Our Outrageous Bubble Economy

Last week's Federal Reserve’s Z1 Flow of Funds data deserves our attention. Tim Iacono took a close look at the Balance Sheet of Households and Nonprofit Organizations.

Due in no small part to record money printing by the central bank, the value of households’ assets rose by $2.1 trillion in the fourth quarter of last year year while debt increased by a paltry $26 billion...

Historians will no doubt look back on this data – collected and reported right there at the Fed – and wonder how it could be that monetary policy in the late-20th and early-21st century was aimed squarely at inflating one asset bubble after another – inflating a new one after the previous one burst.

As tangible assets decline in value, financial assets inflate. Look especially at equities (stocks) and mutual funds versus real estate. Growth in financial assets has inflated pension fund reserves. Fed money printing has boosted credit instruments.

The Bernank is dead set on getting us back to the elevated levels of 2007. Once he gets us there, he will call it a recovery. But what will he have achieved? For the vast majority of working Americans, life will continue to feel like it did in 2009 during the post-meltdown lows. Look at this table from G. William Domhoff's Wealth, Income, and Power—

Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.

Table 2: Wealth distribution by type of asset, 2007

	Investment Assets
	Top 1 percent	Next 9 percent	Bottom 90 percent
Business equity	62.4%	30.9%	6.7%
Financial securities	60.6%	37.9%	1.5%
Trusts	38.9%	40.5%	20.6%
Stocks and mutual funds	38.3%	42.9%	18.8%
Non-home real estate	28.3%	48.6%	23.1%
TOTAL investment assets	49.7%	38.1%	12.2%

You can easily see who owns all the investment (financial) assets in this country. 83% of stocks and mutual funds are owned by the wealthiest 10% of Americans.

Not only is it outrageous that 10% of Americans own the place, but it's even more outrageous that the central bank (with the connivance of the Federal government) is inflating another bubble which enriches those same Americans. And what will the rest of us do when the new bubble bursts? We'll be left holding the bag.

At least the Housing Bubble (and even the Tech/Nasdaq Bubble) had the "virtue" of temporarily pumping up the balance sheets of many ordinary Americans if they owned a home (or tech stocks). Moreover, working Americans made money building houses or building the internet. This latest financial asset inflation is pure in the sense that it is backed by nothing of tangible value, and ordinary Americans have not been invited to the party.

It is no wonder my inbox is flooded daily with editorials outlining dollar (or other) collapse scenarios, or how to prepare for the coming hyperinflation, or messages telling me to buy gold or other non-paper assets, or lessons on how to grow my own food, and so forth. Looking at that first graph above, I can certainly see why panic and fear are so widespread in our times. A reader sent me a rant by Gerald Celente which, at first blush, sounds crazy. But upon reflection, you can hear the frustration of a man who realizes that the whole world has become a casino run by con artists for the benefit of a wealthy few.

 

Comments

[sharonsj]

I don't know why they call it household assets. Nobody I know has an asset, other than a house with a mortgage, and an old car that needs repairs.

In my area, there has been an explosion of second-hand selling at flea markets and yard sales, as people try to get cash for their belongings in order to pay bills. Other people, who can't find jobs, have turned to vending whatever new junk they can get their hands on, from wholesale candy to out of date canned food. The corporations have impoverished the country and, what is quite depressing, is that with all the stuff for sale, the average person is still having trouble buying a lousy item for fifty cents.