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April 29, 2021 | The Feds Fueled Income Inequality

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

YOUGHAL, IRELAND – Finally, The Washington Post catches on…

The Fed helped fuel a stock market boom that benefited wealthy Americans – and left behind everyone else

Ever since the Covid-19 pandemic struck, the Federal Reserve has gotten plenty of kudos for moves that have helped stabilize the economy, kept house prices from tanking and supported the stock market. But those successes have obscured another effect: the inadvertent impact the Fed’s ultralow interest rates and bond-buying sprees are having on economic inequality.

Long-standing inequality in the United States has been exacerbated by the Fed’s role in touching off a multitrillion-dollar boom in stock markets – and stock ownership is heavily skewed toward the wealthiest Americans.

As we’ve been saying for years, the Federal Reserve’s money-printing is not “stimulus.” It’s a wealth transfer scheme.

The rich get richer; the poor get poorer – thanks to the feds.

Real economic growth actually slows down as the stimulus burden (debt and phony interest rates) grows heavier. The Fed’s key interest rate has been below the level of consumer price inflation for most of the last 11 years, while U.S. federal debt has more than doubled to $28 trillion.

Yet, in the last four years, GDP grew at the lowest rate since the Great Depression.

Docile Capitalism

So, it’s not taxes… not greed… and not r > g (French economist Thomas Piketty’s observation that the return on capital generally exceeds the rate of economic growth) that is responsible for such a big gap between rich and poor in America; it’s the government.

In his 2013 tome Capital in the Twenty-First Century, Piketty claimed that the rich always get richer. He recognized that they “captured” the government and used it to help protect their wealth.

But he missed the point. The elite always controls government… and always uses it to try to stay elite.

But mating capitalism with government gives birth to a corrupt and sterile offspring, where the motive force of real progress – creative destruction (the collateral damage of a constantly evolving economy) – has been bred out of it.

In its new, gelded variety, capitalism becomes docile… and will do what it is told. Big businesses are no longer supposed to focus on their customers.

Instead, they are expected to promote the elite agenda – money-printing, diversity, wars, global warming, racism… whatever the elite wants.

In return, like young princes who will never wear the crown, they are subsidized… bailed out… made into celebrities… and treated like quasi-public institutions.

Comedy or Tragedy?

Civilization is what you get when you allow vernacular rules – private property, math, speech, writing, real money, and “do unto others as you would have them do unto you” – to develop naturally.

These rules – these “restraints” – are what make it possible. What we call “capitalism” is merely the expression of the rules in economics – that is, it lets people get on with their lives and do their win-win deals.

But what a boring church it would be if no one ever tippled the sacramental wine! And what a dull world it would be if people just went about their business… respecting the rules of civilization… doing their win-win deals… making each other happier and richer.

What would history be without a jackass like Robespierre… or a monster like Cromwell… or a beast like Mao?

And what would today be like without a Trump or a Biden?

No, Dear Reader… we live in the world we are given. And it is either a comedy or a tragedy, depending on how you look at it.

Fake Wealth

We prefer to see the amusing side, trying to avoid getting huffy about the imbecility and venal sins of our fellow man. (We bid him to do likewise.)

So we laugh at The Washington Post. The leading news source for the Deep State elite is not about to come to the obvious conclusion – that stimulus money-printing should be stopped.

Deficits and the fake money are how the elite protect and expand their wealth. They are the rewards they get for “capturing” the government.

Yesterday, we guesstimated the value of that reward at $30 trillion. That is the difference between the value of household financial assets in a normal, civilized economy and those in today’s corrupted, financialized capitalism.

Between the end of World War II and the end of the 1980s, financial assets averaged about 350% of GDP. They are overwhelmingly owned by the elite, so when they go up faster than GDP, the rich get richer, compared to the rest of the population.

Today, financial assets are around 500% of GDP. By our rough calculation, that is at least $30 trillion more than they “should” be.

And since GDP did not keep up with it, it does not represent new wealth, but only a new claim on the existing wealth of the rest of society.

Here’s another way to look at it. During that same “normal” period – the late 1940s to 1990 – the value of all the publicly traded stocks in America was about 80% of GDP.

Today, it is 195%… more than twice the “normal” rate. That alone has added nearly $20 trillion to the wealth of those who own stocks – again, the elite.

Any way you cipher it, it’s the biggest rip-off in the history of the world.

Fix Inequality

The Washington Post and the rest of the elite media, economists, politicians, and business leaders are not about to stop it. An honest money system is the last thing they want.

Instead, they propose to take the rich behind the woodshed… and give them a good talking-to.

Raising taxes on “the rich” gives them a controllable… lobby-able… way to at least appear to fix the “inequality” problem, without really fixing anything… without squeezing rich party donors too hard… and without interrupting the scam.

And they put Bernie Madoff in jail!

Ha! Ha!

More to come…

Regards,

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Bill

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April 29th, 2021

Posted In: Bill Bonner's Diary

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