Between the second quarter of 2010 and the second quarter of 2012, the bottom 50 had negative combined net wealth.
Here is the same chart in dollar terms.
Unfathomable?
Someone posted a similar chart on Twitter with the comment “this is unfathomable”.
Why?
Many people have no savings and close to half the population (48%) own no stocks.
Please consider What Percent Of Americans Own Stocks?
As of 2019, the top 10 percent of Americans owned an average of $969,000 in stocks. The next 40 percent owned $132,000 on average. For the bottom half of families, it was just under $54,000. Stock ownership has fallen to only around 52% overall since the financial crisis.
It’s easy to believe that those in the 40-50% range have nearly all of that $54,000 average. Then what about debt? How much mortgage debt does the bottom half have?
At the lower rungs, the balance sheet consists of nothing but credit card debt and auto loans.
Well over half the population is not prepared for retirement.
Fed Spotlight
Janet Yellen used to moan all the time about wealth inequality.
Ironically, the Fed is a sponsor of this setup.
Asset inflation does not benefit those with no assets. And inflation kills those on fixed incomes as well as those seeking to buy a home but can never afford one.
Mike “Mish” Shedlock
Your closing paragraph is exactly right, the Fed is directly at fault for manufacturing this asset inflation that benefited those at the very top. It’s government intervention of the worst kind, one that takes from those who need it the most, and gives it to those who don’t need it at all. Most young and poor people are now much further away from owning assets at this point, the homeownership rate is a near record lows. Those in the middle class who can buy, pay high and take on large debts relative to their stagnant salaries. I’m very afraid of communism, but this, in many ways, is worse. Pathetic.
I would like to measure the bottom as those not receiving entitlements. A little unfair to include those subsidized from above.
I don’t know the fuller US stats, but in London the wealth held by the bottom 50% is a bit over 5%; the more interesting stat is that the bottom 10% are in a negative wealth situation. I would not be surprised if the bottom 10% in the US were also in negative territory.
That breakout of the top 1% above the next 9% is quite something. They must be really really smart.
We just bought stocks in the greatest stock market boom in history. This is my biggest piece of advice to anyone in the bottom 90%. I was worth nothing at 22 in 1995. I crossed 1M in total market (non-real estate) assets in 2017.
Well done. But what is your advice exactly, buy stocks here?
Nope. Buy when we get a 40% drop. Bonds have actually returned more than stocks over the last 12 months.
Bonds are gonna continue to be a great investment over a few more years as all the Central Banks go to negative interest rates
Historically, this figure hasn’t changed much, if at all, during recorded history.
There are many areas of the country where so called non-profit organizations own a majority of the land, pay no income taxes and no property taxes.
Yale University in New Haven CT is a glaring example that was recently in (local CT) papers. They have a HUGE endowment, and pay no taxes on it at all. They are the largest land owner in New Haven, but pay no property taxes at all. They collect millions in tuition, much of it paid using tax subsidized student loans that the university knows cannot be paid back. They raise tuition 8-10% (3-4 times CPI inflation) every year.
The fact is: when parasites like Yale pay nothing, everyone else has to pay a lot more to make up for it. Property owners in New Haven that own less than 50% of the land pay 100% of the property taxes, while Yale pays nothing.
Anyone who doesnt believe this unfair distribution of costs leads to an imbalance of wealth needs to do a serious rethink.
How many locales around the US are dominated by tax evading non-profits? Every “college town” just for openers. Do we really need to subsidize organizations that radicalize young people, but don’t teach them employable skills?
Always wondered why more companies didn’t become non-profit institutions given this model. Yale will likely end up owning the state as more flee for jobs elsewhere. Aetna moved to Massachusetts lock stock and barrel. The reasons universities, churches and other non-profit organizations can do what they do is simple: there is a massive tax loophole and they are taking advantage of it.
