We were a little torn as to who should receive today’s captain obvious award of the day. For a while Atlanta Fed’s Lockhart was in the lead, who in a speech to the Rotary Club of Atlanta came up with this pearl of wisdom: "the stock market may not tell the economy’s direction." Does this mean that the efficient market hypothesis is now dead and that the Chicago School of Voodoo should hand out refunds for decades of indoctrinated lies? Nonetheless, the winner was sealed when we read about an actual paper writtedn by BCA Research’s Dhaval Joshi, which found that "Quantitative Easing is good for the rich, and bad for the poor." And there you have it: all those scrathcing their heads, confused, wondering how it is possible that QE which was supposed to make everyone richer, did not do so, have an explanation. And nobody could have possibly come up with this conclusion before: it is a true blessing that BCA decided to invest the capital and manpower into cracking this indecipherable quandary (which truth be told apparently stumped the geniuses at the Fed not once, but twice, and will continue to do so them every single time the S&P drops below 1000).
More on this mindblowing conclusion, courtesy of The Guardian:
"The evidence suggests that QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it," Joshi says in a new report.
He points out that real wages – adjusted for inflation – have fallen in both the US and UK, where QE has been a key tool for boosting growth. In Germany, meanwhile, where there has been no quantitative easing, real wages have risen.
As the Bank waded into the financial markets to spend its £200bn of newly created money, mostly on government bonds, the price of many assets, including shares and commodities such as oil, was driven up.
That helped to boost companies’ revenues, but Joshi argues that with the labour market remaining weak, employees have had little hope of bidding up their wages. "The shocking thing is, two years into an ostensible recovery, [UK] workers are actually earning less than at the depth of the recession. Real wages and salaries have fallen by £4bn. Profits are up by £11bn. The spoils of the recovery have been shared in the most unequal of ways."
Joshi adds that this also helps to explain why sales of high-end luxury goods have continued to soar, while many consumers have been forced to tighten their belts.
"High-income earners are more exposed to profits as owners of businesses or shareholders. Low-income earners are dependent on wages," he says.
Joshi’s contribution is the latest salvo in a furious row among economists about the effectiveness of QE. Some, including Danny Gabay of consultancy Fathom, have argued that the electronically created money would have been better invested in housing, instead of disappearing into the crisis-hit banking sector.
There it is: we present you today’s winner of the real men of captain obvious genius award.
As for whether this will change the behavior of central planners who know this all too well (and in fact launched QE1, 2 and so forth in its various permutations around the world precisely for this reason), we expect that the San Fran Fed will promptly release a paper confirming the tremendous contribution of QE in preventing foodstamp recipients from being well north of 100 million, and that the Fed should receive a medal of honor for keeping those on food stamps to the far more modest record number of just around 45 million.