Quote
Originally posted by: DonDiegoQuote
Originally posted by: pjstroh
Quote
Originally posted by: jatki99
DD said
" One of the results of these policies has been a significant transfer of wealth from the middle/lower income folks to the wealthy; but that's a debate for another time/post."
Care to expound on this DD? I would like to hear it for one.
Me too. Cause I dont buy it.
The bottom line is that the "qualitative easing" policies of Central Banks worldwide have suppressed interest rates.
As a result the little guy gets "nothing" on his savings. What is jatki99's or pjstroh's bank account paying on savings accounts? (That's a rhetorical question, . . . no need to answer.) In fact, some European banks have already begun
charging interest just to hold a persons savings.
[When young DonDiego was growing up banks typically paid 5%-interest on savings accounts. And mortgage rates were around 8%. Things didn't jump around on a short-term basis; banks made money by paying an interest to savers less than the interest rate they received from borrowers. That world no longer exists.]
However, when the wealthy find their bank accounts provide little-to-no interest
and even bonds exhibit low single-digit yields, they can invest in stocks, businesses, commodities, etc. . . . which as a result have done quite well.
In fact, the purpose of quantitive easing is to stimulate the economy by stimulating borrowing by keeping interest rates low. As a practical matter those providing the QE target a certain inflation rate, . . . also conducive to encouraging stock market investments. This all seems sorta cockeyed to poor old DonDiego, . . . and not an appropriate function of Government in any case, but that's what they do.
And thus, on the inflation basis alone those holding financial assets will benefit.
[Technically, the Central Bank is not really part of the Government; it is a private bank, and its owners are also doing quite well. Historically, central banks come and go; usually the going involves lots of corruption, although being "associated" with the Government means it's not called "corruption". DonDiego suggests the interested reader read about the history of central banks in the USA.]
Anyway, . . . what was the question? Oh, yeah, . . . wealth transfer to the wealthy.
From the European perspective:
***quote******
__ Conventional monetary policies mainly seek to drive down interest rates; this benefits borrowers (the "young" and companies) and is negative for lenders (the "old", wealthy households);
__ In today's economies, unconventional monetary policies consist mainly in generating wealth effects (rising asset prices) through quantitative easing; the rise in asset prices is clearly good news for holders of financial and property wealth (the "old" [and wealthy]) at the expense of the young (buyers of real estate); if, in addition, quantitative easing gives rise to inflation (case of Japan), it is also clearly negative for wage earners.
Unconventional monetary policy therefore has the completely opposite redistributive effects to conventional monetary policies.
***endquote***
Ref: Redistributive Effects of Unconventional Monetary Policies
[There's lots of charts and stuff to support the conclusion above at the reference.]
With specific regard to the USA, here's a really quick summary from Wealth Levels, Wealth Inequality, and the Great Recession
__From 2003 to 2007 wealth increased for everyone above the median, 50th percentile
__After the Great Recession wealth decreased for everyone from 2007 to 2009.
__After the imposition of qualitative easing in 2007, by 2013:
... wealth for the 90th and 95th percentile wealthy was back above what it had been in 2003.
...net worth for the median,
i.e. 50th percentile, was still 36% below what it had been in 2003.
...below the median, there was little change from 2007 to 2013 in net wealth, but there has been a notable increase in those receiving government aid,
e.g. food stamps and such.
Conclusion:
As a result of the Central Bank monetary policies:
.... the wealthy have been restored to their state prior to the Great Recession.
.... the lower classes and the poor have lost some ground, but been assisted by government handouts.
.... the middle class took it in the shorts.
[DonDiego does not intend this post as the definitive answer to jatki99's and pjstroh's inquiry. He recommends they and other interested readers, if any, google things like "quantitive easing" and "ZIRP" and "monetary policy", . . . and piece things together.]
Allow poor old DonDiego to point out a problem to which he has no good solution:
In 2013 6% of the US Government budget was spent on interest on the national debt -
not paying off any of the debt; that hasn't happened since 1957 - just interest alone.
What happens when quantitive easing is ended and interest rates rise, say to the historical norms? If nothing else changes the debt payments will likely exceed 10% of the US Government budget.
Where's that money gonna come from? And why does DonDiego suddenly feel a tingling in his shorts?
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