The Federal Reserve has spoken and the rich are applauding.
Don’t believe the Federal Reserve when representatives say the third round of stimulus (QE3) is aimed at helping middle-class America; in reality, QE3 will largely benefit the rich.
Yes, the rich will again get richer, and the Federal Reserve knows this.
Here’s what I mean. Across the pond in Britain, the Bank of England’s monetary policies aimed at making money more accessible (similar to the U.S. quantitative easing) are helping the rich get richer. The numbers show that in the aftermath of the monetary easing in Britain, the value of stocks and bonds have advanced about 26%, and 40% of these gains have, in turn, increased the wealth of the top five percent of British households, according to the Bank of England. All you have to do is think about who gets richer when stocks increase in value—if you guessed the rich, you’re right, and the Federal Reserve is aware.
At last Thursday’s Federal Open Market Committee (FOMC) meeting, the Federal Reserve announced it would maintain super-low interest rates between zero and 0.25% into mid-2015, and it will maintain loose monetary policy even after economic recovery strengthens.
This is excellent, as it will help people who carry significant debt to lower their financing costs for another three years. But guess which class controls the brunt of America’s assets?
In the aftermath of the Federal Reserve announcement, stocks surged, which will largely benefit the top five percent who control the majority of the country’s financial assets.
The low interest rates mean cheaper cash is available for the rich to make more money and finance spending, whether that’s investments, housing, or other high-cost ventures.
This means that the rich, with their larger pool of capital, can continue to increase their net wealth faster than the average American. It’s a simple reasoning. The rich have greater and easier access to money from the country’s financial institutions, and they will continue to build their nest eggs, while the lower-income earners and the poor will continue to face difficult times. There is widening disparity between the rich and poor.
This concept of income distribution in America and other industrialized countries is becoming a real problem, especially with the depression that began in 2008.
The median family income plummeted to an inflation-adjusted $45,800 in 2010, compared to $49,600 in 2007, according to the Survey of Consumer Finances published by the Federal Reserve. The survey also indicated that the top 10% of households made an average of $349,000 in 2010 and had a net worth of $2.9 million.
Even the Federal Reserve’s plan to buy $40.0 billion in mortgage-backed securities each month will largely help the big property owners more than any other class. The low interest rates mean the rich can continue to accumulate properties with cheap capital while others struggle to hold onto their house and avoid a foreclosure or short sale.
While the launch of QE3 is meant to drive the economy, it will ultimately drive the widening gap between the rich and less fortunate.
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