Trader Thomas Lee works on the floor of the New York Stock Exchange, Feb. 28, 2020. (AP Photo/Richard Drew)
When Federal Reserve Chairman Jerome Powell talked recently about his plans to visit a homeless camp near the federal building, it got the attention of billionaire fund manager Stan Druckenmiller.
“I don’t think there has been a greater engine of inequality than the Federal Reserve Bank of the United States in the last 11 years so hearing the Chairman (Powell) talking about visiting homeless shelters is very rich indeed…” Druckenmiller said while speaking to The USC Marshall Center for Investment Studies’ Student Investment Fund Annual Meeting on a Zoom call.
The Federal Reserve has earned kudos for quantitative easing (QE) or money printing since the start of the covid-19 pandemic, for helping to stabilize the economy, keep housing prices from tanking and for supporting the stock market. But those successes have obscured the impact the Fed’s ultra-low interest rates and bond-buying sprees are having on economic inequality, ProPublica reported.
“Longstanding inequality in the U.S. has been exacerbated by the Fed’s role in touching off a multitrillion-dollar boom in stock markets — and stock ownership is heavily skewed toward the wealthiest Americans,” Allan Sloan and Cezary Podkul wrote for ProPublica.
Druckenmiller is the former chairman and president of Duquesne Capital, which he founded in 1981. When he closed the fund in 2010, it had $12 billion-plus in assets.
The people that benefit from money printing are rich people who know how to navigate the market, Druckenmiller said. “I just had the best year I’ve had in 15 years last year. Everyone wealthy I know is making a fortune and why are we making it? Because this guy is printing money like there’s no tomorrow. The kids in Harlem in my opinion are not benefiting from money printing but Stan Druckenmiller and other wealthy people are.”
We should stop thinking of the stock market as a barometer of national prosperity, Michael Steinberger wrote in 2020 for the New York Times. “Maybe it served that function in the past, but it doesn’t now. Instead, the market has become an emblem and engine of American inequality. In that sense, its performance in recent months reflects our reality all too well.”
Druckenmiller said he’s betting on inflation, and “inflation is going to hurt poor people a lot more than rich people.”
Inflation in the U.S. has averaged around 3.3 percent from 1914 until 2019 and it has averaged about 3.7 percent for about the past 60 years.
“For me, the asset bubble which is blowing up into unbelievable proportions will bust before the inflation ever really manifests itself,” Druckenmiller predicted. “That’s what happened with housing in ’08-’09. It never really got to the inflation because the asset bubble burst, not dissimilar to what happened in ’29.”
Inflationary busts don’t happen because inflation is too close to zero or 1.5 instead of 2, Druckenmiller said. “We’ve had them because we’ve had a tremendous asset bubble that happened here in ’29. It happened to Japan in ’90 and obviously, it happened in the Great Financial Crisis. There is no one, no group that will get hurt more by a bust than the poor. They will be first in line to get screwed, trust me.”
The economic effects of quantitative easing eventually dissipate, according to researchers at the Bank for International Settlements, a Switzerland-based institution that acts as a central bank for central banks, ProPublica reported. Quantitative easing has more success boosting stock prices than boosting economic growth, The BIS concluded in a 2017 study. Over time, the economic impact trended toward zero while stocks saw a “significant and persistent positive impact,” the researchers found.
And yet central bankers including Treasury Secretary Janet Yellen, “a long defender and enabler of these very policies, keep virtual signaling about the plight of inequality, ignoring any plea to confront the obvious,” wrote Sven Henrich, the founder and the lead market strategist for NorthmanTrader, in Investing.com.
Henrich suggests Americans should increasingly question the role of the Fed and its impact on society. “It’s not normal, nor should it be, that the economy keeps running from bust to bust to bust and requires ever more debt and intervention to ‘save it’ from the fall out of the asset bubbles the Fed has propagated time and time again,” Henrich wrote.
Read more on Atlanta Federal Reserve President Raphael Bostic
