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Fed Chair Janet Yellen, we learned last month, is “greatly concerned” with America’s growing wealth gap.
That’s a little like Al Capone being concerned with bank robberies.
Is it possible that Janet Yellen has not noted the correlation and causation of Fed policies and the concentration of wealth at the top in America?
Because it’s pretty hard to miss.
It’s not just a question of the richest 1 percent getting richer. The concentration of wealth has grown even more top-heavy than that. A recent New York Times story on the phenomenon begins with the account of a private jet broker. He says that in the past the sale of big and small jets rose and fell together with the turns of the economy.
But now the market is divided. According to the Times, “Sales of the largest, most expensive private jets — including private jumbo jets — are soaring, with higher prices and long waiting lists. Smaller, cheaper jets, however, are piling up on the nation’s private-jet tarmacs with big discounts and few buyers.”
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| Stocks and homeless kids (2.5 million) are at all-time highs. |
U.S. wealth inequality was driven to all-time highs in that fateful year 1929. And while the disparities fell all the way from 1929 to 1978, a new National Bureau of Economic Research paper on wealth inequality finds that since then the super-rich have been getting super-richer.
Since 1979, the top one-tenth of 1 percent’s wealth share has more than tripled, jumping from 7 percent to 22 percent — back to 1929 levels.
To state it differently, the top 1 percent owns about 42 percent of the wealth. Or out of a population of 1,000, the top 10 individuals own about 42 percent of the wealth.
That’s the rich.
In that population of 1,000 people, the wealth of the single richest individual would be equal to all the wealth of the bottom 900 people put together.
That’s the super-rich.
Needless to say, the modern intellectual consensus being what it is, the authors of the NBER report knee-jerk their way to statist recommendations to fix the lop-sided state of wealth affairs, as if government intrusion and monetary corruption hasn’t done enough harm already.
So they recommend things like cost controls and minimum wage policies.
And of course, always the first tool out of the bag of the statist’s solutions: Progressive taxation.
As though slower runners could be made to run faster by strapping burdens on the swift.
Such policies — to make everything right — are, I’m afraid, exactly what we need to fear from Yellen. In 2006, when she was president of the San Francisco Fed, Yellen gave a speech on income inequality in which she applauded the Fed’s performance on that front, citing improvements in economic stability and productivity.
Stability? Thanks to another Fed bubble, the most gut-wrenching economically destructive episode since the Great Depression had taken aim at the heart of the middle class and was squeezing the trigger as Yellen spoke.
Productivity? For a half century, from 1949 to 2000, the economy grew on average 3.6 percent a year. Since then the hyper-interventionist Fed has been hard at work with Alan Greenspan’s market distortions only foreshadowing those of Ben Bernanke and Yellen.
The result has been annual growth of only 1.8 percent. Half that of the prior 50 years!
Those are impersonal numbers, so let me frame the wealth disparity more vividly by citing a slap-in-the-face headline on Zero Hedge the other day:
Mission Accomplished: Stocks & Homeless Kids Hit All-Time Highs
And that is not the stuff of which social stability is made.
It is always sharp moves in the markets that expose a host of problems. But for the mortgage meltdown, Bernie Madoff might still be running his Ponzi scheme.
Right now a sharp decline in oil prices — although great for us at the gas pump — means stress for many shale oil producers, stress that will be reflected in the junk bond markets. In the same way lower oil prices are already exacerbating financial conditions among foreign producers like Russia, Iran, and Venezuela.
Oil is not alone among the commodities signaling deflation. Gold and silver are sending the same message.
It’s helpful to remember the signals all three sent before the market meltdown in the fall of 2008. Gold broke $1,000 an ounce for the first time in March 2008 before it sensed trouble and zigzagged its way down. Silver topped out at $20.80, also an all-time high, the same month before it started signaling deflation. Oil peaked at $148 in the summer of 2008 and started coming down fast.
While gold, silver and oil are signaling deflation today, the stock market is making new highs, trusting in a coming wave of growth. A friend notes that commodity prices and the stock market can’t both be right. “If markets are discounting mechanisms, somebody has this wrong.”
He’s right. Something has to give.
It is my view that the withdrawal of Fed liquidity and the massive debt buildup tilt the scales decisively in favor of deflation. To make the case airtight, factor in the spreading global downturn: The recession in Japan despite all its money printing, deterioration in European conditions, and a continually slowing China.
Because today’s bubble economy is so much bigger than the last time a bubble popped in 2008, the fallout will be much bigger as well. The impact will be systemic and more painful.
Social upheavals are usually the work of the young. America’s growing wealth divide has provided plenty of dry tinder for a youth rebellion.
The young have taken on a $1.2 trillion mountain of student loans debt. Already 6.7 million student borrowers are delinquent borrowers. And with all that debt (and presumably education), a majority of young people are unsure or outright pessimistic about their job prospects.
