Wealth Concentration

The Most Extreme Wealth Concentration in U.S. History

Much of the new funny money from the Fed (Federal Reserve in the US and Bank of Canada in Canada) is diverted to nonproductive uses. Result: Less investment in industry and fewer high-paying jobs.

Worse, the Fed’s unprecedented money printing drives interest rates down to practically zero. The vast majority of America’s savers and investors lose the opportunities they used to have to make a decent yield without taking oversized risks.

Practically the only big beneficiaries of the money printing are high-stakes speculators. And among them, only a minority are consistent winners. Big banks and billionaires often enjoy windfall profits. Most others are left behind.

All this holds down the income gains of the overwhelming majority of Americans, while spurring the wealth accumulation for a very small minority.

End result: The greatest wealth disparity in American history.

However, the trend actually began in the late 1970s. Here are the facts:

  • In 1978, the richest one-thousandth (0.1%) of America’s households owned 7.1% of the nation’s wealth.
  • By 2012, that share ballooned to 22%.
  • And by 2017, it was close to 25%.

That means the richest Americans own more than triple their share of the nation’s assets.

The trend is even more extreme among the richest one-ten-thousandth (0.01%) of America’s families:

  • In 1978, this topmost tier controlled 2.2% of America’s wealth.
  • In 2012, they controlled an estimated 12%.
  • And by 2017, their share of the nation’s wealth ballooned to an estimated 14%.

This means their share of the asset pie grews more than six-fold.

And it means these super-rich families control 1,400 times more than the average wealth-per-capita in the U.S.

Clearly, this is not just a problem for the poor. Nor is it an issue limited to the nation’s middle class. It also hinders high-net-worth investors from growing their nest-eggs.

The super-rich have controlling interests of the nation’s biggest corporations. Those companies, in turn, buy back massive amounts of their own shares, which forces them to cut back sharply on the dividends they pay out to average shareholders.

The best wealth distribution data, from an exhaustive study published by the National Bureau of Economic Research, is encapsulated in the black bars of the chart below.

U.S. Wealth Concentration, 1920 — 2017

(% of nation’s wealth held by 0.01% of households)

The chart paints a broad picture of American society in the 20th and 21st centuries.

In the Roaring 1920's, the top tiers of society (the richest 0.01%) gained wealth rapidly. Their share of the nation’s wealth doubled from 5% in 1920 to a peak of 10% in 1929.

Starting in 1929, however, they begin to suffer big losses. A large portion of their fortunes were wiped out in the Crash of ‘29 and the Great Depression. Indeed, this period is the only time in modern U.S. history that we witnessed a very significant — and long-lasting — reduction of wealth disparities.

Now, fast-forward to the 1970's. This is when income inequality in America reached an all-time low. And this is also when, it began to rise again, especially as inflation heated up toward the end of that decade.

From that point forward, each period of growth and each economic crisis merely hastened the rise of the super-rich and accelerated the relative decline of all others in society.

The next critical point in history was 2008. It was not only the year when Lehman Brothers failed (one of America's oldest and most reputable investment banks); it was also the year when income disparities in America matched the peak levels of a similar kind of turning point nearly nine decades earlier — 1929.

In other words, in 2008, income inequality in America was close to what history says was a breaking point. And not coincidentally, that’s precisely when the Housing Bust, Debt Crisis and Great Recession begin.

The year 2008 was also the year when the Fed launched its unprecedented money printing operations. Although the stock market fell and the economy declined, there was a very critical difference between the Great Recession of the early 21st Century and the Great Depression of the 1930's:

The Great Depression greatly reduced the wealth share of the super-rich. The Great Recession did not. Quite to the contrary, during and after the Great Recession, the concentration of wealth surged to new, all-time highs, never before witnessed in the United States.

What other hellish megatrends accompanied this sea change?

What does it mean for you?

How will it impact your investments going forward?

Understanding these issues is important background information to understand why you must consider owning your own business, ideally a home-based business rather than a traditional bricks and mortar one.