A new Credit Suisse Global Wealth report has highlighted a growing divide between the world’s haves and have nots. According to its findings, the world’s richest 1% now own half of all global wealth.
To put that in context, a mere $4,400 worth of assets qualifies you to be in the top half of the global wealth pyramid.
For anyone living in Australia, it might be difficult wrapping your head around this. It’s an uncomfortable feeling knowing there are billions of households with so little. With fewer assets, in fact, than what the typical Aussie households comfortably makes in a month.
Yet it shouldn’t come as any surprise that the world has an equality problem. You already knew that. But the eye catching differences aren’t between the top and bottom 50%. Why? Because the image of global poverty is drilled into our heads. It’s so ingrained in most people that many just take it as a matter of fact. Maybe the sorry state of inequality is the reason we prefer not thinking about it.
Either way, we look elsewhere. We look towards the top 10%. Maybe we can find some solace there. Perhaps we might even feel good about ourselves if we’re in this band. After all, it’s something that most Aussie households can at least relate to.
But even among the top 10%, what we’re seeing is a growing divide. If you’re worth at least $94,000, you’re officially part of the world’s top 10%. Worth a million dollars? You’re in the 1%. It just goes to show that even among the wealthy, you still have your rich and ‘poor’, relatively speaking.
Here is where the report really strikes a chord. The most interesting takeaway relates to the changing makeup of the 1% since 2000.
At the turn of the century, the richest 1% owned 48.9% of global wealth. But by 2009, this figure fell to 44.2%. That’s a significant decline in the space of just nine years. Even more so in the context of the trillions of dollars we’re talking about here.
There are now 120,000 individuals worth more than $68 million (US$50 million). The number of total millionaires is up by 146% since 2000. 8% cent of these newly-minted rich are from China.
Something went wrong.
That people grew richer isn’t the problem. But the Global Financial Crisis rewarded the 1% at the expense of the 99%. And the very people who were supposed to stop that happening were enabling it.
Before we point the finger at the excesses of the rich, let’s consider what role central banks played in all this.
Central banks and the credit fix
What changed in 2009?
Well, we know the Global Financial Crisis came. It’s never really gone away either. Policymakers postponed the real global recession we might’ve otherwise had. For all intents and purposes they kicked the can down the road. You already know how that happened.
Monetary policies unwound. Interest rates plunged across the developed world. Credit spilled from the rich to the poor. New millionaires popped up everywhere, from New York to Shenzhen and Lagos.
Global stocks, led by Wall Street, went from strength to strength. The unstoppable rise of Chinese markets between August 2014 and June 2015 is only the most obvious example of this. The Shanghai Composite Index rose 3,000 points to a peak of 5,166. Before the rout, the CSI market cap was US$9.7 trillion, some 67% higher than the year prior. You can rest assured this was responsible for creating much of China’s new millionaire class.
But even before the GFC, central banks had a hand in creating the crisis.
US interest rates began falling at the turn of the century, right up until around 2006. Rates then flew up to almost 6% just prior to the credit crunch. We saw the effects of this on global markets, which boomed in the few years prior to the crash.
Then, as interest rates peaked in 2007, the stock bubble popped. What resulted was the end of a mortgage crisis that threatened the stability of the entire world.
Lesson learned? Not quite. The GFC did nothing to shake the confidence of central banks. Interest rates continued falling after the crisis. Why? To make sure the recession didn’t turn into a depression. Or at least that’s how the argument goes. ‘We’ll do whatever it takes’ to prevent a global depression. If it wasn’t tinged with so much dishonesty, it might sound sincere.
But easy credit didn’t help anything, apart from boosting asset prices. Capital was sloshing around the global system like never before. A lot of people that were already rich got even wealthier. But there was enough to go around. Not for the masses, no. But at least enough to create a few more millionaires here and there.
It’s the same story this time around. Rates are at record lows wherever you look. Stocks have gained appreciably since the financial crisis started. Now we’re waiting on the Federal Reserve to do what it did prior to the GFC, lift rates. Before the cycle can start all over again. Ease lending, flood the world with capital, then apply the brakes. The net result? The 99% end up worse off, while the 1% gain.
But the one-percenters aren’t at fault. They’re just taking advantage of a good hand. Ask instead who’s dealing them these cards.
If you want to be upset or annoyed at anyone, start with central bankers. They’ve created the conditions that allowed for a widening gap in equality since 2009.
Remember, it was their pressure that led to the banking sector getting a slap on the wrist after the GFC too. No doubt bankers are represented very well among the 120,000 ultra-wealthy.
There are people out there who are resentful of the 1%. That’s bound to happen. You can’t please everyone. But wealth disparity is something that will always stay with us. What’s important is that we ensure governments and central banks don’t make it easier on the 1%. That they’re restrained in committing theft against the other 99%.
Both fiscal and monetary policymakers have done their bit in widening inequality since 2009. But there’s little doubt as to who the blame should fall on: central banks. They’re the real culprits. They’re the reason why inequality is spinning out of control.
Contributor, Markets and Money
PS: Interest rates will remain at record lows…until the central banks decide its time for the next wealth grab.
Markets and Money’s Phillip J. Anderson reckons will remain at present lows for years. Phil’s written a brand new report, ‘Why Interest Rates Could Stay Low for the 21st Century’. In it, he warns that you won’t be able to rely on your savings to fund your retirement.
Inflation, stemming from low rates, will eat into your savings. Worse still, you won’t be able to count on savings funding your retirement. The regular return on term deposits has halved in the last four years alone.
But you have options, if you choose to act now.
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