Mark Spitznagel Slams The Fed For Creating The Rich-Poor "Chasm"

Tyler Durden's picture

Submitted by Mark Spitznagel via The Daily Reckoning blog,

A major issue is the growing disparity between rich and poor, the 1% versus the 99%. While the president’s solutions differ from Republicans, they both ignore a principal source of this growing disparity.

The source is not runaway entrepreneurial capitalism, which rewards those who best serve the consumer in product and price. (Would we really want it any other way?) There is another force that has turned a natural divide into a chasm… dun, dun, dun… the Federal Reserve. The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power.

David Hume, the 18th-century Scottish philosopher, pointed out that when money is inserted into the economy (from a government printing press or, as in Hume’s time, the importation of gold and silver), it is not distributed evenly but “confined to the coffers of a few persons, who immediately seek to employ it to advantage.”

In the 20th century, the economists of the Austrian school built upon this fact as their central monetary tenet. Ludwig von Mises and his students showed that an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect. To think of it only in terms of aggregate price levels (I’m looking at you Ben Bernanke) is to ignore this pernicious process and the imbalance and economic dislocation that it creates.

As Mises protégé Murray Rothbard explained, monetary inflation is akin to counterfeiting, which necessitates that some benefit and others don’t. After all, if everyone counterfeited in proportion to their wealth, there would be no real economic benefit to anyone. Similarly, the expansion of credit is uneven in the economy, which results in wealth redistribution. To borrow a visual from another Mises student, Friedrich von Hayek, the Fed’s money creation does not flow evenly like water into a tank, but rather oozes like honey into a saucer, dolloping one area first and only then very slowly dribbling to the rest.

The Fed doesn’t expand the money supply by uniformly dropping cash from helicopters over the hapless masses. Rather, it directs capital transfers to the largest banks (whether by overpaying them for their financial assets or by lending to them on the cheap), minimizes their borrowing costs, and lowers their reserve requirements. All of these actions result in immediate handouts to the financial elite first, with the hope that they will subsequently unleash this fresh capital onto the unsuspecting markets, raising demand and prices wherever they do.

The Fed, having gone on an unprecedented credit expansion spree, has benefited the recipients who were first in line at the trough: banks (imagine borrowing for free and then buying up assets that you know the Fed is aggressively buying with you) and those favored entities and individuals deemed most creditworthy. Flush with capital, these recipients have proceeded to bid up the prices of assets and resources, while everyone else has watched their purchasing power decline.

At some point, of course, the honey flow stops—but not before much malinvestment. Such malinvestment is precisely what we saw in the historic 1990s equity and subsequent real-estate bubbles (and what we’re likely seeing again today in overheated credit and equity markets), culminating in painful liquidation.

The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president’s presumption of tax unfairness (if there is anything unfair about approximately half of a population paying zero income taxes) or deregulation.

Pitting economic classes against each other is a divisive tactic that benefits no one. Yet if there is any upside, it is perhaps a closer examination of the true causes of the problem. Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged?

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
SheepDog-One's picture

Roll out the guillotines.

hedgeless_horseman's picture



At some point, of course, the honey flow stops...

...and the blood flow starts.

markelshark's picture

AFFLUENZA - they can't help it. They are so rich they don't understand consequences.

Divided States of America's picture

Who runs the Fed and who runs the banks?


nuclearsquid's picture

wow Hedgeless is really getting bold.  Better not take any small plane flights soon.

hedgeless_horseman's picture



I am not bold.  I am scared.   

TARP was bold.

Mark to rainbows and unicorns is bold.

$1,000,000,000,000 a year of POMO is bold.

Having to, "pass it [Obamacare] to know what is in it," was bold.

The NSA shitting all over The Fourth Amendment of The Bill of Rights is bold.

Making it legal for corporations to bribe politicians with unlimited amounts of money is bold.

Making it legal to jail or kill an American citizen, or anyone in the world, without trial, because they might be a terrorist is bold.

For 12 years, sending our sons and daughters to kill and die in Afghanistan is bold.

Herd Redirection Committee's picture

Chutzpah, it ain't a compliment.

