Central Banks Unconventional Monetary Policies and Inequality Biases

Due to the financial crisis the ECB has been catapulted from a technocratic institution into a major political actor intervening with unconventional monetary policies to counter disinflationary fears, low economic growth, and provide liquidity to facilitate interbank lending. Among others, the ECB provided Long Term Refinancing Operations (LTRO), cutting interest rates on commercial loans to 0.05%, imposed negative interest rates on parking banks’ money overnight, and finally decided on quantitative easing to provide €60 billion a month, amounting to €1.1 of purchasing government bonds from March 2015 to Sept 2016. These policies have led to tumbling government bond yields, decline in interest rates, and the fall of the Euro against the Dollar. While there is much controversy on whether these unconventional policies have had their desired effects in increasing European growth rates, there has been little attention paid to the inequality biases and the skewed distribution of wealth as a result of these global asset-driven accumulation. This paper will focus on quantitative easing (QE) and the stock buy-back options to show that these measures have overwhelmingly benefitted asset and wealth owners. The aim of stock buy backs is to repurchase the stocks of their own companies which drive up earnings per share. Thus the cheap liquidity provided by the ECB is used to buy back stocks, manipulating the stock market in favor of asset owners. The same asset bias can be seen in quantitative easing which has led to steep stock market rallies in equities at the expense of small deposit holders of bank accounts, and holders of life insurances. The asset bias in these unconventional monetary policies is thus a major driver for the high return on capital and the growth in private wealth.