“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”

America’s Stalwart Savers Get the Sucker Punch

By Karen Petrou

Recently, I had an op-ed in the Financial Times arguing that negative rates make it even harder for moderate-income households to accumulate wealth.  The reason, I said, is simple:  when savings-deposit or similar rates are ultra-low or even negative in real terms, households that save get poorer and poorer both on their own and in comparison to wealthier households with more sophisticated financial-asset investments.  This might seem irrefutable, but the article generated hundreds of comments.  Many were positive but more than a few countered that lower-income households don’t have savings so savings rates don’t exacerbate economic inequality.  To my mind, this is like saying that poor people are already thin so the fact that they don’t have enough food doesn’t matter. Continue reading “America’s Stalwart Savers Get the Sucker Punch”

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”

SIFIs and Sisyphus: The Latest Bank-Regulation Rewrite

By Karen Petrou

Starting in 2010, U.S. regulators erected a pyramid of complex, costly, and stringent safety-and-soundness, resolution-planning, and conduct regulations for the largest U.S. banking organizations that have come to be called SIFIs (i.e., systemically-important financial institutions).  Starting in 2018, the agencies began to demolish the still-incomplete SIFI pyramid, issuing on October 31 two sweeping proposals (here and here) not only to implement new U.S. law, but also to go farther.  Bankers say this is nice, but not enough; critics lambast the proposals as forerunners of the next financial crisis.  Either could be right – the proposals repeat the most fundamental mistake of post-crisis financial regulation:  rules piled upon rules or, now, rules subtracted from rules without even an effort to anticipate how all of the revised rules work taken altogether in the financial marketplace as it exists in the real world, not in a set of academic papers or political edicts. Continue reading “SIFIs and Sisyphus: The Latest Bank-Regulation Rewrite”

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”