"After all, if everyone counterfeited in proportion to their wealth, there would be no real economic benefit to anyone."

So how about it, Ben, if QE is good for everyone, then let everyone in on the act!  Let us each decide how much to print, and lets see what happens...  And then afterwards tell me how letting everyone print caused hyperinflation, and that the Fed would have protected us from that....


YesitStrue's picture

What's the influence of the Fed's daily reverse repos that are anywhere from 1 bil to 40 bil?

enloe creek's picture

M1a works too
privi is the way to go for sure

slaughterer's picture

... and nobody does anything about the Fed except talk, talk, talk....


slaughterer           Thank you for that  post. Have said that same thing over and over. When do we stop talking and do something about it? Oh yeah, bitcoin.................the next banker ponzi bullshit criminal shake down for future generations. It won't be called bitcoin but the cryptocurrency(ies) will be same enslavement. 

saveUSsavers's picture

CRIMES vs HUMANITY on a global scale, draw a straight line from the Fed to the original Tunisian "Spring" caused by INFLATED FOOD PRICES !

robertsgt40's picture

The rich get richer.  The poor have babies.  The middle class gets the bill.

Ruffcut's picture

No one ever feels rich without having poor people to bash.

SOme poor people in US are rich elsewhere. Will always be this way. So fucking what.

The grass is always greener, but I'll chose the smokable type.

whatsinaname's picture

My gut feeling tells me that not only will there be no taper announcement but the Fed may actually increase the existing QE levels to 100 billion plus. 

SheepDog-One's picture

It will be like the fire chief switching from sparying gasoline onto the fire to 105 octane race fuel....hey go ahead.

SheepDog-One's picture

It's insane to look at our 'advanced times' here in the year 2013 and see we're still stuck in the Dark Ages in so many ways....still just the same old slave planet. 

Herd Redirection Committee's picture

We've actually regressed.  Usury was a capital offence 500 years ago, and you would find your head on a stake, or your lifeless body hanging outside some medieval walled town for even trying to (fractional reserve) lend money to someone at high levels of compounding interest.

Dr. Engali's picture

Fuck the poor. They deserve to be poor by the very nature of who they are. Now the 1% ...there is a group of people who are deserving and know what's best for the rest of the world. We should aspire to be more like them...sucking up everything in their sight. No matter how much they own it's never enough. Bigger and moar houses, huts for us. Private jets and fleets of cars for them, Yugos and public transportation for us. The best medical care for them, rub dirt in the wound for us. Yes Fuck the poor they get what they deserve for not being born into their circle.


Dr E        Well the poor could STOP rolling over and sticking their arses in the air for the constant banker/elite rape sessions. When the slaves start sticking together and ignoring the divide and conquer BS that is fed to them from birth, THEN they will have a chance in life.

Pseudo Anonym's picture

i agree

they get what they deserve for not being born into their circle.

or not being god's chosen luciferians

Parisnights's picture

OT-- what the heck is happening out in the S. China sea?  Heard the USS Cowpens had a run in with a Chinese war ship.

ChaosEquilibrium's picture

Word is a 'Chinese Aircraft Carrier'.........They only have ONE!:)


Al Huxley's picture

Maybe the govt, instead of giving out EBT cards should change the benefits plans and give the underclass shares in a portfolio of social media stocks = TWTR, FB, LNKD, GRPN, etc.

Mercury's picture

Ludwig von Mises and his students showed that an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last.


OK, so print an imperial butload of food/consumer stamps (which vendors can redeem at the Fed) and distribute them to the bottom tiers.  I don't think that will be a tough sell to this administration.

And when Ron Paul bleats Obama can plead that he's just kickin' it Austrian School...

The Fed can inflate the CPI to any level it wants with that scheme.

Herd Redirection Committee's picture

Then we would really see food inflation.  Not in fresh fruits, and vegetables, as food stamps won't be used on them, but frozen foods, processed foods, bulk foods, fast food, would all increase dramatically in price.

Mercury's picture

Well, to a point. Food demand isn't that elastic - even Americans can only eat so much.


I was suggesting that the "stamps" be able to buy other consumer products besides food.

