It’s the Fed’s fault.

Over the past several years, the Federal Reserve has forced interest rates lower in an all-out assault on “cash.”

The theory was simple. Make returns on “cash” so low it is forced out of savings account and into risk assets.

It worked.

But here is the problem.

While the ongoing interventions by the Federal Reserve have certainly boosted asset prices higher, the only real accomplishment has been a widening of the wealth gap between the top 10% of individuals that have dollars invested in the financial markets and everyone else. This was shown by the Fed’s most recent consumer survey.

With the average American still living well beyond their means, the reality is that economic growth will remain mired at lower levels as savings continue to be diverted from productive investment into debt service. This skew in wealth, between the top 10% and bottom 90%, has distorted much of the economic data which suggests savings rates and incomes are rising across the broad spectrum of the economy. The reality, as shown by repeated studies and surveys, is an inability for many individuals to meet even small emergencies, must less being anywhere close to having sufficient assets to support a healthy retirement. To wit:

Take a look at that graphic carefully.

  • 33% of Americans have $0 saved for retirement.
  • 56% only have $0-$10,000
  • 66% have less than one-year of median income saved.
  • 74% have less than $100,000 saved for retirement.

With 3/4th’s of America dependent upon an already overburdened social security system in retirement, the “consumption function,” on which roughly 70% of the economy is dependent, is being grossly overestimated.