The Wealth Effect And The 92%

Posted On Apr 5, 2022 By Addison Wiggin

Today we introduce another paper issued by the San Fran Fed, this one authored by Treasury Secretary Janet Yellen, who was the Fed Governor in San Fran in 2005. In it, she describes “the wealth effect” a component in the Federal Reserve’s strategy for keeping the economy afloat. The National Bureau of Economic Research (NBER) described the Fed policy like this: “The ‘wealth effect’ is the notion that when households become richer as a result of a rise in asset values, such as corporate stock prices or home values, they spend more and stimulate the broader economy.” Does it work? Depends on your point of view. Wolf Richter, from whom we borrowed the chart below, describes it as “the greatest economic injustice committed in recent US history.”In introducing his Wealth Effect Monitor, Richter points out that “since March 2020, the Fed printed $4.9 trillion and repressed short-term interest rates to near-zero in order to inflate asset prices so that the asset holders would get immensely more wealthy, in line with its doctrine of the Wealth Effect.”

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