Fed Vice-Chairman Admits Fed Sponsors Wealth Inequality

Tyler Durden's picture

Submitted by Michael Shedlock via MishTalk.com,

Federal Reserve Vice-Chairman Stanley Fischer made a couple of controversial statements this week regarding negative interest rates.

Fisher stated negative rates “seem to work” while admitting they are bad for savers but they “typically they go along with quite decent equity prices.”

There are two problems in play. The first is an explicit admission that the Fed sponsors wealth inequality. The second problem is Fisher does not understand how markets even work.

Failed Transmission

John Hussman takes Fisher to task on how markets work Failed Transmission – Evidence on the Futility of Activist Fed Policy.

Any economist with even a vague understanding of how securities are priced should understand that elevating the price that investors pay for financial securities doesn’t increase aggregate wealth. A financial security is nothing but a claim to some future set of cash flows. The actual “wealth” is embodied in those future cash flows and the value-added production that generates them. Every security that is issued has to be held by someone until that security is retired. So elevating the current price that investors pay for a given set of future cash flows simply brings forward investment returns that would have otherwise been earned later, leaving little but poorly-compensated risk on the table for the future (see QE and the Iron Laws for an illustration of this process).

 

In this context, the following statement last week by Federal Reserve Vice-Chairman Stanley Fischer last week (Bloomberg) displayed a strikingly narrow understanding of the investment process:

 

“Well, clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that and we have to make trade-offs in economics all the time, and the idea is the lower the interest rate, the better it is for investors.”

 

To be fair, there’s a kernel of truth in Fischer’s view that lower interest rates are “better” for investors. In recent years, low interest rates have certainly encouraged speculation, stretching reliable measures of equity market valuation to the third most offensive level in U.S. history next to 1929 and 2000. But Fischer’s statement is also incomplete. A clear understanding of how financial securities are priced suddenly turns Fed policy from something that seems quite generous to investors into something that’s actually terrifically hostile. See, the lower the interest rate, the better it is for investors, but only provided that investors wholly ignore the future.

 

In reality, depressed interest rates ultimately benefit only those investors actually cash out at the speculative pre-crash extremes that the Fed seems so fond of producing. From here, for example, we estimate that the prospective 12-year nominal total return on a conventional portfolio mix (60% stocks, 30% bonds, 10% cash equivalents) is likely to average just 1.5% annually. As for the S&P 500 Index itself, we presently estimate annual total returns of just 1.4% annually over that horizon, with a strong likelihood of cyclical losses on the order of 40-55% in the interim (which would be a rather run-of-the-mill outcome from present extremes). Real prospective long-term returns are already likely to be negative on both fronts after inflation. The blue line on the following chart brings the future of conventional investing up-to-date.

 

12-year returns Hussman

 

The foregoing chart estimates 12-year prospective S&P 500 total returns using the log ratio of nonfinancial market capitalization to corporate gross value-added. The two have a -93% correlation on that horizon in post-war data (negative, because higher valuations imply lower subsequent returns).

Reflections on Wealth Inequality

The US does not have negative rates, but it certainly has had amazingly low rates. What Fisher said about negative rates applies equally well to low rates.

By holding rates too low too long the Greenspan Fed created a huge property bubble.

Who benefited?

It certainly was not the saver. The beneficiary of the bubble was the equity holders and bank CEOs. Not only did financial insiders make a fortune in stock options in the runup, the Fed bailed out the banks after the crash as well.

Negative Rates “Seem” to Work

In his speech Fisher said Negative Rates Seem to Work in Today’s World.

Fisher Negative

Negative rates “seem to work” for whom?

Comment viewing options

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

Oh, but it all comes out....
When it rains it pours. 

"I met a traveller from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert. Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed:
And on the pedestal these words appear:
'My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away."

                -Shelly's "Ozymandus"

Hereby Officially Declared; Post-Peak Empire Decline

 

roxyNL's picture

in other the ((( FED))) recognizes that it is screwing the world through monetary manipulation.

The last three FED chairman were from the self proclaimed god chosen people club.

they represent 1% of US population, the probability to have three consequitive jewish chairman assuming independent trials is:

(1/100)^3 = 1/1000000 in probabilistic terms it's impossible without conspiracy !

 

iAmerican2's picture

(((Their))) power is built exclusively on Rome's collection plates' cash-flow and cadre of assassins (CIA/FBI, et al).

(((They))) and the pedophile homosexual priesthood of Babylon at Vatican Hill have been a "good cop/bad cop" satanic psychopathy since long before Golgotha.

America's Founder and Prophet termed them "the real Anti-Christ" "engine for enslaving mankind." 

espirit's picture

Sorry, Stanley. You're still invited to our 'rope' party.

Afterwards, we're having a bonfire.

pathosattrition's picture

What say we start a "scholarship fund" for whomever brings these snakes to their final, lasting justice?

bleu's picture

Yellen, Fischer, Bernanke, Greenspan are all working for their fellow 1%ers.
https://goo.gl/bFYusM

NAV's picture

Author Pete Papaherakles of AFP wrote on August 07, 2013, in Who Will Be Next Fed Chairman? that “since the privately-owned-and-controlled central bank’s inception 100 years ago, most of the Fed chairs have been Jewish.

