The View From 1776
Wednesday, July 10, 2013
Fed Role And Asian Markets’ Impact On The US
Byron Wien’s Firsthand Impressions of Asian Markets, appearing on Barrons’ website
Mr. Wien is a senior advisor to Blackstone. Prior to joining the firm, he was chief investment strategist for Pequot Capital and before that served as both chief and senior U.S. investment strategist at Morgan Stanley.
During his recent tour of major Asian market centers, investors there asked why the Fed isn’t providing even more fiat, phony money liquidity to the economy, given that our stock market is booming and inflation, as measured by some price indexes, is low. Mr. Wien’s response:
I tried to explain that monetary expansion is a very inefficient way to stimulate the economy. By my estimation three-quarters of the money goes into financial assets, driving stock prices higher and bond yields lower. Only one-quarter of the money goes into the real economy. The Fed hopes some of the owners of equities spend their stock market profits, but that process is very indirect. The one aspect of the stock market that is relevant to the Fed is consumer net worth, which has risen substantially since 2009. Most of this, however, has accrued to the top 20% of the population, which has a significant portion of its net worth in equities. The vast majority of Americans have not benefited to the same extent.