ChaosEquilibrium's picture

The middle class is too dumb/ignorant/self-absorbed to observe and understand this monetary dynamic!!  UNTIL this concept becomes organized and gains will continue!  The masses become impotent as the first movers will pay the highest price in their dissent!


They(particulary Americans) will be passive until they are cold and then the monetary transfer is irrelevant and the only thought will be what their middle class neighbor has that they want!

q99x2's picture

Yep. The FED has started to rip off Academia, Lawyers and Doctors this year.

There is going to be hell to pay.

They are fucked big time.

I heard about 50% more Alex Jones like chatter among college professors this semester than last.

Arrest Janet Yellen. Don't let Bernanke get away. Foreign nations arrest Loyd Blankfein and Jamie Dimon for financial terrorism.

Long live the revolution.

Mercury's picture

I heard about 50% more Alex Jones like chatter among college professors this semester than last.


But don't stop government subsidies for college tuition, we're rather keen on that...

youngman's picture

 I could do a lot with sveral billion at no interest....just making 2% on that I could live a fine life...drink good beer...beautiful know the drill...

moneybots's picture

"The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power."


Chickens and Eggs.


Why is there a relentless expansion of credit?


What would happen if the government balanced it's budget tomorrow, the FED stopped QE and normalized interest rates?

no more banksters's picture

Neoliberal dictatorship responsible for the growing inequality in Greece
The destructive applied policies lead to an impoverished society while enhancing plutocracy
Spain is in the first place, another country of the eurozone periphery which suffers from the destructive neoliberal policies

moneybots's picture

"The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution..."


It's funny, i don't hear any republicans condemning THIS redistribution of wealth.

bnbdnb's picture

Father and Son Paul? You know...the "wackos"?

bnbdnb's picture

Water is wet? WHO KNEW?!?!

eddiebe's picture

The beast cannot be slain, because just like multi-headed beast guarding hell, when one head is lopped off, another one grows in it's place. The beasts name is greed. Never has the beast had more weapons at it's disposal to enslave the masses, never has the beast been this sophisticated and clever. It is held in check only by MAD. 

We who are on the receiving end of the monster ( albeit to whatever extent, we feed it too, internally and externally), are between the rock and hard place of trying to fight it, because it's terrible attributes, and keeping it, because if it gets wounded,it's death-throes will be terrible. 

And like that other mythical beast, it will rise from the ashes again to wreak havoc again, because it animates all of us. At best, it can and must be held in check.

ToNYC's picture

FED redistributes interest to the 1%. The value of human energy stored is stripped of right to enjoy directed economic utility; hijacking public interest.

joego1's picture

Bravo, well said. This article should be printed on a tee shirt and congress should be forced to wear it.

bankonzhongguo's picture

End the Fed.

Nationalize the Fed's shareholders.

Let the People loose with axe handles on these bankster "executives" and Fed creeps.

Cancel all non-corporate and sovereign debts (debt held by people); mortgages, UST, all that crazy debt held from poor countries, etc. Bono says its OK. Just trade out inter-government debt so nations still maintain their balance of accounts.

The instrument to be RESET is DEBT.

Debt is slavery, so the only reset option is to Emancipate Human Beings from Debt Bondage.

Legalize Weed and dance in the streets to 'Age of Aquarius.'

If a few hundred banksters and their families are killed in the process, so be it.

It's pretty clear the banking class and their Fed henchmen declared war on American Families.

The only rational thing to do is erect a self defense.  Sometimes that defense requires a reconnaissance.  Sometimes a reconnaissance in force.  Sometimes it makes enemy contact.

This is no different that some asshole beating on his girlfriend in a Wal-mart parking lot.  Except you are the girlfriend.  How much does Lady Liberty have to take before she wises up?

Think of it this way.  If the SEC, DOJ, DHS, NSA were cops, right now all they are doing is showing up to a scene of wife-beating and taking pictures.  They are doing NOTHING while the country burns, because the Executive/Congress is owned by the banks.

