Note that widening wealth and income inequality is a non-partisan trend. One of the core goals of the Federal Reserve’s monetary policies of the past 9 years is to generate the “wealth effect”: by pushing the valuations of stocks and bonds higher, American households will feel wealthier, and hence be more willing to borrow and spend, even if they didn’t actually reap any gains by selling stocks and bonds that gained value. In other words, the mere perception of rising wealth is supposed to trigger a wave of renewed borrowing and spending. This perception management only worked on the few households which owned enough of these assets to feel wealthier–the top 5%, the top 6 million out of 120 million households. This chart shows what happened as the Fed ceaselessly goosed financial assets higher over the past 9 years: the gains, real and perceived, only flowed to the top 5% of households earning in excess of $200,000 annually. Spending by the bottom 95% has at best returned to the levels reached a decade ago in 2007.
This post was published at Charles Hugh Smith on TUESDAY, DECEMBER 26, 2017.