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Oops! Fed Admits QE Widens Inequality


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2015 Jun 10, 7:12pm   13,358 views  32 comments

by mell   ➕follow (9)   💰tip   ignore  

http://www.zerohedge.com/news/2015-06-10/oops-fed-admits-qe-widens-inequality

Once again, the Federal Reserve proves that it’s the last one to know everything that we knew already.   Today’s stunning announcement:  The Philadelphia Fed admits they (“may have”) made the wealthy wealthier and Main Street poorer.

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1   Dan8267   2015 Jun 10, 7:13pm  

Now if only they could admit it was deliberate.

2   Strategist   2015 Jun 10, 7:17pm  

You guys take "Zerobrains.com" seriously? Wow.

3   Shaman   2015 Jun 10, 7:17pm  

We all have a chance at becoming wealthy! Just buy whatever the ultra wealthy haven't already bought with their oceans of cash and sell it fast for $$$! Don't have an extra million to invest? Why are you a lazy loser?

4   control point   2015 Jun 10, 7:37pm  

Zerohedge doesn't understand what the fed paper says, probably didnt read it. Infact it claims the opposite of their claim...

"Under these circumstances, accommodative monetary policy that reduces their risk of unemployment might be even more effective in helping those individuals, especially when borrowing is difficult/"
"Similarly, if the Federal Reserve lowers interest rates, and if the economy responds to the accommodative monetary policy as expected, income might be redistributed from the wealthy to the less-wealthy."
"Yet, if accommodative monetary policy raises the expected future inflation rate, the value of nominal assets, which wealthy households tend to hold more of, declines/"

http://www.philadelphiafed.org/research-and-data/publications/business-review/2015/q2/brQ215_the_redistributive_consequences_of_monetary_policy.pdf

5   indigenous   2015 Jun 10, 8:15pm  

control point says

"Under these circumstances, accommodative monetary policy that reduces their risk of unemployment might be even more effective in helping those individuals, especially when borrowing is difficult/"

That is beyond their control.

control point says

"Similarly, if the Federal Reserve lowers interest rates, and if the economy responds to the accommodative monetary policy as expected, income might be redistributed from the wealthy to the less-wealthy."

Trickle Down?

6   control point   2015 Jun 10, 8:22pm  

indigenous says

That is beyond their control.

indigenous says

Trickle Down?

The point, my friend, is Zerohedge wrote a blog post claiming that a Fed paper claims one thing - when infact, the paper itself claims the opposite.

7   indigenous   2015 Jun 10, 8:35pm  

Not sure I agree with you 100%

8   control point   2015 Jun 10, 8:50pm  

indigenous says

Not sure I agree with you 100%

Read the paper dude. Those quotes were pulled directly from it.

9   indigenous   2015 Jun 10, 8:52pm  

You are a reformed Austrian, you know that this is bullshit.

10   mell   2015 Jun 10, 9:06pm  

control point says

Read the paper dude. Those quotes were pulled directly from it.

Of course the Fed would like to point out that they are doing something good or useful and that for some whatever magic reason that makes up for the rise in inequality. But the very fact that they point out rising inequality as a side-effect is and interesting admittance (even though they claim they make up for it via other "good" effects).

11   control point   2015 Jun 10, 9:13pm  

indigenous says

You are a reformed Austrian, you know that this is bullshit.

Not sure what is bullshit. Pointing out the error of a blog post entitled "Oops Fed admits QE widens Inequality" which references yet another WSJ blog post, which references the actual Fed paper, whose content is the exact opposite of the blog posts themselves, is hardly bullshit.

And as being a reformed Austrian, you are getting to the heart of it. You see, I used to read garbage like Zerohedge, Shadowstats, Mish, Schiff, and Mises.org. Then we had the great recession and everything these guys claimed - well the opposite happened. And I lost some money on it...so I started expanding my reading beyond these types of sources. The bottom line I was a guy who was brought up a Republican - you sort of just follow what your dad thinks after all - so these sources were attractive to me because they basically fed into a lot of preconceived notions that I had. The beauty of the world though is being able to learn from your mistakes and if you're lucky, you might even have your mind changed.

Anyway, lots of reading, a graduate school education in related matters, and voila, the truth was found. The funny thing is my education was from a school I choose because of its notorious reputation for right leaning economists - but the education I was given only opened my eyes to an opposite reality. Higher education for me was really more a function of the credential anyway so I didn't let the differences between what I had discovered and the overarching theme of the economics dept get in the way too much. It wasn't like I was an economics PHD student after all. Anyway, there is a reason why highly educated folks lean left - specialized education allows for a greater understanding of certain topics which help reveal reality.

