• Tag Archives Inequality
  • How Central Banking Increased Inequality

    Although today high levels of inequality in the United States remain a pressing concern for a large swath of the population, monetary policy and credit expansion are rarely mentioned as a likely source of rising wealth and income inequality. Focusing almost exclusively on consumer price inflation, many economists have overlooked the redistributive effects of money creation through other channels. One of these channels is asset price inflation and the growth of the financial sector.
    The rise in income inequality over the past 30 years has to a significant extent been the product of monetary policies fueling a series of asset price bubbles. Whenever the market booms, the share of income going to those at the very top increases. When the boom goes bust, that share drops somewhat, but then it comes roaring back even higher with the next asset bubble.
    The Cantillon Effect The redistributive effects of money creation were called Cantillon effects by Mark Blaug after the Franco-Irish economist Richard Cantillon who experienced the effect of inflation under the paper money system of John Law at the beginning of the 18th century.1 Cantillon explained that the first ones to receive the newly created money see their incomes rise whereas the last ones to receive the newly created money see their purchasing power decline as consumer price inflation comes about.
    Following Cantillon and contrary to Fisher and other monetary theorists of his time, Ludwig von Mises was the first to emphasized these Cantillon effects in terms of marginal utility analysis. With an increase in the stock of money, the cash balances of the early receivers of the newly created money increase. Correspondingly, the marginal utility they give to money decreases and the individuals in question buy either investment or consumption goods, thus bidding up the prices of those goods and increasing the cash balances of their sellers. With this step by step process, the price of goods will increase only progressively and affect both the distribution of income and wealth as well as the different price ratios.

    This post was published at Ludwig von Mises Institute on August 16, 2017.


  • Why Blackrock Isn’t Worried At All About Record Low Volatility

    Yesterday, in an extensive, eloquent essay, One River’s Eric Peters described why it’s only a matter of time before record low breaks the market’s current phase of “metastability” and explodes higher. Below is the punchline:
    To sell implied volatility at current levels, investors must imagine tomorrow will be virtually identical to today. They must imagine that bond yields won’t rise despite every major central bank looking to hike interest rates and exit QE. They must imagine that economies at or near full employment will not create inflation; that GDP will neither accelerate nor decelerate; that governments will tolerate historic levels of income inequality despite citizens voting for the opposite; that strongly rising global debts will be supported by decelerating global growth. And volatility sellers must imagine that nine years into a bull market, amplified by a proliferation of complex volatility-selling strategies and passive ETFs with liquidity mismatches, that we will dodge a destabilizing shock to market infrastructure. I can imagine a few of those things happening, but neither sustainably nor simultaneously. It is much easier to imagine a tomorrow that looks different from today.
    As volatility declined, investors have had to sell even more of it to sustain sufficient profits. This selling reinforces the trend lower, which produces an illusion that legacy volatility shorts are less risky today than yesterday. Lower volatility thus begets lower volatility. And this also ensures that quantitative models reduce overall portfolio risk estimates, which allows (and in many cases forces) investors to buy more assets at prevailing prices. This in turn reduces volatility, reflexively. Naturally, the reverse is also true. Rising volatility begets rising volatility. And given the unprecedented volatility-selling in this cycle, I can imagine a historic reversal.

    This post was published at Zero Hedge on Aug 7, 2017.


  • Earnings Rise with Boost from Falling U.S. Dollar But Consumers Will Bear the Brunt of Rising Prices

    There seems to be an unlimited supply of methods in which the rich in America keep getting richer and the average Joe picks up the tab. (Think about the $16 trillion secret bailout of Wall Street by the Federal Reserve from 2007 to 2010 for the quintessential example.)
    Yesterday, Fortune Magazine ran this sobering headline: ‘The Wealth Gap in the U. S. Is Worse Than In Russia or Iran.’ The article quotes Richard Florida, author of The New Urban Crisis, as follows:
    ‘Inequality in New York City is like Swaziland. Miami’s is like Zimbabwe. Los Angeles is equivalent to Sri Lanka. I actually look at the difference between the 95th percentile of income earners in big cities and the lower 20%. In the New York metro area, the 95th percentile makes $282,000 and the 20th percentile makes $23,000. These gaps between the rich and the poor in income and wealth are vast across the country and even worse in our cities.’
    Against that backdrop comes news from FactSet last Friday that with 57 percent of the companies in the Standard and Poor’s 500 Index reporting actual earnings results for the second quarter of 2017, ‘ten sectors are reporting year-over-year earnings growth, led by the Energy, Information Technology, and Financials sectors.’ FactSet adds this: ‘The only sector reporting a year-over-year decline in earnings is the Consumer Discretionary sector.’ That would be the sector in which the average Joe lives.

