The rich became immeasurably richer. Everyone else paid for it through rampant inflation.
By Wolf Richter by WOLF STREET.
The Fed’s own data on the distribution of wealth in the US is a quarterly report on the Fed’s official policy objective of “wealth effect.” It has now published the data for the fourth quarter. The Federal Reserve uses monetary policies, such as QE and interest rate repression, to inflate asset prices and greatly enrich a relatively small number of large asset holders so they can spend more. This has been explained in numerous Fed documents, including by Janet Yellen when she was still president of the San Francisco Fed.
the Federal Reserve wealth distribution data divides the US population into four groups based on their level of wealth: the “top 1%”, the “2% to 9%”, the “next 40%” and the “bottom 50%”. My Wealth Effect Monitor divides this data by the number of households in each category, to get the average wealth per household in each category. Consider the immense increase in wealth for the top 1% of households after the Federal Reserve’s money printing scheme and interest rate crackdown began in March 2020:
As you can see from the steep curve of the red line, the “top 1%” households were the main beneficiaries of the Fed’s policies since March 2020. These policies were designed to inflate asset prices, and only the asset holders benefited from that. The more assets they had, the more they benefited.
The Census Bureau defines a household by address. Every address is a home, regardless of who lives there, whether it’s a three-generation family, four roommates, a married couple, or a single person.
So here is the average wealth (= assets minus debt) per household, by category in the fourth quarter of 2021:
- “Top 1% household (red): $36.2 million.
- The “2% to 9%” 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 are consumables, unless they are works of art, antiques, or classics, and their value will eventually drop to zero. For the “bottom 50%,” their durable goods make up nearly 20% of their total assets and nearly 50% of their total wealth (assets minus debt).
The billionaire class got more billions.
The Federal Reserve does not provide separate data on the truly wealthy (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 of them. They are the biggest beneficiaries of the Fed’s monetary policies.
The top 30 US billionaires have a total wealth of $2.12 trillion, divided 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, divided into 165 million shares for each individual. For them, inflated real estate prices just mean higher housing costs.
Reckless use of percentages can kill someone.
If I give my favorite bum $5, and he already has $5 in his pocket, I increased his net worth by 100%, which is a huge percentage jump in net worth. But he is still homeless and still has no wealth.
Percentage increases are regularly touted to show that wealth at the bottom increased, when in fact it increased by only miniscule dollar amounts because the bottom 50% have so little that even a large percentage increase still equates to almost nothing in dollar terms. . compared to the billionaire class.
When the wealth of the bottom 50% increases by 5%, they earn about $3,000. And when the average wealth of the top 30 billionaires increases by 5%, they earn an average of $3,500,000,000. And the wealth disparity just exploded.
The greatest economic injustice committed in recent US history.
Since March 2020, the Fed has printed $4.9 trillion and clamped down on short-term interest rates to near zero to inflate asset prices so that asset holders become immensely rich, in line with its doctrine of the wealth effect.
This act has produced the greatest economic injustice committed in the recent history of the United States.
My “Wealth Disparity Monitor” tracks that economic injustice on a quarterly basis by showing the difference in average wealth between the top 1% and bottom 50%, by household, based on the Federal Reserve’s own data.
In 1990, the wealth disparity between the average “top 1%” household and the average “bottom 50%” household was $5 million. In the fourth quarter of 2021, it soared by another $1.2 million from the previous quarter and by $5.1 million year over year, to $36.2 million.
Since the Fed’s money-printing craze and interest rate crackdown began in March 2020, the wealth disparity between the average “top 1%” household and the average “bottom 50%” household has widened. it has skyrocketed at $11.2 million per household.
More wealth for the rich, paid for by crushing inflation for the rest.
The Federal Reserve’s Wealth Effect policy operates by creating asset price inflation through money printing and interest rate repression.
The bottom 50% of Americans, who spend all or nearly all of their income on housing, transportation, food, health care, etc., own virtually no stocks, bonds, and very little real estate, according to the US’s wealth distribution data. Federal. Booking. When the Federal Reserve deliberately inflates those assets that only a few people in society have, it says FU to the rest.
And this money printing binge now created the worst inflation in 40 years. Inflation destroys the purchasing power of the dollar and destroys the purchasing power of dollar-denominated labor. Just to survive, the bottom 50% spend all, or almost all, of their income on consumer items such as housing, transportation, and food. And they were crippled by this rampant inflation of consumer prices that this printing of money has triggered. And they are the ones paying for this Fed act to enrich asset holders.
So average wages and salaries increased a lot, but for only a fraction of the amount being rented, and the prices of houses, used and new vehicles, gas, groceries, etc. soared higher. And the worker bees in this economy now have to tighten their belts even more even as the wealthiest asset holders got much richer, thanks to the Fed’s policies.
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