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Central banks now have 30 years’ worth of monetary insanity under their belts.

The grandfather of monetary policy insanity, the Bank of Japan or BoJ first introduced Zero Interest Rate Policy (ZIRP), or the policy of cutting rates effectively to ZERO, making credit effectively FREE in 1999.

The BoJ then introduced Quantitative Easing (QE), the process through which it prints new money and uses it to buy assets (Japanese Government Bonds, Exchange Traded Funds and even stocks) in 2001.

The Fed and other major central banks began using both policies in 2008. And since that time, the monetary insanity has only become even more insane: collectively central banks have now down over $12 trillion in QE and even introduced NEGATIVE interest rate policy (NIRP).

These policies have proven to be absolute DUDs when it comes to economic growth or job creation (if loose monetary policy or money printing were productive, Argentina would be like Korea). But they DO create asset bubbles… which increases wealth concentration… leading to a K-shaped economy.

Remember, loose/ easy money policies are inherently biased towards those at the top of the economic ladder. Those individuals in the top 10% (and especially the top 1%) are the ones who A) own assets that will rise in value thanks to central bank policy and B) can leverage up to acquire even more assets.

Think of it this way… the multi-millionaire who owns stocks and real estate will make a 2^nd fortune when the Fed creates bubbles in both asset classes via ZIRP and QE. The lower middle-class individual who has minimal assets and largely lives of his or her incomes won’t benefit at all.

This fact is now starting all of us in the face…

The Fed has been engaged in monetary insanity for the better part of 17 years (30 years if you count the Greenspan Fed’s negligence in allowing the Tech Bubble to inflate to a 1 in 100-year event). Wealth concentration has dramatically WORSENED throughout this time period with the wealthiest 1% seeing their share of total stock ownership rise from 40% to over 54% today.

H/T: Inequality.org

When you expand this demographic to include the top 10%, total stock ownership rises to 87% of all stocks owned in the U.S.

As a result of the wealth effect (when people see their net worth rise, they tend to spend more money) the U.S. economy is now decidedly K-shaped with the top 10% of consumers driving almost ALL of the economic growth.

The bottom 90%, which owns only 13% of stocks, is being left behind, particularly as incomes has failed to keep up with the rise in cost of living. According to the Ludwig Institute for Shared Economic Prosperity (LISEP) the bottom 60% of Americans don’t earn enough to maintain a minimal quality of life.

Not the bottom 6%… the bottom 60%.

This was always going to be the end result of decades of easy money policies. As I noted at the beginning of this piece, the Fed and other central banks have NO idea how to generate economic growth or job creation. All they can do is inflate the financial system, thereby creating assets bubbles, and hope that the secondary wealth effect for the top 10% of consumers will be strong enough to stop the economy rolling over into a recession.

And by the look of things, this situation is about to get a lot worse. Central banks have already embarked on another round of monetary easing… while the global economy is STILL growing.

To wit, the Fed’s OWN GDPNow measure shows economic growth is clocking in at 4%….

While stocks are near or at all-time highs.

Meanwhile, the Fed is already cutting rates and about to launch QE.

The writing is on the wall here. If you want to “get ahead” in the current financial system you HAVE to own assets. The Fed and other central banks are 100% committed to creating a “Melt Up” in risk assets: a situation in which stocks and other rise assets EXPLODE higher to levels that seem ridiculous.

The time to prepare for what this means for the markets is NOW before this happens.

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