One could write volumes (and someone probably will) about the extent to which QE and ultra accommodative monetary policies have utterly failed when it comes to producing favorable real-world economic outcomes. Like say growth. Or maybe trade. Or maybe wage gains. Or maybe the elusive “wealth effect”, which is a kind of central bank version of trickle down economics whereby inflating the prices of assets is supposed to make people more confident in their financial position and thus prompt them to crawl gingerly out of their post-2008 hibernation and start going to the mall again.
There’s only one problem with that logic: poor people don’t have much in the way of financial assets! What good does it do to drive the stock market to 18,000 if a single mother of two has no stocks?! But do you know who does have stocks and bonds and all manner of other assets that have benefited from post-crisis monetary policy? Well, rich people of course because they’ve got so much money they have to figure out something to do with it other than store it in a bank account.
So they get richer and meanwhile, thanks to the very same policies, the people with little to no financial assets and only a savings account get poorer because suddenly they can’t even get a dime of interest on their meager savings.
Of course Yellen proposed a solution for this some years ago in a speech called “The Importance of Asset Building for Low and Middle Income Households.” How laughable is that? It’s as if she thinks low and middle class households would have assets if only they understood how important they are.
Well, along these same lines, consider the following out Friday from Goldman:
“One interesting way of thinking about the sustainability of the significant asset price inflation of recent years is to compare it with the inflation that we have seen in the real economy. Exhibit 7 shows the differences very clearly. Since the start of QE, inflation, wages and commodity prices have been stagnant or falling. Meanwhile, most asset prices have inflated sharply, particularly in real terms. This seems to be unsustainable in the long run. Either wages and inflation will rise in time, pushing up bond yields but forcing financial assets to de-rate, or secular stagnation will prevail, inflation and yields will stay low, but financial asset valuations will stop appreciating and returns will be lower.”
A “wide dispersion” indeed.