Banks have responded to declining credit quality by increasing the gap between the price of lending to good borrowers and poor ones.
Martin Barnes of Bank Credit Analyst, a research firm, points out that the direction of official policy (low rates, quantitative easing, big deficits) looks inflationary but the economic fundamentals (a big output gap, sluggish credit growth) look deflationary.
ECONOMIST: Why are both Treasury bonds and gold performing so well?
So as income inequality grew, the government propped up spending by promoting easy credit for less wealthy Americans, and much of the profit from that easy credit fed the wealth of the richest, widening the gap between rich and poor yet further.
Also, consumers are no longer saving less and borrowing more on credit card, home equity and other loans to bridge the gap between income and desired spending growth.
Since then the gap in the interest rates paid by the long-term credit banks has widened.
That supply of credit lifted house prices and spurred a boom in residential construction, which filled the gap in demand left by sluggish business investment.
Several prominent economists now reckon that inequality was a root cause of the financial crisis: politicians tried to counter the growing gap between rich and poor by encouraging poorer folk to take on more credit (see article).
An analysis by Martin Barnes, of the Bank Credit Analyst, finds that if America's growth performance is instead measured by the gap between actual and potential output, it looks much less stellar.
And when women learn to negotiate, they tend to close their own personal wage or income gap by successfully bargaining for promotions, bonuses, a raise in their fees, credit for results accomplished and, of course, raises in pay.
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