Central Bankers 'Inconvenient Truth': Policies Boosted Wealth-Inequality, Failed To Generate "Growth"

Tyler Durden's picture

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Rather than be seen to be further enriching the rich, I think central banks will start closing the "free money for financiers" spigots.

Take a quick glance at these charts of the Federal Reserve balance sheet and bank credit in the U.S. Notice what happened to bank credit after the Fed "tapered" and stopped expanding its balance sheet?

Bank credit exploded higher:

Now look at corporate profits:

Once the Fed ended its $3.7 trillion "experiment" of vastly expanding its money-creation and bond-buying in early 2014, what happened to bank credit? Bank credit had expanded by a bit over $1 trillion in the early years of the Fed's quantitative easing, but it really took off after QE3 ended, soaring roughly $2 trillion.

This was the policy goal all along: the Fed would do the heavy lifting to keep credit and the financial markets from imploding, and eventually private-sector credit would expand enough to fuel a self-sustaining recovery.

While measures of employment and production have lofted higher, productivity, profits and wages for the bottom 95% have all stagnated. Is it coincidental than corporate profits began weakening once the Fed's QE3 ended? Perhaps.

How about the stagnation of household median income during the Fed's expansion and the rise of private bank credit from 2014 to the present? Was that also a coincidence?

If the economy was expanding smartly as the Fed was goosing credit higher, it certainly wasn't trickling down to households.

What's happening beneath the happy-happy surface is that the returns on expanding credit are diminishing rapidly. The Fed's QE "free money for financiers" never did "trickle down" to the bottom 95%, and the enormous expansion of bank credit is no longer driving corporate profits higher.

There are other factors at work, of course; a global slowdown in trade, for example, a rise in energy costs and a stronger US dollar. All of these impact credit, profits and the share of GDP flowing to labor in wages, salaries and benefits.

Whatever the causes, the reality is that the positive results of credit expansion have reached the top of the S-curve and are now declining. Expanding credit, via central bank monetary policy or private-sector bank credit, is no longer boosting profits or wages.

As noted yesterday in The Central Banks Pull Back: Now It's Up to Fiscal Policy to "Save the World", even the cheerleaders of central bank gimmickry now admit QE enriched the rich and impoverished everone else.

So what happens as other central banks taper their expansion? It's unlikely to be a positive for private-sector economies stagnating despite rapid expansion of bank credit.

And what happens if central banks unleash new torrents of cash? If the returns on new credit have plummeted, rapid expansion by central banks may well hasten the slide down the S-curve-- the opposite of what conventional economists expect.

Rather than be seen to be further enriching the rich, central banks will start closing the "free money for financiers" spigots. If the returns on central bank "free money for financiers" are diminishing rapidly while public anger at rising wealth inequality is heating up, why put the central bank's credibility and political independence on the line for a policy that has visibly failed to benefit Main Street?

We discuss these trends and much more about the economy in My podcast with X22: The Central Bankers Are Going To Shutoff The Spigot And The Economy Will Rollover.

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froze25's picture

Death to the money changers, end the Fed! Fiat money could be done with out the Banisters (Lincoln did it) and their Usury. Bring back the British Tally Sticks!!! Nationalize Visa and Master Card! Something, Something Darkside!

balolalo's picture

thanks cheeto jesus for NOT doing shit that matters

THE SWAMP GROWS

froze25's picture

Suggestions on what the Cheeto Jesus should of done? That is actually within his power. 400+ pedophiles so far arrested across the nation since he came in, thats something. Now they start going up the chain.

adr's picture

I want to see the heads of every Rothschild and Rockefeller along with Blankfein, Dimon, Soros, and many others placed on the corner spikes of the White House fence.

 

Ms No's picture

You have to woder how many millions will die before that actually happens.  It's a strange reality we live in.

Insurrector's picture

Add the Koch brothers to that.

yttirum's picture

Not doing shit that matters? Bwaha! Geebus, man. Compare his 14 DAYS to the last 16 YEARS, dimwit.

balolalo's picture

trump has indicated through his actions so far that:

BANKSTERS still in charge

BANKSTERS being given more free Reign

THE FED is still in charge

ISRAEL still in charge

BILLIONAIRES still in charge

BLOATED military industrial genocidal complex still growing

.... nope....  no real change

how much time are you going prepared to give him????  

balolalo's picture

exactly.   no change.

the swamp grows.

dumbfuck. 

you can't fix stupid, but you can remind them they are.

