Winners and Losers From Stimulus

As Wall Street tries to gauge when the Federal Reserve might start tapering its stimulus program, a new study from the McKinsey Global Institute illustrates just how deep the impact of such efforts has been since 2007. But it also makes clear that the benefits haven’t been distributed equally.

Government borrowers were the biggest winners, with the United States, Britain and countries in the euro zone saving $1.6 trillion, largely from rock-bottom interest rates. Similarly, nonfinancial companies also came out well, saving $710 billion as borrowing costs dropped.

The results were mixed for big banks, although institutions in the United States benefited more than those in Europe, since the rates they paid on deposits fell much more.

The big losers were households, McKinsey found, giving up $630 billion in net interest income in the United States, the euro zone and Britain, as interest rates for savers plunged.

The so-called quantitative easing began in the wake of the financial crisis, with the latest round featuring $85 billion a month in purchases of Treasury securities and mortgage-backed bonds.

The McKinsey findings are very likely to fuel arguments that the Fed stimulus, like the bailout efforts authorized by Congress in the fall of 2008 for the big banks, benefited Wall Street and big business at the expense of Main Street, and did little for the overall economy.

Susan Lund, a partner at the McKinsey Global Institute, said that was not the main lesson from the study.

“It is unknown and unknowable what would have happened if central banks hadn’t acted,” she said. “We’re not questioning whether the initial acts were called for or whether central banks had any choice.”

Still, it’s clear there were big winners and losers, she said.

“This isn’t theoretical,” she said. “Households are losing more on reduced interest they are saving on lower debt payments,” she said.

Older households that are dependent on interest payments from savings were harder hit than younger people who are more likely to have home and car loans, she said.

At the same time, Ms. Lund noted, as a big beneficiary from very low borrowing costs, the federal government will have to pay up when interest rates inevitably move higher.

“If interest rates return to 2007 levels, federal debt service costs would increase by 20 percent, or about $75 billion a year,” she said.

While corporations and governments clearly were winners, the McKinsey researchers found no evidence that the stimulus has caused the stock market to climb, as many strategists and economists contend.

“In both the U.S. and Europe, price-earnings multiples are below the long-term trend, and lower debt service costs only boosted corporate profits by about 5 percent,” she said.