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View Full Version : Economics Does QE exacerbate income inequality?


banyon
08-14-2011, 10:01 AM
Quantitative easing 'is good for the rich, bad for the poor'

As the Bank of England prepares to vote on quantitative easing, a report argues the extra cash 'exacerbates already extreme income inequality'

http://static.guim.co.uk/sys-images/Guardian/Pix/pictures/2011/8/12/1313176335029/Cleaning-up-after-overnig-007.jpg

Cleaning up after overnight rioting and looting

Quantitative easing (QE) the Bank of England's recession-busting policy of buying up billions of pounds of bonds may have contributed to social unrest by exacerbating inequality, according to one City economist.

As the Bank of England considers unleashing a fresh round of QE, Dhaval Joshi, of BCA Research, argues the approach of creating electronic money pushes up share prices and profits without feeding through to wages.

"The evidence suggests that QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it," Joshi says in a new report.

He points out that real wages adjusted for inflation have fallen in both the US and UK, where QE has been a key tool for boosting growth. In Germany, meanwhile, where there has been no quantitative easing, real wages have risen.

As the Bank waded into the financial markets to spend its 200bn of newly created money, mostly on government bonds, the price of many assets, including shares and commodities such as oil, was driven up.

That helped to boost companies' revenues, but Joshi argues that with the labour market remaining weak, employees have had little hope of bidding up their wages. "The shocking thing is, two years into an ostensible recovery, [UK] workers are actually earning less than at the depth of the recession. Real wages and salaries have fallen by 4bn. Profits are up by 11bn. The spoils of the recovery have been shared in the most unequal of ways."

Joshi adds that this also helps to explain why sales of high-end luxury goods have continued to soar, while many consumers have been forced to tighten their belts.

"High-income earners are more exposed to profits as owners of businesses or shareholders. Low-income earners are dependent on wages," he says.

Joshi's contribution is the latest salvo in a furious row among economists about the effectiveness of QE. Some, including Danny Gabay of consultancy Fathom, have argued that the electronically created money would have been better invested in housing, instead of disappearing into the crisis-hit banking sector.

Adam Posen, the US economist on the Bank's monetary policy committee, has repeatedly voted for a new round of QE, urging his colleagues to agree to spend another 50bn. This month's meeting of the MPC will reveal whether any other members joined him in voting for what the Americans are calling "QEII".


http://www.guardian.co.uk/business/2011/aug/14/quantitative-easing-riots

BucEyedPea
08-14-2011, 10:03 AM
I can only see the title. I will answer to that: YES! It favors the rich.

banyon
08-14-2011, 10:05 AM
Thank you for putting me back on fake ignore.

banyon
08-14-2011, 10:07 AM
Seriously though, I will be interested to see if this report is made public anywhere. I looked online at BCA research and I think you have to sign up($).

Demographically speaking, I think it's becoming very easy to see that the people receiving the QE benefits (increased reserves/liquidity/financial insurance) are markedly different than those suffering its ill effects (inflation).

petegz28
08-14-2011, 11:22 AM
Yes it hurts the poor. It depreciates the currency in which one is paid. I didn't like the idea of QE to begin with. It's good for Wall St. but bad for Main St.

suzzer99
08-14-2011, 11:32 AM
But those are the job creators? How could helping them be bad for the poor?

petegz28
08-14-2011, 11:33 AM
But those are the job creators? How could helping them be bad for the poor?

I hope this is a sarcastic remark? It hurts the poor merely by depreciating the currency thus you see things like food and gas go higher.

petegz28
08-14-2011, 11:40 AM
But those are the job creators? How could helping them be bad for the poor?

Let me elaborate a little more....QE has meant more in profits for international companies particularly, but there is still no incentive to re-invest that capital back into our country. There needs to be some major economic reforms along with things like QE. These short term band-aids aren't going to fix anything.

HonestChieffan
08-14-2011, 01:54 PM
I hope this is a sarcastic remark? It hurts the poor merely by depreciating the currency thus you see things like food and gas go higher.

Inflation hits everyone

BucEyedPea
08-14-2011, 02:23 PM
Inflation hits everyone

But hurts the middle-class, elderly and poor the hardest.

HonestChieffan
08-14-2011, 02:38 PM
But hurts the middle-class, elderly and poor the hardest.

No, it hurts everyone. There is no need to impose your belief that a rich person is somehow hurt less. It hits everyone.

banyon
08-14-2011, 03:07 PM
No, it hurts everyone. There is no need to impose your belief that a rich person is somehow hurt less. It hits everyone.

Did you read the article?

Because they explain why it might actually benefit the rich and not hurt them.

petegz28
08-14-2011, 03:33 PM
Inflation hits everyone

Yes but it hits the lower incomes harder.

KC native
08-14-2011, 04:35 PM
This is kind of a duh conclusion. QE puts money in the hands of the banks who then put it into the equity markets and we know who benefits from inflated equity markets.