that?
Quite likely.
To be continued…………….
Everyone wants a chance to do well in life. But the land of opportunity appears increasingly like a private party where daddy funds the entry fee.
The World Economic Forum published a study in 2018 that reveals families and communities are increasingly trapped on the bottom rungs of the social ladder.
Children born into low-income families have less chance of moving up in the world and improving their professional status. Meanwhile, those at the top of the income ladder are holding on to their wealth.
The WEF study suggested it takes 5 – yes, five – generations for someone born into a low-income family in the US to earn an average wage.
“When people feel trapped, their resilience is tested. There are consequences for social cohesion.”
I will counter, by quoting the great Gerald Celente, that ‘when people lose everything – THEY LOSE IT!’
The WEFian crowd .. would be cautioned, not lose their heads .. least they see pikes accelerating at hyper speed within their various rear view morrors.
mirrors .. um, mirrors of horror??
Corporations are people too. They have robotic feelings of increasing the bottom line at all costs; that’s why we have lobbyists.
It would be interesting to see where and how much each of the 1% spend on lobbying efforts.
They must pay off the politicians to help protect the noble interests of their oligarchies and monopolies.
The many industrial complexes help keep our super wealthy overlords in control, and the peons in their place.
Please send that list to my office, so we can rush a bill to outlaw lobbying and put term limits in place.
Gotta start somewhere.
Please send that list to my office, so we can publish it asap. Than-you
You know……most people want a capitalistic society adjusted to make it a bit humane…….
so people making tons of cash is ok with most folks.
What the issue for quite a few people is that the system appears to be rigged to keep some folks ahead at the cost of opportunity and security for others. This is done thru a government run by either party that rewards its friends and punishes its enemies……
The founders wanted a minimal government…..we have a government run by either party that can’t keep its hands off. Both just don’t tax and spend with the difference being who they spend it on.
Economics used to be semi science….now it’s more politics and inside politics for those who successfully milk the system.
“Why should I trade one tyrant 3000 miles away for 3000 tyrants one mile away”?
The American Dream has finally come true!!!!
“most people want a capitalistic society adjusted to make it a bit humane”
Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.
– John Maynard Keynes
When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.
– Frederic Bastiat, Economic sophisms, 2nd series (1848), ch. 1
Fuel for an epic deflation.
A truly shocking report though i’m not surprised as it seems we are living in a dystopian nightmare. What i’d like to know from the history buffs here is what happens next?
No matter how bad things may be, they can always get worse. But really, what’s the worst that could happen?
That is not a rhetorical question. And it’s already been answered anyway.
We could end up in a nuclear war.
nah A, the worst WILL be the vast and almost inconceivable CME AKA Carrington Event.
Nothing we human species can even and ever come close…
What are the ”odds” of that happening?
That is exactly the question NO ONE, at least no one with any sense at all is willing to say.
For very good reasons…
VVN, look up the “Great Dying” or sometimes called the EPME (End Permian Mass Extinction) for a look at how bad things can get. Growing vegetables in the back yard won’t help if this happens again.
Could it be a reasonale thought that Hyperinflation would enable the U.S. to unload its Fantastillions of debts with a handful of coins?
Ford stock falls after March vehicle sales drop nearly 26% from a year ago
F -0.72%
U.S. factory orders fell for the first time in 10 months
MW: Ukraine war, inflation and need for higher interest rates creating ‘unprecedented’ situation, says Jamie Dimon
Mr. Jamie can eat a railcar full to heaping of fetid and rotting blu donkey ‘members’. He and others of his ilk fully deserve that juicy tonnage. Let’s call it an extra bonus package, shall we.. All for the cause of Demonocracy.
Reuters: Russia, China woes risk massive EM corporate default wave…
Good news to report for beer drinkers. Barley acres are set to have a 28% increase in North Dakota this year.
Also in North Dakota there is a trend away from corn, soybeans and spring wheat to put in more canola, barley, sunflowers and flax.
Oil sunflowers set for a 17% gain, and confection sunflower acreage up 85%!
VERY good news Dan, and many thanks for this and your other pithy and pertinent reports on here!!!
I recall during Obama that there was talk of the Treasury minting a $US Trillion coin to save us from debt ceiling. I was awed by the idea at the time. However nowadays, it would need to print a $5 Trillion coin to have any impact. A couple Trillion move nightly between the banks and government for nightly safe keeping. How times have changed
Nathan, it’s all computer digits that move. As long as the FED can add more zeros in their computers, we can get past a trillion someday. Then the trillion dollar coins can be used in the slot machines in Vegas.
The big takeaway should be that the not-rich are getting hammered and poorer.
The rich have more when expressed in inflated dollars but not so much when expressed in buying power.
After correction with real inflation of doubling prices every 11 year, the rich are more ‘staying the same’. They just manage to keep the value of their land and property.
And the not-rich, they got significantly more ‘you own nothing and be happy’, the favorite quote of WEF with their Great Reset. We are not there yet but it all looks we will arrive there soon.