How much has expansionary monetary policy such as QE raised inequality?

Sometimes the strands of the news flow link together as if they have been constructed into a chain. One of these at the moment concerns the way that central banks have pumped money and funds into the world economy via Quantitative Easing. This is a hot topic on its own right now as we await the European Central Bank policy announcement on Thursday and I am sure that the midnight oil was being burnt in its Frankfurt towers over the weekend. That is of course without the event that redistributed wealth last Thursday when the Swiss National Bank abandoned its Swiss Franc cap against the Euro which then saw the Swiss Franc end the week some 18% higher against the US Dollar than it started it. Happy Days for those long the Swiss Franc but unhappy days for those short it or indeed brokerages with client short it as Alpari UK bit the dust.

What about inequality?

The theme of the 1% and the 99% or rather the 0.1% and the 99.9% has haunted the credit crunch era. Furthermore the issue of how much of this has been created by central bank policy has been hotly debated. I will return to that subject in a moment but let us first examine today’s report from Oxfam on world inequality.

Oxfam steps into the fray

Some of today’s release is certainly eye-catching to say the least.

In 2014, the richest 1% of people in the world owned 48% of global wealth, leaving just 52% to be shared between the other 99% of adults on the planet. Almost all of that 52% is owned by those included in the richest 20%, leaving just
5.5% for the remaining 80% of people in the world. If this trend continues of an increasing wealth share to the richest, the top 1% will have more wealth than the remaining 99% of people in just two years, as shown on Figure 2, with the wealth share of the top 1% exceeding 50% by 2016.

There is plenty of food for thought in a statement that the world’s richest 1% are soon to own a majority of world wealth. But was it always like this? Apparently not.

Data from Credit Suisse shows that since 2010, the richest 1% of adults in the world have been increasing their share of total global wealth.

Actually if you look at the chart in the report the statement above is simultaneously true and misleading. You see if we go back to the beginning of this century the top 1% were pretty much in the position they are now and they were then hit by the credit crunch but have regained ground since. I guess that global wealth held by the top 1% is less than in the year 2000 does not make as good a headline.

However of course there is another possible scenario at play here which is that the moves such as QE are in effect an attempt by the global elite to regain their previous position and maybe even improve it as we move forwards. Indeed the ultra-rich seem to be doing just nicely out of events.

The very richest of the top 1%, the billionaires on the Forbes list, have seen their wealth accumulate even faster over this period. In 2010, the richest 80 people in the world had a net wealth of $1.3tn. By 2014, the 80 people who top the Forbes
rich list had a collective wealth of $1.9tn; an increase of $600bn in just 4 years, or 50% in nominal terms.

Of course correlation does not prove causation but it is the mother and father of thousands of conspiracy theories! Although some care is needed here as in the credit crunch era conspiracy theories have developed a habit of actually being true.

What about QE and timing?

If we look back we see that extraordinary monetary policies do seem to fit with the timescale here. If we examine the moves of the Bank of England where QE began in March 2009 and some £200 billion was spent on bond purchases by January 2010 followed by later tranches making the total some £375 we do see that the timing is indeed consistent with the wealth increases above.

Of course on a world scale the biggest player by far has been the US Federal Reserve. The first effort now called QE1 came down the slipway in December 2008 and was followed by QE2, Operation Twist and then QE3. It’s balance sheet has expanded in total by £3.6 trillion on top of the just under US $0.9 trillion of the run up to the credit crunch. What has been in doubt throughout this period has been where the money went!

To this we can add on and off actions by the Bank of Japan which has been proclaiming “bold action” until it really let rip recently and the ECB with its trillion Euro LTROs.

Never believe anything until it is officially denied

We have seen a litany of denials that the policies of central banks have indeed led to rising inequality. Instead they tell us that such policies have boosted economic growth and “saved the world”. Every now and then even a main player such as Federal Reserve Chair Janet Yellen goes off message. From October 17th.

It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history,

The distribution of wealth is even more unequal than that of income, and the SCF shows that wealth inequality has increased more than income inequality since 1989.

She of course avoided the impact of the policies of which she has been an avid supporter.

