Deutsche Bank: Actually, The Wealth Effect Won't Just Help The Rich


Photo: Deutsche Bank

The wealth effect has been mentioned as one of the key reasons motivating the Fed to engage in quantitative easing. By utilising monetary policy tools, The Fed thinks it can increase the price of assets like stocks and homes. Some feel the Fed is trying to increase confidence amongst consumers and, in turn, consumer spending.The worry is this won’t actually achieve anything, because spending is done by those without wealth, or assets, and saving is done by those with them.

Deutsche Bank would like to dispel this myth. The bank suggests that, actually, 40% of low income households are homeowners and over 50% of all U.S. families own stock.

Yes, the richest in America do own more assets.

And yes, rich people make more money.

So yeah, rich people have more wealth (duh).

And look, rich people with all those assets like to spend money!

But yes, lower income families spend more of their incomes.

And all American income percentiles do own a bit of stock.

And, 40% of the poorest Americans own their own home.

So a rise in asset values should impact a broad part of society, when compared to incomes (assets do include cars).

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