There is a now abandoned Pfizer pharmaceutical research lab in New Haven. Research in that lab was fully taxable – the land, the capital equipment, the salaries of researchers.
If the exact same research was done in a Yale lab, it was tax exempt.
CT lost more tax paying jobs (not just Pfizer and not just Aetna and not just GE), so naturally the “new” governor (a trust fund baby who lives off his ineritance from Bristol Myers Squibb!!) decided to raise taxes on the dwindling private sector.
The man sitting next to me here at the airport just asked how much of Syracuse NY costs are from the tax exempt university… he says the private sector in his town (Syracuse I guess) is shrinking while the university expands. More and more taxes paid by a smaller and smaller group
2 words – “incentives matter”.
How often do they align with the “common good” and in a way that can be explained to voters?
The art of good politics – policies leading to common good incentives explained clearly to the electorate along with their rights, responsibilities & consequences of bad actions (rule of law).
Everything is far too complicated now & we did it to ourselves.
When i was studying economic geography in college, a fact I learned was (at the time) the #1 land owner in the US was the Mormon church (after the federal govt.).
The 2nd fact I learned, which I already knew. They ain’t making any more land. 😀
A few instances of our “poor” public servants:
130 LIRR Employees Made More Than $200K Last Year
https://patch.com/new-york/northport/130-lirr-employees-made-more-200k-last-year-0
LIRR overtime ‘cheat’ hung out at home on the clock, retired with full pension anyway
https://nypost.com/2019/07/09/lirr-overtime-cheat-hung-out-at-home-on-the-clock-retired-with-full-pension-anyway/
Those are just two recent stories. NYC has a whole administrative floor of teachers who have been convicted, in a court of law, of various offenses. Some have been convicted of pedophilia. They remain on the NYC education payroll because they cannot be fired by spineless politicians. After sitting around reading the paper for a few years, these convicts will retire with full pensions.
And none of that will be reflected in these wealth distribution statistics
Realistically what portion of the entire US population do you think this category represents? How would that distort the overall statistical picture?
In the northeast US (and I suspect around Chicago too), “this category” as you put it represents a large segment of the population. And in at least two Long Island NY towns, public employees and retirees make up the majority of the population (well over 50%). The population used to be more balanced, but the costs of property taxes went berzerk, and only the people who benefit from taxes can afford to stay there now
It is naive and outdated to think the public sector is a tiny little problem. Federal plus state plus local spending is 30% of GDP (federal alone is 20%). Nationally, its a third of the economy.
But in some areas, the percentage is much higher.
I agree with you that the public sector is a huge mess as is the retiree situation – NY, Chicago, all of California, New Jersey, Connecticut, Kentucky and Colorado among others. I think we’d also agree that this stems from politicians with no skin in the game promising employees (voters!) the sun, the moon, and the stars. (Hartford is selling it’s city owned properties.)
However, just because someone is retired in an underfunded state, or cheats the LIRR does not mean they lack assets. The graphs shows 50% of folks who have little or no assets.
According to the “official statistics” the LIRR cheat has no financial assets. His pension fund does, and he is the beneficiary, but he is in the 50% of the population with supposedly no assets.
The example in that article is particularly offensive, but the trend is all too common in NYC, Chicago, California, NJ, CT, etc.
In those places, a big part of the “bottom 50%” are raking in six figures a year from pensions that, legally speaking, they don’t own
Government (nationwide) is 30% of GDP. And in the above places, its much much more. They are, for official statistics purposes, in the bottom 50%.
So are the multi generation welfare recipients, who’s official “wealth” does not include billions in transfer payments.
The hard working family who is down on their luck and needs a helping hand to get back on their feet? Nationwide, they are not the majority of this wealth gap… and least not yet. But the more they get stuck with taxes to support like this LIRR creep, the more they struggle to stay afloat.
Nothing Jerome Powell does at the Fed will change this
EdKennedy makes an excellent point about whether these stats include minors. And therefore I wonder if FRED didn’t present the stats this way to make the situation look as bad as possible. I’m gonna have to consider FRED stats more carefully in the future.
