Why Quantitative Easing's Wealth Effects Are Not Enough (It's the distribution that's the problem)

From the Back to Full Employment blog:

Many economists and market participants applauded the Federal Reserve’s decision in September 2012 to make monthly purchases of $85 billion in Treasury and mortgage-backed securities, and hold short-term interest rates at near zero until unemployment fell to 6.5 percent. Now, however, the issue of when to end bond buying is being debated both within and outside the Fed. Some think the central bank isn’t doing enough to deal with the still-fragile economy, while others argue that its actions will result in future price inflation. There is also growing concern that the rapid run-up in prices of stocks and other capital market assets reflects greater risk taking and more leverage and may be signs of yet another bubble.

By March 2013, rising asset values succeeded in filling the $12.5 trillion hole in households’ net worth that developed in 2008. Quantitative easing appears to have played a major role in spurring that recovery. As in the period leading up to the recession, some think this rapid increase in household net worth is a clear sign that monetary ease is producing asset inflation rather than price inflation. But, unlike the previous period, the distribution of these gains primarily benefits upper and upper-middle income households. The largest increases were in their holdings of corporate stocks, mutual fund shares and pension funds, while growth in the values of residential real estate and households’ equity in non-corporate (small) businesses remains below pre-recession levels. Thus, what seems a resurgence of the potential for the so-called “wealth effect” to increase confidence and stimulate demand may be undermined by the further boost this uneven appreciation in asset values gives to inequality.

The benefits of the rise in households’ net worth are far weaker than in the past because there is no clear connection to employment. In addition, the fact that inflated capital market assets held in pension funds are not easily used to back new borrowing may have limited the effect on spending. Asset inflation in the earlier period stimulated job growth and demand because rising home prices spurred new construction and ensured that spending could be funded by home equity borrowing....MORE

HT: Naked Keynesianism
NK says see also:
Quantitative Easing a Keynesian Critique