‘Being boiled like frogs’: A Wall Street investment chief unloads on how the Fed’s behavior is actually hurting the middle class it’s supposed to be helping
This story requires our BI Prime membership. To read the full article, simply click here to claim your deal and get access to all exclusive Business Insider PRIME content.
- Mark Yusko, the founder and CEO of Morgan Creek Capital Management, describes how the inflationary forces spurred by Federal Reserve easing efforts are actually having the opposite effect of what’s intended.
- He also explains how the holders of financial assets benefit from inflation, while those from the lower socioeconomic cohorts — who hold more in cash — aren’t getting the same boost.
- Click here for more BI Prime stories.
There’s no denying that wealth inequality has exploded within the US over the past few decades.
Technological advances, exploding college-tuition and healthcare costs, outsourcing, and automation have all combined to leave the poor and middle class even further in the rearview. Meanwhile, the rich grow richer.
But Mark Yusko, the founder and CEO of Morgan Creek Capital Management, who oversees $1.5 billion, looks at the growing disparity as a problem that’s been exacerbated by the Federal Reserve. In his mind, the central bank’s renewed monetary-easing efforts are making the rich even wealthier, while those of lesser economic means continue to languish.
“What it’s really designed to do is to inflate the value of assets — real assets: real estate, stocks, et cetera,” he said in “Off the Chain,” a digital-assets podcast. “And the top 1% owns the majority of those assets.”
When the Federal Reserve lowers interest rates and implements quantitative easing, their goal is to increase the money supply, spur inflation, and increase demand. In turn, asset prices rise as a deluge of new capital is suddenly bestowed upon markets.
However, this action reduces the value of the US dollar as an increase in supply makes each subsequent dollar printed less valuable — a dynamic known as inflation. It’s a phenomenon that helps some immensely and crushes others.
“The problem is, 49% of people in this country don’t own any assets,” he said. “So they don’t own the assets that are being inflated by this mythical devaluation of our currency.”
This ultimately creates a real problem for the poor and middle class. Unlike the rich, these lower socioeconomic cohorts don’t have the discretionary income necessary to invest in markets. They are then, in turn, unable to benefit from these operations.
In fact, 20% of the working Americans who participated in a Bankrate survey said they had zero savings, and in the hierarchy of needs, feeding your family definitely comes before making a stock purchase.
By having most of their assets in cash, the poor and middle class are actually being hurt by the deterioration of purchasing power — and this is precisely why