Home / Federal Reserve / QE3 is a Huge Subsidy to the Top 10%.
Print Friendly and PDF

QE3 is a Huge Subsidy to the Top 10%.

Written by Gary North on September 26, 2013

The Federal Reserve System’s policy known widely as QE3 is a massive subsidy of the rich at the expense of the middle class. This is the conclusion of Stephen Roach, who for years was chief economist for Morgan Stanley.

He calls this policy destabilizing. He says this: the FED “is courting an increasingly treacherous endgame at home and abroad.”

The FED’s creation of $85 billion of counterfeit money — euphemistically called “liquidity” — is based on a theory. The theory is that rich people, who buy most of the stocks and bonds, will feel wealthier, and therefore will buy more stocks and bonds. In short, QE3 is an indirect way to goose the equity markets. Roach writes:

With its benchmark lending rate at the zero-bound, the Fed has embraced a fundamentally different approach in attempting to guide the US economy. It has shifted its focus from the price of credit to influencing the credit cycle’s quantity dimension through the liquidity injections that quantitative easing requires. In doing so, the Fed is relying on the “wealth effect” – brought about largely by increasing equity and home prices – as its principal transmission mechanism for stabilization policy.

He fully understands this: “wealth effects are for the wealthy.”

The Fed should know that better than anyone. After all, it conducts a comprehensive triennial Survey of Consumer Finances (SCF), which provides a detailed assessment of the role that wealth and balance sheets play in shaping the behavior of a broad cross-section of American consumers.

In 2010, the last year for which SCF data are available, the top 10% of the US income distribution had median holdings of some $267,500 in their equity portfolios, nearly 16 times the median holdings of $17,000 for the other 90%. Fully 90.6% of US families in the highest decile of the income distribution owned stocks – double the 45% ownership share of the other 90%.

The top 10% of wealth owners in the USA are getting the lion’s share of the QE3 benefits.

Moreover, the 2010 SCF shows that the highest decile’s median holdings of all financial assets totaled $550,800, or 20 times the holdings of the other 90%. At the same time, the top 10% also owned nonfinancial assets (including primary residences) with a median value of $756,400 – nearly six times the value held by the other 90%.

All of this means that the wealthiest 10% of the US income distribution benefit the most from the Fed’s liquidity injections into risky asset markets. And yet, despite the significant increases in asset values traceable to QE over the past several years – residential property as well as financial assets – there has been little to show for it in terms of a wealth-generated recovery in the US economy.

Here is his conclusion. “QE benefits the few who need it the least. That is not exactly a recipe for a broad-based and socially optimal economic recovery.”

Continue Reading on www.project-syndicate.org

Print Friendly and PDF

Posting Policy:
We have no tolerance for comments containing violence, racism, vulgarity, profanity, all caps, or discourteous behavior. Thank you for partnering with us to maintain a courteous and useful public environment where we can engage in reasonable discourse. Read more.

8 thoughts on “QE3 is a Huge Subsidy to the Top 10%.

  1. "That is not exactly a recipe for a broad-based and socially optimal economic recovery.”

    So Morgan Stanley finally comes clean that private central banking is a lousy way to run an economy. The willful ignorance of all so-called "experts" quoted by the corporate owned media is staggering.

  2. E Goldstein says:

    The Fed policy might have worked if the normal things done in a recession had been done by the rest of government. However the policy for the last five years has been anti growth and anti individual. Every possible thing to retard growth has been implemented from Obamacare to EPA coal restrictions. The result is the Fed has been covering up the effects of the Obama catastrophe by inflating the market.

  3. This sounds a lot like Trickle Down Economics, which was constantly denigrated by the same Progressives who are behind this artificial market propping-up scheme.

  4. This comes as no surprise to anyone who has been reading my blog. I have been calling it the Bernanke Bubble for some time now. It is deadly dangerous to the economy. Bernanke is not stupid. He understands what he is doing. He started by giving cover to the sad state of the Obama non-recovery. Now he has a tiger by the tail and he would like to find some way to let go without ruining his reputation. Mr. Bernanke, to those that understand, you own it and always will. See my blog at http://cranky-conservative.blogspot.com

  5. What this is is the implementation of the NWO-ists plan to destroy what is left of this phony, propped-up sham of an economy in order to bring about it's total destruction of our dollar which is only a stone's throw away from happening! They are siphoning money from the middle class (Obaa-baa-ma's death care, EPA's nonsensical regulations) until there is no middle class which there nearly isn't one now as it shrinks daily due to the Fed's shennanigans that they pass for positive actions which couldn't be farther from the truth! – bye bye dollar; bye, bye economy; bye, bye, freedom; HELLO ONE WORLD TYRANNY!

  6. Where is John Gault when you need him? Without serious term limits, neither political party will ever have the cojones to taper this thing off. No one wants to take the hit for an economic downturn. They will keep pumping air into it until it busts.

  7. “The fact that we are here to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the US government can’t pay its own bills; it is a sign that we now depend on ongoing financial assistance from foreign countries to finance the government’s reckless fiscal policy. Increasing America’s debt weakens us domestically and internationally. Leadership means that the buck stops here. Instead, Washington is shifting the burden of bad choices onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.” ~ Sen. Barack Obama, March 2006

  8. 1baronrichsnot1 says:

    It is still trickle down, plain and simple! electronic transfers to the feds banks boost reserves then into the stock markets. In short the stock markets are propped up by electronic transfers. A paper house of cards. But it pays big in real taxpayer taxes. We will pay it, by obamacare, global warming, and 14 new taxes to be implemented here in 2014. Subscribe to obama care, and you will pay a big portion of premiums in federal taxes. That's what QE1-2-3 consist of, taxes, and no coverage! Watch your medicare, it will pay less, it already doesn't pay enough to get the water hot. Doctors are dropping like flies. It is an unsustainable trainwreck, like foriegn policy, like the dollar, like the debt, like jobs, like anything you want to name! a complete utter trainwreck!