Chart of the Day: Quantitative Easing and the 1%

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Back to one of my favorite themes… If you want to understand the increase in income inequality over the past few years, look no further than this chart (which I have taken from Zero Hedge). For those who don’t intuitively draw the obvious conclusions, let me spell it out for you. Quantitative easing (as reflected in Federal Reserve assets) drives up stock and bond prices. The Top 1% own the vast majority of stocks and bonds; they enjoy major capital gains, which they report as income. The rich get richer. But QE represses interest rates, which punishes small savers with money in banks and money market funds. The middle class and working class get zilch. Actually, they get less than zilch. A 1% interest payment on a bank CD lags the inflation rate. The little guy actually loses wealth.

Can we please stop pretending that the answer is higher tax rates and Congressionally designed wealth transfers? The biggest wealth transfer of all is staring us in the face. Wind that down, and you’ll see a big reduction in income inequality.

— JAB

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14 responses to “Chart of the Day: Quantitative Easing and the 1%

  1. Bacon, you miss the point. Surely the libs know this is happening, and the plan all along was the jack up marginal rates on unearned income, dividends, capital gains, etc. to swell the coffers of the federal government. And to some extent it is working, as federal revenue is rising, isn’t it? Had Obama gotten the marginal rates and inheritance taxes he wanted, the federal revenue would be even higher. If you cannot create jobs (which Washington cannot seem to do) then create taxable wealth to transfer and sustain the welfare state….

  2. without getting into a big deal about aggregate demand.. if you do not have money circulating at the lower income levels from middle class down – then economic activity halts and you will slip into a liquidity trap.

    that’s what quantitative easing was all about – to keep us from going into that death spiral – because Congress refused to do enough stimulus or spending to help bring the economy back.

    and yes.. there are significant offseting impacts to quantitative easing but they are felt by some to be less harmful than austerity.

    What’s interesting is that while it’s true that people who save via banks are getting squat.. people are also getting great deals on loans AND their 401Ks are recovering from the hits they took in 2008.

    Austerity does not work and I’ll agree that deficits as far as the eye can see are not good either.. but locking down the economy when it is in distress is just plain dumb. We have to get back to economic health and then work to get to a balanced budget and then some which will include cutting entitlements AND DOD… Most folks do not realize that quite a bit of DOD is classified as “entitlements” – like the VA and like the full pensions that people who have never served in a war zone get – after 20 years of service.

    we simply cannot afford the benefits – pensions and health care – we are paying for DOD and that’s especially so in a time when we have so many things that need less personnel to start with. Drones should replace a significant number of people as well as autonomous vehicles .. etc.

  3. another observation – even those who don’t like WalMart -should visit one and you’ll see a busy place with lines at the cash registers.

    that may not be gang-busters economy-wise but it’s not like the Walmarts are empty and laying off people – … at all… it’s the opposite.

    and a good number of folks have gray hair – and are receiving their pensions and buying stuff. A good number of the gray haired folks are toting young school-aged kids.. their grandkids.. the kids of the kids that have moved back in with them.. use grandpop and grandmom as child care while they work at whatever job they can find and/or continue their education.

    out there in the real world – away from the partisan beltway bickering – there are real people doing what they must to make a living.. and yes.. grandDad and Mom are playing an important safety-net role as the economy recovers.

  4. Hmm,
    Are people below a certain income level prohibited from buying equities? They can’t get into the country club so they can’t get into the stock market?
    They are stuck with rip off CDs that the banks never paid much for anyway?
    Gosh Jim, stunning revelation!

    I love how you frame this in such classist ways. CDs are only for the “little people.”

    • What percentage of his wealth do you think Warren Buffett keeps in bank CDs?

      Who else but “little people” (as you put it, trying to put a classist spin on it) — I use the phrase “small investors” — puts their money in bank CDs?

  5. It all goes back to too big to fail. The banks the stock market and our retirement accounts could have gone down the tubes. Did we have a choice? It is infuriating that the very individuals who got us in this situation were the ones who benefited from the fix.

    Now it’s time to turn away from quantitative easing and other subsidization of the financial markets and to look to the future. That means we do something about Medicare (control costs). That means we help our 20 something’s and high school kids. That means we reallocate resources from subsidies for financial institutions, the boomers and their elders, and the military to invest in research, education-especially teachers!- and a new infrastructure.

    • re: ” That means we do something about Medicare (control costs). ”

      Medicare is one of the easier fixes…

      we currently charge the vast majority of seniors about 100.00 a month and this includes seniors who received up to 80K a year in retirement income and own two houses, etc.

      the part of the deficit due to Medicare is about 250 billion.. right now.

      it’s the future where the deficit gets worse because of the retirement demographics.

      Right now – seniors are supposed to be responsible for 20% of the co-pay but they are bailed out of that by Medicare Advantage which will cover the 20% plus prescriptions drugs for cheap – BECAUSE Medicare Advantage is also subsidized.

      the fix to Medicare is easy compared to the other components of the deficit of which 500+ billion are due to MedicAid.. and another 500 billion due primarily to entitlements for the military including full retirement after 20 years – even if you have not serve a day in a war zone or combat of which well over 80% of the military falls into that category.

      I’m all for 20 year pensions for those that actually do serve in war zones or combat.. but to give that same deal to someone who sits at a desk for 20 years is not only wrong – we simply cannot afford it.