The Bank of England in its enthusiasm to demonstrate some sort of benefit from QE ended up firing a bullet or two into its feet back in July 2012.

this in turn has led to an increase in demand for other assets, including corporate bonds and equities. As a result, the Bank’s asset purchases have increased the prices of a wide range of assets, not just gilts. In fact, the Bank’s assessment is that asset purchases have pushed up
the price of equities by at least as much as they have pushed up the price of gilts.

Who owns the most equities? The richest and wealthiest of course. So we see something of a QED for QE.

What about the bond party?

This is a more recent trend which most data will miss. But we are now seeing extraordinary surges in many government bond prices and it is not an exaggeration to say that some falls in yields have become collapses. Last week saw even ten-year yields in Switzerland dice with negativity and this morning has seen the same maturity in Japan have a yield of below 0.2%. I note these as Japan is into I think QE 13 and the Swiss currency cap was a type of QE in drag. Oh and a consequence of the Swiss policy was that it bought a lot of Euro area bonds.

Who is likely to be holding such bonds? You do not have to be a conspiracy theorist to believe that they and their advisers will be aware of the plans of central bankers. After all they will all be meeting up at the World Economic Forum in Davos later this week won’t they?


There is much to consider on the subject on inequality and the first issue is getting any sort of accurate data. The Oxfam Report quoted from above uses data collected from Credit Suisse which makes them an odd couple for a start! But there are issues with the methodology as Felix Salmon pointed out last year.

How is it that the US can have 7.5% of the bottom decile, when it has only 0.21% of the second decile and 0.16% of the third? The answer: we’re talking about net worth, here: assets minus debts. And if you add up the net worth of the world’s bottom decile, it comes to minus a trillion dollars.

My niece, who just got her first 50 cents in pocket money, has more money than the poorest 2 billion people in the world combined.

So perhaps the one thing we are left with is that the ultra-rich are getting richer. Also we are left wondering about Oxfam as an organisation which publishes such a report but also does this. This is from Forbes about Oxfam America.

Top Person: Raymond C. Offenheiser
Top Pay:4 $355,941

Fiscal Year ending on 10/31/10

So what have we learnt? That such analysis has a litany of problems. But that we do these days have more availability of information which means that we know more about this than we did. So was it always true? Probably. There is an element of irony in the impact of the credit crunch reducing inequality but we are left with the thought that whether it was deliberate or by chance that policies like QE have increased inequality since and are likely to continue doing so. Something to think about as we see them take the stage at the World Economic Forum at Davos from Wednesday.


22 thoughts on “How much has expansionary monetary policy such as QE raised inequality?

    • Hi Chris

      I am not so sure about that as I would imagine that plenty of bookings had already been made. Perhaps the foie gras will be replaced by Big Macs (assuming Big Macs are allowed in Davos..).

      Next year though…….

  1. Hi Shaun

    Great analysis as always.

    I think the oxfam article is poorly written clickbait. Basically you’re comparing people
    in the west who have lots ,with people in the emerging economies who have
    nothing. iirc to get into the top 50% you need roughly $3860. Which is owning
    a car.

    to get into the top 1% you need £1.8m. A index linked state pension worth
    £9k/year is an asset worth £300k, compared to billions who live in
    countries with no state pension.

    So two pensioners with a decent house and a private pension could quite
    easily be in the top 1%. Definitely in the top 10%.

    • Hi Anteos and thank you

      You are right to point out that it is virtually impossible to compare how we live in the west to the developing world. The net worth approach used by Oxfam is indeed clickbait but struggles for credibility.

  2. The economic benefit of the Supa Riche is rather moot but in a world designed by them to allow them to hide their loot what do we expect?

    trickle down ? exactly ! laff ? almost bought me own beer!

    The Ofam report is also slanted as they have their own axe to grind , do they really expect this finite world to support 7-9 billions of USA style lifestlyles , good god not even the americans can do that for their peoples !

    And to answer you question of QE of that its effect to stablelize the Stock markets and assets for the Banks means that the top 0.1% are protected as well then , yes, they saw it , wanted it and go it . Its the middle classes that get robbed after all the poor have nothing to take ( definition of poor you see ) . Removal of the middle classes wealth does not make or mean Democracy will continue , oh’ we’ll call it that but it will increasingly look like a feudal system not unlike Dune

    back to the show and another bag of popcorn .