 

FreeShitter's picture

Easiest trade of the year...long GS and JPM.

Insurrector's picture

Cheeto combover may not last 4 years.

What will replace him?

396's picture

More than 2 weeks dipshit.

dcmbuffy's picture

the echo chamber- the eche chamb- the echo cham..... the echo ch....... pack your crap up and leave like the rest of you squids- and you know what a squisd is- spineless- if you cant run with the big dogs- dont get off the porch. we should put you and your friends in charge? if you only knew what hand to wipe your self with. if it wasnt so pathetic it would be comical. lets put who in charge of the banks?  chipotle servers- wake up man.

Blue Balls's picture

No banking laws period.

AldousHuxley's picture

Everybody knows this. That's why rational thinkgers at hedge funds were bearish and lost out to SP500 index.

But nobody wants to hear the truth. They just want to be rich.

NordikAvenger's picture

Riches in the absence of truth is simply an illusion.

Yup.

adr's picture

Can I give you the biggest NO SHIT SHERLOCK of all time?

Temporalist's picture

Sssshhhhhh!!! Nobdy tell Paul Krugman.

GunnerySgtHartman's picture

The central bankers accomplished their goal - there's nothing 'inconvenient' about it

VWAndy's picture

 The Fed exists to screw over main street. Its what they do.

TheRideNeverEnds's picture

Load of crap. Anyone can buy stocks or a house, it's entirely your own fault if you don't. These things have gone up exponentially in value. Hell, a company that made and app to send pictures on phones with a built in capacity to send pictures is about to IPO at a value greater than the entire market cap of all public companies in the 80s. Stocks and house prices go up practically every single day, you want growth? Buy something.

adr's picture

And that company called Snapchat has never made profit dollar one. Just like Amazon.

I wonder what would happen if everyone just bought stocks in companies that make nothing. Hmm, pretty sure there would be no growth because there wouldn't be anything physical to buy.

It is called the illusion of growth for a reason.

Temporalist's picture

Is your name an angram of "I'm Jannet Yellen I'm Here To Help"?

CRM114's picture

The point is that if you don't have the money to buy to start with, you now have less chance of ever getting it.

xrxs's picture

Buy something? With what?  the average household barely has any wealth and is just trying to make ends meet.  They didn't see any of the 3.7 tril that got splashed around. That went straight to the top and stayed there. That's the gist of the article.

OpTwoMistic's picture

Nope, does not work. Bankster have destroyed the currency and your shares will be worthless in a few weeks.  If you sell now you will just have handfulls of worthless currency instead of shares.

You are just as screwed as the guy how did not invest.  Only PM holders win. Good luck.

small axe's picture

bankers and their government surrogates refer to theft on a momentual scale as effective policy

dasein211's picture

Not to worry!! Now that there's no government regulations on banks they'll "invest" all of your money and you'll never ever have to worry about them losing it..... EVER! And people think there's no room for Bitcoin.

Ms No's picture

Western civilization is falling.  Mission accomplished!

CRM114's picture

Listen.

Is that the sound of pitchforks being sharpened?

Commodore Decker's picture

Every time I read "QE" anywhere, I reflexively buy more gold and silver. Keep stacking my friends.

jm's picture

I think a part of the equation left out of this discussion is the growth-retarding impact of Basel III. It has been a massive boon for sovereign debt but really slammed the brakes on risky lending.

The financial system is merely responding to incentives.

Batman11's picture

Marx saw capitalism as an endless class struggle between the bourgeoisie and the proletariat.

He wasn’t far wrong.

1920s - high inequality, high banker pay, low taxes for the wealthy, robber barons, reckless bankers, globalisation phase (bourgeoisie in the ascendency)

1970s – low inequality, worker and union power, high taxes on the wealthy (proletariat in the ascendency) (probably more true in the UK than the US)

2000s – high inequality, high banker pay, low taxes on the wealthy, robber CEOs, reckless bankers, globalisation phase (bourgeoisie in the ascendency)

The pendulum swings back and forth and always swings too far in both directions.

If the human race could take a more sensible, big picture view they might see it as a balance between the supply side (bourgeoisie) and the demand side (proletariat).

The neoliberal era has been one where a total ignorance of debt has held sway.

Redistributive capitalism was removed to be replaced with a capitalism where debt based consumption has become the norm. without a single mainstream economist realising the problem.

