Global Journal of Human Social Science, E: Economics, Volume 21 Issue 4

Figure 4 Volume XXI Issue IV Version I 8 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals Transforming Financialization and Inequality in a Post-Covid World When the Fed conducts Quantitative Easing, it purchases securities from the financial markets, primarily government securities and mortgage-backed securities. In exchange, the Fed creates reserves within the banking system, that now (since 2008) pay interest to those institutions. Importantly, reserves cannot be lent to private borrowers; in any case, the objective in creating the reserves was not to spur borrowing, but instead to reduce interest rates. The reserves remain “stuck” in the banking system. With that said, reduced interest rates generate capital gains to the sellers of those assets, who then can purchase other assets with the cash provided by the banking system. So, the net effect of these transactions is that asset prices tend to rise. This has been the pattern of growth in financialized economic systems for several decades. e) Financialization and Inequality Financialization has contributed to rising levels of income and wealth inequality, given enormous capital gains that have occurred over the past forty years. The top 10% of U.S. households now own 88% of all U.S. stock and 86% of all financial assets. On average, a household in the top 10% owns more than 66 times the amount of stock owned by a household in the bottom 90%. And the top 1% own 53% of all U.S. stocks, meaning they own 112 times the stock owned by the bottom 99%. Average annual rates of growth in household wealth are illustrated in the chart below by households. B-90 refers to the bottom 90% of households by wealth, B-50 to bottom 50%, M-40 to middle 40%, T-10 to top 10%, etc. Remarkably, the rates of growth increase the further up the ladder one goes. The bottom 50% actually endured losses in net worth from 1975 to 2016. Source: Federal Reserve, FRED, Author Figure 5 Source: Federal Reserve, FRED, Author