Americans get richer, helped by the Federal Reserve in Pandemic

Photographer: Edwin Remsberg / VW Pics / Universal Images / Getty Images

Americans have become by some standards richer during the pandemic than ever before.

It is difficult to gauge what is happening with the economic collapse and the increase in the ranks of the unemployed, the homeless and the hungry. But there is a whole class of people – at least the top 20% of the earners – who have little to worry about such matters.

For them, it was not only relatively easy to carry out their white-collar work from home. But the The Federal Reserve’s unprecedented emergency measures – including lowering standard rates to zero – have also filled their wallets. They refinanced their mortgages at record low rates, bought second homes to get away from cities and saw the value of the shares and bonds rise in their investment accounts.

Their massive build-up of wealth largely hampers the toll feeling by anyone who does not have the same easy access to credit or financial markets. As household net worth rose to a new record, it was hundreds of thousands It is estimated that businesses are expected to close permanently, more than 10 million Americans remain unemployed and nearly three times as many hungry snags.

Just as a new Democratic government plans to seek trillions of dollars in extra spending to supplement last month’s Covid-19 aid package are warning economists about the serious social and political consequences of the dramatically widening gap between U.S. business people. As income equality has been the highest in at least half a century, the country’s response to the financial devastation caused by the coronavirus raises questions about who emergency measures are designed to help and who are left behind, they say.

“There probably has not been a better time to be rich in America than today,” says Peter Atwater, an associate professor at William & Mary, who popularized the idea of ​​a ‘K-shaped’ recovery around the describe strong rift in economic prosperity. “So much of what policymakers have done has been to enable the richest to get out of the pandemic the fastest.”

Over the past ten months, higher-income earners have had it relatively well.

Employment for the the top quartile of workers – those earning more than $ 60,000 a year – has already recovered above the levels of a year ago, according to data from Opportunity Insights, a non-partisan research institute based at Harvard University.

And while locks gripped the country, millions of people, especially those at the top of America’s socio-economic ladder, were able to divert money they would otherwise spend on things like entertainment, eating and traveling for savings or, better yet, investments. .

For many, it has borne good fruit. Thanks to the Fed’s efforts to boost the economy, U.S. equities rose to a record high in the wake of the outbreak, while bonds rose the highest in more than a decade last year.

Prosperity gap

The top 20% of earners own almost all the shares owned by American households

Source: Federal Reserve

“If your wealth is offset by financial assets, you’re back on track in no time,” he said. Amanda Fischer, policy director at the Washington Center for Equitable Growth. “It is people with the lowest incomes who do not even have to file taxes who have the highest barrier to climbing.”

As their investment accounts blossomed, wealthy Americans received another gift.

Mortgage rates, driven mainly by the same forces that pushed stocks to dizzying heights, fell to their lowest on record.

Homeowners, especially those with pristine credit scores, have benefited. Refinancing accelerated after the according to data from Fannie Mae the fastest in nearly two decades, enabling millions of lenders to reduce their monthly payments.

Get behind

For those on the other end of the spectrum, things are very different.

Employment for the the bottom quartile of U.S. earners – those earning less than $ 27,000 a year – remains more than 20% below January 2020 levels. Last month, nearly 30 million adults lived in households where there was not enough to eat, according to the U.S. Census Bureau’s household pulse survey, which rose 28% before the pandemic. In Louisiana, the state worst affected, one in five people now has food shortages, according to the survey, with the numbers even worse among black Americans.

Uneven recovery

Employment for low-wage workers is still 21% below pre-pandemic levels

Source: Opportunity Insights Economic Tracker (https://tracktherecovery.org)

Millions are figuring out how to keep their homes safe rather than borrow against them. More than a third of U.S. adults living in households that have fallen into arrears with rent or mortgage payments are likely to be evicted or negative over the next two months, according to the December Census Bureau survey.

As the first Covid-19 vaccines cause more optimism in the financial markets, many borrowers struggling with debt are finding it harder than ever to see a way to recovery, even after the additional measures approved by Congress in December .

‘People simple bird that they are closer to or on the bottom, ”said Bradford Botes, a principal at the bankruptcy law firm Bond & Botes in Birmingham, Alabama. “We hear a lot more hopelessness.”

Botes said that for many of the people who advised his firm in Alabama, Tennessee and Mississippi, the government’s unemployment benefits and stimulus control simply did not diminish it.

“That money is used by people just to get it right,” he said. “The additional stimulus was not sufficient to make any mean difference for average Americans.”

‘Rusty plumbing’

To be clear, the fiscal packages entered into by Washington were one of the largest the country has ever seen, and they targeted the country’s greatest needs. In coordination with monetary stimulus, they have undoubtedly helped keep many Americans employed and put food on the table.

According to critics, the growing economic inequality that accompanies it illustrates the limitations of the response.

By easing credit conditions through the Fed, lawmakers were able to quickly build large corporations and wealthy individuals. But spreading aid to smaller businesses and low-income workers seems to be much more challenging.

Delays in providing assistance, as well as confusion around rules and admission requirements, have hampered many of these programs.

Read more: The Fed wakes up to race – within the new struggle for equality

It is, of course, no coincidence that the machinery of monetary policy worked smoothly while the fiscal equivalent splashed. It is seen more often.

For about four decades, U.S. governments have largely delegated the management of the business cycle to an independent Fed – in line with the then economic orthodox, but now under increased investigation. Fiscal policy, which is better suited to regulating how the pie is distributed, has fallen out of fashion, except as a crisis tool. And over the same period, inequality gradually increased.

According to Fischer, the pandemic showed how the infrastructure that the U.S. government could use to reach everyday Americans was broken and in dire need of reform.

“Congress has done pretty well to get money to people, but we have not succeeded in fixing decades of rusty plumbing work,” she said. “The fact that the Fed has the infrastructure to do a bond-buying program but do nothing else is a choice and not an inevitable choice.”

More help

In turn, Fed officials have regularly acknowledged that monetary stimulus is not a panacea, and that the central bank has only limited instruments to target specific economic outcomes.

“The Fed cannot allocate money to certain beneficiaries,” Fed Chairman Jerome Powell told reporters at a news conference on December 16. “Elected officials have the power to tax and spend and make decisions about where we as a society should direct our collective resources.”

A central bank spokesman declined to comment further.

As far as fiscal policy is concerned, many economists argue that failure to respond to another major stimulus could slow economic recovery, just as vaccines are given to the general public.

Millions of people will lose their unemployment benefits by mid-March if the measures approved by Congress in December are not extended. Meanwhile, states and local government may be forced to further cut their already strained budgets to compensate for the loss of tax revenue.