Quantitative easing in the U.K. has stirred social unrest by exacerbating inequality:
As the Bank of England considers unleashing a fresh round of QE, Dhaval Joshi, of BCA Research, argues the approach of creating electronic money pushes up share prices and profits without feeding through to wages.
"The evidence suggests that QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it," Joshi says in a new report.
He points out that real wages – adjusted for inflation – have fallen in both the US and UK, where QE has been a key tool for boosting growth.
The problem is that newly issued currency is being used for financial speculation, which is driving up commodity prices as wages decline:
As the Bank waded into the financial markets to spend its £200bn of newly created money, mostly on government bonds, the price of many assets, including shares and commodities such as oil, was driven up.
That helped to boost companies' revenues, but Joshi argues that with the labour market remaining weak, employees have had little hope of bidding up their wages. "The shocking thing is, two years into an ostensible recovery, [UK] workers are actually earning less than at the depth of the recession. Real wages and salaries have fallen by £4bn. Profits are up by £11bn. The spoils of the recovery have been shared in the most unequal of ways."...
"High-income earners are more exposed to profits as owners of businesses or shareholders. Low-income earners are dependent on wages," he says.
The U.S. Federal Reserve has also been conducting quantitative easing through Permanent Open Market Operations (POMO) since 2005, helping cover the budget gap brought on by Bush's tax cuts and terror crusade. In just a two year period between 2007 and 2009, there was a staggering income shift towards the super-wealthy:
In the meantime, U.S. based multinational corporations have benefited from the falling American currency because it inflates their foreign profits, which are reported in dollars:
A simple example reveals how a declining dollar has grossly inflated U.S. global corporate profits. Let's say Johnson & Johnson made a 1 euro profit from a sale of toothpaste in Europe in 2003. Translated into U.S. dollars for its financial reports, that 1 euro became $1, as the euro and dollar were at parity.
Now when J&J earn that same 1 euro in profit, it translates into $1.40 in profit. The revenue remained the same, and the profit remained the same, but profits stated in dollars rose 40%.
And this effect isn't limited to Europe. Global Corporate America's profits made in China have risen 20% over the past few years when stated in U.S. dollars (USD) as the yuan has strengthened from 8 to the USD to 6.4 to the dollar.