Mish: can you please post a link to the FRED charts so we can see the parameters (e.g. Households, People over 18, etc.)
“Not in the US. There’s lot of debt paying over 2%.”
Unfortunately, pension plan assumptions are 7.5% or so on average
That average. Pension plans could have made up for lost returns if they had gone 100% long on stocks in 2009 or 2010. Instead they took more risk in bonds and got less return.
Hindsight is a wonderful thing. In 2029 I’ll tell you exactly how to invest during the 2020s
As long as rates kept getting cut, there was no risk to any assets. The Fed is trying that same playbook again and trying to make the assets line go up and keep liabilities flat or marginally higher with lower interest rates. On the balance sheet you can only do two things – increase assets or reduce liabilities, or both, in order to make a difference. The call to go all stocks was easy in 2009 or 2010. This time not so much.
As I said earlier, you use the capital appreciation or depreciation of the bonds to hedge the movement in the value of the liabilities, and you sell bonds to pay benefits as needed; while it would be nice to get a stream of interest payments, it is not essential.
As for the discount and return assumptions, it is fantasy land to assume discount rates much north of 4% and your return assumption might perhaps be 1% to 2% over that in a portfolio with a reasonable amount of risk on the table.
Someone please explain to me how pension funds are meant to pay pensions when all they can buy a bonds yielding negative rates?
Not in the US. There’s lot of debt paying over 2%.
Who do you think are buying subprime mortgages? Junk bonds? Zombie corporate bonds? Tesla bonds? Derivatives?
Insane investments all in search of “yield”
The stock “market” will provide all the returns needed. For everyone, in perpetuity.
Watched from Europe, it has been amazing how consumption debt was pushed from the 1960s onwards as a good thing.
Good for the bankers, that is.
If Social Security was invested in the same manner as the “wealthy” invests, there would be no retirement crisis. Whose fault is this? Let me guess, you think it’s the Fed’s fault.
“And inflation kills those on fixed incomes as well as those seeking to buy a home but can never afford one.”
Hi Mish – I always thought inflation was the friend of the indebted. If I buy a house in 2020 for $300,000 with an $250,000 fixed-rate 30-year-mortgage and we had hit a bout of strong inflation for 10 years (e.g. 5%), then my salary will need to rise to cover the increases in inflation (granted an assumption, but it is basically what happened to my dad in the 1970s), then the mortgage payment stays the same, but is far less onerous.
In the ’70’s we had something called COLAs or Cost of Living Adjustments. Almost all companies provided annual COLAs based upon the rate of inflation. Pay increases were generally on top of that.
COLAs were negotiated by labor unions. But even non-union companies provided them so that their workers weren’t incentivized to unionize.
That doesn’t exist anymore. So no, the 5% increase in costs would not result in a 5% increase in wages. In fact, your company would probably tell you they have to cut wages or benefits because their costs are going up.
Different men, different time, different results.
I think that what Mish was referring to was people on fixed incomes are ruined by inflation as their buying power decreases every year and that people that don’t presently own a house can’t save fast enough to get a downpayment. If you already own, good. If you don’t good luck!
The Fed’s market manipulation policies obviously helped those closest to the Fed more than the rest of the population.
But the failed US education system is the reason the bottom 50% didn’t benefit at all. Dozens of studies have shown US high school alleged graduates cannot (are not able to) do simple math, cannot balance a checkbook, cannot read and write at a middle school level. Students are so bad at solving “word problems” that the category was dropped from evaluation in recent years.
Schools in the US are about creating and protecting jobs for public unions. Teachers aren’t very well paid, but administrators sure as $%(# are paid mad money. Janitors in schools get so much overtime one has to wonder when or if they sleep (they clock in for a lot of overtime, whether they work while clocked in is a different matter).
