The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include the monetary policy, economic inequality, and financial services.
The Asset Building Program has highlighted the ways in which federal tax expenditures, which flow disproportionately to the asset-rich, exacerbate the growing wealth divide. In a report for the Wall Street Journal, John Hilsenrath reveals how monetary policy is hobbled by this divide and how, as a result, the Fed might be inadvertently contributing to an increase in wealth inequality. It turns out that the low-interest rates secured by the Fed have mostly redounded to the benefit of those with sterling credit histories, who tend to be wealthier, as a result of stricter standards imposed by hesitant lenders burned by the recession. Hilsenrath notes: “Last year, nearly 90% of all new mortgages originated went to households with high credit scores…” The result is that demand has not increased to the extent that one would predict on the basis of interest rates alone because the rich are more likely to save than spend the money they pocket from lower interest rates. Thus, the effect of monetary policy has been muted – impeding economic recovery – and skewed to the benefit of wealthy Americans – reinforcing the growth in wealth inequality. Hilsenrath quotes bond strategist David Zervos comparing Fed actions to “monetary policy for rich people.” The Fed announced on Wednesday that in spite of the recent slowdown in the recovery it would not take any significant action above and beyond current policy to boost economic growth. Matt Yglesias of Slate argues that a reluctance to accept an increased risk of inflation is incompatible with a strong recovery, as a quick drop in unemployment will inevitably spark an increase in inflation. Given that inflation hits holders of wealth the hardest and that, as the Fed’s own data reveals, wealth is concentrated among the very top of the income distribution, accepting an increase in inflation might counteract to some extent growing wealth inequality.
Michael Cooper of the New York Times reports on the difficulty faced by college graduates seeking to enter the workforce in their chosen field, the prevalence of underemployment, and the decline in wages at the bottom of the income distribution. CNN Money looks at wealth inequality by race, leading their story with the staggering fact that “White Americans have 22 times more wealth than blacks -- a gap that nearly doubled during the Great Recession.” Monique Morrissey of Economic Policy Institute examines Fed data on the decline in wealth among younger families, who, she notes, “were hardest hit, with those in the 35-44 age group—the age when families start getting serious about saving for retirement—experiencing a 54 percent drop between 2007 and 2010.” Asset Building Program Director Reid Cramer responds to Tim Noah’s claim that the distribution of wealth poses no cause for concern, writing: “Unlike Tim, I think wealth is consequential, and thus it is a significant public policy issue if its distribution is becoming increasingly skewed…Increasing savings and assets, along with income, is one of the keys to economic stability and upward mobility. Even small amounts can prevent debilitating downward spirals that might be triggered by a job loss or income event.”
Gallup released a poll on American attitudes toward societal institutions that found a dearth of confidence in banks. Among the 16 institutions measured, banks ranked second from the bottom, in a two-way tie with big business. Perhaps unsurprisingly, the poll found that Congress is the institution that engenders the least amount of confidence among Americans. The American people aren’t the only ones who lack confidence in banks. Moody’s announced after the closing bell on Thursday that they were downgrading the credit ratings of 15 large banks, stopping just short of labeling as “junk” the credit of two of the most widely used banks for checking and savings, Citigroup and Bank of America.
CAHS files a blog post about a New Haven bank’s pilot project aiming to entice unbanked individuals to open savings accounts. Washington Post reporter Ylan Mui wrote this week about the newly launched CFPB database of credit card complaints that allows consumers to post their problems with credit card providers by name for public and agency review. The CFPB beta website offers several “visualization” features that nicely summarize the aggregate data in graphical form. ABA Journal breaks down CFPB Deputy Director Raj Date’s recent speech to the American Bankers Association “touching on CFPB programs; UDAAP (Unfair, Deceptive and Abusive Acts and Practices); complaints programs; product design; fair lending; managing regulatory change; and more.” Scott Wilson of the Los Angeles Times outlines the potential drawbacks of prepaid cards. Felix Salmon writes that a plan to attract the unbanked to a bicycle share program and open bank accounts in Washington, DC, has failed miserably. Problem is, as New America’s Hannah Emple highlights, the data on which Salmon makes his case was collected prior to the introduction of the program.
The Senate came together to pass a new farm bill that, if passed by the House, will spend about $1 trillion over ten years. Aleta Sprague of the New America Foundation discusses a failed effort to impose asset limits on SNAP eligibility.
Wealth inequality is increasing in Hong Kong, where the median home price is 12.6 times the median household income; for comparison, in Washington, DC, the median home price is 7.57 times the median income.
Richard Florida looks at whether homeownership is good for economic growth and finds “Homeownership is weakly negatively associated with economic output per capita.”