By Lance Roberts
Taking risks is no longer necessary to make a return on your savings.
Not long ago, “cash is trash” was a common theme as savings accounts yielded zero. Of course, such was the intent of the Federal Reserve following the “financial crisis” in the hope that inflating asset prices would trickle down into economic growth. Given the economy is driven by “consumption,” the Fed believed that promoting “asset inflation” would lead to increased “confidence,” thereby creating economic growth. Such was the exact point made in 2010 by Ben Bernanke,
“Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”
Unfortunately, the result was not as advertised. Instead, economic growth stagnated, and the wealth gap exploded.
To put this in better perspective, the top 10% of households now control 68% of all wealth. The following 40% have 29%, with the bottom 50% owning just 3%.
This data makes it easy to understand why there is such an outcry for socialism today.
A New Threat Arises
However, there is a problem with the Fed’s premise. Given that the top 10% of Americans own most assets, there is a declining propensity to spend money. Once those individuals bought a house(s), furnished them, bought cars, traveled, etc., there was no need to continue spending at accelerated rates. Therefore, the income of the top 10% to 20% wound up in savings. Conversely, the bottom 80% live paycheck-to-paycheck. Such is why consumer debt has exploded to maintain the standard of living.
Of course, the side effect of monetary interventions was the deformation of asset markets. Those actions led to the top 10% of income earners owning 85% of the financial market wealth.
