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Federal Reserve Reports on the Failure of the Federal Reserve

Written by Gary North on September 5, 2014

The media are full of stories about a recent article in the Federal Reserve Bulletin (Sept. 2014) on how poor people got poorer, 2010-13, while rich people got richer. The article is titled, “Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances.”

What the media systematically neglect to report is this: from 2007 through 2009, the top 10% of Americans in terms of net worth suffered substantially larger declines in real income than those below them. The Great Recession hit the rich hardest, because it wiped out stock market values, where the rich invest individually. The rest of the population does not, except through pension funds.

When mean income rises faster than median income, that’s because the rich are getting richer, pulling up the mean income figure. When mean income is falling faster than median income, the rich are losing money faster than the less rich. Here is the chart provided by the article. Note that mean income was falling faster than median during the recession. The rich were losing more.


The distribution of wealth promoted by Federal Reserve monetary inflation creates asset bubbles. The rich benefit most. When the Federal Reserve under Bernanke reduced the rate of growth of the monetary base, beginning in 2006, this created the recession in late 2007, just as I and other Austrian School economists predicted in 2006 and 2007.

So, the rich got hammered hardest by the recession. The vast monetary expansion, of 2009 to today, has rekindled the asset boom, leading to a partial restoration of net worth by the rich. But the gains, as of 2013, did not restore the losses sustained in the recession.

Here is what the report says.

During the three years between the beginning of the 2010 and 2013 surveys, real gross domestic product grew at an annual rate of 2.1 percent, the civilian unemployment rate fell from 9.9 percent to 7.5 percent, and the annual rate of change in the consumer price index (CPI) averaged 2.3 percent. Although aggregate economic performance improved substantially relative to the period between the 2007 and 2010 surveys, the effect on incomes for different types of families was far from uniform. Several observations from the SCF about family incomes stand out:

Between 2010 and 2013, mean (overall average) family income rose 4 percent in real terms, but median income fell 5 percent, consistent with increasing income concentration during this period.

Some of the 2010 to 2013 growth differential reflected a return to trend, after the cyclical narrowing of the income distribution between 2007 and 2010, when large decreases in top incomes associated with the recent financial crisis reduced mean family income more than  median family income.

Families at the bottom of the income distribution saw continued substantial declines in average real incomes between 2010 and 2013, continuing the trend observed between the 2007 and 2010 surveys.

Families in the middle to upper-middle parts (between the 40th and 90th percentiles) of the income distribution saw little change in average real incomes between 2010 and 2013 and thus have failed to recover the losses experienced between 2007 and 2010.

Only families at the very top of the income distribution saw widespread income gains between 2010 and 2013, although mean and median incomes were still below 2007 levels. . . .

Overall, between 2010 and 2013 there was little movement in median and mean net worth,  as the median fell a modest 2 percent and the mean increased slightly.

Consistent with income trends and differential holdings of housing and corporate equities,  families at the bottom of the income distribution saw continued substantial declines in real net worth between 2010 and 2013, while those in the top half saw, on average, modest gains.

Translated into English, this means:

1.  The bubble economy favored the rich before 2007.

2.  The recession hurt everyone, but it hurt the rich worse, as a percentage decline.

3.  The historically unprecedented 4-to-1 increase in monetary base, 2009-13, favored the rich, and the average Joe is still worse off than in 2007. Those at the bottom are much worse off.

Conclusion: it’s business as usual at the Federal Reserve System. Its policies during boom times favor the rich far more than the poor and middle class. Its attempts to reduce the rate of monetary expansion produce recessions, which hammer the rich. So, the FED never sticks with its policy of stable money. It always returns to monetary expansion. Back and forth, back and forth, FED policies produce booms and busts.

The FED favors the rich most of the time: artificial booms. This is what cartels do. They favor the rich and well-connected. The Federal Reserve System is a cartel for large banks and the clients of large banks. It has been ever since 1914.

The media reports never not mention any of this. Neither do college textbooks in economics. The chapter on the economics of cartels is never referred to in the chapter on the Federal Reserve System. Yet the economics are the same.

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3 thoughts on “Federal Reserve Reports on the Failure of the Federal Reserve

  1. “But trust us! There really isn’t a better way to run an economy! Honest!”

  2. There needs to be an AUDIT of the Federal Reserve. It's time the books are opened to the American public. I believe we may be shocked at all the corruption. The federal reserve can't afford the TRUTH! While we are at it, let's have the vaults @ Fort Knox opened and reveal to each and every Citizen that all of our gold is still there. Why do they fight to avoid this? Well, you tell me! We can all speculate!

  3. WhiteFalcon says:

    As I remember, two of the excuses for the creation of the Fed were: 1) Protect the value of the dollar. 2) prevent the boom-bust cycle. Well, it promores the boom-bust cycle and the value of the dollar has fallen 99% since 1914.