    This post was published at Wall Street On Parade By Pam Martens and Russ Marte.


  • We Need a Social Economy, Not a Hyper-Financialized Economy

    We all know what a hyper-financialized economy looks like–we live in one:central banks create credit/money out of thin air and distribute it to the already-wealthy, who use the nearly free money to buy back corporate shares, enriching themselves while creating zero jobs. Or they use the central-bank money to outbid mere savers to scoop up income-producing assets: farmland, rental properties, etc.
    This asymmetric wealth accumulation and avoidance of risk creates a self-reinforcing feedback loop, as the super-wealthy financiers and corporations use a slice of their income to buy political protection of their income streams, creating cartels and quasi-monopolies that are impervious to competition and meaningful regulation. The only possible output of a hyper-financialized economy is rapidly increasing wealth and income inequality–precisely what we see now. What we need is a social economy, an economy that recognizes purposes and values beyond maximizing private gains by any means necessary, which is the sole goal of hyper-financialized economies.

    This post was published at Charles Hugh Smith on THURSDAY, JULY 27, 2017.


  • Bank of America: “The Most Dangerous Moment For Markets Will Come In 3 Or 4 Months”

    Two weeks after BofA’s Michael Hartnett previewed (and timed) not only the “Great Fall” of stocks, but also explained that the Fed and global central banks are now in the business of making the “rich poorer“, he is out with a new note which looks at the Fed’s latest U-turn, which has unleashed the latest market buying spree, warning that “further upside in risk assets will create problems later in the year” (for three reasons he lists out), and concludes that “ultimately, we believe the extremely strong performance by equities and bonds in H1 is very unlikely to be repeated in H2.” Hartnett then goes back to his original thesis that the Fed will no longer pursue its primary mandate of pushing stocks (i.e. wealth effect and confidence) higher because it is “now politically unacceptable for the Fed and any other central bank to stoke a bubble on Wall St.”
    As a result, “monetary policy will have to tighten to raise volatility, reduce Wall St inflation, and reduce inequality. There are two ways to cure inequality: you can make the poor richer, or you can make the rich poorer. The Fed will reduce its balance sheet in the hope of making Wall St poorer.”

    This post was published at Zero Hedge on Jul 13, 2017.


  • Are Real Home Prices Rising Or Falling Where You Live: Here’s How To Find Out

    As we’ve noted time and time again, the fact that average national housing prices appear to have recovered from the peak of the housing bubble masks the uneven nature of America’s economic recovery: While certain popular coastal markets have seen prices recover, much of the south and Midwest have struggled with stagnation or even home-price deflation.
    Now, a new tabulation of home-price data by Harvard University’s Joint Center for Housing Studies provides a granular look at the unevenness of the recovery from county to county. A quick glance at the map reveals how home-prices – a worthy proxy for wealth inequality – have risen dramatically along the coasts, while
    The data show that home prices increased by 40 percent or more in 153 metros (16 percent), including twelve metros where home prices doubled. And in nearly 300 markets, prices increased – but more modestly – by less than 20 percent. Meanwhile, real prices declined in about 280 metros. In another 200 markets, prices increased by 20-to-39 percent.

    This post was published at Zero Hedge on Jul 9, 2017.


  • BofA: “Massive Market Inflection Point Coming This Summer: Will Lead To Fall Crash”

    One week after BofA’s Michael Hartnett became the latest strategist to admit the truth, when in his Flow Show report from last week he said that “central banks have exacerbated inequality via Wall St inflation & Main St deflation” and now that they are hoping to quickly and painlessly undo their error, there are “two ways to cure inequality…you can make the poor richer…or you can make the rich poorer…” concluding that the “Fed/ECB are now tightening to make Wall St poorer” because it is “no longer politically acceptable to stoke Wall St bubble”, he has followed up with a note in which he looks at the vast change in the market landscape over the past year.
    As he says, one year ago, July 11th, 2016, 30-year Treasury yield hit all-time low (2.14%), and Swiss government could have issued a 50-year bond at a negative yield (Chart 2 shows 10- year Swiss yield back to 1900).

