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Does QE Cause Wealth Inequality?

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Re: Does QE Cause Wealth Inequality?

#91

Post by notahacker »

RussianCow wrote: post #74
spamizbad wrote: post #21

Earlier quoted context omitted.

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 m…

The house price rise adversely affects only the people buying their first home over the period interest rates are unusually low, which is obviously a small proportion of homeowners. If you've already paid your principal, it's unchanged, but the value of your asset has increased and monthly payments have gone down for those on variable rate mortgages.

Even if you're a first time buyer affected by the price rise, you're better off with a high monthly payment to own a higher value house than a high monthly payment to transfer more interest to people who are wealthier than you.

Re: Does QE Cause Wealth Inequality?

#92

Post by [deleted] »

dragonwriter wrote: post #88
trutannus wrote: post #2

The author took way too long to introduce what the abbreviation QE in this context means. It's only in the 5th paragraph. It's generally not a great idea to use an unclear acronym in the title. If you really must, at least do the reader the curtesy of defining it up front, rather than making them dig for it. To someone who's non-American and likely does not keep an eye on the FED, QE isn't likely going to be they way…

> the FED “Fed” ( Fed eral Reserve), not “FED”.

[deleted]

Re: Does QE Cause Wealth Inequality?

#93

Post by dragonwriter »

hammock wrote: post #4
trutannus wrote: post #2

The author took way too long to introduce what the abbreviation QE in this context means. It's only in the 5th paragraph. It's generally not a great idea to use an unclear acronym in the title. If you really must, at least do the reader the curtesy of defining it up front, rather than making them dig for it. To someone who's non-American and likely does not keep an eye on the FED, QE isn't likely going to be they way…

If you don't already understand what QE in this context is, it is unlikely you will be able to fully understand the rest of this article.

> If you don’t already understand what QE in this context is

The title arguably is not sufficient to make completely clear what context is being referenced. (Combined with the source it might be, for those familiar with the source, but that’s beside the point on HN.)

I mean “Does Queen Elizabeth cause wealth inequality” is a perfectly valid question, too.

Re: Does QE Cause Wealth Inequality?

#94

Post by whimsicalism »

bhupy wrote: post #60
88913527 wrote: post #29

When many people have few assets, and few people have many, and you cause the value of assets to go up, the nominal gap between two is larger, but the relative amounts are the same. This is basic math. Suppose we have two individuals who experience 25% growth due to QE: Person A: $1,000 * 25% growth = $1,250 Person B: $1,000,000 * 25% growth = $1,250,000 Originally, the wealth gap between A and B was 1000:1. It remai…

That's the logical hypothesis, but the article we're commenting on seems to show that it's more complicated. FTA: "The logical case for why the Fed’s activities cause wealth concentration is that low interest rates and high levels of QE tend to boost asset prices, such as stocks and real estate, which are primarily owned by the wealthy. By making homes and stocks more expensive and unaffordable, it widens the wealth…

It seems like many people in this thread are missing that poor people are often underwater in debt, so lower rates help them.

There is a reason most of the farmer uprisings in the early US were over wanting more inflation rather than deflationary policy that made the value of their debt payments higher.

Re: Does QE Cause Wealth Inequality?

#97

Post by TAForObvReasons »

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…

It's analogous to the forest fires. Recessions, like smaller forest fires, help clear out the dead weight. New entities are able to grow in the wake. By aggressively staving off recessions, the smaller fires are suppressed but it leaves an ever-increasing mass of dead weight ("zombie companies"), eventually leading to an uncontrollable fire

Re: Does QE Cause Wealth Inequality?

#98

Post by WalterBright »

This reminds me of when after WW2 ended in Germany, the old German Mark was repudiated and became worthless. It was replaced with the new Mark, and every German was given the same number of new Marks to jump start the economy.

Within a week, the people who had money before the repudiation had money again, and the people who didn't didn't.

Re: Does QE Cause Wealth Inequality?

#99

Post by lend000 »

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…

The problem is that people who became temporarily wealthy but would have lost wealth through misallocation of capital are allowed to keep their wealth and repeat their misallocations instead of allowing new, potentially better capital allocators access to large opportunity (low asset prices).

Re: Does QE Cause Wealth Inequality?

#100

Post by anm89 »

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…

QE doesn't require low rates. The causality works in the other direction. QE suppresses rates. QE could be done at any level of rates, with the exception of if long duration was too low or even negative I which case it may become politically or practically infeasible
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