12   control point   2015 Jun 10, 9:17pm  

mell says

But the very fact that they point out rising inequality as a side-effect is and interesting admittance (even though they claim they make up for it via other "good" effects).

They point out monetary policy has redistributive effects. The support in this paper actually points to QE lowering inequality. (i.e. the opposite of Zerohedge's claim)

Please read the actual Fed paper.

http://www.philadelphiafed.org/research-and-data/publications/business-review/2015/q2/brQ215_the_redistributive_consequences_of_monetary_policy.pdf

13   mell   2015 Jun 10, 9:23pm  

control point says

They point out monetary policy has redistributive effects. The support in this paper actually points to QE lowering inequality. (i.e. the opposite of Zerohedge's claim)

Please read the actual Fed paper.

I did, this claim/support is not new, but IMO it is annihilated by what they deem the "smaller" side-effect, which ZH arguably picked out (of content wrt to the paper). The Fed is the main driver of inequality and should be held responsible.

14   control point   2015 Jun 10, 9:30pm  

mell says

I did, this claim/support is not new, but IMO it is annihilated by what they deem the "smaller" side-effect, which ZH arguably picked out (of content wrt to the paper). The Fed is the main driver of inequality and should be held responsible

That isn't what the paper says. Remove your preconceived notions of how monetary policy affects inequality. All of the support and explanation the paper provides states the opposite, accomodative monetary policy (read printing) helps the middle class and hurts the rich (savers), while restrictive monetary policy (to fight inflation) helps the rich and hurts the middle class.

You need to read past the introduction.

15   indigenous   2015 Jun 10, 9:35pm  

control point says

Anyway, lots of reading, a graduate school education in related matters, and voila, the truth was found.

What specifically changed your mind?

16   mell   2015 Jun 10, 9:37pm  

control point says

accomodative monetary policy (read printing) helps the middle class and hurts the rich (savers)

This is what I was referring to, and that claim has been proven false time and time again. Why do you think inequality has spiked and accelerated since ZIRP and QE but was on a harsh decline during the crisis? Furthermore, distorting market-driven savings yields causes all sorts of misallocation and bad linvestment. this is never good even if it had some "beneficial" effects.

17   indigenous   2015 Jun 10, 9:50pm  

On the first page:

"Any decisions regarding redistribution are considered
to be the province of fiscal policy, which is determined
by elected policymakers."

Seriously?

18   control point   2015 Jun 10, 9:55pm  

mell says

This is what I was referring to, and that claim has been proven false time and time again.

Please provide that data.

mell says

Why do you think inequality has spiked and accelerated since ZIRP and QE but was on a harsh decline during the crisis?

Because of the nature of math (specifically the Lorenz curve). A poor guys income can only fall to zero, from where it was previously (lets say $20k?) - it is only a $20k loss of income. Meanwhile, a rich guys income could fall from $400 million to $200 million. That's a considerably huger loss, and infact one such loss equals all of the losses of 10,000 poor guys in this example. The rich guy now only makes $200 million more than the poor guys, instead of $399,980,000 more.

In which situation are the poor doing better though, with a $20k (but almost $400M away from the rich guy) income, or with a zero income(but only $200 million away)?

Recessions cause consolidations of wealth, which ultimately increases inequality.

Anyway, besides the point - the paper does not claim what Zero Hedge claims it does.

19   indigenous   2015 Jun 10, 9:59pm  

control point says

Recessions cause consolidations of wealth, which ultimately increases inequality.

Quite the opposite:

Look this is from our old friends Piketty and Saez:

Does this look ominous? Is the Wogster's theory going to come true?

20   control point   2015 Jun 10, 10:05pm  

indigenous says

Quite the opposite:

Look this is from our old friends Piketty and Saez:

You don't understand a bit of what I just explained, do you? You suck at math.

21   indigenous   2015 Jun 10, 10:14pm  

I understand it just don't agree.

22   control point   2015 Jun 11, 4:51am  

indigenous says

I understand it just don't agree.

You don't agree with math then.

23   Y   2015 Jun 11, 5:56am  

Zero income, but only 200 million away, as they then would qualify for about 60k per annum government handouts.

control point says

In which situation are the poor doing better though, with a $20k (but almost $400M away from the rich guy) income, or with a zero income(but only $200 million away)?

24   indigenous   2015 Jun 11, 6:49am  

control point says

You don't agree with math then.