    This post was published at Zero Hedge on Jul 7, 2017.


  • Norway’s “Voluntary” Tax Collects A Paltry $1,325

    It’s too bad for Norway’s ruling center-right party that Warren Buffett isn’t a resident. After becoming the object of unceasing criticism by their politicized slashing of taxes and funding a profligate spending program with the country’s oil wealth, Norway’s center-right party hit upon a novel idea: Impose a ‘voluntary’ tax, according to Bloomberg.
    However, when it came time to tally the total for this past fiscal year, the great northern policy ploy failed to evoke in the country’s 5.3 million citizens a patriotic fervor: When it was all said and done, the government collected $1,325.
    Launched in June, the initiative has received a lukewarm reception, with the equivalent of just $1,325 in extra revenue being collected so far, according to the Finance Ministry. That’s not much for a country of 5.3 million people, many of whom are already accustomed to paying some of the highest taxes in the world (the top rate of income tax is 46.7 percent).
    ‘The tax scheme was set up to allow those who want to pay more taxes to do so in a simple and straightforward way,’ Finance Minister Siv Jensen said in an emailed comment. ‘If anyone thinks the tax level is too low, they now have the chance to pay more.’
    Left-of-center opposition parties claimed the tax cuts would benefit the richest and boost inequality. Jonas Gahr Store, the wealthy Labor Party contender who is leading in the polls ahead of the September 11 elections, has so far refused to take up the government’s offer.

    This post was published at Zero Hedge on Jul 7, 2017.


  • The Golden Revolution, Revisited: Chapter 5

    This Insight is the sixth in the serial publication of the new, Revisited edition of my book, The Golden Revolution (John Wiley and Sons, 2012). (The first instalment can be found here.) The book is being published by Goldmoney and will also appear as a special series of Goldmoney Insights over the coming months. This instalment comprises the fifth chapter of Section I.
    View the Entire Research Piece as a PDF here.
    The “Reserve Currency Curse” amd the International Aspects of Cantillion Effects
    ‘The fact that many countries as a matter of principle accept dollars to offset the US balance-of-payments deficits leads to a situation wherein the United States is heavily in debt without having to pay. Indeed, what the United States owes to foreign countries it pays – at least in part – with dollars that it can simply issue if it chooses to. It does so instead of paying fully with gold, whose value is real, which one owns only because one has earned it, and which cannot be transferred to other countries without any danger or any sacrifice. This unilateral facility that is available to the United States contributes to the gradual disappearance of the idea that the dollar is an impartial and international trade medium, whereas it is in fact a credit instrument reserved for one state only.’
    FRENCH PRESIDENT CHARLES DE GAULLE, FEBRUARY 1965
    Having shown that monetary Cantillon effects can have a material impact on economic inequality within an economy, it remains to consider how these effects can also spill over internationally. As the issuer of the primary global reserve currency, the US Federal Reserve may be the source of significant international Cantillon effects. Indeed, I believe that these effects are in certain respects easier to identify than those observed domestically. There have also been some major studies supporting this view. First, let us consider the important role played by a reserve currency in the international monetary system.
    What, exactly, is a reserve currency? It is one that is used to pay for imports from abroad and is then subsequently held in ‘reserve’ by the exporting country, as it does not have legal tender status outside of its country of issuance. In the simple case of two countries trading with one another, with one being a net importer and one a net exporter, over time these currency ‘reserves’ will accumulate in the net-exporting country. In practice, as reserves accumulate, they are initially held as bank deposits but are subsequently invested in some way, for example, in government bonds issued by the importing country or perhaps purchases of corporate securities. In this way, the currency reserves earn some interest and possibly realize some capital gains, rather than just sit as paper scrip in a vault.

    This post was published at GoldMoney on July 04, 2017.


