From the 1950s until right before the Great Recession of 2008, the growth in household wealth for the bottom 50%, middle 40%, and the top 10% of society was steadily growing. This meant that there was a sizeable and financially healthy middle class, and even in the lower class, it was relatively easy to move up in society and earn a solid living.
However, that all changed when the Great Recession of 2008 hit. Financial markets tumbled, and the middle and lower classes saw their investment portfolios evaporate.
The upper class was essentially saved from any great loss by an extreme financial bailout, with the Federal Reserve injecting $3.8 trillion into banks and corporations between 2008 and 2015. This money was produced via debt monetization, essentially the same as printing money out of thin air.
The idea was that the major banks and corporations going bankrupt during the Great Recession were ‘too big to fail’ and they had to be saved to protect America. Also, then-Federal Reserve ChairmanBen Bernanke, who initiated this policy, thought the wealth would trickle down, with higher stock market prices boosting consumer wealth.
The trickle-down theory was highly flawed, however, since the top 20% of society held practically all of the assets as of 2010, with the bottom 80% holding a large majority of the debt. So the federal injection of money that was printed out of thin air stabilized the wealth of the upper class while the wealth of the lower class tumbled.
The regime change from persistent growth in all classes of society to a sudden increase in wealth inequality can be seen in the above chart, and the pivot point was indeed the 2008 Great Recession.
This wealth inequality is currently surging, with the top 1% of society holding as much wealth as the middle and upper classes combined. Data also shows that, since 2008, the percentage of wealth held by the top 10% has increased from 60% to 64% while the percentage of wealth held by the bottom 90% has decreased from 40% to 36%. This data makes it clear that the Federal Reserve’s policy of printing money and injecting it into banks and corporations has essentially transferred wealth from the poor to the rich.
Perhaps the fundamental cause of this transfer of wealth is that the Federal Reserve’s liquidity injections provide ample opportunities for banks, corporations, and stockholders to make money, while the rest of society does not have such opportunities. This is especially true since as of 2016 the top 10% of society owns 93% of all stocks and mutual funds. Thus, the richest fraction of society gets wealthier and the rest of society sees practically no wealth increase whenever these liquidity injections happen, and the wealth inequality gap grows.
The Federal Reserve has been once again printing money, to the tune of $280 billion since the beginning of September, so the problem being discussed in this article is happening right now. $280 billion is almost enough to give $1,000 to every man, woman, and child in the United States, which probably would have caused a massive uptick in consumer spending, but instead it was used just to pump up stock prices which causes practically no growth in the real economy.
It is important to note that this issue is not confined to the United States. There are over 20 countries where serious protests have occurred in 2019, mostly driven by a large amount of people not having basic food and necessities.
The most shocking fact is that the top 0.1% of society owns as much wealth as the bottom 90%, and that was in 2013, so by now the top 0.1% of society has more wealth than the bottom 90%. The only time this has happened before was in the years leading up to the Great Depression of the 1930s. Also, apparently the economic situation was similar right before the French Revolution.
Notably, even during the worst of the Great Depression the top 0.1% continued to hold more assets than the bottom 90%, which intuitively makes sense since most people could not afford food or a place to live. In other words, a small fraction of all the people had wealth during the Great Depression while most people suffered extreme poverty. This is perhaps a glimpse of what is to come.
Bitcoin (BTC) Has The Potential to Solve the Wealth Inequality Issue
In the Bitcoin (BTC) genesis block, Satoshi Nakamoto included the statement “03/Jan/2009 Chancellor on brink of second bailout for banks”. This alluded to one of Satoshi’s primary reasons for creating Bitcoin (BTC), which was to fight against centralized currency manipulation by providing a decentralized currency for the world. Indeed, Satoshi launched Bitcoin (BTC) in the midst of the Great Recession of 2008.
Additionally, a month after launching Bitcoin (BTC) Satoshi explicitly said “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Satoshi’s words could not have been more accurate since, in the years after, the Federal Reserve printed trillions of dollars. In this specific quote, Satoshi is referencing how money printing causes centralized fiat currency to lose value, but the other serious issue with money printing is that it leads to drastic wealth inequality.
The problem is that fiat currency and Central Banks almost completely control the global economy for now, especially the USD and the Federal Reserve, so even though Bitcoin (BTC) exists, it cannot solve this issue completely.
People can choose to own Bitcoin (BTC) and protect themselves against inflation and even make money long term, so that is one way Bitcoin (BTC) helps as of now. However, wealth inequality is so drastic that the lower and middle classes can barely afford to own Bitcoin (BTC), so for a large fraction of the population this is not even an option.
If the great economic crash finally does come, perhaps at that point countries will have a chance to switch over to Bitcoin (BTC) as a primary currency. Already, the crash has come for some countries like Venezuela, Zimbabwe, Iran, and Lebanon, but unfortunately the trend so far is toward governments trying to suppress cryptocurrency activity even when local fiat currencies collapse.
Therefore, the scenario that Bitcoin (BTC) becomes the primary global currency is highly speculative and uncertain. Governments will not easily let go of controlling fiat currency and Central Banks even if the system completely fails since that is where most of their power is derived from. That being said, if Bitcoin (BTC) did become the primary global currency, Central Banks and governments will no longer be able to manipulate currency, possibly resolving the wealth inequality issue of the modern era and preventing it from reemerging.