In a late 2010 Washington Post op-ed entitled "Aiding the Economy: What the Fed Did and Why," then Fed chairman Ben Bernanke defended the FOMC's zero interest rate policy and quantitative easing saying:
"[Fed policies] had eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth... And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion." (Emphasis added)
Nearly six years have passed since Bernanke wrote those fateful words. The supposed "wealth effect," brought on by super easy Fed policy, has failed to "boost consumer wealth" for a significant number of Americans.
According to a recently released Federal Reserve Bank of New York study, 15.1% of households in the U.S. population have either zero or negative net wealth. The authors find that Americans plagued by negative wealth are more likely to be female; from single parent households; or from a minority group (either African American or Hispanic). These households are riddled with credit card debt, student debt and mortgage debt (with "some 7 percent of home-owning households in our survey report being underwater on their mortgage," the survey finds).
With the Fed's balance sheet comfortably above $4 trillion and so much promise from omnipotent central bankers, why are so many Americans still struggling? The S&P 500 is up 170%+ since the market bottomed in 2009. In short, what gives?
Here's the key chart showing the breakdown of total wealth in the U.S. and the ownership of U.S. financial assets by wealth distribtuion from our 99-page Q3 2016 Macro themes presentation. As you can see the top 10% of Americans own 84.5% of U.S. financial assets. In other words, debt-ridden families weren't able to participate in the Fed-stoked asset price boom. (To access our institutional research email sales@hedgeye.com.)
So much for the wealth effect...
Meanwhile, during Bernanke's reign, the Fed devalued the U.S. Dollar to a 40-year low, in 2011-2012, thereby devaluing the purchasing power of the American people. Then again currency devaluation, asset price inflation in central planning 101. Note: This policy doesn't help the bottom 50% of Americans who own 1% of U.S. financial assets and are paid in U.S. dollars.
Unfortunately, the Fed's policies have helped lined the pockets of the rich and inflated "one of the top-three stock market bubbles in history" all at the expense of average Americans.
