Central Banker Admits Central Bank Policy Leads To Wealth Inequality

Tyler Durden's picture

Six years after QE started, and just about the time when we for the first time said that the primary consequence of QE would be unprecedented wealth and class inequality (in addition to fiat collapse, even if that particular bridge has not yet been crossed), even the central banks themselves - the very institutions that unleashed QE - are now admitting that the record wealth disparity in the world - surpassing that of the Great Depression and even pre-French revolution France - is caused by "monetary policy", i.e., QE.

Case in point, during the Keynote speech by Yves Mersch, ECB executive board member, in Zurich on 17 October 2014 titled "Monetary policy and economic inequality" he said:

More generally, inequality is of interest to central banking discussions because monetary policy itself has distributional consequences which in turn influence the monetary transmission mechanism. For example, the impact of changes in interest rates on the consumer spending of an individual household depend crucially on that household’s overall financial position – whether it is a net debtor or a net creditor; and whether the interest rates on its assets and liabilities are fixed or variable.


Such differences have macroeconomic implications, as the economy’s overall response to policy changes will depend on the distribution of assets, debt and income across households – especially in times of crisis, when economic shocks are large and unevenly distributed. For example, by boosting – first – aggregate demand and – second – employment, monetary easing could reduce economic disparities; at the same time, if low interest rates boost the prices of financial assets while punishing savings deposits, they could lead to widening inequality.

Alas, in the past 6 years, low interest rates have not only boosted financial asset prices but have resulted in the biggest artificial asset bubble ever conceived. As for reducing unemployment, don't ask Europe - and its unprecedented record unemployment, especially among the youth - how that is going. As for the US where unemployment is "dropping", ask the 93.5 million Americans who have dropped out of the labor force, those whose real wages haven't risen in the past 20 years, or the soaring part-time workers just how effective monetary policy has been in the US.

Back the Mersch' shocking discoveries:

So what do we know about the impact of monetary policy on the distribution of wealth, income and consumption? A comprehensive study published recently by the National Bureau of Economic Research (NBER) outlines five potential channels by which more accommodative measures might affect inequality.


The first is the ‘income composition channel’: while most households rely primarily on earnings from their work, others receive larger shares of their income from business and financial income. If more expansionary monetary policy raises profits more than wages, then those with claims to ownership of firms will tend to benefit disproportionately. Since the latter also tend to be wealthier, this channel should lead to higher inequality in response to more accommodative monetary policy.


The second is the ‘financial segmentation channel’: if some individuals and organisations frequently trade in financial markets and are affected by changes in the money supply before others, then an increase in the money supply will redistribute wealth towards those most connected to markets. To the extent that households that participate actively in financial transactions typically have higher income, then this channel also implies that consumption inequality should rise after expansionary monetary policy shocks.


The third is the ‘portfolio channel’: if low-income households tend to hold relatively more cash and fewer financial assets than high-income households, then potentially inflationary actions on the part of the central bank would represent a transfer from low- to high-income households. Again, this would tend to increase consumption inequality.

And here is where it gets funny, because even during its confessional, the ECB has to at least cover some of its tracks:

The NBER study outlines two further channels that tend to move inequality in the opposite direction in response to expansionary monetary policy. The first is the ‘savings redistribution channel’: lower interest rates will benefit borrowers and hurt savers. To the extent that savers are generally wealthier than borrowers, this will generate a reduction in consumption inequality.

Alas, it is completely the opposite. Because "wealthy savers" instead allocate their spare cash into equity investments, while "poor borrowers" are increasingly more shut out of the credit market. Those who aren't, paradoxically end up paying every higher APRs on their credit card statements. It is for their benefit that neo-socialist administrations such as Obama's has conceived such wealth-imbalance neutralizing trinkets such as Obamaphones and "free" healthcare insurance.