    • Hi Forbin

      Short of cold fusion coming true there is no chance at all that the current population of this Earth could have USA style lives. Even with such cheap and plentiful energy there would be a struggle for other resources.

      As to QE and inequality well the markets seem determined to make it true. From tonight’s online FT.

      “ECB hopes push stocks to seven-year highs”

      I know they rallied today but corn prices have been falling perhaps they will catch up with other disinflationary trends and themes.

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  4. Pingback: The Investor Zone – Smart Money Making Tips | The Margin: Richest 1% is about to own more than everyone else put together: Oxfam

  5. Pingback: Oxfam report complains about income inequality, omits Federal Reserve money printing | Economic Collapse News

  6. Hi Shaun,I am trying to read T. Pikkaty’s book, which has a lot to say about wealth trends and predictions over 3 centuries. Any views? My read is that slow growth favours the capital rich. We have contrived to have this in spades??

    • Hi Rowland and welcome to my corner of the blogosphere

      The problem with such a broad sweep over 3 centuries is that so much has changed including the bases for the statistics! After all the data has been changed in some cases fundamentally this year with ESA10 and the other methodological movements.

      Yet the current slow growth does seem to favour the capital rich. If you are wondering what to read I recommend the Dune saga which has plenty of food for thought for these times.

  7. Regarding the large compensation for the Oxfam executive, this is nothing new. Excuse the link to the dailymail but you can find this story about Amensty International in a number of other places.

    Senior executives in charities are often very well paid indeed. There isn’t really a governance structure to stop this and they don’t have any shareholders to revolt against it.

    I’ve always believed it is better to volunteer time and expertise rather than give money for this very reason unless it is a project I can see the results of directly.

    I don’t worry about ultra rich people as much as I worry about the lack of civic good done with their money. By hoarding it and not spending it it doesn’t benefit anyone else.

    • Alas, I spent time working for a charity for free. It saved them a lot of money. That saved money is the same as income. It results in a ‘pot’ that supports the charity’s activities…and the salary of the CEO. No matter how you give, some of it will not go where you want it to! All you can do is choose your beneficiaries: dogs, children, poor, ill,…

    • it has often been a contention of mine that “charities” on the whole are just businesses with tax breaks

      I often ask that everyone checks out who gets what at their charity and what actual percentage actually goes to that good cause

      we should have a chart for this , showing the best charities and the worse

      whats the point if 95% of you pound go to running the busness and the CEO’s Porche ?

      might as well buy a lottery ticket !

      The Samaritans I beleive had the lowest paid CEO of all the 6000 odd “charities” we have in the UK.


      • I think there are something like 200,000 charities in UK, most of which pay their management handsomely…….

        Do they contribute to the GDP figures, as they are paid for by donations?

  8. Pingback: Richest 1% is about to own more than everyone else put together: Oxfam – MarketWatch · memoryBase

  9. The 0.1% are pushing the TPPA (trans Pacific Partnership agreement), which supposedly promotes trade and jobs but also has nasty clauses that undermine the democratic rights and prevent countries from passing environmental safety laws by calling them “protectionism against free trade”

    The freeing of trade is generally beneficial in economic terms, but the devil is in the details. And the details mean that if you want a trade agreement with the USA, you need to accept the laws enacted by the lobbyists from Monsanto et al.

    Britain eventually bought in “health & safety” rules, a visit to the cotton mill in Manchester museum shows why it’s necessary. but in order for trade to be fair to all workers, Brit and foreign, we should be denying import licenses to substandard,unsafe foreign factories. That’s a powerful incentive for the owners to improve their workers conditions ….

    • Hi ExpatInBG

      I am a fan of free trade as a principle but agree with you that it does not mean trade at any price. Also if it so good why is much of it shrouded in secrecy? After all free trade require openess and a known legal system.

      • precisely Shaun, which is why we don’t really have free trade , perhaps it more mercantile ?


        hoping for lower popcorn prices …

  10. Pingback: The Margin: Richest 1% is about to own more than everyone else put together: Oxfam | The Market Surge

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