Central Bank Economists: Bad Central Bank Policy Is INCREASING Inequality

While the leaders of the Fed and other central banks claim that their extraordinary monetary policies haven’t significantly increased inequality, economists with the world’s most prestigious financial agency, the Bank of International Settlements – known as “the Central Banks’ Central Bank” – just released a report showing otherwise.

BIS notes:

Our simulation suggests that wealth inequality has risen since the Great Financial Crisis. While low interest rates and rising bond prices have had a negligible impact on wealth inequality, rising equity prices have been a key driver of inequality …. Monetary policy may have added to inequality to the extent that it has boosted equity prices.


Inequality is back in the international economic policy debate. Evidence of a growing dispersion of income and wealth within major advanced and emerging market economies (EMEs) has sparked discussions about its economic consequences. Although there is no consensus on the relationship between inequality and growth, there are concerns that rising inequality may become a serious economic headwind. [Right.]


Moreover, the faster rise in remuneration at the very top of the income distribution relative to wage growth in the lower percentiles has been linked both to the rapid growth of the financial sector since the 1980s [correct] and to changes in the social norms that contribute to the determination of executive pay (Piketty (2014)).


The share of securities holdings, equity in particular, tends to be even higher at the top 5% or 1% of the distribution. [Obviously.]

Conversely, housing accounts for a higher share in the lowest net wealth quintile, for which low net wealth is in many cases a reflection of high levels of mortgage debt. In a number of cases, net wealth is negative, suggesting that liabilities, in the form of mortgage, consumer and other debt, exceed assets.


Unconventional monetary policies might have had the most significant effects on the dynamics of wealth inequality through changes in equity returns and house prices. The evidence suggests that unconventional policies had a relatively strong and immediate effect on equity prices (see eg Rogers et al (2014)). As investors reshuffle their portfolios away from assets being purchased by the central bank towards other, potentially riskier, assets, the equity risk premium should decline, boosting equity prices further. And a low interest rate environment is likely to have encouraged a search for yield.


Monetary policy may affect household wealth through different channels. Interest rate changes directly affect the valuation of both financial assets (eg equities and bonds) and real estate as well as the cost of leverage. Conventional easing of monetary policy by lowering short-term interest rates tends to boost asset prices. This works through a lowering of the discount rates applied to future income flows from these assets, and possibly by raising profit expectations and/or reducing risk premia.

Indeed, boosting stock prices has been the Fed and other central banks’ main focus.

In addition, it has been thoroughly documented that quantitative easing.    It’s been known for some time that quantitative easing (QE) increases inequality (and see this and this.)  Many economists have said that QE quantitative easing benefits the rich, and hurts the little guy.   3 academic studies – and the architect of Japan’s quantitative easing program – all say that QE isn’t helping the American economy.

Negative interest rates – another increasingly widespread form of extraordinary monetary policy – may increase inequality as well. For example, economist Katie Evans notes:

Negative interest rates could increase inequality. While the experiences of countries who have tried negative rates suggest it wouldn’t lead to a boom in mortgage lending, the cost of borrowing would remain at rock bottom for those who could afford to do so. Those with substantial incomes and existing assets could borrow cheaply and invest in assets like property. Those on lower incomes, meanwhile, would find it even harder to save for a deposit and see house prices rising further out of reach.

Indeed, negative interest rates motivate consumers to hoard cash, rather than spend or invest it, putting in even further behind those who have enough to freely invest.

Other recent central bank policy is also a main driver of inequality.  And see this.

Postscript: Surprisingly – given the arcane nature of central bank policy – the natives are getting restless.

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  • Don Robertson

    Of course central bank policy is increasing fiscal inequality. ZIRP hurts savers. For the middle class, the only sure path toward financial security is to become a saver, not the stock markets, not any real estate investment. and not spending more on education. Put your money in the bank regardless the interest rate being paid.

    Apparently the central bank, the FED here in the U.S., felt for a time it was more important to build the strength of American banks, than it was to continue to allow the middle class to expand.

    Interest rates are ridiculously low. The demand for borrowed money really has never been higher. Interest rates paid depositors, were we to have a market rate set by supply and demand for dollars, should be well in excess of 15% right now.

    Savers and small businesses are the bedrock of a strong middle class-driven economy. And small businesses are savers, if they are successful small businesses.

    It is the savers in our economy who are the real drivers of sustainable economic expansion. Savers will typically view a portion of the interest they earn as disposable income. This money is spent without debt being created, spent in both good times and bad times.

    FED policy has shut off the earned-interest spigot. And as a result savers spend nothing today. They are scared to death of what tomorrow will bring.