At the same time, shifting demographics mean that the young are bearing the burden of the elderly and their retirement. For example, in the 1960s there were 5.1 workers per Social Security retiree. Currently there are 2.8. Soon there will be only two.
And then, as if to add insult to injury, there is Obamacare. It has cynically shifted the health care costs of older Americans onto the backs of the healthier young.
How much more abuse will they take?
Already economic disparities are making civil society wobbly in other places around the world. If a major credit event means that the U.S. can no longer count on the rest of the world financing its debt and the money runs out, widespread violent and social disruptions will follow here.
Is it too much to expect a revolution in the United States?
Maybe. But not everything that happens is expected.
As Monty Python observed, no one expected the Spanish Inquisition either.
Best wishes,
Charles Goyette
Charles Goyette, who more than 25 years ago arranged for a then-little-known Texas congressman named Ron Paul to be a keynote speaker at a series of his monetary conferences, is the editor of the Freedom & Prosperity Letter and the Extreme Profit Hunter. A public figure, Charles has been a participant in the national political debate as a radio talk-show host, writer and speaker. He is often called upon to share his views with national television audiences, including Fox News, CNN, MSNBC and PBS.
The longtime Libertarian also has written for magazines including The American Conservative. He is the author of The New York Times bestseller “The Dollar Meltdown: Surviving the Impending Currency Crisis with Gold, Oil, and Other Unconventional Investments.†His newest book is “Red and Blue and Broke All Over: Restoring America’s Free Economy.â€
{ 20 comments }
When I read an article like this I wonder if you have an answer. Okay so you have stated some of the problems but what’s your solution? College debt is a big one so what do you do about it. Maybe lower interest rate. But congress won’t consider it. Funny how you say the bubble is bigger but I read online how the economy is failing. How can we have both. What we need is not the blame game but answers and compromise that some can’t deal with these days.
Matt, I think what Charles was telling you implicitly in his commentary is that there really is not a solution that would NOT be painful. If you are an astute student of financial history, you will know that once a financial/economic/geopolitical bubble develops as we now have with massive public and private debt, including student debt, massive massive income/wealth inequality, corruption, greed, deceit, deception, scandals, coverups, false flags etc..etc..etc..The ONLY solution is a bust or a crash. This happens time and time and time and time and time AND time again…Just study history from the South Sea Bubble, the Tulip Mania, 1929, 2000, 2007, ALL the empires etc…etc… Matt, that will be the answer but unfortunately, it will lead to a LOT of pain for many…
Well put Billy
If the economy was suffering from accumulated chronic underinvestment, shifting income from the non-rich to the rich would make sense. Underinvestment would mean there was a shortage of shopping centers, hotels, housing and factories were operating at 100% of capacity but still not able to produce as many cars and other goods as people needed. It might not seem fair, but the quickest way to build up capital is to take income away from the middle class who have a high propensity to consume and give to the rich who have a propensity to save (and invest). Except for periods in the 1950s and 1960s and possibly the 1990’s when tax rates on the rich just happened to be high enough to prevent overinvestment, the economy has generally suffered from periodic overinvestment cycles.
It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928 worked exactly as the Republican Congresses that pushed them through promised. The dramatic reductions in taxes on the upper income brackets and estates of the wealthy did indeed result in increases in savings and investment. However, overinvestment (by 1929 there were over 600 automobile manufacturing companies in the USA) caused the depression that made the rich, and most everyone else, ultimately much poorer.
Since 1969 there has been a tremendous shift in the tax burdens away from the rich on onto the middle class. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP then and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. The overinvestment problem caused by the reduction in taxes on the wealthy is exacerbated by the increased tax burden on the middle class. While overinvestment creates more factories, housing and shopping centers; higher payroll taxes reduces the purchasing power of middle-class consumers. …”
http://seekingalpha.com/article/1543642
Excellent comment, Lance. I also read the article on the link. The cycle of over and underinvestment causing depressions and recessions is an argument I’ve not heard before. I also like your definition of depression because it makes a lot of sense. Interestingly, lowering taxes on the middle class to increase aggregate demand while simultaneously raising taxes on the very wealthy to reduce over investment is a policy prescription that might have a chance to succeed politically. Another tool to increase demand would be to modify the interest rates on student loans, which are far higher than today’s market rates. I could see these policies gaining traction, but it would likely require one party to have control of both Congress and the presidency.
