Contra to what has been advertised by politicians and the mainstream, the policy of inflationism has essentially been political than about economics (e.g. couched by technical vernacular as “unemployment” or economic recovery) or social welfare.
That’s because inflationism is a policy which redistributes resources from society to the government and to politically favored groups.
I previously pointed out how a study from the Bank of England subtly admitted that their QE policies favored the political elites which indirectly has promoted “inequality”.
Yet we see more evidences of how central bank’s inflationist policies deepens the economic divide, from the CNBC,
The latest round of QE announced by Bernanke yesterday has sparked growing controversy about how Fed policy has mainly helped the wealthiest Americans.
Economist Anthony Randazzo of the Reason Foundation wrote that QE “is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality.”
Donald Trump – not usually one for distributional analyses of monetary policy – said on CNBC yesterday that “People like me will benefit from this.”
The reason is simple. QE drives up the prices of assets, especially financial assets. And most of the financial assets in America are owed by the wealthiest 5 percent of Americans.
According to Fed data, the top 5 percent own 60 percent of the nation’s individually held financial assets. They own 82 percent of the individually held stocks and more than 90 percent of the individually held bonds.
By helping to reinflate the stock market in 2009 and 2010, the Fed created a two-speed recovery. The wealthy quickly recovered much of their wealth as stocks doubled in value. But the rest of the country, which depends on houses and jobs for their wealth, remained stuck in recession.
Put another way, most Americans have most of their wealth tied up in their houses (about 50 percent for most). For the top 5 percent, homes account for only 10 percent of wealth, while financial assets account for between one third and 40 percent.
By boosting the value of financial assets, Fed has helped the economy of Richistan but not the broader United States.
Bernanke is obviously aware of this criticism, which is why the latest round of easing is focused on mortgages. But here too, there is a divide between the rich and the rest. Despite lowered rates, banks remain strict on lending, restricting access to credit for most Americans. The wealthy and the asset-rich, however, will now enjoy even lower rates on their credit.
The policy of inflationism does not only promote societal inequality, they advance immoral actions such as “orgy of speculation”, recklessness and the sense of entitlement-dependency (moral hazard) which ultimately sows seeds to social instability.
At worst, inflationism fosters boom-bust cycles if not the destruction of the currency which leads to economic depression
As the late distinguished Professor Hans F. Sennholz warned,
Evil acts tend to breed more evil acts. Inflationary policies conducted for long periods of time not only foster the growth of government but also depress economic activity. Standards of living may stagnate or even decline as growing budget deficits thwart capital accumulation and investment that are sustaining the standards.
Inflation misleads businessmen in their investment decisions, which causes much waste and many bankruptcies. In fact, it is the root cause of the boom-and-bust cycle which wreaks havoc on economic activity. Indeed, inflation breeds many evils of which most Americans are unaware.
Open ended inflationism by the US Federal Reserve and the European Central Bank, will ultimately lead to economic impoverishment and social chaos.
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