My ‘Wealth Disparity Monitor’: QTs, Rate Hikes, Stock and Bond Falls Reduce America’s Outrageous Wealth Disparity

The wealth of the “top 0.1%” falls by $12 million per household; the wealth of the “bottom 50%”, who have almost nothing, increases.

By Wolf Richter for WOLF STREET.

The Fed, in its new publication of data on the distribution of wealth in the United States, has divided its classic category of the “Top 1%” into two new categories: the “Top 0.1%” and the “Remaining 1%” . And then there are the three classic categories of wealth or lack thereof: the richest 2% to 10%; the next 40%; and the “bottom 50%”.

The results of the splitting of the 0.1% are shocking – although we’ve known it all along: just how richer the “top 0.1%” are than even the “remaining 1%”, and what kind outrageous gift they received Fed money printing and interest rate crackdowns. While the “bottom 50%” have almost no wealth.

QT and Fed rate hikes reduce huge wealth disparity.

The new version is for the second quarter, when the stock market and bond market selloff was in full swing. The sale hit the total wealth (assets minus debt) of the “Top 0.1%” the most, as they hold the most stocks and bonds, and these were the hardest hit: the “Top 0.1%” lost $12 million in wealth on average. household, compared to the end of 2021. And the incredibly huge and mind-boggling wealth disparity in America has actually visibly diminished.

QE ended in early 2022. The Fed started raising rates in March. QT started in June. Right now, interest rates have gone up, bond yields have skyrocketed, and bond prices have fallen. The Nasdaq began to fall in late November. The S&P 500 index began to decline at the start of this year. Looking at Q2, at the end of June, the S&P 500 index was down 24%.

And indeed the reversal of QE and the Fed’s interest rate crackdown deflates the bubble of everything and thus some of the horrible wealth disparity that QE and the interest rate crackdown had so much aggravated.

So here is the average wealth (assets minus debts) per household, by wealth category in Q2 2022, and how much it has changed since the end of 2021 (in bold). Note the gain of the bottom 50%:

  • “Top” 0.1% “(red in chart below): $133.8 million (-$12 million, -8.2%)
  • “Remaining 1%” (purple): $19.8 million (-$2.0 million, -9.1%)
  • The 2% to 10% (yellow): $4.4 million (-$253,000, -5.5%)
  • “Next 40%” (purple): $768,000 (-$16,500; -2.1%)
  • “Bottom 50%” (not shown in chart): $69,100 (+$10,500; +15.5%).

The “bottom 50%” of households do not appear on the graph below because they have so little, and much of what little they have is durable goods, such as cars, some real estate capital and pension rights. They own almost no stocks or bonds, directly or indirectly. But their net worth actually went from tiny to a little less tiny! Glory!

So here it is, my Wealth Disparity Monitor. It shows wealth (assets minus debts) in dollars, per average household for each category. The lower green line is the average household wealth of the wealthiest part of the middle class, people below the top 10% and above the bottom 50%, which is an indictment of the wealth distribution in America :

Main Beneficiaries of QE and Rate Clamping: “The 0.1%”

The explosion of household wealth of the “Top 0.1%” through 2021 (red line) shows that they have been the primary beneficiaries of Fed policies since March 2020. These policies were designed to inflate asset prices, and only asset owners have benefited. . The more assets they held, the more they benefited. And those who already held the most assets benefited the most.

From Q2 2020, the start of the Fed’s crazy QE and interest rate crackdown, through the end of 2021, 0.1% average households gained $47 million in wealth!

It was an obscene gift the Fed gave to this small number of households for a monstrous increase in their wealth, and for an exponential increase in the already ridiculous wealth disparity to the rest of the households, even the “remaining 1%”. It is also the greatest economic injustice committed in recent US history in such a short time.

These monetary policies are largely responsible for the worst inflation in 4 decades which eats away at the “bottom 50%” of households because they have so little and spend all their money on necessities.

In the second quarter, households in the “Top 0.1%” gave up $12 million of the $47 million in gains they had made since March 2020. So the Fed has a long way to go with its policies. of tightening before this wealth disparity reverts to something that doesn’t tear American society apart.

Wealth disparity between “the 0.1%” and “the 1%”

The wealth disparity, even at the top, is simply staggering. As we’ve long suspected, it’s not the 1% who get all the benefits; it is the tiny number of households that make up the top 0.1%: QE and the repression of interest rates since the financial crisis, and in particular since March 2020, have simply exploded the gap of wealth between “the 0.1%” and the “remaining 1%.

The effects of Fed tightening are now beginning to reduce a small part of this disparity; and the path is long:

My Wealth Disparity Monitor is a quarterly bulletin on the effects of the Fed’s monetary policies. The official rationale for QE and interest rate suppression is the well-known but dubious “wealth effect” which is the monetary equivalent of trickle down economics, where the Fed tries to make the already rich much richer rich by inflating asset prices with QE and interest rate repression. , based on the doctrine that these households will then spend some of this newly acquired wealth, which will then trickle down….

What we got instead of the wealth trickle is a huge bout of inflation, global inflation, as central banks around the world have pursued similar policies of interest rate suppression and QE.

Now the Fed and other central banks are backtracking furiously, and as the tightening progresses there will be more progress in reducing the disastrous wealth disparity.

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Edward N. Arrington