From Breakingviews - Interest rates have broken the global wealth pump
Horse Racing - Derby Festival - Epsom Downs Racecourse, Epsom, Britain - June 4, 2022. Racegoers are seen with glasses of champagne ahead of the races. REUTERS/Peter Cziborra
As the rich multiply in numbers, the social pyramid becomes inverted, resulting in what Turchin calls “elite overproduction”. When there are more aspirants for positions of power than there are places, the elites start fighting among themselves and so-called “counter elites” emerge who threaten to bring down the system. Over the centuries, many countries have witnessed this pattern.
Missing from this analysis is the important role played by monetary policy. Ultra-low interest rates proved the greatest wealth pump ever devised, loading the dice in favour of the financial elite. Easy money inflated asset prices, lowered corporate borrowing costs and facilitated financial transactions. More deals and higher stock prices pushed up the pay of Wall Street bankers and senior corporate executives.
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