      Finally, over a trillion dollars of taxes are loop-holed for special interests both corporate and individual …

      Oh.. and add Federally-subsidized flood insurance.

      we have ways to balance the budget – but neither side wants to give up the perks for their base….

      and I’m totally with Richard on the bailout. We bail out WallStreet and the folks who did really stupid stuff with mortgage-backed securities then we spend the next 5 years talking about entitlements for “takers” and a weak job recovery – as “the” problem due to our “socialist” POTUS.

      BARF! double BARF!

  6. “I’m all for 20 year pensions for those that actually do serve in war zones or combat.. but to give that same deal to someone who sits at a desk for 20 years is not only wrong – we simply cannot afford it.”

    Exactly how many people do you think that is????? Soldiers rotate between combat units, going to a training course, teaching a training course, being assigned to a stateside combat unit which may or may not deploy overseas, being assigned to an overseas combat unit, coming back to another school, etc. Who do you think sits at a desk for 20 years? How about military doctors or nurses who aren’t combat medics but work for much less pay than they could on the outside because they believe in serving their country and their soldiers (sailors, airmen, marines et al)? They should not get retirement because they draw blood, take and develop xrays and images while sitting behind a desk?

    Some of the most important work in the military was done by personnel freezing their keesters off in central Europe and Korea during the Cold War while superior numbers of military sat in motor pools 10 km away. They should not get retirement after being deployed overseas for a majority of their 20 years, or more, of service? They should be punished because they weren’t “lucky enough” to be in military service when there was a shooting war going on or IEDs blowing up their jeeps? You’re saying preserving an uneasy peace is not worth as much as participating in a war(s) in which 10,000 Americans have been killed in action. wow. Most Americans would prefer, and appreciate, the peace.

    -billsblots, Major (ret.), U.S. Army

    • re: ” Exactly how many people do you think that is????? Soldiers rotate between combat units, going to a training course, teaching a training course, being assigned to a stateside combat unit which may or may not deploy overseas, being assigned to an overseas combat unit, coming back to another school, etc. Who do you think sits at a desk for 20 years?

      quite a few. you can get the numbers.. pretty easily. we have over 2 million active duty and less than 400K in war zones.

      “How about military doctors or nurses who aren’t combat medics but work for much less pay than they could on the outside because they believe in serving their country and their soldiers (sailors, airmen, marines et al)? ”

      it’s a volunteer army. doctors get good benefits in the volunteer army.

      “They should not get retirement because they draw blood, take and develop xrays and images while sitting behind a desk? wow.”

      They should retire like every one else does unless they serve in a war zone. The point I’m making here is that we’re hiding costs for DOD by not counting the benefits and entitlements that are paid lifelong – for 20 years of service while most go on to other full time jobs I’m fine with rewarding those who directly risk their lives – like policemen or firefighters or war fighters who do risk their lives.

      but we cannot afford what we are paying – we have a bigger defense than the next 10 countries COMBINED including our allies and our major enemies – and 80% of these costs are for people who are never deployed.

      we have to cut BOTH civilian and non-wartime DOD entitlements. they are both too rich and our refusal to do so directly results in passing on debt to our kids.

      we can’t have it both ways.. I advocate increasing the cost of medicare to those who are retired by make 85K in income and I advocate similar treatment to people who have never served in a war zone. and I do not advocate this because I don’t think they deserve. I advocate this because we cannot afford it and we have to make cuts – painful cuts if we are truly serious about the budget.

  7. And for what it’s worth, the majority of retired soldiers I know personally would have preferred to continue serving in the military but were forced to retire because of time limits on their grade. E-6, E-7, E-8, O-4, O-5, etc all have to retire at 20, 22 years of service, for example, if not on the promotion list to the next grade.

    So while nearly everyone chirps up “It all counts on 20” when rationalizing away an undesirable task or assignment, when the 19 year, 6-month mark came around most everyone began wishing they could stay in longer.

  8. Late commenting, as usual. Vines and sheep intervene.

    But who is actually saying that “the answer is higher tax rates and Congressionally designed wealth transfers? ”

    I don’t believe anyone has “the answer” to our vexing wealth disparity problem that began in the 1970s, and became exacerbated since Reagan and the 1980s. Surely it’s part, but only a part, of “the answer” to tax capital gains at ordinary income rates and remove other absurd breaks for the 1% . But investments in education, infrastructure and — I believe — establishing a two year National Service requirement (military, Peace Corps, Job Corps, teaching, etc.) would surely be other parts of an “answer”.

    • re: ” I believe — establishing a two year National Service requirement (military, Peace Corps, Job Corps, teaching, etc.) would surely be other parts of an “answer””

      I do too… some young people need to be “helped” to know what the requirements of a job are… and they need the opportunity for training.

      A large number of our local Sheriff and EMS units are young military folks.. who got good training .. learned discipline..learned to do a job right.. got health care… and when they left the service – were ready for jobs that require discipline and other good work habits.

      I think anyone on welfare needs to work.. also for that matter.

  9. and on unemployment also… I would give higher unemployment benefits to those willing to do volunteer work in their community.

    who knows what might happen but sitting home all day long writing and sending resumes and nothing else is corrosive to the soul. People need to work – to feel they’ve accomplished something and that’s what drives a lot of retired folks who volunteer… and it’s good therapy for those who are not ready to retire and need work.. Get a life… and work … while you’re looking to better yourself. It works for 18 yr olds and it works for 48 yr olds.

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