“In an environment where everyone seems to be increasingly worried about the divide between the 1% and the 99%, our central bank has designed and implemented a policy that is explicitly rewarding the 1% to the detriment of savers and retirees. It is the rich who have assets and the poor who have liabilities.” – John Mauldin
Financial repression – the Fed pushing interest rates down to extremely low levels has been punishing savers and retirees. The main beneficiaries are the banks, who can borrow at close to zero and lend out at significantly higher rates, financially strong corporations, who can also borrow at very low rates, and the well-off, who can invest in the equity and real estate markets. The markets have been driven higher by the low interest rate policy and quantitative easing (creation of bank reserves by the Fed in order to purchase Treasury and mortgage debt). The working poor and middle class still pay rather high interest rates on credit card loans, auto loans and even student loans. Some in the middle and upper middle class have been able to refinance or upgrade their housing from these lower rates. But on balance the wealth effect benefits are going to the already well off, while unemployment remains high, and workers’ wages are at best stagnant in real terms.