  • Banks Begin To Mutiny Against The Fed: “If We Are Right, Central Banks Will Be Wrong”

    It has been a trying time for the world’s central bankers, who for decades have been used to the “high finance” community’s adulation, derived from the deliverance of policy wrapped in so much opacity, gibberish and contradictions, that neither the central bankers, nor the markets, had any idea what was going on (see the Greenspan tenure), or dared to admit it was all meaningless drivel, resulting in phases during which the market was on “autopilot” and culminating with a bubble and subsequent crash, “rescued” by an even greater asset bubble and even greater crash, etc.
    However, after generations of largely uncontested and unquestioned monetary policy where only the occasional “tinfoil” fringe blog dared to say that central banker emperors are not only naked and clueless but are also the cause of the world’s biggest problems, more and more voices are emerging to both challenge the prevailing monetary religious dogma, as well as daring to do something unprecedented: tell the truth.
    One example was Bank of America’s chief strategist, Michael Harnett, who on Friday confirmed what we had been saying for years, that “central banks have exacerbated inequality via Wall St inflation & Main St deflation” and that the Fed failed in its mission to make the poor richer, instead its destructive policies have made the top 1% wealthier beyond its wildest dreams, and have been directly responsible for such political outcomes as “Brexit” and “Trump.”

    This post was published at Zero Hedge on Jul 1, 2017.


  • Bank of America’s Forecast Of When The Fed Will Crash The Market

    Earlier today we reported that Bank of America’s chief strategist Michael Harnett made two stunning (if perfectly obvious) revelations for a person, who stands to potentially lose his job if he dares to publicize the truth, which is precisely what he did when he said that i) “central banks have exacerbated inequality via Wall St inflation & Main St deflation” and ii) it is “no longer politically acceptable to stoke Wall St bubble; two ways to cure inequality… you can make the poor richer…or you can make the rich poorer…they have failed to boost wage expectations, inflation expectation, ‘animal spirits’ on Main St… so Fed/ECB now tightening to make Wall St poorer”
    Some further observations from Harnett’s note “No market for Rich Men”:
    Tightening by Fed, rhetorical tightening by ECB has succeeded in raising bond yields, volatility, reducing tech stocks (CCMP, QNET, SOX all at 1-month lows); flow data had indicated tech very overbought (Chart 2 – flows into tech annualizing 22% AUM YTD)…

    This post was published at Zero Hedge on Jun 30, 2017.


  • “The Fed Is Preparing To Make The Rich Poorer”: BofA

    Remember when – for years and years after the grand, global QE experiment started – any suggestion that central bankers are the primary cause behind global wealth inequality, and thus directly responsible for such political outcomes as Brexit and Trump – was branded as a conspiracy theory by bloggers living in their parents’ basement? We do, because we were accused over and over of just that (our position on the Fed and other central banks should be familiar to all by now).
    Well, as of this morning, none other than the chief investment strategist at BofA, Michael Hartnett, is a basement dwelling, tinfoil hatter because in his latest Flow Show report, writes that “central banks have exacerbated inequality via Wall St inflation & Main St deflation.”

    Of course we knew that, you knew that, and pretty much everyone else knew that, but those whose jobs depended on not admitting it, kept their mouths shut terrified of pointing out that the central banking emperor is not only naked, but an idiot. Well, the seal has been broken, and even the biggest cowards from within the financial establishment, most of whom can be found on financial twitter for some inexplicable reason, can speak up now.

    This post was published at Zero Hedge on Jun 30, 2017.


  • What Derek Carr’s Contract Teaches Us about Wall Street and Income Inequality

    Derek Carr has just signed the most lucrative deal in NFL history, receiving a five-year extension worth $125 million with the soon-to-be Las Vegas Raiders. At $25 million per year, Carr edges out Indianapolis Colts quarterback Andrew Luck (though Luck’s contract did reward him with over twice as much in guaranteed money). Carr also becomes a big winner in the Raiders’ taxpayer-funded escape from Oakland, with his contract scheduled so most of the money kicks in after the franchise moves to income-tax-free Nevada.
    While the structure of Carr’s contract offers another opportunity to discuss the ‘jock tax,’ it also serves to illustrate a more important issue: why Wall Street wins whenever the Fed expands the monetary supply.
    After all consider this: while Derek Carr has certainly proven to be a promising young player at perhaps the most important position in professional sports, he is by no means the most accomplished player at his position or in the NFL. He’s been selected to the Pro Bowl twice, once as an alternate. His career QB rating is beneath players such as Chad Pennington, Carson Palmer, and Colin Kaepernick. Meanwhile he’s led his team to the playoffs once, unfortunately breaking his fibula before he could make a start in the post-season.
    So why, then, is he being rewarded with the NFL’s largest contract?
    The answer itself is fairly obvious: he was due a new deal at a time when the salary cap has never been higher. As such, NFL salaries have more to do about the size of the salary cap when a contract is signed, than it is about the merit of the individual player. Of course, over time Carr’s yearly salary will be used as a starting point with other more accomplished quarterbacks, and the average for the position will gradually rise over time. Matthew Stafford, for example, is likely to sign an even larger contract in the coming months. Salaries league-wide will rise with salary cap inflation.

