QE: The greatest subsidy to the rich ever?
Every Ferrari dealership in the country should have a framed picture of Ben Bernanke in their lobby. It should read: “Our #1 Salesman.”
The largesse of the Federal Reserve over the past five years has amounted to one of the largest ever subsidies to the American wealthy—fueling record fortunes, record numbers of new millionaires and billionaires, and an unprecedented shopping spree for everything from Ferraris to Francis Bacon paintings. The prices of the assets owned by the wealthy, and the things they buy, have gone parabolic, bearing little relationship to the weak, broader economy.
Yes, the Fed has helped the overall economy as well, especially through gains in home prices. But on this deciding day for the Fed’s quantitative easing program, it’s strikingly clear that most of the gains from the program have flowed to the top 1 percent.
(Read more: Will the Grim Taper be a body blow to the wealthy?)
More millionaires have been created over the past five years than during the entire eight years of the Bush administration. According to Spectrem Group, there were 2.3 million new millionaires created between 2008 and 2012. This year, the number will likely grow by at least 200,000, which would bring the millionaire population past its previous record in 2007.
Gregor Peter ‏@L0gg0l 1 min
FED STATEMENT DOESN’T RULE OUT UNTAPER CONTINGENT ON ECONOMIC CONDITIONS
Fed Tapers $10 Billion with Cornucopia of Dovish Statements; You Talk Too Much!
Clearly the Fed is trying not to upset the markets and wants the bubble to build. All the Fed can really do is talk.
Will it work? The answer is “not forever”. Of course bubble expansion is never in the best general interests of anyone but the banks and already wealthy.
I offer this musical tribute.
The Fed Just Began The Taper — Here’s What That Actually Means
So let’s break down what that means:
– The reduction in purchases is very small.
– The Fed has said in the past that it would not consider raising rates until the unemployment rate fell to 6.5% but today the language is indicating that they’ll wait until unemployment falls significantly below that before they consider raising rates.
– The Fed will not raise rates as long as inflation is super-low.
– There’s no target date to ending QE, even though the taper has begun.
That’s why the Dow is up 200.
Fed’s low rates may be juicing stock buybacks at the expense of jobs
From BTIG’s Dan Greenhaus comes the idea that the Fed’s policy of ultra-low interest rates has had an unintended consequence for the economy — less job growth.
In his Bedtime with BTIG note late Tuesday, Greenhauspoints to news earlier this week that Boeing BA -0.39% raised its dividend by 50% and lifted its stock buyback plan. On Tuesday, 3M MMM +2.44% followed suit with a hike in its own dividend rate by 35%.
In the third quarter of this year, as Greenhaus points out, the percentage of S&P 500SPX +0.98% companies paying dividends — 84% — reached a 17-year high, while the number of companies lifting their year-on-year dividends per share hit the highest in nearly 20 years. As a result, says Greenhaus, the trailing twelve month amount of dividends, at $339 billion, has jumped to 40% above the ten-year average.
Housing Market Setting Up for Another Crash
All that Glitters, is not Gold
The other problem is that property prices in several parts of the country are too high relative to incomes, think in terms of the two coasts, but there are many other areas as well. This means consumers are paying too high a percentage of their disposable income on housing.
This always means that the market will eventually have to reset, or be forced to reset because any small change in the local labor market causes disproportionate reverberations in the real estate values, and substantially increases the likelihood of add-on contagion which severally makes these markets susceptible to large price drops in value for these expensive real estate markets. In short, you get a market crash in real estate values like we had in 2007.
Why investors aren’t the only ones who will feel the pinch
The Federal Reserve’s funneling of trillions of dollars into the economy over the past five years has provided a shot in America’s arm. The stimulus has affected consumers more than they realize, experts say, as will the tapering.
On Wednesday, the Fed announced it would begin to wind down the quantitative easing program known as QE3. Analysts say consumers should start to prepare now — especially those who are planning to buy a car or home within the next three to six months. “The stimulus program was supposed to boost spending going in, so it’s going to reduce spending going out,” says Peter Morici, economist and professor at the University of Maryland’s R.H. Smith School of Business.
Tapering may increase the cost of financing big-ticket items and rates on student loans. “If your furnace goes out and you only have $700 in the bank, you will either have to freeze or buy it in installments,” Morici says. “The same goes for any emergency repairs on your home.” Similarly, college students struggling under the weight of rising tuition fees may face a new challenge in 2014: rising interest rates on loans. “Colleges are already seeing concerns about this reflected in their applications,” Morici says. Law schools are facing a fall in admissions due to rising costs: 54% have reported cutting their entry law school classes for the 2013-14 academic year, according to the 2013 Kaplan Test Prep law school survey.
Post-FOMC – Bonds, Gold, & Stocks Bid; And 5th Hindenburg Omen Appears