US Fed's bond-buying: Welfare for the wealthy?

WAS the Federal Reserve's massive bond-buying programme an engine of economic inequality?

It's easy to think so. The Fed bought more than US$3 trillion of US Treasury securities and mortgage bonds to prop up financial markets. The idea was that investors who sold to the Fed would reinvest their cash, raising stock and bond prices. Enriched investors would then spend more and revive the economy. With stock and bond ownership concentrated - 90 per cent of stocks belong to 10 per cent of households - the programme looks like welfare for the wealthy.

It's possible. Just recently, Byron Wien - a respected stock strategist at Blackstone, an investment company - concluded that the Fed's bond-buying explained nearly 25 per cent of stocks' rise since their low in March 2009. That was worth about US$3 trillion on a gain of US$13 trillion, which represented a tripling of stocks in the Standard & Poor's 500 index. Most of the rest of the gain reflected higher profits.