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Does QE Cause Wealth Inequality?

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Re: Does QE Cause Wealth Inequality?

#71

Post by whimsicalism »

creato wrote: post #66
lend000 wrote: post #50

An important takeaway from the wealth inequality chart: every time that wealth inequality has substantially decreased in recent history was during a recession. Staving off recessions at all costs for political reasons is a horrible policy. Market cycles are natural; we don't live in a perfect world. Market forces clearing out the inefficiencies/rebalancing power in the economy is better for long term capital allocati…

I agree that maybe allowing market downturns to occur is probably a good thing. That said, an equally reasonable interpretation of your observation is that maybe inequality is not itself a problem. More inequality doesn't necessarily mean that the poor are worse off than they would be with less inequality. I wonder if we are collectively making a mistake to treat stock ownership as wealth. Stock prices going down red…

Regardless of what you treat it is, inequality of ownership of the major enterprises in the US is worth addressing.

I do think the US needs substantial reform of how ownership and corporate governance currently works in our system.

Re: Does QE Cause Wealth Inequality?

#72

Post by Clubber »

whimsicalism wrote: post #64
Clubber wrote: post #52

Earlier quoted context omitted.

You get what you incentivize. We are currently incentivizing debt over savings, so that's what we get. When I was in college, the bank would give something like 6-7% on savings. If I had a million dollars in the bank I could comfortably live off that interest for life. Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot r…

> Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest. Yes, people investing in productive enterprise is actually better for real output, prices, and generally overall welfare.

It's certainly good for the shareholders to have more money in the market, I'm not sure about the others. I know I'd much rather have a solid 6-7% interest return than a flaky market return.

Re: Does QE Cause Wealth Inequality?

#74

Post by RussianCow »

spamizbad wrote: post #21
photochemsyn wrote: post #8

It doesn't necessarily, but there are some issues to think about: 1) Interest rates that are low mean that middle-class savings accounts don't grown in size. QE requires low interest rates as I understand it. 2) MMT is linked to QE but guess what, an oligarchic system isn't going to distribute QE capital to middle class and poor people, it's going to go into the pockets of the ruling class. In any case, you really ca…

I don't understand how higher interest rates on savings accounts would meaningfully impact the middle class. The median savings account balance is just $5,300[1]. And the thing about savings accounts is that they generally do get spent down periodically - they typically aren't used to continuously squirrel away cash for decades, so you're not compounding interest over the long term. You might save for 5 years and the…

> Except now you're paying 1-2 points more on a mortgage, student, and/or car loan.

When interest rates go down, house prices tend to climb proportionately as more people take advantage of the lower mortgage rates. The same goes for cars to a lesser degree. So unless you buy a house at the very beginning of an interest rate transition (before the market has settled), the rate won't have as drastic an effect on your monthly payment as you're making it seem. You can also refinance later if you buy when rates are high, but you can't lower your principal.

Also, interest rates affect other types of investments that people carry, such as retirement accounts.

I don't know what the cumulative effect of all of this is, though, so I won't claim that your overall point is incorrect.

Re: Does QE Cause Wealth Inequality?

#75

Post by throw0101a »

Ericson2314 wrote: post #15
photochemsyn wrote: post #8

It doesn't necessarily, but there are some issues to think about: 1) Interest rates that are low mean that middle-class savings accounts don't grown in size. QE requires low interest rates as I understand it. 2) MMT is linked to QE but guess what, an oligarchic system isn't going to distribute QE capital to middle class and poor people, it's going to go into the pockets of the ruling class. In any case, you really ca…

The mainstream economic theory genuinely believed that handing out central bank securities would work just as well as, say. adjusting a UBI or normal fiscal policy. Yes, it's a suspiciously convenient idiocy --- especially because they also think wealthy households spend less (even if they don't think wealthy bussinesses do something similar) --- so certainly it's not something that can be completely fixed without a…

> The mainstream economic theory genuinely believed that handing out central bank securities would work just as well as, say. adjusting a UBI or normal fiscal policy.

[citation needed]

"Mainstream economic theory" states, AFAICT, that once the monetary side of things has done what it can, you need to proceed to Step 4, fiscal stimulus:

> I would summarize the Keynesian view in terms of four points:

> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.

> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.

> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.

> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.

* http://krugman.blogs.nytimes.com/2015/09/15/keynesianism-exp...

* https://archive.md/O67TO

Can you provide a link to the "mainstream economic theory" that you are referring to that says otherwise?

Re: Does QE Cause Wealth Inequality?

#76

Post by indodima »

All in all, this is mostly a question of policy (not in terms of typical market regulation through interest rates, money supply etc.) and not only market mechanisms. Individuals with a high "wealth concentration" have a lot more power to pursue their goals ("gain [more] wealth [concentration], forgetting all but self"). Not only economic power, but -most importantly- power to enforce their interests politically. Most western country (especially the US) policies of the last decades pretend to do something for citizens with a low "wealth concentration", but in the end just favor the rich. Analyzing this trend only in economic terms and closing ones eyes (ears and mouth) regarding systematic political manipulation is hypocritical.

Re: Does QE Cause Wealth Inequality?

#77

Post by fdgsdfogijq »

short_sells_poo wrote: post #51
fdgsdfogijq wrote: post #12

How have people not caught onto this yet? When the Fed prints money, its a guaranteed bet that assets go up. The rich use their wealth and huge amounts of leverage via financial instruments to generate massive returns. This has been going on for a long time. Literally all you need to do is throw your whole bank account into call options. Working a 200k-300k a year job is almost a waste of time with how much money the…

Call options are a bad move to participate in equity upside, unless you are working on single stocks. There's little upside convexity at the index level. This is doubly true for someone who doesn't know how options work. You can easily end up out of the money with your entire option punt and lose everything even though equities go up (just not enough for your bet). Furthermore, the last couple of years the underlying…

Probably you are correct. But that illustrates my point even more, I have made absurd amounts of cash by believing in the power of QE and the FED. Its not rocket science, its just accept that the fear mongering of "you are too dumb to use leverage" is false. But I will say, I have had huge returns on QQQ calls. Its working just fine for me to buy LEAPs 10-20% out of the money.

Re: Does QE Cause Wealth Inequality?

#78

Post by [deleted] »

short_sells_poo wrote: post #53
ed25519FUUU wrote: post #48

Earlier quoted context omitted.

Because call options are a form of financial leverage, which is how the rich are getting much richer as the fed prints money

Call options are a rubbish way to do this, please don't spread this misinformation. If you want leverage, just buy the futures. If you are thinking about punting your entire income into options on single stocks, and don't know what you are doing, just stop right there. You can easily lose everything even in a bull market.

[deleted]

Re: Does QE Cause Wealth Inequality?

#79

Post by [deleted] »

spamizbad wrote: post #21
photochemsyn wrote: post #8

It doesn't necessarily, but there are some issues to think about: 1) Interest rates that are low mean that middle-class savings accounts don't grown in size. QE requires low interest rates as I understand it. 2) MMT is linked to QE but guess what, an oligarchic system isn't going to distribute QE capital to middle class and poor people, it's going to go into the pockets of the ruling class. In any case, you really ca…

I don't understand how higher interest rates on savings accounts would meaningfully impact the middle class. The median savings account balance is just $5,300[1]. And the thing about savings accounts is that they generally do get spent down periodically - they typically aren't used to continuously squirrel away cash for decades, so you're not compounding interest over the long term. You might save for 5 years and the…

[deleted]

Re: Does QE Cause Wealth Inequality?

#80

Post by realce »

justinzollars wrote: post #5

It really feels like we are at the end of the road and the Fed is damned if they end QE (deflation and market crash) and dammed if they don't (very high inflation). Ray Dalio does a great job describing the end of the the "long-term debt cycle" and differentiates it from a typical "business cycle" that we are all familiar with [1]. The scary thing he describes is the end of a fiat money system, which will resemble a…

Pair this with the reduction of ownership of ANY real assets/goods in the general population.

I can't trade my Netflix account for food. I cannot lease my Spotify account to someone for income. I rent my house.

I think when you get down to the nitty-gritty, most people actually "own" some furniture, some clothes, and a car. If a crisis actually struck, what goods or services could you actually leverage to survive off of?

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