Wealth concentration is largely generational when you take it at-large across the economy. Millenials are entering the workforce or just entering prime years -> debt from education, big ticket purchases like cars and homes. GenX is in their prime productive years but a relatively small generation. Boomers are either in retirement or about to enter retirement, with significant assets, investments, and paid down debts. This is such a large generation that it has created a “savings glut”. There are more old people with money than young people who need money. This money hunts down yield and drives interest rates lower. Cost of capital being so cheap and an aging population helps drive surpluses in supply and tamp down on inflation.
In regards to the Fed lowering interest rates, there actually were/are significant signs of distress. Even without the trade war the business cycle was aging. But you have business investment coming in weak which is a good indicator of a possible slowdown. Manufacturing entered a recession and may have turned the corner recently but it’s hard to know for sure yet. The trade uncertainty not only in the US but in the UK is making it difficult for businesses to make long term plans. Distresses like this take time to actually work themselves down to the economy and considering the weak inflation, the Fed has correctly weighed the risk of a recession as more important than the risk of inflation. I don’t think they did enough soon enough, but at least they identified the problem before shit hit the fan. At this point I do think the Fed Funds Rate is at a good point to sit and hold for about 6 months.
On another note, the domestic boom in fracked oil and natural gas has led to unprecedented stability and cheap energy prices. Energy finds its way into just about every product and the cheaper it is the lower inflation will be.
Companies are also using all their record piles of cash to make record buybacks on their stock instead of hiring anyone.
> . Lets say the Fed/Govt minted a $1 trillion bill and gave it to an individual citizen, with no strings attached. How would this impact the economy? I would imagine that we would see what we see today. Most of that trillion would end up in bonds and equities, driving down interest rates, and driving the S&P higher… with little impact on inflation nationwide.
That’s what would happen if they gave it to rich citizens. Rich people have a low marginal propensity to consume. Money given to them mostly returns to the financial system and has little impact on inflation. Poor people on the other hand have unmet needs for actual stuff. They have a very high propensity to consume. The money would mostly leave the financial system rather quickly and turn into purchases of goods and services. Moreover X’s spending is Y’s income. So you get a multiplier on spending which is substantially higher than 1 (I think for the USA as a whole 1.52 but likely for the poor and closer to 1.8).
So if we have the entire trillion to the poor it would boost GDP by say $1.6 trillion or so (they do save some). That’s about 8.25% gdp growth. That’s enough to create an employment surge likely of about 4.1-5.25%. We would see a sharp rise in workforce participation and a drop in the unemployment rate. But that number is probably too high regardless, there isn’t that much slack. A rise that large couldn’t be met. Just giving a $1t to poor people would have been smarter in 2009 when there was that much slack, something like $300b makes a lot more sense now.
So in today’s economy we would see tremendous competition for resources and likely you would some inflation particularly in wages. That drives investment up as companies need to boost productivity and we have a healthy supply constrained economy again.
In short even a slight deconcentration of wealth would create strong growth in the current situation. The economy is off balance. It wouldn’t take much at all to bring it into balance.
>Compare that to $1 trillion being created by the fed and issued via a one time ~$5000 stimulus check for every person in America. I have a feeling this would put major pressure on inflation, and interest rates would go up.
The economist Milton Friedman conducted a similar thought experiment (in the 1960s I think) and wrote a paper on it, he concluded based on his assumptions (pretty similar to yours actually) that it would not be inflationary and that it would be economically stimulative.
Low inflation is a direct result of the many tailwinds Americans faced this past year. One is the domestic control the US government has over energy prices. Never before had the US been a major exporter of energy. The second was the tariff and Phase 1 talk, and the third had been a rising dollar with the only 1st world economy on firm footing. Going forward I can see inflation flying past 2%. The talking heads will say a lower dollar will increase EPS, but in fact it will just increase all the input costs that will push prices up, and it’ll be at least a year before other economies start to show growth on valuation models. Energy prices will stay muted, maybe food as well cause Trump can control those, but the discretionary goods should rise.