Does QE Cause Wealth Inequality?

When many people have few assets, and few people have many, and you cause the value of assets to go up, the nominal gap between two is larger, but the relative amounts are the same. This is basic math. Suppose we have two individuals who experience 25% growth due to QE:<p>Person A: $1,000 * 25% growth = $1,250<p>Person B: $1,000,000 * 25% growth = $1,250,000<p>Originally, the wealth gap between A and B was 1000:1. It remains 1000:1 after the asset appreciation. However, because wage income has long been stagnant, it becomes increasingly difficult for the poorer person to play catch up, because labor income can&#x27;t scale in the way capital can. Both the proportional change and real change are worth considering when it comes to setting public policy.

It doesn&#x27;t necessarily, but there are some issues to think about:<p>1) Interest rates that are low mean that middle-class savings accounts don&#x27;t grown in size. QE requires low interest rates as I understand it.<p>2) MMT is linked to QE but guess what, an oligarchic system isn&#x27;t going to distribute QE capital to middle class and poor people, it&#x27;s going to go into the pockets of the ruling class.<p>In any case, you really can&#x27;t trust the corporate economists, and their performance before the 2008-2009 economic crash is proof of that. It&#x27;s as bad as if the entire climate science community had predicted global cooling and we got global warming instead - clearly, the scientific community would conclude that their models are fundamentally flawed.<p>This of course is why economics professors are safely enclosed in university business departments, so they don&#x27;t have to face constant ridicule from real scientists.

An important takeaway from the wealth inequality chart: every time that wealth inequality has substantially decreased in recent history was during a recession.<p>Staving off recessions at all costs for political reasons is a horrible policy. Market cycles are natural; we don&#x27;t live in a perfect world. Market forces clearing out the inefficiencies&#x2F;rebalancing power in the economy is better for long term capital allocation in society than socializing losses or printing money to rescue stock indices.

The author took way too long to introduce what the abbreviation QE in this context means. It&#x27;s only in the 5th paragraph. It&#x27;s generally not a great idea to use an unclear acronym in the title. If you really must, at least do the reader the curtesy of defining it up front, rather than making them dig for it. To someone who&#x27;s non-American and likely does not keep an eye on the FED, QE isn&#x27;t likely going to be they way they&#x27;ve seen the idea expressed. You can know what Quantitative Easing is without immediately recognizing QE out of context in a title.

For anyone who is a fan of Lyn, I highly recommend you follow her friend Luke Gromen.<p>He&#x27;s been doing some excellent analysis over the last few months and is one of the few people producing this kind of content who can match Lyn&#x27;s depth and breadth.<p>One podcast I liked: <a href="https:&#x2F;&#x2F;m.youtube.com&#x2F;watch?v=csf4fdV-EOQ" rel="nofollow">https:&#x2F;&#x2F;m.youtube.com&#x2F;watch?v=csf4fdV-EOQ</a>

This reminds me of when after WW2 ended in Germany, the old German Mark was repudiated and became worthless. It was replaced with the new Mark, and every German was given the same number of new Marks to jump start the economy.<p>Within a week, the people who had money before the repudiation had money again, and the people who didn&#x27;t didn&#x27;t.

If you increase the amount of USD, the USD cost of anything that <i>isn&#x27;t</i> USD goes up. So, a lot of the market gains, housing gains, crypto gains, etc, are at least in some part to do with all of these countries increasing their money supplies. So anybody that has wealth kept in anything other than the inflating currencies is going to win, and anybody who either has savings only in fiat or is paid primarily in fiat is going to lose out.<p>So, yes, of course it causes wealth inequality. The rich can afford to bail on a currency while it balloons.

All in all, this is mostly a question of policy (not in terms of typical market regulation through interest rates, money supply etc.) and not only market mechanisms. Individuals with a high &quot;wealth concentration&quot; have a lot more power to pursue their goals (&quot;gain [more] wealth [concentration], forgetting all but self&quot;). Not only economic power, but -most importantly- power to enforce their interests politically. Most western country (especially the US) policies of the last decades pretend to do something for citizens with a low &quot;wealth concentration&quot;, but in the end just favor the rich. Analyzing this trend only in economic terms and closing ones eyes (ears and mouth) regarding systematic political manipulation is hypocritical.

