Hey Fed, Explain Again How Making Billionaires Richer Creates Jobs

Authored by Charles Hugh Smith via OfTwoMinds blog,

Despite their hollow bleatings about ‘doing all we can to achieve full employment’, the Fed’s policies has been Kryptonite to employment, labor and the bottom 90% – and most especially to the bottom 50%, the working poor that one might imagine most deserve a leg up.

As wealth and income inequality soar to new heights thanks to the Federal Reserve’s policies of zero interest rates, money-printing and financial stimulus, the Fed says its goal is to create more jobs. Really? OK, let’s look at how the Fed’s doing with that.

I’ve assembled a chart deck to display the consequences of Fed policies on debt, wealth inequality and employment. Recall what Fed policies actually do:

1. Zero interest rate policy (ZIRP) destroyed the low-risk return on savings and money market funds, stripping everyone not in the Fed-privileged rentier-speculator-financier class of safe, real returns on capital.

2. Zero interest rate policy (ZIRP) lowered the cost of speculation by financiers and corporations but left the interest rates paid by the working poor for credit cards, auto loans and student loans at extortionate rates.

3. QE–quantitative easing–creates trillions of dollars out of thin air to buy U.S. Treasury bonds, enabling no skin in the game federal spending and funneling trillions of dollars of nearly free money into the soft greedy hands of the rentier-speculator-financier class, not into the real economy.

4. Both ZIRP and QE incentivized borrowing low-cost billions to speculate in assets, inflating unprecedented debt-leverage-driven assets bubbles which have now infected every asset class: The Everything Bubble.

Here is the Fed policy in a nutshell: working, saving and prudent investing–you get nothing. You’re already rich, borrow huge sums and leverage up speculative bets–you win big. Recall that the rentier-speculator-financier class has no skin in the game because the Fed and other agencies rush in to bail out all their losing bets, while the bottom 99.9% are left to twist in the wind should they foolishly follow the billionaires into risky bets.

In the world the Fed has created, work is for chumps, the way to get rich is borrow, leverage and speculate.

Note that this chart deck is from the Federal Reserve database except for one chart from the Washington Post.

So what are the consequences of Fed policies on debt, wealth inequality and employment? Let’s have a look.

The Fed balance sheet, i.e. money it creates out of thin air: a near-vertical line up.

Federal debt, i.e. money borrowed by selling Treasury bonds: a near-vertical line up.

Total debt, i.e. what the Fed encourages everyone to do–borrow more!: a near-vertical line up.

Net worth of the top 1% and top 90% to 99%: massive increases since 2009 and more recently, a moonshot higher. The bottom 50%, meanwhile, is flatlined near zero.

Thanks to the Fed, the top 0.1% own more wealth than the bottom 80%. Thanks to the Fed. the rentier-speculator-financier class has done very well, the top 90-99% have ridden the Fed’s coattails nicely, but the bottom 80% have been left in the dust. Good job, Fed!

While the Fed printed and distributed trillions to the rentier-speculator-financier class, labor’s share of the economy has been in a free-fall. Working is for chumps, gambling with Fed money is for winners. And if you lose, the Fed bails you out. The Fed casino is the place to be for guaranteed winnings–if you’re already rich, of course.

The Fed’s policies are all based on the trickle-down theory that when billionaires get richer, some magic pixie-dust miraculously drifts down to the bottom 50%. Oops. The bottom 50% lost ground while the billionaires reaped billions. Gosh, I wonder why the financial media bows down and worships the Fed as living gods.

Since the Fed is doing all this wealth creation in the top 0.1% to create jobs, let’s look at the labor participation rate, the percentage of the labor force which is employed in some fashion. Hmm, that topped out in 1999 and has been in a freel-fall since.

The percentage of the population that’s employed has a very similar pattern, topping out in 1999 and then dropping to new lows every time the Fed’s speculative bubbles pop.

Despite their hollow bleatings about doing all we can to achieve full employment, the Fed’s policies has been Kryptonite to employment, labor and the bottom 90%–and most especially to the bottom 50%, the working poor that one might imagine most deserve a leg up.

So Fed governors, lackeys and apologists, please explain again how making billionaires richer creates jobs, fosters employment and benefits the bottom 90%. If the Fed was actually attempting to bolster the income and wealth of the laboring class, it has failed miserably by every meaningful metric. If, on the other hand, Fed policy was always aimed at further enriching the top 0.1%, top 1% and corporations, then the Fed has reached the pinnacle of success.

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