Randolph Kinney
Elite Member
- Joined
- Apr 7, 2005
- Professional Status
- Retired Appraiser
- State
- North Carolina
Income disparity comes from the government and the federal reserve.
Federal reserve policies are implemented through the banking system, which has a multiplier of credit creation through fractional reserve banking.
The government also targets inflation through its tax policies.
Middle-class incomes and below are generated through wages. Any inflation has a negative impact wage earners disproportionately to non-wage earners.
When the FED targets inflation (as they have been since the great depression), bad things happen to wage earners.
When wages (here) are boosted by COLAs or by other transmissions, manufacturers moved jobs to other countries where wages and inflation are not as high.
When recessions occur (and they will), jobs are lost and asset prices decline. Those are middle-class jobs. The FED has long operated on the assumption that inflation can be adjusted by employment and credit creation. When inflation gets too high, the FED contracts the money supply and credit through targeting interest rates; raising them. When unemployment gets too high, the FED floods the bank system with money and credit by lowering interest rates.
When inflation gets too high, the government raises taxes. When recessions happen, the government lowers taxes. Interestingly, the taxes are the personal income tax rates that are most affected. The tax issues are also blended with social policies.
So who benefits and who loses with credit and money creation?
What's causing income inequality?
The government solution to the income inequality is fairness by redistribution of wealth which is accomplished through the tax code and social spending programs.
We can see that does not work either.
Federal reserve policies are implemented through the banking system, which has a multiplier of credit creation through fractional reserve banking.
The government also targets inflation through its tax policies.
Middle-class incomes and below are generated through wages. Any inflation has a negative impact wage earners disproportionately to non-wage earners.
When the FED targets inflation (as they have been since the great depression), bad things happen to wage earners.
- Wages do not keep up
- Asset bubbles build
- Rising asset prices make it appear debt is sustainable
- Wage growth is disproportionate to debt
- Wealth concentration
- By the time bubbles are spotted it is already too late
- Recessions happen
When wages (here) are boosted by COLAs or by other transmissions, manufacturers moved jobs to other countries where wages and inflation are not as high.
When recessions occur (and they will), jobs are lost and asset prices decline. Those are middle-class jobs. The FED has long operated on the assumption that inflation can be adjusted by employment and credit creation. When inflation gets too high, the FED contracts the money supply and credit through targeting interest rates; raising them. When unemployment gets too high, the FED floods the bank system with money and credit by lowering interest rates.
When inflation gets too high, the government raises taxes. When recessions happen, the government lowers taxes. Interestingly, the taxes are the personal income tax rates that are most affected. The tax issues are also blended with social policies.
So who benefits and who loses with credit and money creation?
- Who has first access to credit? Answer: The banks, the political class, and the already wealthy.
- Who benefits the most from inflated asset prices? Answer: The banks, the political class, and the already wealthy.
- Who gets hammered in real terms by rising inflation? Answer: The bottom 10%, then the next 20%, then the lower middle class, then the upper middle class.
What's causing income inequality?
- Fractional Reserve Lending
- Inflation targeting by the Fed
- Moral hazard policies of the Fed that encourage winner-take-all speculation
- Government interference into free markets
The government solution to the income inequality is fairness by redistribution of wealth which is accomplished through the tax code and social spending programs.
We can see that does not work either.