It gets funnier:

The second is the ‘earnings heterogeneity channel’: earnings from jobs are the primary source of income for most households and earnings for high- and low-income households may respond differently to monetary policy. This could occur, for example, if unemployment falls disproportionately on low-income groups: evidence does suggest that that labour earnings at the bottom of the distribution are most affected by business cycle fluctuations. So if monetary policy reduces unemployment, it will also reduce inequality.

Yes, it does, if only in theory. The problem is that in practice QE is only "reducing unemployment" among those 55 and older while leading to a record low labor participation rate among Americans in the prime 25-54 age group.

There are more such amusing anecdotes in the speech how in theory the central banks aim to do well, when in practice they achieve precisely the opposite, but the punchline is the following attempt by one central bank, the ECB, to scapegoat another, the Bank of Japan, for doing precisely what the ECB hopes to do soon:

One final piece of literature on monetary policy and inequality outside the euro area lies in recent research by Ayako Saiki and Jon Frost at De Nederlandsche Bank. They have examined the impact of unconventional monetary policy on the distribution of income in Japan, a country whose long history of non-standard measures makes it particularly relevant. Their results show that while aggressive monetary policy finally seems to be having the desired effect on the economy, this strong medicine has come with the unwanted side-effect of higher income inequality.


They suggest a straightforward mechanism via the portfolio channel: an increase in the monetary base (through purchases of both safe and risky assets) tends to increase asset prices. Higher asset prices benefit primarily those on higher incomes, who hold a larger amount and share of overall savings in equities, and thus benefit from greater capital income. Overall, the Bank of Japan’s unconventional policies have widened income inequality, especially after the collapse of Lehman Brothers in 2008, when quantitative easing became more aggressive.


The researchers conclude that their study holds lessons for other countries undertaking unconventional monetary policy. While preventing deflation and repairing the monetary transmission mechanism at the zero-bound is inherently a difficult undertaking, Japan’s experience provides a cautionary tale on the potential side-effects. It is possible that the portfolio channel will be even larger in the US, the UK and many euro area economies, where households hold a larger portion of their savings in equities and bonds.

So it took the smartest people in the room six years to figure out that instead of fixing the economy, their policies are in fact leading to even greater class inequality: inequality so great that Monsieur Piketty wrote a massive tome about how inequality has never been greater! And somehow, in this bizarro New Normal, Bernanke, Yellen, Draghi et al. have become the patron saints of socialists everywhere: the same group of people who should be at arms over the epic wealth redistribution central bankers have achieved: redistribution that takes from the poor and gives to the rich.

But while we are confident that even economists ultimately have a long overdue Eureka moment, what is a bigger question is why are central bankers finally starting to admit the glaringly obvious? This is a very slippery slope, because once you tell one truth, you then have to admit the second, and the third and the next.

And while we are delighted that this process will ultimately prove that everything we have warned about from the beginning will be true, a greater concern is that the social outcome which will result, once this process of pulling one's head out of the sand of willful ignorance ends with its inevitable conclusion, will be a very violent, and very bloody one.

A process which now appears to have commenced.

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Jahbulon's picture

Fuck these fucking fucks.

NoDebt's picture

"the record wealth disparity in the world - surpassing that of the Great Depression and even pre-French revolution France"

Exceptional.  Once again we surpass all who came before us or any that will come after.  The latter part of that we'll take care of by making sure nobody comes after us.

Spine01's picture

And Inequality caused EBOLA

Corolary: Ben Bernanke and his HUBRIS caused EBOLA

Which is worse - bankers or terrorists's picture

You would think that when they realize this, there would start killing themselves from shame, but no.

History's first shame free society.

nmewn's picture

So, Keynesians, are you happy yet?

And on Piketty, he's had more revisions to his "massive tome" in such a short period of time than Joan Rivers had to her face over her entire lifetime.

Too soon? ;-) 

BrosephStiglitz's picture

What do Keynes and Piketty both have in common?  Both advocate someone stepping in to "steer" the economy.

