The wealthy have a clear financial incentive to promote or shape crisis-related policies that cause M2 money supply surges, as these typically boost asset prices (like stocks and real estate) and offer low-cost credit, disproportionately enriching them.
In February 2021, the U.S. M2 money supply, encompassing cash, checking accounts, savings, and money market funds, skyrocketed by 26.9% year-over-year, marking the largest spike ever recorded. Propelled by the Federal Reserve’s aggressive quantitative easing and fiscal measures like the $2.2 trillion CARES Act, M2 expanded from $15.4 trillion in January 2020 to $19.7 trillion, adding $4.3 trillion in just over a year. This surge dwarfed previous peaks, such as World War II (~18% in 1943, driven by wartime financing), the Great Depression and 2008 financial crisis (~10%, fueled by recovery efforts and bailouts), and the post-Vietnam War era (~9% in 1976, amid high inflation and deficits).
Such significant M2 increases, often triggered by expansive monetary and fiscal policies, tend to widen wealth inequality by inflating the value of assets primarily held by the affluent (e.g., ~89% of corporate stock, per Federal Reserve data), while providing them early access to cheap credit, leaving wage-earners more vulnerable to inflation’s effects. Below, I’ll briefly explain how these surges often contribute to wealth inequality, focusing on the top five M2 spike years (2021, 1943, 2009, 1976) and their economic context.
- Asset Price Inflation
M2 surges increase liquidity, often flowing into financial markets (stocks, real estate, bonds). The wealthy, who hold a disproportionate share of assets, benefit from rising asset prices.
2021 (26.9% spike)
The Federal Reserve’s stimulus and low interest rates fueled a stock market boom and housing price surge. The top 10% of households, owning ~89% of corporate stock (Federal Reserve data), saw significant wealth gains.
2009 (10% spike)
Post-financial crisis QE boosted asset prices, benefiting wealthier households with investment portfolios while many middle-class households struggled with housing market recovery.
- Access to Credit
M2 spikes often coincide with low interest rates, making borrowing cheaper. Wealthy individuals and corporations can leverage cheap credit to invest in businesses, real estate, or financial instruments, amplifying returns.
1983 (~8% spike): Lower rates and economic recovery favored investors and business owners, who could borrow to expand operations or invest, while wage earners saw slower gains.
- Inflation and Real Wages
Large M2 increases can lead to inflation, which erodes purchasing power for wage-dependent households but benefits those with appreciating assets. The wealthy, with diversified investments, are better insulated from inflation’s downsides.
1976 (~8-9% spike): High inflation eroded real wages, but those with assets (stocks, real estate) saw wealth preservation or growth, widening inequality.
1943 (~18% spike): Wartime spending increased deficits and money supply, inflating asset values for industrialists and investors, though rationing and wage controls limited broader benefits.
- Cantillon Effect
New money enters the economy unevenly, benefiting those closest to the source (e.g., banks, corporations, investors) first. The wealthy, with ties to financial institutions, gain early access to liquidity, investing before prices rise.
This dynamic was evident in 2021 and 2009, where financial institutions and corporations accessed Fed liquidity early, boosting asset-heavy portfolios.
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