Do Not Show These 4 Charts To Ben Bernanke

It’s probably safe to say that most central bankers aren’t particularly enamored with the idea that post-crisis monetary policy has contributed to rising income inequality.

Take Ben Bernanke for instance, who took a few moments away from advising Citadel and PIMCO last year to throw on his blogger Ben hat and explain why he and his “courage” aren’t responsible for the widening gap between the rich and the poor.

“First, widening inequality is a very long-term trend, one that has been decades in the making,” he explained. “The degree of inequality we see today is primarily the result of deep structural changes in our economy that have taken place over many years, [and by] comparison, the effects of monetary policy on inequality are almost certainly modest and transient," he added.

Right. So basically, poor people have been getting poorer for a long time and to the extent that monetary policy contributes to the wealth gap, that contribution is minimal at best.

Others of Bernanke’s vaunted ilk also dispute the notion that wealth inequality has anything at all to do with official policy. Of course to deny ZIRP and QE have driven an even larger wedge between the haves and the have nots than existed in the past is absurd. Post-crisis policy was (and still is) specifically designed to drive up the prices of the assets (financial assets that is) that are most concentrated in the hands of the wealthy. And make no mistake, these policies have been very good at doing just that - blowing bubbles in everything from stocks, to fixed income, to Modiglianis. In other words, if you are deliberately making these assets more expensive and you know that they are disproportionately held by the wealthy, how can you deny you're increasingly the wealth gap?

For some reason (and we say that sarcastically), most of this "wealth" just hasn’t managed to “trickle down” to the common folk. As it turns out, the benefits of cheap liquidity simply don’t accrue to “everyday” people like they do to the rich and because QE was also a miserable failure at juicing aggregate demand, the rich simply watched as their paper wealth grew in tandem with asset prices while the poor watched as they, well, just got poorer by comparison.

In any event, the BIS, in their latest quarterly report, is out with a look at “wealth inequality and monetary policy,” and we should caution that while the bank offers quite a few ways to look at the issue that are worth considering (read the full report here), the following graphics are about as unequivocal as one could possibly hope to find.

Change in inequality is equal to the difference in the growth rate of net wealth between the fifth and second quartiles. Simple instructions: 1) spot 2008, 2) watch the red line head “up and to the right.” 

France                           Germany                      Italy

United States

But don't worry, we're sure this is, as Ben says, "...modest and transient."