Fuck that mess.  Someday soon, the term "free-market capitalist" is going to be synonymous with the term "communist" in the early parts of the 20th century.  There is a problem with wealth distribution, yes.  The problem has been built by institutions.  Unfortunately you cannot fix what one institution has caused by mandating change with another institution.

Most folks won't see that though.  The Dark Ages.. coming to a town near you.

nmewn's picture

Spot on.

"Someday soon, the term "free-market capitalist" is going to be synonymous with the term "communist" in the early parts of the 20th century."

They've tried it with "crony capitalist". There is no such thing. A REAL free market capitalist risks his/her own saved capital and it works or it doesn't. They win or lose, there is no relying on the nanny-state for profit or remuneration of losses. A crony socialist is what it really is, socializing losses and privatizing profits.

And you touch on another point, "government institutions" making it easier for people to not risk anything, just stay at home and wait for their stipend like a good little serf.

LetThemEatRand's picture

When are you guys going to acknowledge that competing economic theory is not the debate.  These guys are stealing from us.  Intentionally.  Keynes is a tool they hide behind, just as the Soviets used Marx.  What is happening today has nothing to do with believing in one economic philosophy or another, unless being a thief is considered a philosophy.  

BrosephStiglitz's picture

When are you guys going to acknowledge that competing economic theory is not the debate.

Consider it acknowledged.  The theory is just a theory.  How the practical theory is implemented is what determines the state of affairs.  I'd rather that political interests (be it private, or public) butted out of my life and allowed me to either earn a fair return via hard work, or a fair return on my enterprise.

LetThemEatRand's picture

Fair enough, but my point is that far too much misdirected effort is spent on this website blaming economic philosophies for our current state of affairs.  The world is run by private bankers and oligarchs who use the political system to convince the people that it is something else.    When we all sit around and argue over which economic philosophy is correct, we ignore the elephant in the room.

BrosephStiglitz's picture

I agree.   I think it is a salient point.  Keynesian and Marxism aren't technically incorrect.  They do, however, make a fair few assumptions as to the nature of the people who will be running the systems.

I would point out that the OP didn't technically slam Keynes, but rather people who self identify as "Keynesians".  Most of whom support the current status quo.  I brought Keynes and Piketty into it, pointing out that both would advocate a method of governing the economy.

LetThemEatRand's picture

I understand your point and agree with you.  And I would add -- Fuck the bankers and oligarchs.  How nice would it be to have an actual free society where we could debate the merits of different economic viewpoints and the benefits/detriments of elected representative government.

TeethVillage88s's picture

Public & Private Executive Compensation & Pay have to be Tied to the Degree of Bail-Outs, TAPR, HARP, HAMP, LIRP, ZIRP, & QE

- TBTF Banks Executive Compensation & Bonuses
- FED Bonuses
- Treasury, GAO, IG, CBO, SEC, FTC, FINRA Bonuses
- Pension Benefit Guaranty Corporation (PBGC) Bonuses
- FNMA, Gennie Mae, Freddie MAC Bonuses

And we need a Rich PAC or Entity to Sue President Obama for his False SOTU statements... Since personally I this it is Fascist to make me work to figure out the Economies Health

Same for FED, if we can't sue President Obama, then we can Sue the FED for Truth, Sue FINRA for the Truth, Sue the SEC for the Truth, Sue FDIC for the Truth....@$#%@

Bemused Observer's picture

Exactly! These guys would steal from everyone no matter WHAT type of system was in place.
There are many ways of organizing an economy, some better than others. But the real enemy moves easily between them all, so picking one over the other misses the whole point.

OC Sure's picture

" These guys are stealing from us.  Intentionally." 

Yes, and it is indeed from a philosophic cause. Otherwise, how are they maintaining the theft? (See my post below; just a coincindence that we both mentioned philosophy so i insert this reply here in reference to post below).