    Negative interest rates will be the nightmare on Main Street come true for more than just savers.

    The FED needs to aggressively raise interest rates, just as Paul Volker did when he was FED chairman. Such a move will not immediately spur economic recovery. It will however, set-up the scenario where economic recovery can occur over time, as the amount of debt is reduced and the strength of middle savers in normalized.

    More debt cannot cure too much debt. Only rising interest rates can cure too much debt. If the FED wants to experiment, then it should seriously consider taxing debt, both the debt of the borrower and the debt of the lender. That is how too much debt can be cured.

    • Hortense

      Don’t think “they” want recovery. “They” seem absolutely to want war though..

      • Don Robertson

        No. Obviously, a recovery has been secondary in the FED’s thinking for the last seven years.

        Now though, rates are rising. This is the real deal coming. China has been belled and de-clawed like a cat. And the age of Obama is rapidly coming to a close.

  • Mar 7, 2016 Russia Is Maneuvering To Control The Global Oil Supply To Bypass The US Dollar

    Are Greek banks going to charge people to return the 500 euro note. Retail sales party in Australia is over, the trend is now down. Consumer credit the weakest since 2013. Baltic Dry Index is now at 354. Peter Schiff reports, US in recession, QE 4 coming, real estate bubble ready to pop. BIS warns that negative interest rates are going impact the global economies in a negative way. Russia strategically positioning itself to control the global oil supply which will bypass the dollar.


  • paul

    So hilarious – so finally a major bank admits that current policies MAY increase inequality a tad and that MAY not be a good thing!!!

  • March 8, 2016 The Financial System Is A Larger Threat Than Terrorism

    In the 21st century Americans have been distracted by the hyper-expensive “war on terror.” Trillions of dollars have been added to the taxpayers’ burden and many billions of dollars in profits to the military/security complex in order to combat insignificant foreign “threats,” such as the Taliban, that remain undefeated after 15 years. All this time the financial system, working hand-in-hand with policy makers, has done more damage to Americans than terrorists could possibly inflict.


  • hvaiallverden

    Its, in this times that reality have dawned, even in the halls of canapees and shampiss, that the streets outside may one day become Their greatest enemy, when totches flows and lights the streets as rivers of light, is litt.
    And the hammering of people building gallows and guiljotines.
    Ladys and Gentlemen.
    Lett us not talk falslly now, the time is coming when something fundamentall have to be changed.
    And then the world can rise from the ashes of the bonkers religion called Kenyiasinism or more precise, utter bullshit, camuflaged to legalise plundering, by the mega corps and even bigger banks.

    Whom have bought up everything, since the Gov. alwed them to do that, aka bailouts and the massive plundering of the peoples welth and money.
    Pulverised the economy to meer dust and on topp of it whines about their f…. Tax.

    But due repect to those that even when its basicly to late, is able to recognise and at least try do deal with it, and is finaly reatching The problem, the false perspetions as Austeretys, witch is direct stealing peoples money to fuel some few, in this ehhh….. trubled times, but our problems isnt even mentioned.
    The rotten lie about Inflation just One ex of plenty.

    One last item, if anything should be done, is to simply wipe the to bigg to fail out of existence, if they cant deal with this then wack em out, because there is an underforest, aka the main street to take up the rest.
    Socialising private debt is plundering, semanticl oral based barr exercises dont alter the facts.
    And money, yea, tsk, tsk, tsk.
    Is it many years ago we wrote about this, huh, and the monopoly analogy stand stil, and the intruduction of toilett paper and an carboard penn to stamp it.

    And we are conspiracy nutts, well, hehe, this time il love it.

    The third is simply earze all debt, and rearange the sentrall banks to bacome nationlaised and runn as poblic banks with an policy to the benefit of us all.
    Bombing other mans land is austreretys in its moust hiddeous way perivable and is the equvivalence of ripping bonds to keep you warm in the atric winters.
    Its trowing money out into the air.

    This USA is you choices and Trump knows it, somehow the feild must be deleveraged.
    And someone will loose.
    This time, lett the topp of the scamchain gett their fare sheer of it, or WE will take it.


  • Bob

    All the actions taken by the US government and the Federal Reserve are designed and engineered to help the rich, going back at least to the creation of the Federal Reserve itself. QE and related bailouts are just methods employed to protect the assets of the wealthy and rig returns in their favor. Lobbyist money, congressional insider trading, direct bribery, revolving door cronyism, and other forms of capture see to it financial crimes by oligarchs are not punished. Wall St and DC are partners in financial crime. They call it protecting national security. When we find out about it and complain, we are called terrorists. This is not something that just happened yesterday.