Americans get rich, aided by Federal Reserve policies in the event of a pandemic

Photographer: Edwin Remsberg / VW Pics / Universal Images / Getty Images

The Americans have become, according to some measures, richer than ever before during the pandemic.

It is a difficult thing to understand, what about the economic collapse and the rising ranks of the unemployed, the homeless and the hungry. But there is a whole class of people (at least 20% more or less of people with income) who have had to worry little about these matters.

For them, it has not only been relatively easy to do their white-collar work from home. But the The Federal Reserve’s unprecedented emergency measures, including reducing reference rates to zero, have also cushioned its portfolios. They have refinanced their mortgages at record low rates, bought second homes to move away from cities and have seen the value of stocks and bonds rise in their investment accounts.

Its massive accumulation of wealth is, in large part, darkening the toll felt for all those who do not enjoy the same easy access to the financial or credit markets. As the net worth of the home reached a new record, hundreds of thousands It is estimated that companies have closed permanently, more than ten million Americans remain unemployed and almost three times as many hunger at night.

Even when a new democratic administration plans to seek $ 1 trillion in additional spending to supplement last month’s Covid-19 aid package, economists warn of the serious social and political consequences of the dramatic widening of the gap between the poor and the poor. . With income inequality already close to the highest in at least half a century, the country’s response to the financial devastation caused by the coronavirus raises questions about what emergency measures were designed to help and who was left behind, they say.

“There’s probably never been a better time to be rich in the U.S. than today,” said Peter Atwater, an associate professor at William & Mary, who popularized the notion of a “K-shaped” recovery to describe the bloody division of economic fortunes. “Much of what policymakers did was allow the richest to bounce back faster from the pandemic.”

In the last ten months, higher-income earners, relatively speaking, have had it pretty well.

Employment for the the top quartile of workers – earning more than $ 60,000 a year – has already recovered from higher levels than a year ago, according to Opportunity Insights, a non-partisan research institute based in Harvard University.

And as the closures took over the nation, millions of people, especially those at the top of the American socioeconomic ladder, were able to redirect money they would otherwise have spent. in things like entertainment, dinners and trips to savings or, better yet, investments. .

For many, it has borne fruit. Thanks to the Fed’s efforts to boost the economy, U.S. stocks have risen to record highs after the outbreak, while last year’s bonds rose more in a decade.

Gap Wealth

20% of employees own almost all the shares of American households

Source: Federal Reserve

“If your wealth is captured by financial assets, you will already be up and running in no time,” he said Amanda Fischer, policy director at the Washington Center for Equitable Growth. “It’s the people with the lowest incomes who don’t even have to file taxes who have the highest barrier to going up.”

As their investment accounts grew, wealthy Americans got another gift.

Mortgage rates, driven largely by the same forces sending stocks soaring to dizzying heights, fell to a minimum. in register.

Homeowners, especially those with unbeatable credit scores, have taken advantage. Refinancing has accelerated to faster in nearly two decades, according to data from Fannie Mae, which allowed millions of borrowers to reduce their monthly payments.

Falling back

For those at the other end of the spectrum, things are very different.

Employment for the the bottom quartile of U.S. winners (those earning less than $ 27,000 a year) remains more than 20 percent below January 2020 levels. Last month, about 30 million adults lived in households where there was not enough to eat, according to the U.S. Census Bureau Dust Survey, 28% more than before the pandemic. In Louisiana, the hardest-hit state, one in five people now faces food shortages, according to the survey, and the numbers are even more severe among black Americans.

Uneven recovery

Employment for low-wage workers is still 21% below pre-pandemic levels

Source: Opportunity Insights Economic Tracker (https://tracktherecovery.org)

Millions of people are busy figuring out how to maintain their homes instead of borrowing. According to the December Census Bureau survey, it is likely that more than a third of U.S. adults living in households have been left behind on rent or mortgage payments.

As the deployment of the first vaccines against Covid-19 instills more optimism in the financial markets, many borrowers struggling with debt find it harder than ever to see a path to recovery, even after measures are taken. ‘additional relief approved by Congress in December.

“People just feel that are approaching or are at the bottom, ”he said Bradford Boots, director of the Bond & Boots bankruptcy law firm in Birmingham, Alabama. “We are feeling much more hopeless.”

Boots said that for many of the people his company has advised in Alabama, Tennessee and Mississippi, government unemployment benefits and stimulus checks have simply not reduced it.

“I used that money just to get it,” he said. “The additional stimulus has not been enough to make any kind of difference for average Americans.”

“Rusty Plumbing”

To be clear, the fiscal packages approved by Washington have been among the largest the country has ever seen and have largely addressed the country’s most needy. In coordination with Monetary stimulus has certainly helped dozens of Americans keep working and put food on the table.

However, the increase in economic inequality that accompanied these efforts illustrates the limitations of the response, according to critics.

By easing credit conditions through the Fed, lawmakers were able to quickly prop up large corporations and wealthier individuals. But distributing aid to smaller businesses and low-income workers has proven to be much more difficult.

Delays in the provision of assistance, as well as confusion over eligibility rules and criteria, hampered many of these programs.

Read more: The Fed is waking up Until career: within the new struggle for equality

Of course, it is no coincidence that the machinery of monetary policy functioned smoothly while the fiscal equivalent spread. More regular use has been seen.

For about four decades, U.S. governments have largely delegated business cycle management to an independent Fed, in line with the economic orthodoxies of the time, but which are now underway. increased scrutiny. Fiscal policy, more appropriate to regulate how the cake is distributed, went out of fashion except as a crisis tool. And during this same period, inequality was constantly widening.

According to Fischer, the pandemic has shown how the infrastructure the U.S. government could use to reach everyday Americans is broken and needs reform.

“Congress did a pretty good job getting people money, but we didn’t manage to fix decades of rusty plumbing,” he said. “The fact that the Fed has the infrastructure to do a bond purchase program but not do anything else is a choice, not an inevitability.”

More help

For their part, Fed officials have regularly acknowledged that monetary stimulus is far from a panacea and that the central bank has only limited tools to target specific economic outcomes.

“The Fed cannot grant money to certain beneficiaries,” Fed Chairman Jerome Powell told reporters during a Dec. 16 news conference. “Elected officials have the power to tax and spend and to make decisions about where, as a society, we should direct our collective resources.”

A central bank spokesman declined to comment further.

When it comes to fiscal policy, many economists argue that not acting on another big round of incentives could delay economic recovery in the same way that vaccines are released to the general public.

Millions of people will see their unemployment benefits expire in mid-March if the measures passed by Congress in December are not extended. Meanwhile, states and local government could be forced to further reduce budgets already forced to offset losses in tax revenue.