TeethVillage88s's picture

You lost me.

Plato Advocated Lying to his Public for their own good, Fascism.

People who found niches as Clerks, Government Functionaries, and Civic leaders... would know as much as those that tutored the very wealthy... and the very wealthy Elite.

- Information is power
- Winners of the war write the history
- Winners of the war & Empires can destroy books, history & Knowledge as well as Education
- There is a Ruling Class, a Wealthy Class, and a Clerical or Educational Class
- We are no different from the people that lived 5,000 years ago in Mesopotamia

- 5000 years of laws written in stone, we still can't get this straight since Power & Money corrupts the laws.


Infinite QE's picture

CB's were created to transfer the wealth of the people to the owners of the CB's. Why is this something new?

Winston Churchill's picture

Because it looks like the CB's are about to start devouring the higher ups on the food chain.

Pity the billionaires, looks like they are on the trillionaires menu.

LetThemEatRand's picture

Nah.  Kings need Lords and Ladies to do their day-to-day dirty work.

Livermore Legend's picture


The "Food Chain" analogy is quite apropos.....

Nothing Left to Extract to the 1 %......

Livermore Legend's picture


The "Food Chain" analogy is quite apropos.....

Nothing Left to Extract to the 1 %......

foodstampbarry's picture

I see lots and lots of guillotines in the world's future.

robnume's picture

"I'm back in the USSA! Don't know how lucky you are, hey! Back in The US, back in the USSA!"

Son of Captain Nemo's picture
Central Banker Admits Central Bank Policy Leads To Wealth Inequality

Appreciate the burden of honesty.

Now is the motherfucker going to put both barrels of a shotgun in his mouth and pull the trigger given the damage he's done to the economy through his long prestigious career of "lying"?... Or is someone going to have to find him and make a "court jester stick" out of his head for posterity to send a clear unequivocal message to all the other Central Bankers?!!!!


VAD's picture

Nothing changes until these cock suckers start winding up dead at the hands of those they done wrong.

TeethVillage88s's picture

Alternatively, a spy agency or sub contractor might take this guy with a Nail Gun?

ebworthen's picture

Stealing from the public treasury to benefit banks/insurers/corporations is an act of treason.

Treason is punishable by execution in many countries; I suppose the trials will start then the rule-of-law is brought back from the grave.

Son of Captain Nemo's picture

Treason is punishable by execution in many countries; I suppose the trials will start then the rule-of-law is brought back from the grave.


You mean our Country the United States of Apathy?... I'll believe that one when I see it.

Our legislators will start the last war before that happens and we both know it!

TeethVillage88s's picture

Stealing from the public treasury to benefit banks/insurers/corporations is an act of treason.

Interesting Factoid. Not sure if it is under Title 18 of USC, but still could be useful in a strategy... say like if Rand Paul got into Office, or someone who isn't being Blackmailed.

I think this is worth keep on the Back Burner.

- Granted US Congress is all Guilty since they gave up their War Powers, Budget Powers, and Legislative Powers to Lobbyist

- Massive Social Unrest that affect the Wives of our Military & Political Leaders, as well as Banker Families... Could force a Public Will for Sweeping Reforms

- Jobs are the 700 Pound Guerrilla in the Room
- Inflation of Health Care, Child Care, Insurance, Taxes, Food, Dinning Out, and loss of Wealth is Second

- When people lose everything they lose it, war, disease, energy costs, insurance costs, Collapsing Dollar, Capital Flight, Foreign Ownership of Key US Assets

Bangalore Equity Trader's picture


Eat your "PEA'S" America!

TeethVillage88s's picture

No offense. WTF is ur avatar? Is it a beast screwing a dog?

Or a lion helping his friend a dog?

I can't counter your argument.

Pumpkin's picture

Wealth enequality?  Who gives a fuck about that?  What about the rule of law?

RaceToTheBottom's picture

So basically.

