The Grandest Larceny of All Time - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 26 April 2013
The Grandest Larceny of All Time A  A  A

Gualfin, Argentina

Gold seems to be coming back fast. It rose $38 yesterday.

The feds can't keep it down.

Of course, the Fed's monetary meddling doesn't work. And it will most likely cause a financial disaster.

But the biggest scandal of today's central bank policies is that it is essentially the grandest larceny of all time.

The normal way in which wealth is distributed may not be perfect, but it is the best nature can do. People earn it. They save it. They steal it. Or they make it on investments.

Or, they just get lucky.

Normally, wealth ends up being distributed in an unplanned and uncontrolled way. People do their best; the chips fall where they may.

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But along come the central banks. They're creating a whole new type of wealth. It is not wage income. It is not the product of capital investments. It is not the result of technology or productivity increases or hard work or self-discipline, or any of the other things that lead to wealth and prosperity.

Instead, it is created by the central bank "out of thin air."

This new wealth is not like the regular kind. These chips don't fall where they may...they get pushed around first. The Fed creates new money (not more wealth...just new money). This new money goes into the banking system, pretending to have the same value as the money that people worked for. And people with good connections to the banks use this money for financial speculation.

That's what we've been watching in the financial markets for the last 4 years.

Chris Martenson:

    The central plank of Bernanke's magic recovery plan has been to get everybody back borrowing, spending, and "investing" in stocks, bonds, and other financial assets. But not equally so, as he has been instrumental in distorting the landscape towards risk assets and away from safe harbors.

    That's why a 2-year loan to the U.S. government will only net you 0.22%, a rate that is far below even the official rate of inflation. In other words, loan the U.S. government $10,000,000 (ten million) and you will receive just $22,000 per year for your efforts and lose wealth in the process because inflation reduced the value of your $10,000,000 by $130,000 per year. After the two years is up, you are up $44,000 but out $260,000, for net loss of $216,000.

    That wealth, or purchasing power, did not just vanish: It was taken by the process of inflation and transferred to someone else. But to whom did it go?
Where do the chips come to rest?

While the Fed punishes honest savers, stocks and bonds rise every time a hint of more money printing is announced. And the yachts continue to rise as long as the Fed promises more.

The result?

Pew Research tells us:
    A Rise in Wealth for the Wealthy;
    Declines for the Lower 93%

    By Richard Fry and Paul Taylor

    During the first two years of the nation's economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

    From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896. These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.

    Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

    From the end of the recession in 2009 through 2011 (the last year for which Census Bureau wealth data are available), the 8 million households in the U.S. with a net worth above $836,033 saw their aggregate wealth rise by an estimated $5.6 trillion, while the 111 million households with a net worth at or below that level saw their aggregate wealth decline by an estimated $0.6 trillion.

    Because of these differences, wealth inequality increased during the first two years of the recovery. The upper 7% of households saw their aggregate share of the nation's overall household wealth pie rise to 63% in 2011, up from 56% in 2009. On an individual household basis, the mean wealth of households in this more affluent group was almost 24 times that of those in the less affluent group in 2011.

    During the period under study, the S&P 500 rose by 34% (and has since risen by an additional 26%), while the S&P/Case-Shiller home price index fell by 5%, continuing a steep slide that began with the crash of the housing market in 2006. (Housing prices have slowly started to rebound in the past year but remain 29% below their 2006 peak.)

    The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65% of their wealth comes from financial holdings, such as stocks, bonds and 401(k) accounts, and 17% comes from their home. Among households with net worth of less than $500,000, just 33% of their wealth comes from financial assets and 50% comes from their home.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "The Grandest Larceny of All Time"


Apr 26, 2013

In short to summarize your article, more the period of economic uncertainty, it is advantage and gain for the upper 7% and disadvantage and loss for the lower 93%. So, the printed money or new money or the loan money given to the US or any country's Central banks have actually gone to the hands of the upper 7% or the affluent class and the reason for inflation, that has robbed the lower class but benefited the upper class through higher income and affordability.

I think this financial markets based economy will lead to a financial or economic catastrophe rather than real wealth generation or accumulation or savings for a larger section of the people or the 93% lower class people. The truthful toil and honest effort are punished and the wicked laughs home. Fantastic. I think the war is not going to be not inter-continental or inter-faith or between two countries but it is going to be within the country with the 93% on one side bare handed and the 7% on the other side with the weapons and ammunitions.

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