Another way to end the depression would be massive tax cuts for the middle class. The 10% and 15% Federal tax brackets could be temporarily reduced to zero. For married taxpayers this would exempt all net income below $72,500 from taxation. This would be a $9,982 tax cut for all couples with taxable incomes of $72,500 or more and less for others with less taxable incomes. Additionally, all personal payroll taxes could be suspended. As with the recently eliminated 2% payroll tax cut, the treasury would make the trust funds whole. This would put $6,120 in the pockets of a household that had $80,000 in wages. These steps would provide a total of about $15,000 to the typical middleclass family. It would increase the deficit. However, with the current levels of interest rates and the actual profits made by issuing t-bills at negative rates, the long-term costs will be less than they were in WWII as a percentage of GDP.
When Obama was campaigning for president he called for a $1,000 middle class tax-cut. On the day he took office the correct amount to end the depression was probably close to $15,000. Congress passed an $800 middle class tax-cut as part of the stimulus package.
You say the “bubble economy” is so much bigger than last time. Where is the evidence? What’s the bubble?
Global Debt and the consequence of varying interest rates in the bond markets. The inability of government to bail out in the future.
Hi Charles
Something many don’t consider is that ‘A rising tide lifts all boats.’ It’s not enough to just pump money into an economy so that the ‘movers and shakers’ can grow fatter. What is needed is to lift other lower and middle classes into new levels of wealth. We need real leadership with vision and this hasn’t been around for decades now. We need a plan that unites us, not policies that divide us. Maybe one day it will come.
James Rickards recently stated that “Monetary Policy does not create jobs.” I happen to agree. Jobs are created by employers who have an incentive to expand and hire based on confidence that doing so can be profitable. Employers confidence is based on their perception of pending government actions and market trends.
The Fed increases in money supply flows first to the banks and investment bankers so naturally the finance industry is first to prosper. Employers withhold expansion plans and borrowing if there is uncertainty about wage rates, tax rates and government controls because they directly affect profitability. Hence, adding more money to the banking system is not going to create jobs. it just deflates the value of the currency.
Corporate profits have piled up overseas and aren’t returning to the U.S. because of high tax rates on foreign earnings. Real middle income wages have not risen over ten years. Our government needs to get out of the way and let reinvestment occur so that job and wage growth can reappear.
I propose: 1) Require a minimum corporate tax on all corporations; 2) Reduce individual tax rates to increase consumer spending; 3) Reduce or abolish the Foreign Investment Tax on all domestic corporations. 4) Abolish the minimum wage so young workers can find jobs based on their level of experience, education and skills.
We don’t need MORE government. We need LESS.
Well put!
Wayne – You “Hit the nail on the head” !!!
ONE SAYS ALL THAT IS DONE IS PEOPLE BLAMING PEOPLE! I agree that Matt is saying give answers instead of just pointing at the bad thing, well it starts at the top and every time there is a situation what is it from. This is the key to all of your answers, you say great let me hear it I can’t wait to know the key to the problems that keep getting pointed out, this has to stop and the answer is in the blame. Well you say what do you mean, that is simple but also criminal and wrong and starts at the top. The Answer is when they get caught do something about it. The shame of this Country that starts at the top is that when they get caught which they have many times, they join the other side , they never get put in jail even when guilty, get rid of ALL OBAMA STANDS FOR AND GO BACK TO THE CONSTITUTION. There is a Flag that is RED WHITE AND BLUE. HOW MANY STUPID PEOPLE THAT THIS GRUBER BUDDY OF OBAMA AN TELL YOU HOW MANY STARS ARE ON IT LET ALONE WHAT THEY STAND FOR. THE ONLY THING OBAMA DID NOT GET CAUGHT AT YET IS HAVING A WHITE HOUSE FLING, BUT HIS BODY GUARDS DID SO MAYBE THEY ARE EXPERTS LIKE GRUBER AT CONCEALMENT AND MAGIC TRANSPARENCY!!!!!!!!
Not deflation. Oil is more likely to be signaling that our hugh supply of natural gas turned into liquid natural gas then turned into gasoline means the supply of gasoline is in large abundance. Unless the oil companies manipulate everything, the supply is so great that prices have to come down. I’m 90 years old and I hope to see some honesty in corp. attitudes before I pass this greedy world.
