The key beneficiaries of quantitative easing (QE) have been those closest to the money – a small number of individuals who own assets, who run companies and who have access to the cheap debt. The result? Growing inequality in society. For example, in the US the Gini coefficient (a measure of wealth dispersion across society) is at a level not seen since the 1930s. Across the money-printing world, the gap between the 1% and the 99% is widening.
Income inequality is one of many factors contributing to the fragile nature of the economic backdrop and challenging the common belief that all is right with the world. Recent elections across Europe point to unease – that political campaigning across developed nations was focused upon the 99% further supports these views. More broadly, if economies fail to accelerate from here (still to be proven) those questioning the effectiveness of QE will become more vociferous and greater in number. Could it be that ECB President Mario Draghi is going to start ‘using’ just as we find out that the drugs don’t work?
Nick Clay, Portfolio Manager, Newton