My “wealth disparity monitor” from the era of the Fed’s money printer: Holy Moly. April update of the biggest economic injustice in recent history
The rich have become immensely richer. Everyone paid for it via runaway inflation.
By Wolf Richter for WOLF STREET.
The Fed’s Own Data on the Distribution of Wealth in the United States is a quarterly report on the Fed’s official policy objective of the “wealth effect.” It has now released fourth quarter data. The Fed uses monetary policies, such as QE and interest rate repression, to create asset price inflation and significantly enrich a relatively small number of large asset holders so they can spend more. This has been explained in many Fed articles, including by Janet Yellen when she was still president of the San Francisco Fed.
The Fed’s wealth distribution data divides the US population into four groups based on 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. Note the immense increase in household wealth to 1% after the start of the Fed’s money printing program and interest rate crackdown in March 2020:
As you can see from the steep red line curve, households in the “Top 1%” have been the main beneficiaries of Fed policies since March 2020. These policies were designed to inflate asset prices, and only asset owners have benefited. The more assets they held, the more they benefited.
The Census Bureau defines one household by address. Every address is a household, regardless of who lives there, whether it’s a three-generation family, four roommates, a married couple, or a single person.
Here is the average wealth (= assets minus debts) per household, by category in Q4 2021:
- “Highest 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’re consumables – unless they’re art, antiques, or classics – and their value will eventually drop to zero. For the “bottom 50%”, their durable goods represent almost 20% of their total assets and almost 50% of their total wealth (assets minus debts).
The billionaire class got more billions.
The Fed 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 “billionaire” in front. They are the biggest beneficiaries of the Fed’s monetary policies.
America’s top 30 billionaires have a total wealth of $2.12 trillion, broken down 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, sliced into 165 million slices for each individual. For them, inflated property prices simply mean higher housing costs.
Careless use of percentages can kill someone.
If I give $5 to my favorite homeless person and he already has $5 in his pocket, I increase his wealth by 100%, which is a huge percentage increase in his wealth. But he is still homeless and still has no wealth.
Percentage increases are regularly touted to show that wealth at the bottom of the scale has increased, when in fact it has only increased tiny amounts of dollars because the bottom 50% have so little that even a large percentage increase means almost nothing in terms of dollars, 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 suppressed short-term interest rates to near zero in order to inflate asset prices so that asset holders become immensely richer, in line with its doctrine of the wealth effect.
This act produced the greatest economic injustice in recent US history.
My “Wealth Disparity Monitor” tracks this economic injustice on a quarterly basis by showing the difference in average wealth between the top 1% and the bottom 50%, by household, based on the Fed’s own data.
In 1990, the wealth gap between the average “top 1%” household and the average “bottom 50%” household was $5 million. In the fourth quarter of 2021, it increased an additional $1.2 million from the prior quarter, and $5.1 million year-over-year, to $36.2 million.
Since the Fed’s mad money-printing spree and interest rate crackdown began in March 2020, the wealth gap between the average “top 1%” household and the average “50% inferiors” exploded by $11.2 million per household.
More wealth for the rich, paid for by crippling inflation for the rest.
The Fed’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 most of their income on housing, transportation, food, health care, etc. — hold virtually no stocks, no bonds and very little real estate, according to Federal Reserve wealth distribution data. When the Fed deliberately inflates those assets that only certain people in society hold, it says FU to others.
And that money-printing frenzy has now created the worst inflation in 40 years. Inflation destroys the purchasing power of the dollar, and it destroys the purchasing power of labor denominated in dollars. Just to get by, the bottom 50% spend all or almost all of their income on consumer goods, such as housing, transportation, and food. And they have been maimed by this runaway consumer price inflation that this money printing has unleashed. And they are the ones paying for this act of the Fed to enrich the asset holders.
Thus, average wages and salaries have risen significantly, but by only a fraction of the amount of rent, and the prices of houses, new and used vehicles, gasoline, groceries, etc. soared. And the worker bees of this economy must now tighten their belts more even as the wealthiest asset holders have become enormously wealthier, thanks to the policies of the Fed.
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