Source: TheFelderReport.com, by Jesse Felder
“As I look back, it now seems that, with all the thought and work and good intentions, which we provided, we achieved absolutely nothing… nothing that I did, and very little that old Ben [Strong of the Federal Reserve] did, internationally produced any good effect – or indeed any effect at all except that we collected money from a lot of poor devils and gave it over to the four winds.” -Montagu Norman, Governor of the Bank of England 1920-1944
Since the financial crisis nearly a decade ago, the Federal Reserve has printed trillions of dollars in an effort to create a “wealth effect” in the economy. Their theory goes that quantitative easing would make for rising prices of financial assets which should, in turn, make the wealthy feel more confident and thus spend more. By this process, a trickle-down effect would boost the economy.
Last year, however, I started to note that, even if this theory were true, a number of developments could possibly derail this “wealth effect” and even put it into reverse. Those developments have continued into 2017. High-end home prices continue to slump.
Bear market for home prices in Aspen and the Hamptons: https://t.co/wtCU3nIatv
— Jesse Felder (@jessefelder) January 26, 2017
And luxury retailers are suffering at least as much as the major department stores. In fact, sales here have not been so poor since the “Great Recession.”
— Jesse Felder (@jessefelder) January 24, 2017
At the same time that these luxury markets are rapidly declining, the stock market is soaring to all time highs. This is probably all the evidence we need to understand that the wealth effect is a myth. Still, the BIS recently quantified the failure of quantitative easing to boost the economy even while noting its efficacy in boosting asset prices.
— Jesse Felder (@jessefelder) January 18, 2017
So the Fed has accomplished its goal of making the wealthy wealthier it just hasn’t trickled down to the rest of the economy as they had hoped. The end result is the Fed has only exacerbated the greatest wealth inequality in this country since the Great Depression.