The widening wealth inequality in the US

Oct 15, 2015

- By Bill Bonner

Bill Bonner
Paris, France

Dear Diary,

Suddenly, it has turned very cold in Paris. The sky is gray. People wear coats and scarves; it feels almost as if it could snow.

Seeing the weather turn against us, we wonder what else might be coming. Stocks fell back below Dow 17,000 yesterday after Walmart warned that it was having trouble selling things to people with no money - at least, on the internet. Its ecommerce efforts don't seem to be paying off as quickly as it hoped. Why?

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There are some 100 million people in the US who earn about the same average wage as the people of Argentina, Jamaica or Bosnia-Herzegovina. David Stockman over at the Daily Reckoning:
    ...according to the Social Security Administration's wage records, there were 100 million workers who held any kind of paying job during 2013, who earned a collective total of just $1.65 trillion that year.

    That amounts to the incredibly small sum of just $16,500 per average worker. And not for a small slice of the labor force but fully two-thirds of all Americans with a job.

And according to our old friend, Jim Davidson, the US now has wealth inequality rivaled only by Russia. There are a few people at the top earning a lot of money. And there are a lot at the bottom earning little money. Davidson elaborates in his soon-to-be-released book, tentatively entitled, "The Breaking Point":
    Evidence of how far the bottom 50% of America's wealth distribution has fallen comes from Credit Suisse in its 2014 Global Wealth Databook. As interpreted by Mike Krieger, the data show that the bottom half of America's wealth distribution ranks dead last among 40 major economies, with "just 1.3% of national wealth. Only Russia comes close to that dismal share, at 1. 9%."

    But the comparison is even more dismal than Krieger lets on. When the comparison is extended to the sixth decile, the US ties with Russia at dead last for the smallest percentage of wealth owned by the bottom 60% of the population In both countries, the bottom 60% own only 3.4% of the total holdings of wealth according to Credit Suisse. The US ranks below other countries with famously unequal holdings of wealth. Indonesia (5.6%), Brazil (5.8%), and Mexico (8.8%) all rank considerably above the United States in percentage terms.

Here at the Diary, how much other people earn is none of our business. And we have no truck with those who urge the feds to "do something," by which they mean take away money from rich Pauls and give it to poor Peters. The feds are not very good at it. Much of the money sticks to their hands. Also, Paul has friends in high places. Speaking fees, lobbying jobs, campaign contributions - when Paul talks, the feds listen.

Besides, we're suspicious of the feds' motives. The common critique of Fed policy is that it was a "mistake" to push down rates so low for so long. And now, the poor federales are having trouble getting back to a market-set interest rate. Janet Yellen, last month, supposedly in good faith, believed the world was not ready for it.

But here at the Diary, we don't believe the feds have committed an error; we think they've committed a crime. Larceny and fraud are the ones that spring to mind. Though we suspect a good prosecutor could tag them with counterfeiting and embezzlement too. Throw in money laundering, conspiracy and you're looking at 10-20 in the big house.

The essence of larceny is taking something that doesn't belong to you. Imagine the poor retiree. He has saved his money all his life. And now, in his twilight years, is he not entitled to his recompense? But instead of earning the ‘natural rate' of interest on his savings - the rate at which willing lenders are matched with able borrowers - he gets a rate that is fiddled by the feds. He gets almost nothing.

This is not just an abstract point to be argued by economists. It is theft. Think of the aging person who had $100,000 saved in 2007. If he had earned 4% per year on his money, he would have taken in $28,000 in interest since then. But if he got only 1% (or less), he would be short $20,000. What happened to it? Who took it?

There are two parties to robbery, the taker and the takee. We have seen what happened to the victims; they are too busy picking through trash bins to go to the Walmart website. But what about the takers? They are busy too...lobbying...eating foie gras and caviar...and offering to save the world with more windmills and monetary policy. They are, of course, those who paid interest rather than earned it. Who? The US government is the biggest debtor in the world. So, who gained the most from the federales' policy? The federales themselves.

Who else? The cronies, of course - Wall Street and corporate America. They were rich before the super-heavy intervention began in 2008. Now, they are much richer.

"You complain about all this stuff," said one of the attendees on our MoneyWeek cruise last week, probably speaking for thousands of readers. "But you never offer any solutions. What would you do about it?"

"We would do nothing...we would un-do a lot," we replied. The first thing we would undo is the Fed's control of the financial system. Let takees get the interest they are entitled to. And let the takers get what they've got coming to them.

Publisher's Note: Vivek Kaul, the India Editor of the Daily Reckoning, just made a bold call - Real Estate prices are headed for a fall. Well, if you are someone who is looking to buy real estate, or is just interested in the space, I recommend you read Vivek's detailed views in his just published report "The (In)Complete Guide To Real Estate". To claim your copy of this Free Report, just reconfirm your Free subscription to the Daily Reckoning...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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