Inequality Crisis
The situation has progressively worsened, particularly after 2010. It was in 2009 that the world faced one of the most severe financial crises in history. So how did the U.S. government choose to address this crisis, which was caused by the banks? They decided to bail out the very institutions responsible for the meltdown, providing them with a staggering $700 billion while the average person was left to suffer. But that was just the beginning.
The government then implemented several rounds of quantitative easing (QE), a monetary policy aimed at injecting liquidity into the economy. While this may not have seemed entirely negative, the real issue arose when they artificially kept interest rates at historically low levels for an extended period. This created a situation where speculators were rewarded, while savers were penalized. Saving money no longer offered attractive returns, and as a result, the corporate world embarked on a spending spree. They borrowed massive amounts of money to buy back their shares, creating the illusion of rising earnings.
Overall, the actions taken by the government favoured the very institutions that caused the financial crisis, while the average person struggled and faced diminished opportunities. The consequences of these decisions have had a profound impact on the economy and have perpetuated a system where speculators thrive while savers and ordinary individuals bear the brunt of the burden.
What does this have to do with world inequality?
This economic policy resulted in stagflation, a situation characterized by rising prices of essential goods while wages declined. Moreover, the availability of easy money was limited to large corporations, effectively excluding small businesses from benefiting. As a consequence, the gap between the super-rich and the poor widened. In 2010, the wealth of 388 individuals equalled that of the poorest half of the world’s population. Today, this number has dwindled to just 62 individuals possessing the same wealth as 3.6 billion people worldwide. This extreme wealth inequality is alarming, and unfortunately, it shows no signs of abating.
Central bankers worldwide have now embraced the era of negative interest rates, which means even more money will be injected into the system. Consequently, more individuals will find themselves in financial distress. This troubling reality exposes the illusory nature of the so-called economic recovery, as discussed in a recent article.
If the economic recovery were genuine, there would be no need for persistently low-interest rates or for the Federal Reserve to intervene and support the stock market. However, once the Fed’s support was withdrawn, the corporate world stepped in and resorted to illicit practices such as stock buybacks. Instead of focusing on improving their fundamental performance, companies prioritize buying back their own shares, artificially inflating their earnings per share (EPS). It’s a deceptive scheme where minimal effort yields substantial rewards. Moreover, with interest rates at historic lows, there is a greater incentive to borrow substantial sums of money to engage in these questionable activities.
As a result, we can expect stock buybacks to reach unprecedented levels, eventually appearing irrational and unsustainable. This practice demonstrates how economic recovery is nothing more than a farce. Fed Data illustrates Economic recovery is a bad Joke
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