Your math model is crap, because people find a way to survive, they do not go to zero.

No I don't agree with the reality of this. In reality it has only occurred two time in the history of the US, now and in the late 1920s. Both times because of the Fed.

And now only because of huge government transfers keeping the masses quelled.

25   mell   2015 Jun 11, 7:03am  

control point says

A poor guys income can only fall to zero, from where it was previously (lets say $20k?) - it is only a $20k loss of income. Meanwhile, a rich guys income could fall from $400 million to $200 million.

That it correct, but your conclusions aren't. The amount of leveraged wealthy people (and heir massive reduction of wealth) dwarfs the increase in unemployment. You also conveniently leave out unemployment benefits and welfare, which makes the reduction of income esp. for the high number of low paying jobs minimal.

control point says

n which situation are the poor doing better though, with a $20k (but almost $400M away from the rich guy) income, or with a zero income(but only $200 million away)?

Not all of your poor will keep their jobs, and while they as a whole may be doing better, you are punishing a large amount of middle-classers (savers) and force them into government dependence or join the ranks of the "poor" because they are mainly paying for it as their savings go to shit while the cost of their essentials increases. So by that logic we have to make the cast of the very wealthy continuously richer and constantly widen the inequality gap at the expense of the middle class to save the growing number of government dependent poor.

26   mell   2015 Jun 11, 7:09am  

A public sector guy (e.g. teacher) could have afforded a small house in the bay area roughly in 2008-2011, but the relentless propping up of the stock and housing market via QE, MBS purchases and ZIRP have him priced out for a good while.

27   mell   2015 Jun 11, 7:43am  

Another well-known fact was that during the financial crisis people were able to settle debt with their banks for pennies on the dollar because the banks were in a crunch, it was one of the best times to negotiate down and clear your debt.

28   anonymous   2015 Jun 11, 8:18am  

I don't think I know of anyone who settled any debts at steep discounts during the crisis, and I know a lot of people. I'm also the financial savvy friend, so had it happened im fairly certain I would have heard

Not saying it didn't happen but im also not living under a rock. YMMV though because this is not the united states of California

I do believe that these actions did prevent many people who probably should have went bk, from going through with it. And since most people have debt >assets, this kept them in the poor house

Not to mention that one mans debt is another mans income producing asset.

The deleveraging that should have occurred, but the bailout(s) helped to prevent, certainly benefits the rich at the expense of the poor

29   bob2356   2015 Jun 11, 8:19am  

indigenous says

control point says

Recessions cause consolidations of wealth, which ultimately increases inequality.

Quite the opposite:

Look this is from our old friends Piketty and Saez:

Does this look ominous? Is the Wogster's theory going to come true?

Earth to indiginous. Did you miss the word ultimately? Look at what happens coming out of recessions. Big bounce above the previous average. Also look at what happens 1980-1990. It doubles. Trickle down at work. I'm so glad I voted reagan in 1979. Not.

30   control point   2015 Jun 11, 8:38am  

indigenous says

Your math model is crap, because people find a way to survive, they do not go to zero.

.mell says

You also conveniently leave out unemployment benefits and welfare, which makes the reduction of income esp. for the high number of low paying jobs minimal.

If it goes to zero, that it the wrost case. Making a point about it not going to zero (and also social welfare) only strengthens my point. That is, the lower bound is not zero in actuality but it is higher than zero, therefore closer to where their income was pre-recession. I framed the point in that way for a reason.

You guys really suck at math. And reading.

31   control point   2015 Jun 11, 9:01am  

mell says

The amount of leveraged wealthy people (and heir massive reduction of wealth) dwarfs the increase in unemployment.

Would love to see some support for this. Wealthy people, by definition, have a high net worth. Net worth is total assets-total liabilities. Liabilities are debt. Wealthy people, by virtue of having a highly positive net worth, have assets far exceeding debt.

They have very little leverage overall. They may own leveraged asset classes, but the debt take-on (and liability) is done through corporate protections. That is, while a particular asset they own would decrease in value at a high rate, the default risk is contained to that particular asset.

Do you really think the poor and middle class are the net savers, while the rich are net borrowers?

32   indigenous   2015 Jun 11, 9:25am  

bob2356 says

Earth to indiginous. Did you miss the word ultimately? Look at what happens coming out of recessions. Big bounce above the previous average. Also look at what happens 1980-1990. It doubles. Trickle down at work. I'm so glad I voted reagan in 1979. Not.

Is that what you are going with, really?

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