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How the Fed’s Inflation Policies Benefited the Top 1% In Pictures Part 1

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8 comments on How the Fed’s Inflation Policies Benefited the Top 1% In Pictures Part 1

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Of the total USA net worth (assets minus liabilities) the percentage net worth of the top 1% rose from 23.5% to 31.4% between 1989 and 2021. 

Data for this series was downloaded from the Fed report Distribution of Household Wealth in the U.S. since 1989

The charts all show end-of-year figures with the Fed chair at that time in colors.

Percentage Net Worth of the Next 9% 

Of the total USA net worth (assets minus liabilities) the percentage net worth of the next 9% rose from 37.2% to 38.2% between 1989 and 2021. 

The total net worth of the top 10% rose from 60.7% to 69.6% between 1989 and 2021.

Percentage Net Worth of the Next 40% 

The Fed made consistent “progress” here in its goal to shift assets to the top 10%. 

Of the total USA net worth (assets minus liabilities) the percentage wealth of the next 40% fell from 35.7% to 28.3% between 1989 and 2021. 

Percentage Net Worth of the Bottom 50%

The bottom 50% of the nation never owned anything and never will. 

Nonetheless, special merit goes to Fed Chair Ben Bernanke on whose watch the percentage net worth of the bottom 50% nearly fell to 0.0%.

Let’s now discuss percentage ownership of equities which includes mutual funds and bonds.

Percentage of Equities Owned by the Top 1% 

On the equities front, the top 1% owned 42.2% of total equity position in 1989. That rose to 53.1% at the end of 2020. 

Percentage of Equities Owned by the Next 9% 

On the equities front, the next 9% owned 39.5% of equities in 1989. That fell to 35.4% in 2020. 

This is a choppy series but clearly headed in the right direction. The Fed’s unstated goal, of course, is for inflation to benefit the top 1% and no one else. 

Meanwhile, the Fed can take heart in the fact the share of the top 10% share of equities rose from 81.7% in 1989 to 88.5% in 2001. 99% is in sight.

Percentage of Equities Owned by the Next 40% 

On the equities front, the next 40% owned 17.1% in 1989. That fell to 10.9% in 2020. 

Bernanke did not make much progress on the transfer of equities to to top 10%, but as we will see later, he was stellar on the real estate front. 

Percentage of Equities Owned by the Bottom 50% 

The bottom 50% owned 1.1% of equities in 1989. That fell to 0.6% in 2020. 

There was little room for progress on the transfer of equities to the top 10% from this group as the mission was nearly complete already by 1989. 

Nonetheless, the Fed did capture nearly half of what was possible. 

Fed’s Unstated Goal

I sarcastically commented that the Fed’s goal is for the top 10% to own all the assets and everyone else the debt.

That is not their stated goal, of course, but that is the result.

The Fed’s inflation policies make homes unaffordable and make it hard for half the nation to save anything at all or buy assets.

In contrast, the Fed’s inflation policies, bank bailouts, and stock market support has done wonders for the top 10%. 

The next 40% is losing dramatically to the top 10%.

Stated Inflation Targeting

These events happen in response to the Fed’s stated inflation policies. The Fed specifically targets housing by keeping interest rates too low. In response, the price of housing has soared.

 Case-Shiller Home Prices 

Inflation a Tax on Consumers

Inflation is a Fed-sponsored tax on consumers. The bottom 50% are getting killed by it.

Yet the Fed wants more of it. It is thus a direct sponsor or wealth inequality.

Hello Fed, Inflation is Rampant and Obvious, Why Can’t You See It?

Home prices have soared well beyond the means of the bottom 50%. 

The Fed does not count this as “consumer inflation”. 

What’s important? Inflation or the Fed’s and BLS’s perverted sense of inflation? 

I strongly suggest the former. 

And if we substitute home prices for Owners’ Equivalent Rent (OER) in the CPI we get a better sense of how far off base the Fed and BLS is regarding inflation.

If you don’t like house prices in the CPI then drop the C and rename the index. However, the result of PI is how the Fed has destroyed the middle class for the primary benefit of the top 10%.

For discussion, please see Hello Fed, Inflation is Rampant and Obvious, Why Can’t You See It?

In case you missed it, also consider The Fed Says Inflation Is Transitory, It Has a Vested Interest to Lie

Part 2 Coming Up

In part 2 we will look at trillions of dollars instead of percentages.

As an added bonus we will look at real estate net worth subtracting out mortgage debt.

Bernanke has some nice negative years to spotlight. 