The Warning Order to everyone is to size up where you physically live and understand what mechanism, institutions and persons are operating and enforcing this bankster pillage on your home turf. Chances are there is NOTHING in you county or state that is a part of this bankster scheme - except maybe the county recorders office that records mortgages. That is how far down the food chain you are.  You might as well be living in a AfPak cave, than 200 miles from the closest Federal Reserve outpost.

You can watch CNN, read the NYT and post on ZH and believe you are informed, but wandering around the Earth "informed" is useless unless you willing to take action.  Maybe this goes on for a few more years, but at some point a line will be crossed. Everyone will have to decide what that line is.

Good luck to everyone.

MagicMoney's picture

To add to that. Money creation & thus the supression of interest rates not only transfers wealth through units of purchase power in the money, things like "quantitative easing" literally starve Main Street of capital for Wall Street's speculative profitting, which in turn can turn to huge losses, such as the nature of speculation. 


In a free market, rich people get richer by first creating initiatives to build wealth. They need other people along the way, including people from Main Street to achieve towards such ends. With cheap money to speculate, the rich don't need Main Street to make profits. They simply speculate on price swings of assets, thus only creating profits, & wealth however illusory they are for themselves. By now, people who are familar with the happenings of the Fed's policies should know that QE, in all honestly has far more made a few rich, the rich folks that is above wage workers with smaller cash balances.


How do higher prices benefit wage earner? It doesn't benefit them to having to spend more money for a house. Higher prices as a good thing is a ridiculous notion. The housing market today reflects that.  Main Street can't afford the high prices of housing today. Home ownership is lower than 20 something odd years. The same logic applies for everything else, how does more expensive energy, and food costs beneficial to Main Street? The wealth effect from the central bank comes from the top down to the rich below, but doesn't go any further down to Main Street. In many cases, simply stays there. The economy is terribly distorted. It's plainly obvious. QE has shown that it can severely retard the growth of the economy, than to help spur it. It turns entrepreneurs from creating wealth to that of speculators gambling on price actions. The money is so cheap that gambling actually becomes effective, but in the process, there is no real wealth created.

Hongcha's picture

Do something.  Like doing something about the weather.  The last thing white Americans want to hear is that nothing can be done.  There is, I would argue, great value in surrendering that concept.

Cover your a$$ets to the extent possible.  Protect your family.  Get as much as you can off the digital highway.  Cover your debt, #1 priority. 

Electronic tracking and debt is where they get you.

The worry in the faces of my fellow Muricans, and their disappointment as they slog to work every day unable to catch up.  Like Blake's London; "I wandered thro' each chartered street..."

Get out of debt.  Live simply.  It does not matter if your clothes are out of style.  Eat well and have decent shoes.  I know many cash millionaires who look like rumpled retirees sitting in Portsmouth Square SF playing cards all day.

It is not that precipitious.  White Americans are the most fearful people on the planet and we have a lot to unlearn.

Other than these, don't try to do anything.  You can't.  You are pissing in the wind.

Socialized Losses's picture

@ hedgelesshorseman

"I am not bold.  I am scared.   ........."

I hate you for your truth

The Invisible Foot's picture

"The source is not runaway entrepreneurial capitalism."

I beg to differ.

Opinionated Ass's picture

Tyler highlighting a writer envious of the rich again. And worse this time he brings up the great names of Mises and Rothbard for back up. Disgusting.

Challenge to Tyler: find direct Mises and Rothbard quotes backing up your envy crusade against the rich.

Of course we all hate the fucking Fed and hate government interference in the economy to prop up crony capitalists. But when and if they ever leave us all alone to a private law society there will be fabulously rich people a zillion times richer than the poorest poor -- who themselves will be better off than they are now. Who cares about any fucking equality gap? I guess you do if you're a closet communist like Tyler.

Beware ZH thinkers.

LooseLee's picture

Dig deep on this one. How many "rich" got there on the tailcoats of 'crony capitalism'? I dare to say many if not most. There is an old saying that you can't become a billionaire playing by the rules. Greed is enhanced through favortism and special treatment. Truly level the playing field of true 'capitalism' and those who then get "rich" will be truly deserving. Otherwise what you have is the spoils of communism....What truly are you, Opinionated Ass? Riding the wave or forging a path?