Watch the Top 5%–They’re the Key to the Whole Economy, by Charles Hugh Smith

When the top 5% hold most of the assets, they have an outsize effect on the economy. From Charles Hugh Smith at oftwominds.com:

Go ahead and become dependent on asset bubbles and the free spending of the top 5%, and optimize your economy to serve this “growth,” but be prepared for the consequences when the costs of this optimization and dependency come due.

Here’s the problem with concentrating most of the income and wealth in the top 5%: the whole economy now depends on their spending and “the wealth effect” of bubbles driving that spending. As the charts below show, the top tier of households own the vast majority of the wealth and take home roughly half of all income, including virtually all (97%) the income derived from capital.

By inflating an enormous everything bubble, the Federal Reserve and other central banks have inflated the “wealth” of this top tier. This was of course the plan: by artificially inflating asset bubbles, the central bankers believed that those seeing their net worth expand would loosen their purse strings and borrow and spend freely: the wealth effect.

The problem with relying on the the wealth effect is that if wealth has concentrated in the top, then only the top will benefit. The bottom 50% own virtually no capital (see chart below) and the modest wealth owned by the bottom 90% generates a mere 3% of all income derived from assets (stocks, bonds, real estate, etc.).

Monopoly Versus Democracy: How to End a Gilded Age (foreignaffairs.com):
Ten percent of Americans now control 97 percent of all capital income in the country. Nearly half of the new income generated since the global financial crisis of 2008 has gone to the wealthiest one percent of U.S. citizens. The richest three Americans collectively have more wealth than the poorest 160 million Americans.

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