Easy Money Policy Favors the Rich

We are matching spark and flame
Caught in endless repetition
Life for life, we'll be the same
I must leave before you burn me
--The Fixx

This observation is consistent with something that we have noted frequently on these pages. Quantitative easing and other inventionary monetary policy favor the rich. The rich are the primary owners of stocks and other risky financial securities. Any policy geared toward boosting the prices of these risky assets, as QE purports to do, disproportionately benefits the wealthy.

Moreover, the decreased savings and increased borrowing promoted by easy credit policies are highly correlated to corporate profits. As interest rates are forced lower, people spend and borrow more, thus transferring economic resources to corporate balance sheets. Shareholders are the recipients of this wealth transfer.

Finally, interventions that ease monetary conditions  always increase when asset prices decline. Owners of financial securities come to learn that their downside is limited because authorities will bail them out in the event of systemic decline. This moral hazard emboldens the rich to own even more stocks--because perceived risk has been artificially reduced by policy-makers.

As the article suggests, if you are rich, then why would you not conclude that, with government jacking prices higher and backstopping losses, the winning strategy is to acquire as many risky financial securities as you can?

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