Arguably, no US president in history has benefited the 1%, either directly or indirectly, more than Barack Obama.
When President Obama took office on January 20, 2009, the US economy was in dire straits. The Dow Jones Industrial Average closed at 8,077 that day, having fallen from a then high of 14,093. The Standard & Poor's 500 Index (S&P 500) closed at 831.95, declining from a then high of 1,561. Both indices would continue a ongoing decline to their lows in early March of that year. As a response to the economic climate at the time, the FOMC continued a policy that has become known as Quantitative Easing (QE). The initial QE began in November 2008 under George W. Bush's administration when the FOMC would buy $600 billion in mortgage backed bonds to help mitigate the subprime lending crisis and real estate market collapse. In November 2010, the FOMC began an additional round of bond purchases known as QE2 as a response to the economy not growing as robustly as the Fed would like. In September 2012, a third round of easing, or QE3, was announced which included purchasing $40 billion per month in mortgage backed debt. In December 2012, the FOMC announced an additional amount of purchases of $45 billion per month in Treasury securities. After warning of a possible "tapering" of bond purchases at the FOMC's June 2013 meeting, the Fed elected not to "taper" at it's September 2013 meeting, which was not widely anticipated. This caught markets off guard and has since led to new all time highs in some of the equity indices, specifically the Russell 2000 and the S&P 500, and renewed vigor in the treasuries market.
Intended Or Unintended Consequences
One of the results of all of the QE programs has been stock and bond value appreciation. The stated desire to drive down interest rates raises bond values as bond prices move opposite to yields. The additional liquidity produced by the bond buying programs has caused money flows in to equities driving those values higher. Because most of these assets are held by the wealthy they seemingly benefit this group the most. On the flip side, when these assets were declining, the so called 1% lost the most wealth. The debate here is not what counts substantively as more or less valuable to folks of different economic classes, but whose material wealth and ostensibly their standard of living was improved during a certain period in history under a certain president.
The President's Background
Given President Obama's background compared to US presidents who preceded him, the results of his administration's policies and their subsequent benefit to a group that the President does not claim to favor, seem ironic. President Obama was raised in a middle class family mostly overseas, Hawaii and Indonesia, studied political science before getting his law degree from Harvard. Before getting his law degree, President Obama worked as a community organizer in Chicago, doing tasks such as setting up job programs, tenants rights organizations and educational programs. This does not paint the picture of a President whose administration would embark on one of history's largest asset revaluations.
Widening Wealth Gap In America
One of the most widely discussed results of the revaluation of assets in the US is the growing disparity in wealth between the upper and lower classes. Many books have been written analyzing this current phenomena and it's deleterious effect on American society. The policies the current administration has used have been referred to as a regressive tax, distributing money from the lower and middle classes to the wealthy in the form of QE, or stimulus. Is there a wider benefit to all Americans? A claim can be made that these policies have mitigated the US recession and avoided a full on depression which would hurt all Americans. Again, would everyone suffer equally? Do the ultra wealthy suffer as much losing millions of dollars in investments as the middle class family forced out of their $300,000 home? On the flip side, does everyone prosper equally? The discussion here is not either question mentioned above but the notion of a widening wealth gap between different economic classes under a president who's background would give no hint that this would occur. To be sure, a key campaign promise of the Obama administration was health care reform, the Affordable Care Act, which was a big sticking point of the Tea Party which resisted passing the latest budget and extending the debt ceiling. This campaign promise is a policy that would easily be associated with a president of Mr. Obama's background. Those in the Tea Party were not voicing their displeasure over their rising investment portfolios or lower interest rate mortgage and car loans. Apparently those folks do not associate their increasing wealth with the President's policies.
How Did He Get Here?
In the administration's effort to "save" the US economy and not appear ineffective, it turned to the FOMC to use monetary policy to support a flagging economy that is yet to pick up steam. One of the tools it has used is QE. QE stimulates the economy by injecting money in to it. This money flows in to assets and is meant to create a wealth effect. With consumers feeling more wealthy they should theoretically be more inclined to spend thus stimulating the economy and creating a virtuous cycle. The administration could use fiscal policy to affect the economy as well, but with the contention and rancor in Congress the easier route is through monetary policy. Perhaps it is this over-reliance on monetary policy, and lack of a healthy mix of both monetary and fiscal policy, that has created an environment beyond the President's control and seemingly out of step with his true character and nature.
Posts
