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Tuesday, July 15, 2014

Cheap Money Bad for the Poor, Good for the Rich

Rich Karlgaard argues here that only the superrich are really benefiting from the global boom in cheap money.  (Not just a boon for the rich, but for overleveraged governments too.) If you aren't in a position to ride the stock market wave, you're out of luck.  Here, he uses columnist Paul Krugman as a punching bag.  Why aren't people on fixed incomes getting up in arms about this?  Perhaps they will with the next bust. 

Paul Krugman Is Dumber Than We Thought

Krugman’s July 11th NYT laugher provides yet more evidence the Nobel Prize winner … just … makes … stuff … up.

Consider this Krugman assertion:
The really big losers from low interest rates are the truly wealthy — not even the 1 percent, but the 0.1 percent or even the 0.01 percent.
Krugman says the rich sock their money in low-yield bonds. But he fails to consider the obvious. Stocks have almost tripled since March 2009. Urban real estate is in a boom. Art is in a boom. If you believe Krugman, it must be the poor folks who are feeding these asset bubbles. Because the rich, Krugman says, are stuck in low-yield bonds.

This is utter nonsense. The excess liquidity created by U.S. monetary policy does not wind up in the hands of the poor. It winds up in the hands of the rich. The rich then put it into stocks, real estate, hedge funds, and art.

It’s actually the poor and lower middle classes whose wealth — such as it is –lies fallow in no-interest bank accounts (or wealth-eroding cash if they have no bank account at all). It’s not the rich, but middle-class retirees that try to eke out a living on low-yield interest rates.

Krugman has it exactly, 180-degrees wrong. Cheap money is a transfer payment to the rich. It is a tax on the poor. The rich-poor divide grew vast under the cheap money policies of Ben Bernanke. This trend will surely accelerate under Janet Yellen.

I recently spoke at a global real estate conference in Singapore. Around the world, large cities are seeing inflated prices. The investment bankers who attended the conference, and who represent the interests of the global rich, didn’t know whether to pinch themselves in glee or dig a shelter for the coming bust. But for now, cheap money has fueled a boom.
How many poor people invest in REITs, Dr. Krugman?

Krugman has so twisted himself in defending the Obama Administration’s fiscal and monetary policies that he is now 180-degrees opposite of truth. He looks to Antarctica and sees the North Pole.
Cheap money has been terrible for the poor. It has been God’s gift to rich asset holders. Just the opposite of what Krugman says it is.

Takes your breath away, doesn’t it?
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