Poorly educated, or mis-educated persons are going to have low skills, and low earnings potential for life. Simple as that. Increasing welfare will not address a failed education system
It’s not our education system. It’s the students and their parents. I live in one of the best public school systems in the country and roughly 1/3rd of the kids miss more than 50 school days a year. Primarily Blacks and Hispanics. I imagine in some school districts the number must be close to 80%. The kids skip school and when in school, make no effort. And the parents don’t care.
And the schools have to graduate the kids. They don’t have the space or budget to school a bunch of college aged kids.
I can’t tell you how sick and tired I am of hearing how Blacks and Hispanics aren’t given the same opportunities. They are. They just don’t take advantage of it because it requires effort. We have to keep throwing money at a problem that is unsolvable with money.
I don’t think you can exonerate the school system so quickly, there is way too much money diverted out of the classrooms (teacher pay, books, supplies, etc), into administrative overhead and union schemes. US schools, like US healthcare, costs multiples of what they do in other countries — and we get poorer results in education too.
But you are absolutely right that half the blame lies with parents. Parents vote for the politics in schools. Parents tolerate subpar teaching. And as you point out, parents tolerate absenteeism. Can’t teach the useless brat if he doesn’t show up to class.
No amount of taxpayer money will fix corrupt public workers. No amount of taxpayer money will make parents act like grownups.
But@Mish post seems to suggest the problem is that poor people don’t own stocks? That is a symptom of the problem, not the cause.
I don’t know if@[Mish Editor] thinks [lack of] stock ownership is the problem. I suspect he was just trying to keep the post brief / didn’t explain his thinking in full. But it comes across weird
Its a cultural problem that will only be corrected at the family level. Every generation of immigrants bettered themselves though hard work and education. A work/education ethic was in place along with strong religious values. Now many of the poor have an entitlement attitude along with no work ethic. None of this is solvable by throwing more taxpayer money at it.
It isn’t education. It’s will-to-pay. I’m an engineer building bridges; underemployed for my first fifteen years out of school; have project managed bridge girder /segment construction; have no retirement; could not buy piece of property with home with an 800+ credit score; so taxes and trailer park rent eat far more for me.
What is the population basis for these statistics? If these statistics are based on the ENTIRE US population, then the problem is nowhere as bad as they show. 38% of the Us population is under age 30 (US Census 2017). Children and young adults normally don’t have significant financial assets.
Even if it is all adults only, most don’t show significant assets until middle age after student loans and mortgages are being paid off.
The real question is what is the financial situation for adults entering retirement, including the value of defined benefit retirement plans? That makes a huge difference in the amount of wealth one has to save before retirement.
Does the 50% unprepared figure you stated include retirees who have generous pensions (like government workers) who have no need to build up large financial reserves?
This is a very good point – the “poorest” people in America probably include medical students who have just graduated and have a net worth of -$250,000, but their earning power could put them in the top 10% in less than a decade.
I used to be a poor 25 year old. But. I owned stock through my 401K. I’ve worked with many who didn’t contribute to a 401k. You have to be a total moron not to at least not invest up to the company match. You could liquidate the 401k, Pay the tax penalties and still come out ahead.
I tried to liquidate. Unless I quit my job I can’t liquidate. There are many hidden rules with 401k. My company offers 25% match. Then 401k takes 1%fee for 25 years. Not winning.
Yes, it includes government employees — who are rich beyond most people’s imagination, but their wealth is politically protected.
These government parasites cry all the way to the bank. They clock in to “work” but do something close to nothing all day. They have job security, pensions and pay that the public can’t even dream of… and they have the nerve to claim the work in “public service”
Welfare recipients, as a group, should have the present value of all their unearned benefits included in their net worth estimate. Too many are part of multi-generational welfare clans.
And yes, there are some welfare recipients who are just hard on their luck and really do need a hand getting back on their feet. God bless that group. But that group doesn’t stay on welfare generation after generation