Monday, August 19, 2013

Money printing created financial wealth, impoverished the working class

For investors, Bernanke comes out very well as the man who saved the financial system. Why did we have a financial crisis in the first place? Because the central bankers, mostly the Fed in the US but also the Bank of England and incidentally, also in Canada and Australia, they paid no attention to excessive credit growth, and so you end up with an over-leveraged system and with boundless speculation in financial assets.

Then the crisis happens and they print money, and everybody applauds. Of course, they applaud the funds manager because the water level in the bathtub has increased by money printing. The asset values of portfolios go up and the fees fund managers earn also go up. So they’re all very happy.

But the man on the street, he’s a little bit less happy because his wage is going up less than the cost of living increases. In real terms, he’s losing out. That’s why, if you look at, say, corporate profits, they are extremely elevated in the United States as a percent of the economy.

On the other hand, wages and salaries as a percent of the economy are at record lows. So you have, essentially, through money printing, created financial wealth and impoverished the working class, like you and me.