Garrett Harris 3:30 p.m., April 17
American households ailing; Wall Street rejoices
Federal Reserve will keep interest rates low, harming family savers
A new set of statistics plus an action by the central bank, (Federal Reserve) dramatically showed today (Sept. 17) why Wall Street is feasting off Main Street's pain.
The Census Bureau announced that median household income, adjusted for inflation, is down 9% from 1999. The inflation-adjusted median has been flat since the late 1980s.
On the same day, the Federal Reserve announced that it would keep short term interest rates for banks close to zero, and continue purchasing bonds at the staggering rate of $85 billion a month to bring long rates down. The stock market, which had been moderately down, shot up on the Fed news, with the major indexes up around 1% or more and the Standard & Poor's 500 hitting an all-time record.
Since early 2009, the Fed, by keeping interest rates at record low levels, has flooded the system with easy money and credit. This has done very little for the economy (as the Fed admitted today), but stocks have far more than doubled.
The income gap between the top 1% and bottom 99% is now the widest it has been in almost a century -- the days of the Robber Barons. As long as the economy remains weak and unemployment high, the Fed intends to keep printing money, to Wall Street's delight.
The banks pay almost zero for short-term money and the Fed said today this will continue. Thus, interest rates on savings accounts are extremely low -- one of multiple reasons median incomes remain down. Savers are punished and speculators rewarded. Banks can borrow from the Fed for almost nothing and gamble with the funds any way they like.
(Full disclosure. I am still buying stocks. Equities have gone from around 10% of my portfolio in the early 2000s to almost 50%. Generally, I only buy blue chip stocks with yields of 3.5% or more, preferably more than 4%.)