ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

The Real Reason for Income Inequality: 7 Ways the Federal Reserve Has Worsened Economic Inequality

Updated on February 24, 2017

Many conservative economists have criticized the Federal Reserve for its contribution in worsening economic inequality, having the effect of creating benefits for the first recipients – hedge funds and commercial banks, enriching the elite at the expense of the middle and lower class. Some have even described the Federal Reserve act as “the biggest scam in the world,” so as to emphasize its detrimental effect on expanding income inequality due to its effects on inflation.

The Federal Reserve act was passed in December 23, 1913; it was drafted on a private island by five of the richest men, representing a quarter of the entire wealth in the world, and owning the largest banks. The act created a central banking system with the power to print money out of nothing. Many are critical of the blatant conflict of interest in drafting the bill.

Yet Liberal news like the Boston Globe blames the rise of income inequality on a higher demand of college degrees, implying that in order to lessen income inequality more Americans should take out student loans to go to college; the truth of the matter is that amidst inflation, this only has the effect of putting society in greater debt; the consequences of student debt are never-ending, since you can’t declare bankruptcy on student loans, most become enslaved to insurmountable debt.

Here are 7 ways that the Federal Reserve has contributed to income inequality in the U.S.

1.) Causes Inflation, affecting the poor/middle class the most

The Federal Reserve effects income inequality from its effects on inflation – the rate at which the general level of prices for goods and services is rising and consequently, the purchasing power of currency is falling. With the Federal Reserve pumping so much fabricated money into our economy, without the actual backing of any real intrinsic value or any goods and services, the value of the money goes down, thus middle class Americans who try to save up are constantly punished for doing so; in other words, inflation is a tax, and those who barely have enough to support themselves will be the ones most burdened by it.

More importantly, small businesses are constantly hurt because of the Federal Reserve’s effect of booms and busts, thus the middle-class suffers, while the banks profit by giving out loans – student loans, home loans, credit cards, etc. Banks give out loans at a low interest to encourage more individuals to take them out, causing more spending to occur, yet when inflation hits, causing economic busts from all the money being poured in by the Fed, the ‘people’ stop spending as much as they did before, thus harming the entrepreneurs who took out loans for their businesses during an economic boom, their chances of succeeding are hindered due to these abrupt economic busts. This is why Income inequality continues to grow; the wealthiest are becoming disproportionately wealthier at an ever increasing rate, according to the Mises institute, the wealthiest 1 percent held 8 percent of the economic pie in 1975 but now hold over 20 percent.

2.) The debt keeps on increasing, burdening the lower and middle class

Since the U.S. currency is not officially backed up by anything intrinsic, with the Federal Reserve’s power to print money, we are 20.1 trillion dollars in debt, the biggest debt of any nation in the world. Government spends without any consequences of having to worry about paying it off within their lifetime since the costs are simply left to future generation to burden through taxes; the middle and lower class are the ones who get burdened by this the most, they have to pay for taxes on spending which was done decades prior, hindering on their savings.

3.) Banks are “too big to fail”

It’s clear that commercial Banks are the main beneficiary of the Federal Reserve; since the creation of fiat currency, the Federal Reserve has helped banks become larger, gaining more power over the monetary system. Commercial banks are bailed out during economic recessions while the rest lose their assets, big banks receive trillions of dollars from the Federal Reserve to not fall; during the economic recession of 2008, an audit of the Fed’s emergency lending program verified that over $16 trillion was allocated to banks internationally.

4.) The Federal Reserve has contributed to economic recessions

Many economists point to the Federal Reserve’s contribution to economic recessions, showing that there is a causal relationship between the Federal Reserve printing out more money and the fall of the economy. Since the 1950’s there's been 10 economic recessions.

5.) Inflation increases the price of food

The Federal Reserve and fiat currency perpetuates inflation, thus the average prices of food keeps on increasing, affecting the lower class the most, the ones who can barely afford food in the first place; when the prices of fruits or vegetables rise they are force to buy less of it; this list shows how grocery store items have increased between 2002 and 2012.

6.) The Gold Standard is much more stable

The Gold Standard maintains a much more stable economy than the Federal Reserve does. Prior to the Federal Reserve, recessions were less frequent and not as long, unemployment and disparity between the rich and the poor was less as well.

7.) The Federal Reserve no longer limits governments from engaging in war

Due to the creation of the Federal Reserve, war bonds are sold at a very rapid pace; since the Federal Reserve can simply print the money out of thin air, the treasury consistently sells war bonds and simply adds the debt for future generation to pay, this being part of the reason why the budget deficit is so high.

Comments

    0 of 8192 characters used
    Post Comment

    • My Esoteric profile image

      My Esoteric 

      21 months ago from Keystone Heights, FL

      An interesting hypothesis, Marcelo, but unfortunately very wrong. Briefly:

      1. "The Federal Reserve act was passed in December 23, 1913; it was drafted on a private island by five of the richest men, " What is correct about this is the date and the private island "Jekyell". In fact, the Fed was created in reaction to the Panic of 1907 and J.P Morgan's version of a private TARP. The meeting you refer to was led by Senator Aldrich and A. P. Andrew (Assistant Secretary of the Treasury Department) who did meet with the movers-and-shakers of the era. What was passed in 1913 was a much altered version of the recommendations they produced. For more detail see Panic of 1907 in https://hubpages.com/politics/A-Short-History-of-S...

      2. "Since the U.S. currency is not officially backed up by anything intrinsic, with the Federal Reserve’s power to print money, we are 20.1 trillion dollars in debt," - First, the size of the debt has nothing to do with income inequality and second, the debt was run up by, in order, the Bush tax cut, the War in Iraq, the direct consequences of the 2008 Great Recession, and finally, the necessary action by Obama to prevent a Great Depression.

      3. "The Federal Reserve effects income inequality from its effects on inflation " - However, income inequality began increasing after the Reagan era tax cuts for the wealthy. Inflation from Apr 1991 - today is less than 5% annually while inequality increased dramatically.

      4. "It’s clear that commercial Banks are the main beneficiary of the Federal Reserve; " - No, not really. The cause of that was Congress deregulating the financial industry, the major event being the repeal of Glass-Stegall.

      5. "The Federal Reserve has contributed to economic recessions". It was partly responsible for the recession in 1918 and 1929 (through inaction). It was partly responsible in 2008 because Greenspan wrongly thought things were working as they should, which he later admitted was wrong

      I'll address the rest later.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)