The 'Engine of Wealth Inequality'
The Fed plays an enormous role in powering or reversing economic inequality in America.
I started a new habit a few months ago: listening to a bitcoin podcast before work.
Some days it’s a brilliant idea. I’m buzzing with insights. My mind is running 1,000 miles an hour. Other days, I’m mentally fatigued from thinking too hard.
Of the many podcasts I’ve listened to, this one that struck me the most: “The Federal Reserve & Wealth Inequality | Karen Petrou | Pomp Podcast #508”
In this brilliant podcast, Karen Petrou (Managing Partner of Federal Financial Analytics) talks with Pomp (Investor at Pomp Investments) about the role of the Federal Reserve in influencing wealth inequality in the United States.
The Fed’s Mission
The Federal Reserve System (or the Fed) is the central banking system of the United States. According to Karen Petrou, the Fed’s mission is to power or reverse economic inequality in America.
Since money is the fuel of economic inequality, the Fed plays a critical role in that mission by setting interest rates, intervening in the financial markets, writing rules, operating the payments system, and determining who “has access to the plumbing, to the rails on which the financial system operates.”
In short: the Fed dictates monetary policies and plays an active role in influencing the economy. They’re important even if they feel invisible to us.
The problem is that the majority of people don’t understand the structure of the financial markets, how monetary policies are set, or how the Fed operates.
Worse, low to moderate income people do not know that their inability to move forward, to get opportunities, to find financial freedom is a problem of the system in which they rely on.
Wealth is Distributed Differently Across Society
“So think about it this way. If we all had 10% of our wealth in the stock market, whether or not that 10% of the wealth was $10 million, or $10,000, every time the market goes up, we would be proportionally richer. It would be an equitable distribution. But that's not the way it works in the United States now.” - Karen Petrou
Wealth, as Karen Petrou points out, is not equally distributed in the United States (or Canada if I may add).
High income people have a majority of their wealth in the financial markets (stocks, bonds, etc.)
Middle class people have their wealth in their home prices - even if highly leveraged. They don’t actually own much of their house because they have a massive mortgage and small equity in their home.
Low income people have no stocks or bonds or real estate or 401 K’s. They’re often in a lot of debt and they’re renters.
As you can see, where people get their wealth is not the same.
So when we say that the Fed intervenes in the financial markets - of whom the high- income earners are the biggest beneficiaries - well, that’s problematic. A violation of human rights to a degree.
By ensuring the stock markets go up indefinitely, financial assets get inflated causing the wealthy to get richer.
At the same time, low income people with no assets in the financial markets continue to drown in debt and inflation. They try really damn hard to save not knowing that instead they keep losing purchasing power because the same inflation that hurts them actually benefits the wealthy.
As Pomp often says, “this is a feature of the system, not a bug.”
Now this is where it gets tricky…
Most low-income people in America are people of colour, immigrants, people with different abilities, hard-working people who have no way out of the chains that bind them. So in a way, we can’t talk about wealth without talking about race and privilege. With this logic in mind, it could be argued that wealth is a weapon for racial inequality.
The inequalities we see today are not by accident. By adjusting monetary policies and actively redistributing wealth across America, the Fed plays God. This is why Petrou calls the Fed “the engine of wealth inequality.”
One Last Thought: Bitcoin Fixes This
Next time you hear news pertaining to the Fed, pay attention to what they’re saying. Think about how their decisions are going to affect people’s wealth and quality of life. Study the economy; see how people’s net worth is affected, how their purchasing power varies, and how their mental health gets affected.
You can protect yourself and your wealth by exiting said system and entering into a new system which is more fair when it comes to wealth creation - called bitcoin. Bitcoin is a decentralized, digital currency; meaning no one owns it or has control over it.
No one can create more bitcoin, or adjust its monetary policy, or tinker with it. It’s nearly impossible to do. Plus, the fact that it’s limited to 21 million bitcoin means that in theory it can retain value over the long-term. Put another way, your bitcoin possessions would grow a lot in the long-term.
Fun fact: bitcoin was the best performing asset of the decade with a 200% compound annual growth rate.
Bitcoin is no joke. It literally is a way to build wealth for people when it has been impossible for them to do so in the last decade. This is why we say ‘bitcoin is fair money’.
Watch the full podcast interview here:
Great article!
Nice job, Ayelen!