Tags: El-Erian Fed May Have Boosted Income Inequality

El-Erian: Fed May Have Boosted Income Inequality

Friday, 13 Apr 2012 07:52 AM

Mohamed El-Erian, CEO of Pacific Investment Management Co., says the Federal Reserve and other central banks may have increased income inequality because some of their boosted prices of stocks and other assets but didn’t help the economy.

“The unusual activism of central banks may, at the margin, have worsened further wealth distribution,” El-Erian said in a speech at the St. Louis Fed, Business Week reports.

“To the extent that such policy activism succeeds in bolstering asset values, but not the real economy, the rich benefit disproportionately.”

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“The unusual activism of central banks may, at the margin, have worsened further wealth distribution.”

The Fed’s policies of keeping interest rates at ultra-low levels and purchasing bonds have distorted financial markets, including the promotion of “risk-on” and “risk-off” trading strategies, says El-Erian, and caused the money market fund industry in the U.S. to shrink and increased financial pressure on pension funds.

“Central banks in advanced economies needed—and need—help from other policy-making entities to deal with the twin unfortunate reality of too much debt and too little growth,” El-Erian said.

El-Erian says the European Central Bank’s “powerful” provision of money to the region’s banks is “not a panacea” for the troubles afflicting the 17-nation euro zone.

“Unless it is helped by others, there is likely to be a limit out there to how long it can, on its own, stop a liquidity problem in Italy and Spain raising concerns again about a solvency one.”

Fox Business News reports that Charles Plosser, president of the Federal Reserve Bank of Philadelphia, told a group of economists that the central bank should give consumers, investors and businesses more information about economic forecasts.

Editor's Note: Study: Bernanke Intentionally Devalued the Dollar



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2012-52-13
Friday, 13 Apr 2012 07:52 AM
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