“It might have something to do with the fact that the Federal Reserve Bank is a consortium of nine Zionist, Jewish-owned and associated banks with the Rothschilds at the head. By some accounts, the Rothschilds of London hold 57% of the Fed’s stock, which is not available for public trading.

- See more at: http://americanfreepress.net/?p=12120#sthash.KneE81pQ.dpuf

adanata's picture

 

Unfortunately he can spew this crap all day long and the majority of people still have no idea what he's actually saying.

indygo55's picture

I agree, its pathetic. And the degree to which Fisher knows most don't understand what he is saying is obvious. If there was even the slightest attempt to obscure theese truths these words would never be heard. But that he says these things on Bloomberg openly and with such great confidence signals we are at peak corruption and that from what I've read signals the end is near. People are waking up faster then they can shut them down. 

indygo55's picture

Fisher is the true head of the FED. Yellen is the human shield.

JRobby's picture

Stanley had a boating accident tomorrow.

Holiday weekend boating accidents are common.......

knukles's picture

Unfortuantely, those things have happened when somebody's pissed off the Head Reptile.

VD's picture

works for social unrest as preview for WW3.... all as planned by The Fed's owners...

Yen Cross's picture

  Thanks El' Capitan obvious.

 Can you clap your flippers for the Grand Finale???

knukles's picture

Dude .... that's cold.

(golf clap)

Chuckster's picture

When this cartoon ends somehow the fault will be laid on Trump's doorstep.  I simply wonder how long dark ages II will last once we enter it.  Eight years of George W. and eight years of Oby we are well prepared for adversity.

How many of this idiots will be on TV putting the blame on someone else as they run for re-election?

e_goldstein's picture

Raze the Fed.

 

Mena Arkansas's picture

"Fischer was born into a Jewish family in Mazabuka, Northern Rhodesia (now Zambia). When he was 13, his family moved to Southern Rhodesia (now Zimbabwe), where he became active in the Habonim Zionist youth movement. In 1960, he visited Israel as part of a winter program for youth leaders, and studied Hebrew at kibbutz Ma'agan Michael. He had originally planned to study at the Hebrew University of Jerusalem, but went to the United Kingdom to study after receiving a scholarship from the London School of Economics, and obtained his B.Sc. and M.Sc. in economics from 1962–1966. Fischer then moved to the United States to study at MIT, and earned a Ph.D. in economics in 1969 with a thesis titled Essays on assets and contingent commodities written under the supervision of Franklin M. Fisher. He became an American citizen in 1976."

"Fischer was appointed Governor of the Bank of Israel in January 2005 by the Israeli cabinet, after being recommended by Prime Minister Ariel Sharon and Finance Minister Benjamin Netanyahu. He took the position on May 1, 2005, replacing David Klein, who ended his term on January 16, 2005. Fischer became an Israeli citizen but did not renounce his American citizenship."

https://en.wikipedia.org/wiki/Stanley_Fischer

Winston Churchill's picture

It still boggles my mind that dual nationals can hold any post within Uncle Scam during peacetime.

You can't fix stupid.

booboo's picture

Uncle Scam? Shows you how deep rooted the fraud that is the "fed" and you know better.

Casual_Observer's picture

The bailout was one of the biggest thefts in the history of the USA.

Rather then bailout the people who created the faux free market of investment insterments with no real underlying value, the only people who should have been bailed out should have been creditors with a direct relationship with the debtor.

All the people in all the CDS etc. side betting sould have got NOTHING.

It would have been a big reset, but we would be better off now for it.

Nobodys Home's picture

Beer for everyone! It's on us boys!

edit: Hey! I saw that :)

Nobodys Home's picture

If you like your HFT

You can keep your HFT

 

or ...substitute derivatives for HFT

 

 

MedicalQuack's picture

Great place for inequality talk indeed, hasn't anyone heard of Chinese Citizen's score that will be law in a few years?  We have a bunch of it here in the US, a digital caste system.  If you are not aware, better wake up. 

http://ducknetweb.blogspot.com/2015/10/citizen-score-in-china-huge-warning-for.html

The data selling business is out of control and as consumers we are scored into digital graves with flawed data.  We need to index/license all data sellers, are they legal.  It's the home of the Killer Algorithms taking over.  

http://www.youcaring.com/other/help-preserve-our-privacy-/258776

Good new book coming out in a few days, read it: Weapons of Math Destruction and what the algorithms are doing, created by those who have all the money.  This is if you want to know the truth and choose not to exist in a virtual world as you can do something about anything with software and developers are not held accountable. 

