How the Other Half Goes Broke

By Karen Shaw Petrou and Matthew Shaw

In our last blog post, we laid out the most telling inequality-data points from an important new study from the Federal Reserve Bank of Minneapolis which for the first time runs from 1949 to 2016 and adds many critical equality measures.  These data show more decisively than ever not only that wealth inequality in 2016 is the worst since at least the Second World War, but also that this is due to who holds the assets that have gained the most.  Since which assets return how much is due now in large part to post-crisis monetary and regulatory policy rather than to market forces and broader macroeconomic trends, it’s post-crisis policy – not forces from beyond – that increasingly dictates U.S. economic equality. Continue reading “How the Other Half Goes Broke”

Disquiet on the Home Front

By Karen Shaw Petrou and Basil N. Petrou

On June 20, FRB Chairman Powell said, “Nine years into an expansion that has sometimes proceeded slowly, the U.S. economy is performing very well.”  Although Mr. Powell noted low labor participation, puzzling inflation, and problematic wage growth, he said that all will come right as long as the Fed stays the course.  No mention was made of unprecedented U.S. income and wealth inequality or of a housing market serving mostly the oldest, wealthiest, and most coastal among us.  Too bad – inequality and the impediments to effective monetary-policy transmission it erects are among the most important reasons that the nine years Mr. Powell cites have seen the slowest recovery in decades in concert with new threats to financial stability. Continue reading “Disquiet on the Home Front”

Vollgeld as Voldemort: Is the Swiss Villain Coming for American Banking?

By Karen Shaw Petrou

On Sunday, June 10, Swiss voters resoundingly rejected “Vollgeld” – a sovereign-money referendum that would have made the Swiss National Bank an all-powerful arbiter of money and credit.  Defeat notwithstanding, Vollgeld is just a test run.  In this blog post, we consider Vollgeld’s impact with particular attention to the U.S.  Any doubts that its impact could be significant is dispelled by a brand-new paper laying out a U.S. Vollgeld from a think tank with ties to Sen. Warren – a national leader of progressive Democrats with considerable power to influence thinking, if not, for now, actual legislation.  Continue reading “Vollgeld as Voldemort: Is the Swiss Villain Coming for American Banking?”

Still Economic Waters Hide Lurking Danger

By Karen Shaw Petrou

On Tuesday, FRB Chairman Powell delivered a strongly-positive statement on the state of the U.S. economy.  Citing factors such as recent wage growth and employment, Mr. Powell is far more worried about keeping the good times going than about how inequitably the good times deliver the goodies across the gaping U.S. income and wealth divide.  This is setting monetary and regulatory policy the same way a diver looking only at a calm, blue surface jumps into a lake and breaks his neck.  Continue reading “Still Economic Waters Hide Lurking Danger”

Caught in CCAR’s Cross-Fire

By Karen Shaw Petrou

  • CCAR now tries to make big banks a shadow U.S. central bank.
  • Result: more systemic risk and still less economic inequality.

How do you make the financial system less stable and increase U.S. economic inequality at the same time?  It’s not easy, but if you’re the Fed, then you accomplish this frightening feat by toughening up the annual CCAR stress test for the biggest banks without an eye to its systemic or market impact.  Stress testing is fine – indeed an important addition to the post-crisis supervisory arsenal.  But, CCAR itself is founded on two flawed premises:  big BHCs are the heart of financial stability and nothing the central banks does adversely affects economic inequality.  Continue reading “Caught in CCAR’s Cross-Fire”