The Central Banks Face Unwelcome Realities: Their Policies Boosted Wealth Inequality and Failed to Generate “Growth”

Take a quick glance at these charts of the Federal Reserve balance sheet and bank credit in the U.S. Notice what happened to bank credit after the Fed “tapered” and stopped expanding its balance sheet?

Bank credit exploded higher:

Now look at corporate profits:

Once the Fed ended its $3.7 trillion “experiment” of vastly expanding its money-creation and bond-buying in early 2014, what happened to bank credit? Bank credit had expanded by a bit over $1 trillion in the early years of the Fed’s quantitative easing, but it really took off after QE3 ended, soaring roughly $2 trillion.

This was the policy goal all along: the Fed would do the heavy lifting to keep credit and the financial markets from imploding, and eventually private-sector credit would expand enough to fuel a self-sustaining recovery.

While measures of employment and production have lofted higher, productivity, profits and wages for the bottom 95% have all stagnated. Is it coincidental than corporate profits began weakening once the Fed’s QE3 ended? Perhaps.

How about the stagnation of household median income during the Fed’s expansion and the rise of private bank credit from 2014 to the present? Was that also a coincidence?

If the economy was expanding smartly as the Fed was goosing credit higher, it certainly wasn’t trickling down to households.

What’s happening beneath the happy-happy surface is that the returns on expanding credit are diminishing rapidly. The Fed’s QE “free money for financiers” never did “trickle down” to the bottom 95%, and the enormous expansion of bank credit is no longer driving corporate profits higher.

There are other factors at work, of course; a global slowdown in trade, for example, a rise in energy costs and a stronger US dollar. All of these impact credit, profits and the share of GDP flowing to labor in wages, salaries and benefits.

Whatever the causes, the reality is that the positive results of credit expansion have reached the top of the S-curve and are now declining. Expanding credit, via central bank monetary policy or private-sector bank credit, is no longer boosting profits or wages.

As noted yesterday in The Central Banks Pull Back: Now It’s Up to Fiscal Policy to “Save the World”, even the cheerleaders of central bank gimmickry now admit QE enriched the rich and impoverished everone else.

So what happens as other central banks taper their expansion? It’s unlikely to be a positive for private-sector economies stagnating despite rapid expansion of bank credit.

And what happens if central banks unleash new torrents of cash? If the returns on new credit have plummeted, rapid expansion by central banks may well hasten the slide down the S-curve– the opposite of what conventional economists expect.

Rather than be seen to be further enriching the rich, central banks will start closing the “free money for financiers” spigots. If the returns on central bank “free money for financiers” are diminishing rapidly while public anger at rising wealth inequality is heating up, why put the central bank’s credibility and political independence on the line for a policy that has visibly failed to benefit Main Street?

We discuss these trends and much more about the economy in My podcast with X22: The Central Bankers Are Going To Shutoff The Spigot And The Economy Will Rollover.

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Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

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  • WillDippel

    Here is an article that looks at who the Federal Reserve blamed for the post-Great Recession unemployment problem:

    http://viableopposition.blogspot.ca/2017/02/the-federal-reserve-blaming-unemployed.html

    It’s interesting to note that they placed no blame on themselves and their less than successful monetary policies.

  • Black Swan

    ” Our Banking system only allows money to be created as a debt. The Banker creates the money you borrow as a deposit to your checking account. He is charging you interest on money he creates out of nothing. It is designed to transfer wealth from those who work to those who have a right to make money out of nothing.” Eustace Mullens: Secrets Of The Federal Reserve

  • TimeToWakeUPAmerica

    The AMERICAN PEOPLE will face “unwelcome realities” IF they don’t RE-EDUCATE THEMSELVES, soon.

    Look. Folks, there is something FAR MORE HORRIFYING (POSSIBLY) IN AMERICA’S FUTURE, than just another “Great Depression”, brought on by VERY CALCULATING Western International Central (predominantly “Jew”-ish) BANKERS. IT’S CALLED ~ GENOCIDE. SPECIFICALLY, WHITE GENOCIDE.

    LIES, LIES, and MORE LIES. THAT IS ~ ALL! ~ WE GET FROM THE SO-CALLED “ELITES” AND THEIR MINIONS IN THE MSM (Mainstream Media) and the ‘DISTRICT’ OF CRIMINALS (D.C.)

    Oh, yeah. They LIE about MANY, MANY THINGS. Who controls the DSM (Deadstream Media)? Who
    controls Hollywood? Who controls the Western International Central Banking/Finance System (BIS/IMF/World Bank/ECB/”Federal” “Reserve”/SWIFT payment system)? Once you have the answers to THOSE questions, you’ll be well on your way to a MUCH better comprehension of the REALITY of the
    world we live in. (Americans have been LIED TO about MANY, MANY THINGS. For example, the JFK Assassination. 9/11. The so-called “Holocaust” of the claimed “6 million”. The REALLY HUGE! LIE, is the one about the so-called “Russian” “Revolution” being a spontaneous, RUSSIAN uprising! (LOL!) In reality, the so-called “Russian” “Revolution” was BOTH FINANCED ~ AND CARRIED OUT ~ BY FREEMASONIC “JEWS”. Lenin and Trotsky (born Lev Bronstein) were both FREEMASONIC
    (COMMUNIST) “Jews”. They received their financing from FREEMASONIC (ZIONIST) “Jews” ~ Rothschild-agents, Jacob Schiff, and Paul and Max Warburg, among others. Upwards of 82% of the new “Bolshevik” government in Russia, after 1917 was comprised of “Jews”, many from the Lower East
    Side of Manhattan. Between 1917 and 1953, according to Aleksandr Solzhenitsyn, some 66 MILLION Russian Orthodox Christian Peasants were SLAUGHTERED by these “Jews”. Yet, somehow, the claimed “6 million” by the “Jews” is a “holocaust”. But, hey, don’t take MY word for it. Read: UNDER THE SIGN OF THE SCORPION, by Juri Lina (3rd edition, 592 pages). This book is MY MOST PRIZED POSSESSION, AND, IF ENOUGH AMERICANS WOULD JUST USE THE GRAY MATTER BETWEEN THEIR EARS AND READ IT ~ AMERICA COULD POSSIBLY BE SAVED FROM A SIMILAR FATE. The so-called “New” World Order, is actually the “Jew” World Order. People had better get savvy to it.

  • olde reb

    The Federal embezzles every dollar of deficit spending with the FRBNY’s exclusive handling of the accounts of auctioned Treasury security Ref. 31 CFR 375.3. Audits of the Fed are in accordance with guidelines set by the BOG. These accounts are client (bank) accounts [not operational accounts] and have never been audited.

    https://www.scribd.com/doc/153024003/Amended-Complaint-Federal-Reserve-whistleblower