    This post was published at Ludwig von Mises Institute on June 23, 2017.


  • Albert Edwards: “Citizens Will Soon Turn Their Rage Towards Central Bankers”

    During the populist revolt of 2016, which first led to the “shocking outcomes” of Brexit and then Trump, we cautioned that these phenomena were merely the “silent majority” of the developed world’s middle class expressing their anger and frustration with a world that has left them – and their real disposable income – behind, while rewarding the Top 1% through policies that have led to a relentless and record ascent in global asset prices, largely the purview of the world’s wealthiest. More recently, we also noted that it was only a matter of time before this latest “revolt” fizzled, as the realization that changing one politician with another would achieve nothing, and anger shifted to the real catalyst behind growing global inequality (and anger): central banks.
    In his latest note today, Albert Edwards picks up on this theme to write “Theft redux: the citizens will soon turn their rage towards Central Bankers.” The core of his argument is familiar:
    While politics in the West reels from a decade of economic crisis and stagnation, asset prices continue to surge on the back of continued rapid growth in G3 QE. In an age of ‘radical uncertainty’ how long will it be before angry citizens tire of blaming an impotent political system for their ills and turn on the main culprits for their poverty – unelected and virtually unaccountable central bankers? I expect central bank independence will be (and should be) the next casualty of the current political turmoil.

    This post was published at Zero Hedge on Jun 22, 2017.


  • Hedge Fund CIO: “Why The Hell Did The Fed Hike This Week?”

    The start of another week is upon us, which means it is time for another excerpt from the latest letter to clients by One River Asset Management CIO Eric Peters, who today writes about last week’s Fed decision, the upcoming balance sheet unwind, the lack of inflation, and “disruptive” companies which may themselves soon be disrupted.
    We will have more from today’s letter shortly, but for now here is Peters on a topic still fresh on everyone’s minds: the Fed’s latest rate hike decision, and what it really means:
    ‘You make poor people richer, or rich people poorer,’ bellowed Biggie Too, global chief strategist for one of those Too-Big to Fail affairs.
    ‘Ain’t no other way to reduce inequality.’ The Fed had just fired off another .25 caliber shot – Pop! ‘Brexit, Trump, Corbyn,’ barked Biggie. ‘They all promised to make the poor richer.’ But in no time, they’re cutting healthcare for the most vulnerable. Wage growth remains subdued. Stocks are at all-time highs. And poor people don’t own any.
    ‘So maybe those central bankers finally think it’s time to make the rich poorer.’

    This post was published at Zero Hedge on Jun 18, 2017.


  • Richest Americans Will Control 70% Of Country’s Wealth By 2021, BCG Says

    Being rich is great. But being rich in America? That’s even better.
    With US stock benchmarks trading just below record highs, and Treasury yields not too far from the all-time lows reached last summer, the gulf between the world’s wealthy elite – those 18 million households worldwide with more than $1 million in assets – and everybody else is rapidly widening.
    According to a new study by Boston Consulting Group via Bloomberg, these households – with a total head count of roughly 70 million people, or about 1% of the world’s population – control 45 percent of the $166.5 trillion in wealth. By 2021, they will control more than half, suggesting that, while wealth inequality in the rest of the world is simply accelerating, in America, it’s gone into overdrive. Right now, 63 percent of America’s private wealth in the hands of U. S. millionaires and billionaires, BCG said. By 2021, their share of the nation’s wealth will rise to an estimated 70 percent.