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Mike Shedlock

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8 Comments
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RonJ
RonJ
5 years ago
“Fed’s Unstated Goal”
Figuratively, shaving coins.
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davidyjack
davidyjack
5 years ago
“Home prices have soared well beyond the means of the bottom 50%. “
This should read “Home prices have soared well beyond the means of the bottom 50% in the vast majority of the country.
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jiminy
jiminy
5 years ago
There isn’t any conspiracy.  This simply points to the unintended consequences of economic dogma.  The fed has a dual mandate and there only tool to accomplish these miracles is the creation of bank reserves, hence low interest rates and misallocations of capital.  Central bankers act like they have “tools” and magical levers to control the economy.  They don’t.
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Call_Me
Call_Me
5 years ago
“I sarcastically commented that the Fed’s goal is for the top 10% to own all the assets and everyone else the debt.”
If that were a stated goal then there would be at least a 50:50 chance the public would end the Fed.  Sadly those odds will likely preclude a third “mandate” for many years to come.
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PostCambrian
PostCambrian
5 years ago
I wouldn’t even say that the Fed’s unstated goal is to redistribute wealth upward but I agree that redistribution upward is the result of their policies.
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Eddie_T
Eddie_T
5 years ago
“The bottom 50% of the nation never owned anything and never will.”
I agree with this, but can we really lay the blame for this on the Fed?  I don’t think so. There is a long history of intelligent motivated people bootstrapping themselves out of poverty in this country. I would say it’s definitely harder now, but it’s still being done.
It’s pretty obvious that the big divide is between people with assets and people with NO assets. Owning assets leads to owning MORE assets and getting wealthier over time. Can we agree on that much? Since we know that people with assets have better financial outcomes in life, we should encourage people to acquire assets, and make it easier, right?
And we do. Not with equities, but we most certainly do that with real estate, under the guise of promoting home ownership. Prices have gone way up, but keeping interest low makes the payments lower, and it is the one market where working people have reasonable access to capital. We even have laws that are designed to prevent racial discrimination and protect people from predatory lending practices. I know it’s not perfect, but it’s possible to get a home. 
Anybody with a proven income and a down payment can get into a house. And dedicated savers can go back a second time or a third time, and eventually build some cash flow (from something besides their paycheck job) and start to build real wealth. It’s the ONLY way that ordinary people can get cheap money like the Wall Street speculators. Not quite as cheap, but pretty cheap.
I did this. Other people who comment here have also made it work.
So why don’t more people do it? I think much of it is cultural. People aren’t born with good habits. If the role models are bad, and there is no financial education for ordinary people. 
And what about media advertising as a contributor to poverty?  People are constantly taught by media to buy stupid sh*t they don’t even need,…what you get is what we have now. Most people get  clothes to wear. Most people have a nice cell phone. In most places people have a car. Poor people do spend money….
Assets? Not so much.  
Not many single moms can save anything. They tend to struggle to stay afloat. They take on oppressive debt at usurious rates to survive. And of the people who marry, 40-50% of marriages end in divorce….and a big part of whatever wealth that the lower middle class does accumulate is destroyed by that. I think more people are hurt by that than market downturns. Only people with wealth lose wealth when the bubbles burst. It affects poor people more by making them unemployed.
And it takes commitment to staying the course, right?  If you make some money, it then takes discipline to hang on to it and turn it into an asset. It’s not much for releasing dopamine…dead boring in fact…..until maybe you get to a point where wealth is accumulating fast enough for it to be exciting. Not many poor people ever get to that point. Maybe that’s why bitcoin is so seductive. Lots of money can be made quickly when BTC is trending. But it’s gambling and it tends to be a zero sum game, with the whales eating the little fish. A few make money speculating, and that attracts more people. Same as the mafia running the numbers racket in days gone by. (Now the government has usurped the numbers racket and they call it Powerball.)
I don’t see any kind of social engineering or financial engineering ever changing human nature. Change begins with changing yourself, and that is really hard. Most people could win the lottery, get a $10M payout, and be broke again in five years.
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Doug78
Doug78
5 years ago
I think most of us agree that those who have run the economy these last thirty years or so suck at it.
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TexasTim65
TexasTim65
5 years ago
It should be pretty obvious to anyone (who thinks about it for more than a moment or two) that money printing can only widen the wealth gap.
It doesn’t matter whether the rich get first access to the money or whether it’s stimmy money directly to the masses. Either way it essentially all ends up in the hands of the rich because the masses have no way to hang on to that money unless they acquire productive assets (stocks, real estate etc). Anything else (paying down debt, buying goods or services etc) just transfers the money upward until it finally reaches the ownership class (the rich).
The charts Mish shows are probably (would need to check to confirm) just the rate of money printing at any given time.
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