Biggest rip going on right now in the US has to do with prescriptions with data selling for profit and keeps drugs expensive.  Take a look and see how pharmacy benefit managers are making money hand over fist and how you are "scored" with every prescription on whether or not the data predicts and scores on you medications you haven't even taken yet.  Wake up, as we are the Dupes of Hazard Society and that's what feeds inequality as the Killer Algorithms, enabled by Weapons of Math Destruction along with a bit of Operation Perception Deception is allowing this to happen.

http://ducknetweb.blogspot.com/2016/06/the-truth-about-pharmacy-benefit....

This inequality chat is just that and the algorithms are what create the issues.  Algos are all created by Quants and Data Scientists, aka humans and are quietly creating a new financial crisis..what is said in the book.  

"People often have no recourse when the algorithm makes a mistake"-Review of "Weapons of Math Destruction" goo.gl/0660sO "Models are embedded opinions"


espirit's picture

Release the Kraken Algo.

Take it down.

Yen Cross's picture

  Is that grey hair or scutes on that reptilian head?

atthelake's picture

In the interest of wealth equality, every American should be given $1,000,000.

Son of Captain Nemo's picture

Why Stan!...

If you're willing to come that far why not tell us about 9/11 and your friends in the "wings" that made it all possible and that moar of it is definitely on the way with the money printin still to come!!!

michelp's picture
Fed Vice-Chairman Admits Fed Sponsors Wealth Inequality

It's all part of the ever-going/never ending Zionists' One World Order masterplan for the total control and subjugation of the proletaria.

m.

Mena Arkansas's picture

Tell me this guy doesn't look suspiciously like John D. Rockefeller.

Probably from the same serpent bloodline.

http://www.famous-entrepreneurs.com/images/john-d-rockefeller.jpg

Son of Captain Nemo's picture

All Satans biological "gifts"!...

gregga777's picture

He is a member of the inbred hereditary subnormal IQ elite moron class.

gregga777's picture

The "wealth effect" policies of the hereditary inbred subnormal IQ elite morons at Goldman Sachs' Feral Reserve System are succeeding brilliantly. They have driven wealth and income inequality to unprecedented levels. Their single-minded pursuit of making the rich richer by stealing from the American People has been wildly successful. They have bankrupted private and government pension funds, impoverished savers and retirees.

The elite morons deliberately created an institution and policies that guarantee revolution in the United States of America. I hope the elite morons remember that as the mobs are hanging them by nooses from lampposts everywhere. It is not as if they have not received plenty of warning where their policies are leading.

lasvegaspersona's picture

Why any high official is allowed to carry dual citizenship I do not understand...I am certainly not confining this comment to any single country. If you want to rule the USA you should not have an exit plan...it's 'bad optics'...

Twatter's picture

(((Stanley Fischer))) is a dual citizen. Israel / Zionism. Not to be trusted.

iAmerican2's picture

By its founding, Zionism is atheist, an abomination to America's named Sovereign, God Almighty.

iAmerican2's picture

By its founding, Zionism is atheist, an abomination to America's named Sovereign, God Almighty.

Herdee's picture

They work right now in forcing the market into riskier investments.As soon as they suck retail back in for as much as they can get out of them,these guys will turn around along with their banking gangsters and once again literally fuck everybody.Guaranteed to shaft the average person.

gregga777's picture

In reaction the average American is going to literally shaft them.

larz's picture

Is this douche warming up a book deal wtf  Off with his pee aich dee head

gregga777's picture

Probably sooner rather than later BlackLivesMatter activists, poor whites and increasingly poor white middle class Americans are going to join forces in revolution. The object of their rage are going to be the banking gangsters, Con Street Swindlers, crony capitalist conporations, Oligarchs and their "bribed to be blind" Democratic-Republican Party political parasites. There will be a lot of the above groups swinging by nooses from lampposts and other forms of violent death.

Americans are the most heavily armed people in the world. During World War One, Germany's foreign minister Zimmermann, in the infamous Zimmermann Telegram, offered to help Mexico recover their lost territories of Texas, Arizona and New Mexico. The Mexican government thought that the Germans were insane to make that proposal because that eras' American populations' formidable armament. We are even more heavily armed today even before the inevitable looting of National Guard armories and active military defections occurs.

This is not a recommended course of action. This is an informed prediction. The American People are just not going to put up with the looting of America much longer. The hereditary inbred subnormal IQ elite morons are ignoring this at their imminent peril. But, then that's why they are morons.

Kelley's picture

The beating will continue until morale improves - or until I can pay off my home in the Hamptons.

moneybots's picture

Wealth equality does not exist.

 

Someone always has more than someone else.

whatamaroon's picture

Some how I have the feeling the banksters and globalists will punish Trump voters and make everything crash.

JailBanksters's picture

Well Frack me

If you know what your doing is wrong, and you are responsible, then stop doing it !!!

Is that such a hard concept ?

Seem to Work ?, sounds like your not sold on your own statements.

When I turn a light on, it doesn't seem to work, it either does or it doesn't.

And how can stealing somebody else's money, seem to be good Idea !!

What if I robbed you in the carpark, that would seem to work for me.