We're sorry, now eat your fucking cake you serf.

Jon Bong Jovi's picture

CB are fucktards, but it's not like I'm going to tell them stop while I watch all my assets shoot through the fuckin' roof. Maybe I'll buy a Tesla just so I can get fuck an eco-chic in the ass.




alfred b.'s picture


      Who knew?!?!?      Ok, maybe Yeller, Barnanke, that greenspat guy....yadi yadi yada...


FieldingMellish's picture

Nothing will happen. The system will not be reset. The sheeple will be content. The SPOO will continue up.

besnook's picture

i wish i was a lot younger because i would really enjoy building high tech guillotines that could be operated remotely so that lottery tickets could be sold to allow the winner to push the button and the world could watch the result.

the usa could pay off the deficit and fund .gov for the next fifty years.

it will happen soon but not soon enough.

limacon's picture

Capital accumulates . That is it's nature .

Why blame sheep for where it ends up ?


Stupid people can do smart things .

See http://andreswhy.blogspot.com/2014/10/prodigies-update-ii.html


Dehumanization is the standard first step in Ethnic cleansing .

See http://andreswhy.blogspot.com/2006/11/roman-empire-and-nazis-hitler-was-...


Turning people into sheeple is leads to involuntary euthanasia .

It also gives sheep a bad name .

SillySalesmanQuestion's picture

Why are all of these fuckers coming clean now!?

BrosephStiglitz's picture

Trying to jump ship before the dumb masses wise up, which will be a "pitchforks out" moment.  Keep in mind that a lot of these folks (as in the guy who the article was about) have been duplicit in profiteering on behalf of the real power.

It's kind of like a Mafia lieutenant turning states witness and pleading for immunity from prosecution because a rival family is going to off everyone.

Some of these guys probably didn't even realize how crooked the world was when they were young and studying.  Over time they got roped into the system.

TeethVillage88s's picture

Plus 1, I hope you are right.

Even Laguarde made overtones this year. (diplomatic immunity though and doesn't have to pay taxes)

TeethVillage88s's picture

BTW Does Yellen & Bernanke have official diplomatic immunity??

I know Yellen has secret service or some government contractors. Plus Federal Government executives have a kind of sovereign immunity that is undefined except for capital crimes... under grounds that they were just doing their jobs.

I suppose this US government immunity could be set on the back burner as well for later legal decisions... legal fights in court.

Anyway, I think the fed would be given sovereign immunity as well by the establishment. Interesting!!!!

Radical Marijuana's picture

The Bank of International Settlements, the King of Kings of Frauds, has surreal levels of diplomatic immunity!

TeethVillage88s's picture

Radical Marijuana; Oh I forgot. Yellen is in the BIS. Thanks.

stormsailor's picture

no shit sherlock.  all hail captain obvious

OC Sure's picture

Don't you think it is way too early to say that the cult of authority may be losing control? The opposite is true. Their grip clenches tighter. That the cult of authority controls economics is only secondary and the primary means by which the modern sophists maintain control over their subjects is the same as the original sophists.

Worldwide authoritarian racketeers control their subjects epistemologically first. This is the handle that holds all control over their subjects. Economics is just another fray at the end of the whip.

One tactic of sophistry is the ventriloquism of lies which dupes their opponents to accept the false concepts and then use them themselves when attempting to maintain an opposition. For example, how can a "central banker" admit to the truth and it not amount to loosened grip? Because as long as want-to-be opponents and obsequious dupes accept and believe that "banks" are facilitating "money" which is being "invested" in "production" as the components of their "monetary" "policy" then the whip will continue to snap.

It is not the ventriloquists that keep the lies alive. It is the "opponents" who repeat the lies as if they are truth that are responsible for prolonging this means of control.

limacon's picture

The Cartoon shows a modern credit check :

"If I can hear the jingle of your money , you qualify for a Cadillac and a Beverly Hills mansion"