Why Does Quantitative Easing Benefit the Rich?
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Why Does Quantitative Easing Benefit the Rich?
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Re: Why Does Quantitative Easing Benefit the Rich?
#2QE benefits those who already have assets. The rich generally have assets like real estate and stocks.
QE leads to asset-price inflation making those with assets wealthier than those without assets.
The rich get richer and the poor get relatively poorer. The poor get priced out of assets as their incomes do not keep pace with the rise in asset prices.
It is big transfer of wealth from the poor to the rich.
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On a side twist. In poor third world countries and banana republics the governments in inflationary countries will transfer wealth to the rich from the poor through means of financing "strategic" projects and loans that are below the real inflation rate.
Re: Why Does Quantitative Easing Benefit the Rich?
#3If quantitative easing did not benefit the rich, it would not be adopted so long, it is as simple as that
Re: Why Does Quantitative Easing Benefit the Rich?
#4This article strikes a very particular faux-neutral tone that should raise warning flags even if you tend to agree with where they're coming from. When you see lines like:
> ultimately, their main goal: higher inflation.
> It hopes that enough money would trickle down so the economy improves and inflation increases (so that basic stuff get more expensive for ordinary Joe).
> While the central banks increase the overall money supply and utilize low interest rates (or even negative rates), this process is creating ‘bubbles’ into the economy.
That's not an attempt to provide honest information or generate productive discussions, but an attempt to get everyone pointlessly riled up so they'll share the article. Don't fall for it!
Re: Why Does Quantitative Easing Benefit the Rich?
#5I didn't see this mentioned: when interest rates are at or near zero the tax burden on the rich almost entirely disappears. Why? Because you can borrow money for essentially nothing instead of realizing a gain or repatriating money from tax free havens.
It has a name too: buy, borrow, die.
Why die? Because beneficiaries inherit many things at a stepped up basis. Example: you buy a house in 1985 for $100,000. Now it's $3 million. If you sold it, you'd pay capital gains on $2.9 million. If your children inherit it, the cost basis gets reset to $3 million.
Why we're giving such massive tax breaks to the wealthy is beyond me. Actually what's really beyond me is why so many poor and middle class people are willing to defend such a practice.
As for QE, it's meant to benefit the government too. Why? Because inflation wipes out national debt. There'll be a point in the future where the $30T debt we have now (or whatever it is) just won't seem like that much money.
Thing is, none of the predictions about QE and inflation have come true, at least not yet. This is interesting and possibly concerning.
Re: Why Does Quantitative Easing Benefit the Rich?
#6This article strikes a very particular faux-neutral tone that should raise warning flags even if you tend to agree with where they're coming from. When you see lines like: > ultimately, their main goal: higher inflation. > It hopes that enough money would trickle down so the economy improves and inflation increases (so that basic stuff get more expensive for ordinary Joe). > While the central banks increase the overa…
I agree with you as a concept, but "higher inflation" is actually a stated goal of most central banks. They try to keep it in the 2-3 % range.
The explanatory "basic stuff get more expensive for ordinary Joe" is a little deceptive, but still speaks to the point? It gets more expensive for everyone, but "ordinary Joe" who has less money as his lack of assets didn't go up with price, ends up paying more relative to his net worth.
It also _is_ creating bubbles in the economy, but that is _not_ a stated purpose and he isn't saying it is.
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I agree overall that this article is quite biased and not one I feel like I can honestly read.
Re: Why Does Quantitative Easing Benefit the Rich?
#7If quantitative easing did not benefit the rich, it would not be adopted so long, it is as simple as that
True though that may be, it does not answer the question - why?
Re: Why Does Quantitative Easing Benefit the Rich?
#8inb4: "inflation helps people in debt and the poor are in debt"
- the most poor in society don't have banking and can't be in debt. They're usually also VERY price sensitive.
- typically the poor who have weak access to financial products are participating in e.g. payday lending, which has very high "APR"s and this debt is not intended to be amortized on "inflationary" timescales (you're supposed to pay back at the end of the month).
Above them, much debt is revolving debt at high rates (double-digit APR) and those rates are still both intended for money to be kept at for short periods and not helped by inflation.
Just about the only "class" of "poor" folks who are helped by inflation are those that own houses that were purchased by a mortgage, and we are clearly seeing that homeownership is being pushed further and further upmarket. I guess there are some "poor" people on some sort of banking small business loan, but my gut feeling is that is sort of "princess and the frog" thing is today a very quaint notion, and not actually that common anymore.
The rich, also greatly benefit from easy money and lending with low interest rates. Not directly, but, because they are able to maximize their return on capital through financial instruments like shorts, Forex, etc, whose mechanisms require "lending" in some form or another. These instruments would be more expensive in a regime with less QE.
Re: Why Does Quantitative Easing Benefit the Rich?
#9Here's a nice related FT opinion article, "The rich get richer and rates get lower": https://archive.is/rMTnV
It explains a sort of feedback loop taking place here (with regards to excess of money looking where to invest => "This pushes rates down directly, when those savings are invested, driving asset prices up and yields down; and indirectly, by sapping aggregate demand.")
Re: Why Does Quantitative Easing Benefit the Rich?
#10This article strikes a very particular faux-neutral tone that should raise warning flags even if you tend to agree with where they're coming from. When you see lines like: > ultimately, their main goal: higher inflation. > It hopes that enough money would trickle down so the economy improves and inflation increases (so that basic stuff get more expensive for ordinary Joe). > While the central banks increase the overa…
Yes, that's the faustian bargain we've got when we decided journalism should be free on the internet.
It is annoying, regrettable, but is just the way things are today: clickbait or die.
But let's not this detail detract from the argument as it is solid and with serious possible implications that merit being discussed.