Hi!, Patrons Of Money & Markets Et. Al.:
Once upon a time we had a useful and active Constitution here in the US; land of the FREE and home of the BRAVE. Doug Casey, the International Speculator, says that the Constitution has been turned into a dead letter. Once upon a time we use to have a US $ that was as sound as a silver $ but now we have made the transition to a silver price measured in devalued US $’s. Once upon a time we had a US Mint whose job was to issue FREE of charge silver coinage to be used throughout OUR once Great Nation but now we have a US Mint that sells silver coinage to the masses of OUR citizens charging them a premium for what use to be FREE. Once upon a time we had a president who did his best to abide by the US Constitution meaningfully and worked his farm for most of his paycheck but now we have a president who has the income and investments that allow him to escape real work and has NEVER run a business besides. Once upon a time OUR Nation was operated in UNISON between Congress and the House for the benefits of the US taxpayers but now we have those from both who know more about speculation and graft than running OUR country for the benefits of everyone who tries to live under their rules and regulations. Once upon a time there was encouragements galore to help people form businesses and hire employees in a happy atmosphere of co-operation and thrift including profit sharing but now we have huge corporations that shift everything in the direction of upper managements making hundreds of millions in bonuses yearly. Once upon a time the American Dream looked to be achievable through personal dreams with those dreams dependent upon a proper business plan etc. but now we have a youthful population with latent talents siting on the sidelines of life trying to catch a vision of any kind of employment that would launch them into buying a home and raising a family without undue stresses dominating them. Once upon a time we had a US $ that was supposedly backed by 1/35th of a troy oz. of gold, as outlined at the Bretton Woods Agreement of 1944, but now we have a US $ that seemingly wants to head towards absolute zero in value leading the way in currency trade wars in a vain attempt year by year to achieve independence from deficits without any significant signs of succeeding. Once upon a time the US had foreign policy statements that enamored the US to the people of the FREE world but now we have a US government foreign policy statement that intervenes into the lives of countless countries worldwide in a vain attempt to rescue them from their lack of true FREEDOM much of it prompted by US foreign policies. Once upon a time the success of the US was not measured in terms of a 1% population having the majority of the wealth but instead, using sound money based upon precious metals, everyone holding them was sharing in the FREEDOMS of true wealth and the convictions of confidence in OUR united currency; while today we have been providing currency speculators the visible chances to run the value of OUR paper money both up and down in value within foreign exchange markets giving rise to price distortions that few Middle Class individuals understand how to constantly cope with these changes benefiting speculators rather than individual consumers. Once upon a time we use to live in a land for all we could call America but now folks we live upon the same land but it is no longer America with a true soul but a transformed land within a corporate Empire whose bought and paid for crony representatives can bail them out whenever needed and instead of those failing through fraud going to jail like we the people know we would caught doing the same, are given a slap on the wrist, provided a fine smaller than the take they get from their crimes which fines are a write down off taxes and the fines are profits for their well positioned crony political helpmates. Once upon a time we the people knew a sense of true direction for America to follow simplified by Constitutional organization but now we have a President who circumvents Congress, in order to go to war, open OUR borders like we didn’t own them as a Nation united plus take it upon himself to tell the rest of US we the people what kind of health care we should have at what costs etc. Therefore, the plain and simple path that we the people have now chosen under OUR so called elected officials is to pander not to the Constitution and to the FLAG for which it stands, but to knowingly allow ourselves to be run over and placed under the bus of unconstitutional confusion and chaos a FREE people would NEVER elect to pursue under any circumstances; while looking at once upon a time events in the rear view mirror as we travel further and further away from OUR Constitutional constraints, privileges and sense of true organization as a Nation of FREEDOM in fact instead of promise. Once upon a time we the people use to be free from deficits and an almost 18 trillion $ US debt but now we are in the back seat of the bus paying for all the fairs it takes to run the bus over the cliff just ahead. When it crashes headlong over the hill, the survivors will be called upon to pony up and pay all the bills to resurrect whatever country finally evolves from the ashes of OUR once upon a time past. Get ready folks!!
RUSS SMITH, CA. (One Of Our Broke, Fiat Money Corrupt States)
resmith1942@gmail.com
Charles, you have hit the nail right on the head. Income/Wealth Gap, M&A activity, Stock Markets, Corporate Revenue, Greed, Corruption, Scandals, Deceit, Deception, Lies, Fiat Currencies, Fall Commodities, Student, Private, Public, Sovereign Debt, Black Ops, False Flags, Coverups, Aging Population etc…etc.. etc… are at all time highs, once again and signaling BEYOND a shadow of a doubt that a MAJOR stock market “Correction” are RIGHT around the corner…
Russ Smith really has no idea of what Once Upon A Time was really like. He should read The Jungle from Upton Sinclare. He’ll quickly find out that there never existed this magical fairyland where once upon a time unicorns frollicked in rainbows with lepercauns.
A word, relative to the phase “as though slower runners could be made to run faster by strapping burdens on the swift”. In one of the rich guy’s favorite games, namely golf, there is frequently a handicap to even things up for the lesser-skilled players. Handicaps are fine when it’s for fun, but not so much when you are serious, like when big money is involved.
Someone as brilliant as Mr Gouette must be worth billions — what with his vast income from his stock pickings. Oh wait. His “fortune” actually comes from selling strings of words.
I have a business plan that can create up to 125 million business owners in three years. However, the plan would require several professionals working together to bring the plan to fruition. The plan would only require a very very small financial investment.