The world is maxing out on debt, this system is set to fail due to a lack of demand. The Bourgoisie have been in the ascendency and made their usual mistake.

“The Marxian capitalist has infinite shrewdness and cunning on everything except matters pertaining to his own ultimate survival. On these, he is not subject to education. He continues wilfully and reliably down the path to his own destruction”.

Keynes thought income was just as important as profit, income looks after the demand side of the equation and profit looks after the supply side.

He has the balance of capitalism.

Just maximising profit – The Bourgeoisie looking after their own short term, self interest with no thought of the longer term.

1) Money at the top is mainly investment capital as those at the top can already meet every need, want or whim. It is supply side capital.

2) Money at bottom is mainly consumption capital and it will be spent on goods and services. It is demand side capital.

You need to keep the balance.

Too much capital at the bottom and inflation roars away.

Too much capital at the top and there is no where sensible to invest and the Bourgeoisie indulge in rampant speculation leading to the inevitable Wall Street Crash, 1929 and 2008.

Today’s negative yield investments?

Too much capital at the top, no one wants it and you have to pay people to take it off your hands.

TeethVillage88s's picture

Yes, they kind of got us now with the Globalization phase.

I was going to reply the Great Depression must stand out as a time where the Money Trust gave up on helping anyone. So now we are back to that I suppose except we still have ZIRP and maybe they will screw us with NIRP and going Cash-less.

"As noted yesterday in The Central Banks Pull Back: Now It's Up to Fiscal Policy to "Save the World", even the cheerleaders of central bank gimmickry now admit QE enriched the rich and impoverished everyone else."

GOP is fixated with MIC Spending and maybe giving health care and FIREs what ever they want. I doubt they will Repeal Obama Care now.

But I'm a cynic.

Batman11's picture

We are actually using 1920s economics, neoclassical economics.

No wonder everything looks familiar, the Bourgeoisie have no imagination.

“Stocks have reached what looks like a permanently high plateau.”Irving Fisher 1929.

In 2007, Ben Bernanke could see no problems ahead.

Their beliefs were based on an absolute faith in markets based on neoclassical economics which states markets reach stable equilibriums.

We should actually learn from mistakes, not repeat them.

1920s levels of inequality – what a surprise it’s the same economics.

We have moved on to the 1930s now:

1930s/2010s – Global recession, currency wars, rising nationalism and extremism

1940s – Global war

Something to look forward to.

angry_dad's picture
angry_dad (not verified) Feb 3, 2017 5:36 PM

Obama's greatest bungle was allowig the QE programs to ever start

$85 BILLION every month for how many years?

radbug's picture

Where Japan goes, the world follows.

BlueGreen's picture

I'd wager that tptb figured out that trickle-down didn't work so they can now support a Universal wage for everyone and control both ends of the power Spectrum, after the appropriately needed crash of course.  After all it's not really about the money it's about who makes the decisions.

Duc888's picture

 

 

The only annoying thing about this article is that at least 90% of those where members of ZH knew this in 2009.  The new trolls?    Not so much.

zagzigga's picture

So what? Asset reflation is what they declared as their objective and that is exactly what they achieved. Never mind that the average worker got crushed in the process.

moonmac's picture

"...free choice and self-determination are just as truly basic needs as food and shelter."

The Do-Gooder's Agenda is in direct contrast to this fact. 100+ shootings per week in Chicago proves enforcing morality isn't an exact science. Government Officials have been talking about winning the Drug War since the 1920's. Every night I watch the news they never mention the fact they are killing each other over billions in un-taxed drug sales. 

The Fed craves 2% inflation year after year. The wealthy could care less about $4 gas or sky high rents when their investments increase by $10 million. Radio's, AC Units, TV's all used to cost hundreds of thousands of dollars in today's money. The Fed has done such a bang up job creating endless inflation while the massive deflationary pressures of technology advancements and science innovations which increases productivity 1,000 fold continue on.

Globalization helped to create a downward spiral of prices which was again counteracted in this country by Wall Street and their Political Cronies to force most of our industries and manufacturing overseas. Making $4/hr in a factory would be a good job if you could still buy a nice condo for $15K. The people who own all the assets would have died before they'd of let that happen. 

Don't worry Socialism will take care of the masses. There will be enough Americans getting rich beyond belief manipulating money to support the majority of families who will require welfare to survive. 

Just remember all this was no accident.