An Inconvenient Irony: QE Favors the Rich

Here’s something important. From The Economist:

‘The most recent figures show that the top 10% of households own about 91.4% of outstanding stocks and mutual funds, up from 84.5% in 2001. The richest 1% own almost half of all stock and mutual funds.

‘No surprise then that the recent jump in consumer sentiment recorded by the University of Michigan was led by the better-off; upper-income households (the top third) had a 15 point increase in sentiment, the bottom two-thirds rose just five points.’

Damn! But don’t worry. If you’re among the rich, you’ll get that other 8.6% of stock and mutual fund wealth.

With Ben Bernanke on the case, it’s just a matter of time until you have 100% of America’s stock market wealth. (Of course, you’ll also be turned into a zombie.)

But you’re probably wondering: How does that work, again? Simple. Think of it this way: QE and ZIRP are essentially new forms of wealth. Whoever gets this wealth first gets richer. Everybody else gets, relatively, poorer.

Did you get this new money, dear reader? You may have, without realizing it. It feeds corporate profits and equity prices. The new money is not designed to create wealth. It just transfers more resources to rich people.

Small businesses create new jobs and new wealth. But small business can’t borrow at today’s low rates. They’re lucky if they can borrow at all. Instead, almost all the new credit goes to banks, big businesses and the government.

In the normal course of investing, you win some and you lose some. That’s what keeps the rich from always getting richer. Wealth goes both ways. But along comes the Bernanke Fed with zero interest-rate lending…and even bad businesses can refinance their mistakes. If they’re big enough that is.

So you end up with an economy full of giant, lumbering zombies…protected by the government and nourished by the Fed.

Here’s The Wall Street Journal on the subject:

‘Companies add jobs more slowly, even in good times. Investors put less money into new ventures. And, more broadly, Americans start fewer businesses and are less inclined to change jobs or move for new opportunities.

Zombies to the right of us. Zombies to the left of us. Zombies everywhere. And they’re getting richer all the time.

Bill Bonner
for Markets and Money

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Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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1 Comment on "An Inconvenient Irony: QE Favors the Rich"

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Ian Hutton
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Dear Bill Bonner,

I have been reading your economic wisdom for many years.
I have learned much and have taken steps to reduce paper assets.
I even have food storage!

I miss the tales of the chateau in France; the ranch in Argentina,
and the tales of your children growing up.

You have helped me, and thus, my friends, prepare for the worst.
My only way to thank you is for you to go to my website and enjoy
my stories.
Sincerely,
Ian Hutton

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