    This post was published at Zero Hedge on Jun 17, 2017.


  • What Housing Recovery? Real Home Prices Still 16% Below 2007 Peak

    Since the financial crisis, home equity has gone from being America’s biggest driver of (illusory) wealth to one of the biggest sources of economic inequality.
    And while the post-crisis recovery has returned the national home price index to its highs from early 2007, most of this rise was generated by a handful of urban markets like New York City and San Francisco, leaving most Americans behind.
    To wit: home prices in the 10 most expensive metro areas have risen 63% since 2000, while home prices in the 10 cheapest areas have gained just 3.6%, according to Harvard’s annual State of the Nation’s Housing report. And while nominal prices may have returned to their pre-recession levels, when you adjust for inflation, real prices are as much as 16 percent below past peaks.

    This post was published at Zero Hedge on Jun 16, 2017.


  • The Dead Giveaways of Imperial Decline

    Nothing is as permanent as we imagine–especially super-complex, super-costly, super-asymmetric and super-debt-dependent state/financial systems. Identifying the tell-tale signs of Imperial decay and decline is a bit of a parlor game. The hubris of an increasingly incestuous and out-of-touch leadership, dismaying extremes of wealth inequality, self-serving, avaricious Elites, rising dependency of the lower classes on free Bread and Circuses provided by a government careening toward insolvency due to stagnating tax revenues and vast over-reach–these are par for the course of self-reinforcing Imperial decay. Sir John Glubb listed a few others in his seminal essay on the end of empires The Fate of Empires, what might be called the dynamics of decadence: (a) A growing love of money as an end in itself. (b) A lengthy period of wealth and ease, which makes people complacent. They lose their edge; they forget the traits (confidence, energy, hard work) that built their civilization.

    This post was published at Charles Hugh Smith on TUESDAY, JUNE 13, 2017.


  • Elliott’s Singer Warns System May Be More Leveraged Than 2008

    Billionaire investor Paul Singer said ‘distorted’ monetary and regulatory policies have increased risks for investors almost a decade after the financial crisis.
    ‘I am very concerned about where we are,’ Singer said Wednesday at the Bloomberg Invest New York summit. ‘What we have today is a global financial system that’s just about as leveraged — and in many cases more leveraged — than before 2008, and I don’t think the financial system is more sound.’
    Years of low rates have eroded the effectiveness of central banks to contend with downturns, Singer said at the event in an interview with Carlyle Group co-founder David Rubenstein. ‘Suppressive’ fiscal, regulatory and tax policies have also exacerbated income inequality and led to the rise of populist and fringe political movements, he added.
    Confidence ‘could be lost in a very abrupt fashion causing conceivably a ruckus in bond markets, stock markets and in financial institutions,’ said Singer, founder of hedge fund Elliott Management Corp., which is known for being an activist investor.

    This post was published at bloomberg


  • OECD: World Is Still Locked in a ‘Low-Growth Trap’ with Rising Inequality

    The Organization for Economic Cooperation and Development (OECD) just released its latest economic outlook which it sums up as ‘better but not good enough,’ noting that, since the financial crisis of 2008, global growth remains ‘below past norms and below the pace needed to escape fully from the low-growth trap.’ Projecting a modest pickup in global growth to 3.5 percent this year, the authors write:
    ‘After many years of weak recovery, with global growth in 2016 at the lowest rate since 2009, some signs of improvement have begun to appear. Trade and manufacturing output growth have picked up from a very low level, helped by firmer domestic demand growth in Asia and Europe, and private sector confidence has strengthened. But policy uncertainty remains high, trust in government has diminished, wage growth is still weak, inequality persists, and imbalances and vulnerabilities remain in financial markets. Against this background, a modest pick-up in global GDP growth is projected this year to 3 per cent, with an upturn in trade and investment intensity and improving outcomes in several major commodity producers.’
    The OECD’s outlook for the United States is GDP of 2.1 percent in 2017 with an uptick to 2.4 percent in 2018. That compares with OECD projected growth in the Euro area of 1.8 percent in both 2017 and 2018 while Japan is expected to grow at 1.4 and 1.0 percent, respectively, in 2017 and 2018.

    This post was published at Wall Street On Parade By Pam Martens and Russ Marte.