When the federal reserve prints money you, as a commoner, don't see a dime of it. The federal reserve only transacts new capital (because its not just raw bank notes, its financial securities in general) into a select cartel of national banks.
Those banks, being private enterprise, are owned largely by the same class that owns everything else. If you own shares of the S&P 500 you own pieces of about ~two dozen banks. These are largely the banks that get treasury money which they then loan out at rates often fixed by the federal reserve in exchange for basically free money.
And the trick with that money is that the bank isn't lending philanthropically, its lending to make a profit. So using the current environment as an example you aren't getting favorable bailout loan conditions from Bank of America just because the treasury gave them a hundred billion dollars to doll out, major corporations that want to use that nigh-free money to buy back stock or buy out competition get it.
There are several branches on this tree of money flows but the economics of the last 50 years and particularly this depression from the botched COVID response only point towards the disconnect between the economy of the working poor and the economy of the owner class that gets to see the stock market hit all time record highs while the fed finally agrees to $600 stimulus checks when 50 million people are 6 months behind on rent.
And if you want to see this mechanism in action in simplest terms, the fed bought 3 trillion in securities and the stock market recovered at about 30% rates to hit all time highs again after crashing in March. That kind of recovery is unprecedented and unheard of, but because of direct constant cash flow out of the fed all the investment panic dried up because free capital was flooding investors coffers to keep buying back in with. The dozen richest men all collectively became upwards of 50% richer this year as a direct consequence. Inflation won't come close to those gains.
>Those banks, being private enterprise, are owned largely by the same class that owns everything else. If you own shares of the S&P 500 you own pieces of about ~two dozen banks. These are largely the banks that get treasury money which they then loan out at rates often fixed by the federal reserve in exchange for basically free money.
Do you have a source for this? It sounds like you might be refering to the discount window? My understanding is that banks rarely borrow money from the discount window. It is really to prevent a large scale liquidity crisis.
From what I understand the Fed has been printing money to make large scale asset purchases. They are essentially buying US bonds to keep the benchmark rate low. This means that the benchmark for interest rates stays low. More recently they have started taking on corporate bonds and equities.
The wealthy almost never have their money in cash. They have it in assets. Real estate, stocks, bonds, derivatives, etc. It's poor people who have their money in cash
Wouldn't inflation help these people? The depreciating assets may lose value less slowly. Sure, high inflation usually means higher interest rates, but that certainly hasn't been the case in the current environment. Also, you will be paying off the debt with the inflated salary.
The problem is that, for these people, inflation comes first to their costs, and only second to their wages. Sure they get to pay back their car loan with cheaper money. But they also have to buy groceries, and the groceries went up. Meanwhile, the number of dollars they owe on their car didn't go down. Sometime later their wages will go up, but until then, they're hurting.
Most richer people diversify their wealth. You may be hard pressed to find a billionaire who actually has $1 billion in cash.
Cash would most likely be the minority of their wealth. As inflation occurs, they do take a hit on their cash holdings. But their land, stocks, apartment complexes, etc may increase in value.
> It should devalue the money that they already have, benefitting the poor
Even if all people both rich and poor held all their wealth in the form of cash, that would certainly hurt the poor too. Say a poor person works 8 hours a day. His 8 hours of work grant him buying power of 3 meals. After inflation his 8 hours of work grant him buying power for only 2 meals. This is not just a theoretical, look at McDonalds meal prices, you can't get a sandwich for a $1 anymore.
There are some benefits to inflation. It's cheaper to employ poor people willing to work the now cheaper paper. So it may create some new jobs that otherwise may never have been created.
Lots of other factors too, but look closely at your word choices -- "wealth" vs "money." Wealth is mostly tied up in non-money assets (not that it necessarily has to be, but that's the state of things), whereas poor people have some small amount of cash, wages which don't track with inflation, and rent and expenses which do. As money is devalued, non-money assets continue to hold their value (increasing when denominated in dollars), and every financial instrument used by anyone at or below the low/middle middle class is royally shafted in comparison.
That's not always the case. In the last couple of big printing cycles, the newly created money ended up in financial assets (like stocks) that are predominantly owned by people on the top end of the wealth distribution.
I don't think the wealthy benefit from printing money. I just think they get hurt less than the poor. This article is a pretty interesting analysis of the effects of inflation.[1]
Those banks, being private enterprise, are owned largely by the same class that owns everything else. If you own shares of the S&P 500 you own pieces of about ~two dozen banks. These are largely the banks that get treasury money which they then loan out at rates often fixed by the federal reserve in exchange for basically free money.
And the trick with that money is that the bank isn't lending philanthropically, its lending to make a profit. So using the current environment as an example you aren't getting favorable bailout loan conditions from Bank of America just because the treasury gave them a hundred billion dollars to doll out, major corporations that want to use that nigh-free money to buy back stock or buy out competition get it.
There are several branches on this tree of money flows but the economics of the last 50 years and particularly this depression from the botched COVID response only point towards the disconnect between the economy of the working poor and the economy of the owner class that gets to see the stock market hit all time record highs while the fed finally agrees to $600 stimulus checks when 50 million people are 6 months behind on rent.
And if you want to see this mechanism in action in simplest terms, the fed bought 3 trillion in securities and the stock market recovered at about 30% rates to hit all time highs again after crashing in March. That kind of recovery is unprecedented and unheard of, but because of direct constant cash flow out of the fed all the investment panic dried up because free capital was flooding investors coffers to keep buying back in with. The dozen richest men all collectively became upwards of 50% richer this year as a direct consequence. Inflation won't come close to those gains.