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8 Things To Know About How The Federal Reserve And Elites Rig The U.S. Economy

8 Things To Know About How The Federal Reserve And Elites Rig The U.S. Economy

Fed

The U.S. has long promoted itself as the land of opportunity, and it is exceptional in some ways, such as having the most billionaires in the world — 614 — but just seven of the 614 — 1.14 percent — are Black.

The U.S. is also exceptional in the world for having, among comparable countries, the highest level of economic inequality, the greatest per-capita health expenditures but lowest life expectancy, and one of the lowest measures in equal opportunity.

“The notion of the American Dream … is part of our essence. Yet the numbers say otherwise,” wrote economist and Columbia University Prof. Joseph E. Stiglitz in a column for Scientific American. “President Donald Trump was right in saying that the system is rigged—by those in the inherited plutocracy of which he himself is a member. And he is making it much, much worse.”

Here are eight things to know about how the Federal Reserve and elites rig the U.S. economy.

1. Fed covid-19 measures increase wealth inequality

Fed Chairman Jerome Powell said in a May news conference that extraordinary measures taken in response to the covid-19 pandemic “absolutely” do not increase wealth inequality in the U.S.

An analysis of data going back two decades shows that is absolutely wrong, Marketwatch reported. Interest-rate cuts and other stimulus measures boost stock prices, benefiting the wealthiest.


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Rates have dropped sharply on the watch of four Fed chairmen — Alan Greenspan, Ben Bernanke, Janet Yellen and Powell — and the central bank has undertaken several rounds of massive securities purchases, or quantitative easing (QE) aka. money printing. These “clearly have helped wealth explode for the top 1 percent and even the top 10 percent … while stagnating for half of the country,” Howard Gold wrote for Marketwatch.

2. The Fed artificially boosts asset values, benefiting the rich

Fed quantitative easing and low rates help the ultra-rich because they artificially boost asset values, especially for riskier investments, and allow for cheap leverage, according to an opinion piece in Fortune. “The ultra-wealthy can take advantage of record highs in the stock market while the asset-poor working class gets by on relatively stagnant hourly wages. Even risk-averse middle-class retirees are forced to buy bonds with artificially low interest rates just to make ends meet.”

3. Monopolies drive income inequality

The concentration of market power in a few companies exacerbates economic inequality and increases financial instability and debt, according to a new paper from Federal Reserve researchers.

Researchers looked at the top 5 percent of households and saw that as a benefit of shrinking competition, their net worth had grown by 186 percent from 1983 to 2016. By comparison, poorer households were forced to take on more debt just to keep up, the researchers said, according to a Business Insider report.

Redistributing wealth to poorer Americans through taxes on monopolies can help prevent financial crises and close the wealth gap, according to the paper.

4. 3 Americans have more wealth than the bottom 50 percent

Bernie Sanders was right in 2019 when he wrote in an opinion piece for the Wall Street Journal while campaigning to run for president, “The wealthiest three families now own more wealth than the bottom half of the country.”

Sen. Bernie Sanders, (I-Vt) called for an end to “corporate socialism” to resolve wealth inequality.

Politifact verified Sanders’ claim as true.

Bill Gates of Microsoft was worth $89 billion, Jeff Bezos of Amazon was worth $81.5 billion and Warren Buffett of Berkshire Hathaway was worth $78 billion at the time.

Their total wealth of $248.5 billion was higher than the wealth of the bottom 160 million Americans, at $245 billion, according to Politifact. 

Those three families “will do everything they can to block our agenda,” Sanders wrote.

5.  Escalating U.S. inequality is the result of exploitation

Today, the U.S. has replaced the open exploitation of plantation owners, who grew rich on the backs of slaves, with more insidious forms of exploitation, wrote Stiglitz, who received the Nobel prize in economics in 2001. 

“At the time of the Civil War, the market value of the slaves in the South was approximately half of the region’s total wealth, including the value of the land and the physical capital—the factories and equipment,” Stiglitz wrote for Scientific American. “The wealth of at least this part of this nation was not based on industry, innovation and commerce but rather on exploitation. Today we have replaced this open exploitation, which (has) intensified since the Reagan-Thatcher revolution of the 1980s. This exploitation, I will argue, is largely to blame for the escalating inequality in the U.S.”

The shift from a manufacturing to a service-based economy is partly to blame, Stieglitz wrote. “The service economy is a winner-takes-all system,” he said. Average wages have not improved for decades. The shift to the service sector is happening in most other advanced countries, but the inequality is so much worse in the U.S., he said.

6. The rich do so well because they own stocks

The middle class tends to invest mainly in homes, and the very rich tend to invest mainly in stocks and businesses, according to Edward N. Wolff, an economist at New York University and a leading expert on inequality.

Wolff studied wealth from 1983 to 2016 and found that “the richest 1 percent received 45 percent of the total gain in marketable wealth over the period,” Marketwatch reported. That’s because the top 1 percent of households owns 40 percent of all stocks (including in mutual funds and retirement accounts) and the top 10 percent owns 84 percent, Wolff found.

The period coincided with a global secular decline in interest rates in the early 1980s. “Lower rates drive prices higher for stocks and bonds, and as Wolff points out, ‘it’s the very wealthy that hold almost all the bonds’ as well,” Marketwatch reported.

7. The structure of the Fed values central planning over market forces determining proper interest rates

Politicians should rein in the Fed and seek greater transparency of its deliberations, methodologies, and decision-making processes, Josh Hammer and Todd J. Stein wrote in an opinion piece for Fortune. Hammer is the editor-at-large of the Daily Wire. Stein is a principal of Braeside Capital, L.P., a Dallas-based private investment partnership.

The Fed is structured as an independent agency and is funded outside the constraints of the normal congressional appropriation process, Hammer and Stein wrote. “Its inherent structure—wherein a purportedly enlightened coterie of bankers sets rates for the entire economy—necessarily values central planning over letting market forces determine proper interest rates.”

Lawmakers can at least seek to audit the internal workings of the Fed and to legislatively modify its traditional dual mandate of price stability and maximum employment to a more modest single mandate of mere price stability, they said.

“If we seek to earnestly push back against rising income inequality in America, constraining our central bank would be a natural place to start.”

8. The 400 richest U.S. families pay lower overall tax rate than middle class

The U.S. tax system is supposed to be progressive, with wealthier households paying a larger share of their income than the middle class and poor. Trump’s Tax Cuts and Jobs Act of 2017 ended that for the first time in 100 years.

The 400 richest U.S. families pay a lower overall tax rate than the middle-class, according to economists Emmanuel Saez and Gabriel Zucman.

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With federal, state and local taxes combined, those 400 ultra-wealthy households pay a total rate of about 23 percent compared with more than 24 percent for the bottom 50 percent of households, CBSNews reported in October 2019. The U.S. now “looks like the tax system of a plutocracy,” Saez and Zucman said.

Saez and Zucman of the University of California at Berkeley wrote the book, “The Triumph of Injustice” based on research on inequality. They advised Sen. Elizabeth Warren on her plan to impose a wealth tax on ultra-rich families when she was running for president.

Trump vowed that middle-class families would be helped by the tax overhaul, but experts say the wealthiest citizens the highest share of breaks. Most working-class families got minimal benefit. Saez and Zucman argue that the Tax Cuts and Jobs Act turned the tax system upside down.