Designated losers of monetary policy Since the financial crisis, the government of the UK and the Bank of England have jumped through hoops and twirled around in extraordinary gyrations to bail out one of the largest financial centers in the world, the uniquely powerful and at once unaccountable speck of land, the City of London, an incorporated area within London known as the Square Mile; or rather bail out its financial institutions, its way of doing business, and its bonuses; and along the way, bail out banks further afield.
Done in the now classic way. Key ingredient: the Bank of England printed enormous amounts of money, repressed interest rates, and stirred up inflation, which hit 5% in 2011. But somebody had to pay for it: savers and workers. It demolished real wages and purchasing power of the people who make up the rest of the country.
This chart by FactSet shows how average hourly earnings growth (blue line, in percent, seasonally adjusted, year-over-year) has been relentlessly below CPI (yellow line, in percent, year-over-year). It’s the process of pauperization by inflation:
By comparison, here is how American workers fared after the Fed began to bail out the banks, insurance companies, and myriad corporate giants, including Warren Buffett’s financial empire, not only with temporary measures to keep them from toppling, but also with long-term – or perhaps infinite – ‘solutions,’ namely QE and ZIRP.
This post was published at Wolf Street by Wolf Richter ‘ October 18, 2014.