QE has made the very rich even richer

COMMENT

Forget the so-called 1% vilified by the likes of the Occupy and Anonymous movements. It turns out that the bulk of the world’s wealth is in the hands of just 0.7% of the population. And for those who suspect that quantitative easing (QE) is more about propping up asset prices than reinvigorating the real economy where things get made and sold, the Credit Suisse Global Wealth Report makes for interesting reading.

Every year the Swiss bank tries to estimate the financial and physical assets of 4.7-billion people, including real estate but minus debts, to produce its report. The latest edition postulates that 34-million people control $112.9-trillion of assets, or 45.2% of the world’s total riches. At constant exchange rates, global wealth increased by $13-trillion in the year to mid-2015, and, although China’s middle class is now bigger than that of the United States – 109-million Chinese and 92-million Americans – the US benefited the most from the rise in worldwide prosperity to the tune of $4.6-trillion. China’s wealth increased by $1.5-trillion.

Moreover, Credit Suisse believes inequality has risen since the 2008 credit crisis, with the growth in middle-class wealth slower than the increase enjoyed at the top of the pyramid.

Our estimates suggest that the lower half of the global population collectively owns less than 1% of global wealth, whereas the richest 10% of adults own 88% of all wealth and the top 1% account for half of all assets in the world.

And because those at the top have more of their assets set aside as financial wealth – equities and other securities – financial assets have become a bigger part of the global wealth pie since the crisis.

So what does this mean for monetary policy and the global economy, which in large part depends on consumers staying confident enough to deliver growth? Central banks have pumped $5-trillion into the global economy through their various QE programmes, and the world still seems at risk of tumbling back into recession.

Here’s what the Bank of England had to say about quantitative easing a year ago: “We find no statistically significant evidence from either approach that those banks who received increased deposits from QE lent more … Our results do not preclude a bank lending channel, but if the effect were very powerful it seems unlikely there would be no evidence of it in our tests.”

Although QE hasn’t boosted the availability of loans for business to invest in their growth, it has helped goose global equity market values, which have doubled since the end of 2008, even after a hiccup in the ­middle of this year.

So QE has done part of its job, generating asset-price inflation even though retail prices remain stagnant and the threat of deflation remains alive, as the 0.1% drop in annual September British consumer prices reported this week shows.

Without that boost to financial markets and stock prices, who knows how much gloomier the global outlook might be? But as QE’s efficacy appears weaker with every new round of stimulus, it’s time for governments to do more to resuscitate the nonfinancial economy. – © Bloomberg

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