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InsiderOnline Blog: September 2012

The Fed’s Class Warfare

The Fed’s plan for more quantitative easing [i.e., printing money] really means more redistribution of wealth from the poor and middle classes to the very rich. As Anthony Randazzo explains, the Fed buying up securities will boost the value of stocks, most of which are owned by the wealthiest 10 percent. But that’s not all, says Randazzo:

The whole idea of QE is to drive investors out of lower risk investments like mortgage backed securities and government debt and get them to put that money in “more productive” use—lend it, build skyscrapers, invest in technology, etc. Since there is little confidence about the future of the economy, many investors have crowded into the stock market with their money, and still others have invested in commodities.

The problem is that investing in commodities can push up prices on things like gas, meat (because of feed corn prices), bread (because of wheat prices), and even orange juice. There certainly have been other contributors to commodities prices going up, but if the Fed has boosted stocks, they’ve boosted commodities too. So not only are the cronies gaining from quantitative easing, there is a negative wealth effect too.

The cronyism doesn’t end there. In a Dallas Fed paper released in August, OPEC chief economist William White points out that easy monetary policy favors “senior management of banks in particular.” And even Bernanke himself suggested (as if it was a good thing) that quantitative easing purchases “have been found to be associated with significant declines in the yields on both corporate bonds and MBS.” Translation: the Federal Reserve has made it artificially cheaper for corporations to borrow money and has pushed up the prices of houses (benefiting homeowners but hurting homebuyers). [Reason, September 13]

Also, it encourages the same kinds of bad investments that led to the crisis in the first place.

Posted on 09/13/12 10:22 PM by Alex Adrianson

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