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There's A Link Between QE And Rising Wealth Inequality

There's A Link Between QE And Rising Wealth Inequality
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The seemingly endless stream of quantitative easing (QE) measures by central banks around the world has driven interest rates into negative territory for the first time in history in Germany and a handful of other economies around the world. Unfortunately, one of the unintended side effects of all this stimulus is that the gap between the wealthy and the poor continues to widen.

“Normally, interest rate cuts are simulative, but when you get into negative territory, persistent negative interest rates can become deflationary instead of being inflationary,” Algebris Investments analyst Alberto Gallo told Bloomberg.

Gallo went on to explain that this dynamic can exaggerate the wealth gap.

“Over time, you tend to concentrate the wealth into fewer hands.”

Related Link: Fed Facts: Explaining Quantitative Easing

Last year, the Brookings Institute held a special conference to address the impact of QE on the wealth gap. Former Federal Reserve board member Kevin Warsh argued that U.S. QE disproportionately enriched Americans with the largest amount of money invested in stocks and other financial products. In other words, Americans with the most money to invest gained the most.

Former Fed Chair Ben Bernanke said that these types of issues should not be considered when the Fed makes monetary policy decisions.

“The distributional impact of monetary policy should not prevent the Fed from pursuing its mandate to achieve maximum employment and price stability,” Bernanke concluded.

According to YCharts, U.S. wages and salaries for civilian workers are up roughly 21 percent since 2007. In that same time, the SPDR S&P 500 ETF Trust (NYSE: SPY) is up 62.2 percent.

Disclosure: the author holds no position in the stocks mentioned.

Posted-In: Broad U.S. Equity ETFs Economics Federal Reserve ETFs Best of Benzinga


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