Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE

By Karen Petrou

Starting with our very first EconomicEquality blog post, we demonstrated the direct link between quantitative easing (QE) and the sharp rise in U.S. wealth inequality that differentiates this recovery from all that came before.  QE exacerbates inequality because, combined with post-crisis rules and ultra-low rates, it creates a market dynamic in which banks hold huge excess-reserve balances instead of making equality-essential loans and markets relentlessly chase yield, increasing equity valuations and driving credit to borrowers such as highly-leveraged companies.  In 2019, the Fed bulked up its portfolio in what is now known as QE-lite in hopes of rescuing the repo market, reinvigorating sputtering equity markets no matter the Fed’s ongoing insistence that this round of portfolio increases isn’t QE. Continue reading “Wheelies on the Yield Curve:  Inequality, Disintermediation and the Hazards of New QE”

Dark Corners in “Good Places”

By Karen Petrou and Matthew Shaw

Shortly before Thanksgiving, a new study documented that U.S. life expectancy since 2010 has taken a sharp turn for the worse for younger Americans regardless of race, gender, or education.  We knew that opioids were devastating, but this study confirmed others showing also that the overall reversal in U.S. life expectancy is due to more profound and mysterious afflictions.  Doctors are flummoxed by why U.S. mortality is so much higher than that in other advanced countries, where life expectancy continues to increase for younger citizens, concluding that something endemic is going on behind the epidemic of “diseases of despair.”  The latest inequality data demonstrate yet again that the economic “good place”  that comforts Fed policy-makers is to be found only in the 100th floor penthouses that are the eyries of the one percent.  We thought the data more than dispiriting when we analyzed the Fed’s first distributional financial account; now, we find them devastating, not to mention evil omens of a polarized, angry electorate heading to the 2020 polls. Continue reading “Dark Corners in “Good Places””

“People’s QE” and Noblesse Oblige

By Karen Petrou

As the chimera of the post-crisis recovery fades and central bankers find themselves powerless to reverse recession, “people’s quantitative easing” is gaining attention as a tool a growing number of central bankers fancy gives them a new way to wreak their beneficent will.  People’s QE – also known more colorfully as “helicopter money” – means that, despairing of fiscal-policy remedies, central banks print money and then either just give it to the people or invest it in assets they or their bosses think best for equalizing, trade-deficit dropping, climate-restoring, or other all-to-the-good economic growth.  However, it’s not just central bankers casting longing eyes at the ability of central banks to print money – officials ranging from those in the Trump Administration to the Democratic Socialist candidate for President see it as a new way to do what they think are the voter’s bidding without raising the deficit.  This is really, really central banking, but for all its power, it’s very problematic.  QE so far has done little to spur sustained recovery and much to make the U.S. even more unequal.  There’s no reason to believe a people’s QE will be any better. Continue reading ““People’s QE” and Noblesse Oblige”

The Missing Middle Class

By Karen Petrou

When we started this blog in 2017, we began with a plea for the Federal Reserve to factor inequality into its monetary and regulatory policy equation.  We showed at the start, here, here and here, that the Fed’s focus only on averages and aggregates obscures sharp polarization at each end of the U.S. income and wealth distribution.  It is these polarizations, as we’ve repeatedly seen in blog posts that undermine the Fed’s ability to set the U.S. economy on a forward trajectory of shared prosperity and stable growth – i.e., to meet its dual mandate as Congress expressly defined it in the Humphrey-Hawkins Act of 1978.  The Fed is still resolutely crafting monetary policy with its eyes firmly averted from increasing inequality.  Continue reading “The Missing Middle Class”

The Low-Skill Losers

By Karen Petrou

As we have noted, here and here, the Fed is devoting increasing analytical – if not yet policy-maker – attention to the unequalizing impact of unconventional policy.  It’s a start – a major problem besetting central banks in countries without a robust middle class – i.e., the U.S. – is that old-school representative-agent thinking leads to unanticipated, unequal outcomes when wealth and income are disproportionately enjoyed by the very few, very rich.  It is for this reason that the Fed’s touted employment benefit and “robust” economy in the wake of post-crisis policy has done so little for so many who remain so angry.  A new Fed paper helps to show why. Continue reading “The Low-Skill Losers”