Ray Dalio
has come up with a great presentation about why capitalism should be
“reinvented”, as it seems to make the rich richer, and the poor poorer. His
chart below shows that the income share of the top 1% richest people, in
relation to the income share of the bottom 90%, is hovering around its highest
point since the great depression in 1929. The bottom of the chart is reached in
1971.
If you`re a bit familiar with my newsletters, you know that this is
when the gold standard got abolished, and the world started to get addicted to
debt. If you put two and two together, you`d likely come to the conclusion that
less debt creation means less wealth disparity, for whichever reason that might
be. Perhaps it`s because when you`re rich, it`s easier to get cheap loans,
which can make you even more rich.
Now i`d
like to play the devil`s advocate here. Despite the fact that there`s a massive
wealth disparity, it also seems like the worldwide poverty rate has never been
lower than today. So perhaps a big income disparity is not all that bad?
Perhaps that top 1% of richest people create a lot of jobs, which in turn
stimulates the economy. Perhaps equality is not something we should strive for,
as equality always comes with mediocracy. Communism is the greatest example of
this.
Perhaps we
shouldn`t strive for equality, and perhaps we shouldn`t blame the 1% for all
that is wrong with the world, but perhaps we should look at why this 1% had
opportunities that others didn`t, and fix the issue from the source.
People
think there is a shortcut to becoming part of the 1%, and that is real estate.
It has been a piggy bank for generations on end, simply because populations and
productivity kept on growing. We all know what happened during the great
financial crisis; people`s homes had sky high valuations, and they started
using their property as an ATM machine. Why wait to cash in on the different
between the purchase value and the actual value, if you can already take out
some money during your mortgage refinancing? Great idea if the housing prices
keep on rising!
90% of my charts are always about the U.S.
markets. This is mostly because it`s the largest market in the world, and a
good indicator of how the rest of the world is doing. The second largest
economy in the world also has its own problems though, and both consumers as
well as businesses and the government itself is to blame.
Below you can see the
outstanding credit card balances as a percentage of GDP for various countries
at various times in history. As you can see, the mainland Chinese are quite
good at raking up debt on their credit cards, even at a larger scale than the
U.S.!
The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in this publication is that of the publisher and is subject to change without notice. The information in this publication may become outdated and there is no obligation to update any such information.