TIL that „The Federal Reserve […] is an institution that is mostly privately owned by banks“<p>Maybe my view is too European on that, but are Americans aware their federal money supervision system is run by banks and how can they possibly be okay with that?

Lyn Alden always has great analysis.

&gt; The Fed’s role has expanded over the years, and its decisions often seem opaque and arbitrary. A small number of unelected people in a room dictate the price of money for a country of 330 million people, and can create new reserves out of thin air, or destroy reserves from the system.<p>I&#x27;d much rather there be a liquid democracy voting system where maybe every person w&#x2F; a degree in economics gets 1 vote, I&#x27;d trust 10k economics majors over 10 rich&#x2F;wealthy bank owners led by the Rothschilds.

I hate acronyms that are not spelled out right at the beginning. Just sayin&#x27;

It&#x27;s pretty simple to understand.<p>If I have a money printing machine, the first people to gain will be my friends. The second group will be my friends&#x27; friends.<p>They will go around buying up all the stuff worth having. Pretty soon those items will go up in value. A lot. Anyone outside my circle of friends will quickly find these items very expensive.<p>Boom. Asset Bubbles.

The USA is quite different than anywhere else in that:<p>1) Vast social inequality from issues arising from the ex-slave population and undocumented migrants, which creates a big &#x27;long tail&#x27; of social malaise, cost, and limited productivity.<p>and 2) On the high-end, the US has a lot of truly exceptional talent doing truly world-leading things and having a truly global impact, or in other words, they are in some ways &#x27;earning&#x27; very high returns.<p>Imagine if Germany were the size of the US: no historical ethnic issues, and more institutional conglomerates instead of newer, cutting edge companies (i.e. more BMW&#x27;s not more Ubers and AirBnBs&#x27;).<p>What would that look like, even with the Seignurage of currency etc?<p>I think inequality would be a lot less.<p>I think the author makes some great points, but they just don&#x27;t overcome the fundamentally different situation that the US is in vis-a-vis everyone else.

Inequality is innate to our reality. As far as resources go (e.g. land), we live in an anisotropic zero-sum world. Inequality between entities is inevitable in such worlds regardless of economic policy, and becomes more notable as more entities come to exist.

It really feels like we are at the end of the road and the Fed is damned if they end QE (deflation and market crash) and dammed if they don&#x27;t (very high inflation). Ray Dalio does a great job describing the end of the the &quot;long-term debt cycle&quot; and differentiates it from a typical &quot;business cycle&quot; that we are all familiar with [1]. The scary thing he describes is the end of a fiat money system, which will resemble a bank run, but for goods and services rather than for dollars.<p>[1] <a href="https:&#x2F;&#x2F;www.linkedin.com&#x2F;pulse&#x2F;money-credit-debt-ray-dalio" rel="nofollow">https:&#x2F;&#x2F;www.linkedin.com&#x2F;pulse&#x2F;money-credit-debt-ray-dalio</a>

From Lyn&#x27;s past article on Japan it is showed that over the past &quot;lost&quot; decades in Japan, the private sector debt has been dramatically reduced while the public sector debt has taken it&#x27;s place. I really wish she looked into that for this topic.<p>It&#x27;s not just the QE, it&#x27;s not just the lowered interest rates. You need to look at the balance of the money supply compared to the GDP. In America corporate and public debt are ballooning, and that&#x27;s a direct result of Fed policy. In Japan, even with low interest rates and public debt super high, their money supply is in balance, and so their equality is balanced.

