Around the Globe 05.12.2013

A Turning Point for Income Inequality?.

From the pen of Michael Feroli, chief economist for JPM:

The economics profession has arrived at an uncharacteristically high degree of consensus regarding the cause of this trend: the pace of technological advance has outstripped the ability of the educational system to supply the human capital skills needed to utilize this technology, leading to out-sized earnings gains for those who have such skills (the so-called college wage premium).

If all the economists agree on something, then they are probably all wrong.  The reason for rising income inequality has nothing to do with an educational system falling behind the pace of technological change.  Rather, central bank money has increased the income of the rich by inflating the price of the assets they control.

The Cotillion Effect predicts this dynamic.  It also predicts that those furthest away from the cheap money, i.e. workers, will see very little of its effects.

I guess if you work for a TBTF banks it is better to blame the educational system for suppressing wage gains for the American worker rather than the Federal Reserve that is simultaneously filling your bosses pockets with mullah.

Fed maps exit from stimulus – MarketWatch.

Fed Maps Exit From Stimulus – WSJ.com.

Jon Hilsenrath tells us:

Officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated.

There is no need to worry.  The Fed is just discussing its exit, not planning it.  Judging from Friday’s reaction to the rumor about this article, the Fed will be ending the program no time soon.  In fact, since virtually all of the economists surveyed have ruled out an increase in asset purchases, I view this as the most likely outcome.

ECB’s Draghi says no call for G7 central banks to do more | Reuters.

ECB Benchmark Rate

When the time comes, the ECB will begin monetizing sovereign debt.  Preserving the euro is the ultimate law trumping all others.  Preserving the euro is the best option for Germany, so its government will give tacit approval to the scheme.

Bernanke: Fed keeping close watch for another financial bubble – NBC News.com.

Junk Bond Yields

The Fed has never caught a bubble in time, but next time will be different.  With junk bonds yielding under 5%, you may believe that at least one bubble has already been created by all of this money printing.  The Fed does not see it that way.

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