Hey, I think we are all being very unfair to Janet Yellen.
Because most of us are richer (or not poorer) and a lot of people could be a lot poorer if not for the employment the Fed helped create with their low interest rates and bond buying.
Wealth is a Relative Concept
Rich is a relative word and you only feel rich by comparing yourself against your neighbour, which partly explains why I have been feeling exceedingly poor these days. And relative riches does bring happiness and satisfaction. Whereas being poor in an inequitable environment leads to unhappiness. https://tradehaven.net/views_commentaries/its-not-insane-but-its-unhappy-to-be-poor/
It is relative wealth and not absolute wealth that makes people happy and as the rich middle class watch the richer spiral out of their reach, the unhappiness and frustrations set in. https://tradehaven.net/market/singapore-millionaires-in-trouble-real-estate-and-the-mass-market-wealth-effect/
We have been talking about this plutonomy issue for a couple of years now. (plutonomy is a form of capitalism that is designed to make the rich who control a nation’s government and its economy—aka, the plutocrats—even richer. Citibank strategist in 2005, Ajay Kapur coined this term.) https://tradehaven.net/market/plutonomy-plutocracy-plutarchy-pluto-is-not-a-planet-anymore/
And the Fed chairwoman, Janet Yellen, is finally starting to notice after the Fed’s triennial Survey of Consumer Finances released last month.
Fed’s Yellen. http://on.wsj.com/1sxT62Z
- By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.
- After adjusting for inflation, the average income of the top 5% of households grew by 38% from 1989 to 2013. By comparison, the average real income of the other 95% of households grew less than 10%.
- The distribution of wealth is even more unequal than that of income. …The wealthiest 5% of American households held 54% of all wealth reported in the 1989 survey. Their share rose to 61% in 2010 and reached 63% in 2013. By contrast, the rest of those in the top half of the wealth distribution families that in 2013 had a net worth between $81,000 and $1.9 million held 43% of wealth in 1989 and only 36% in 2013.”
- The average net worth of the lower half of the distribution, representing 62 million households, was $11,000 in 2013. About one-fourth of these families reported zero wealth or negative net worth, and a significant fraction of those said they were ‘underwater’ on their home mortgages, owing more than the value of the home. This $11,000 average is 50% lower than the average wealth of the lower half of families in 1989, adjusted for inflation.”
- The lower half of households by wealth held just 3% of wealth in 1989 and only 1% in 2013.
Stock ownership in the US has DECLINED for the average US household despite the a sustained rise in personal wealth, that is concentrated in the hands of a few. https://tradehaven.net/market/what-is-this-america-you-are-getting-richer-secrets-to-riches/
“1/3 of Americans have less than $1,000 in savings and retirement funds (source : USA Today) which is no wonder that only 52% of Americans are vested in the stock market with the rest missing out on the current longest bull run (source : Business Insider) ?” https://tradehaven.net/market/wishing-you-a-long-long-life-a-bond-and-cpf-perspective/
You see, it is the issue of Affordability and not inflation. https://tradehaven.net/market/feeling-good-about-inflation-vis-a-vis-affordability/
Zero Interest Rates
How can anymore afford to buy a shop lot these days when Sovereign Wealth Funds are snapping them up ? Who has the borrowing power wins.
The Fed’s job is done – they have pulled the US economy out of the woods but if you are not anywhere in the picture below, chances are that you would have missed out. https://tradehaven.net/market/the-feds-job-is-done-inflated-our-way-out-of-debt/
Side Effects Of Zero Rates And Technology
But the Fed’s job is not done because what they have created is a situation of low labour participation and generally low quality jobs that will eventually be mechanised. https://tradehaven.net/market/the-changing-face-of-employment-the-lost-purpose-of-life/
Ian Bremmer has this income chart to show.
Technological advancements + growing population = low wages = low inflation
Evidenced by the 10 year bond yield super cycle.
Everywhere around the world, it is not pretty and South East Asia has the worst inequality numbers with 3 of Singapore’s neighbours sitting in the top 10 most unequal countries in the world.
No Hope For the Poor without Social Mobility
It gets worse because Social Mobility is dead these days as research shows, and the chances of a janitor’s son becoming a millionaire these days is lower than ever. http://www.bloomberg.com/news/2013-10-08/gatsby-stays-on-farm-as-income-gap-limits-u-s-social-mobility.html
Recent Developments and What to Expect
Social observers have suggested the Hong Kong protests could be motivated by the widening wealth gap (check out Hong Kong on the list above – No. 3 !). http://online.wsj.com/articles/hong-kong-protests-also-fueled-by-widening-wealth-gap-1412860304
In England, where the average property price in London is now at its widest versus the cheapening north-east, we had a march last weekend to protest wage declines. http://www.straitstimes.com/news/world/europe/story/thousands-march-london-over-wages-decline-20141018
US Vice President Biden was quoted 2 weeks ago, saying that the rich “should start to pay their fair share”.
Yellen’s remarks are perhaps the strongest out of a global leader (yes, she is more powerful than presidents to the markets) because we will not consider the Pope or the Archbishop of Canterbury. https://tradehaven.net/market/the-archbishop-and-the-pope-speaks-wealth-redistribution-ahead/
The solution is not to turn every one of the 7 billion inhabitants of the world into high income citizens because high income is a relative concept !
But rather, the availability of opportunity through peaceful means as long as the central banks are there to prevent the Bust in the Boom Bust cycle by rescuing all their favourite too big to fail institutions.
I have written about rather dire outcomes.
Bernie, being the more level headed, foresees the Piketty capital (not capital gains) tax coming, either taxing the rich or taxing the lazy. https://tradehaven.net/market/ad-hoc-commentary-a-critique-of-pikettys-global-capital-tax/
Piketty himself has been advocating a common tax for Europe (bet he hasn’t seen that inequality table above yet). http://m.dw.de/english/mobile.A-17980440-1433.html?maca=en-twitter_en_europe-4005-xml-mrss
And I get a whiff of that capital “rich” tax coming from the rhetoric we have been hearing in the press, not just by reporters and the Pope anymore, but by the politicians themselves.
It makes perfect timing with the US mid terms coming up on 4 November, this could be the trump card for the candidates, who are unfortunately sponsored by the elite 1%.
Because 90% of the population would gladly vote for the tax in any country around the world (except for France, perhaps, which is taxing at 90% already).
Anybody who wants to win the popular vote just needs the Rich Tax slogan and the time is ripe now as the world expects the millionaire population to surge by another 50% by 2019 (growth rate of 10% per annum), leaving the rest behind.
This makes the Singapore passport so valuable, doesn’t it ?