I keep reading between the lines that the fiscal policies are incentivising and prioritising innovation and higher education and knowledge work, and getting rid of manual labor by automation or outsourcing. Seems like a good thing, the way she is phrasing it is like a conspiracy by the &quot;elite&quot; that just decided to sabotage a prosperous large working class for no particular reason. Technological advancement must play a big part in this.

Qe causes all asset prices to rize in value. That include home loans which also expand. Most people loan to these home. Stock assets rize in price. Yet again higher proportion of these assets tends to be owned by richer classes.

Probably yes? Poorer people do not have assets and their wage isn&#x27;t as dynamic to keep up with inflation.

Quantitative Easing will continue on until all the boomers are happily retired. Give it another 3-6 years, then the Fed is going to &quot;get religion&quot; and you will want to hold hard assets. Until then... its stocks and crypto on a moon mission.

The thing is we want less stupid speculation and asset bubbles <i>and</i> yet the economy is running far below potential, with the &quot;tight labor markets&quot; right now just a glimpse of how it was before (and probably a fleeting one if the inflation class warriers have their way like in the 1970s).<p>To fix both problems --- because we need to stop just making ourselves poorer and less coordinated with prudish neoliberalism --- we should probably try to get experimental with monetary policy. Having the Fed tweak a UBI instead might help.<p>Remember, the way that capitalism is <i>supposed</i> to work is that demand validates investment. Easy credit from banks to big institutions with poor consumers is stupid because too many investments still look bad! Hand out cash, and then businesses can chase the people&#x27;s demand, rather than trying to create the demand all weird post-modernly.<p>No more throwing easy money at startups waiting for them to finally be profittable 10 years later. Yes more making the poorest better off and letting the resulting supply-chain bottlenecks show where investment is actually needed. If there&#x27;s no current bottleneck, you aren&#x27;t trying hard enough!

YES

Yes.<p>Anymore questions?

How have people not caught onto this yet?<p>When the Fed prints money, its a guaranteed bet that assets go up. The rich use their wealth and huge amounts of leverage via financial instruments to generate massive returns. This has been going on for a long time. Literally all you need to do is throw your whole bank account into call options. Working a 200k-300k a year job is almost a waste of time with how much money they are printing. This is how the wealthy see it, your small paycheck (yes 300k a year is small) is a joke within the context of financial leverage.<p>Just to reiterate, you are better off risking everything in financial markets and sitting at home watching those assets very closely than you are working.

Well duh!<p>Print lots of money<p>Give it to people who have lots of money (banks)<p>The rich get richer.<p>What is so hard to understand about that?<p>The powers that be decided that an increase in wealth disparity was a price worth paying to keep economic activity happening (that and inflation, interest rates could well balloon over the next decade).<p>An alternative was to print lots of money and give it to poor people. That would still have cause inflation, but improved wealth disparities.<p>But the powers that be do not have that sort of power.

Is this a surprise to anyone? It&#x27;s simple logic&#x2F;cause-and-effect. The sooner we move away from fiat money and interest based finance, the better.

It is well known that in the future, it won’t matter how many factories (or other hard assets) your nation has.<p>To succeed, a nation will have citizens that know all TikTok dances by heart and their metaverse avatars own most of the legendary NFT items.<p>Hence I am confident that the US is on the right path!

It&#x27;s so sad to see people blame one of the few parts of government still managed by competent people. Blaming the Federal Reserve for things like inflation or wealth inequality is like blaming a cardiac surgeon on side effects of a triple bypass operation. The fault doesn&#x27;t lie on the expert who needs to resort to increasingly aggressive interventions to maintain some semblance of stability. It lies on the patient to can&#x27;t help but endlessly gobble pork.<p>The real &quot;money printing&quot; occurs when Congress decides to fund trillions in spending on debt. The Fed flipping a switch to convert that debt into digital dollars is just something their job obligates them to do. Unlike the government, the private sector can&#x27;t decide to borrow as much as it likes without impunity. With the government swallowing up a large fraction of the liquidity, in a world without QE, interest rates would skyrocket and the private sector would fall into a downward spiral and we would head straight to another Great Depression.