Mean Reversion of Wealth is one of the six structural mega-trends that we have identified. As is pretty obvious when looking at chart 2, wealth creation during the great bull market of 1981-2000 was quite extraordinary and, in our opinion, unlikely to be repeated anytime soon. Wealth simply cannot outgrow GDP indefinitely, as it has done in most years since the early 1980s. It is only a question of time before mean reversion kicks in.
Here is the video of an interview I did with Max Keiser on the situation in Europe. A lot of our discussion revolves around why the Germans actually do want a cohesive Europe but feel compelled to pursue the present policy path. We also discuss the advancing plan bail-in plans in Europe and the advent of wealth taxes as a talking point in the crisis.
A recent ECB household-wealth survey was interpreted by the media as evidence that poor Germans shouldn’t have to pay for southern Europe. This column takes a look at the numbers. Whilst it’s true that median German households are poor compared to their southern European counterparts, Germany itself is wealthy. Importantly, this wealth is very unequally distributed, but the issue of unequal distribution doesn’t feature much in the press. The debate in Germany creates an inaccurate perception among less wealthy Germans that transfers are unfair.
In all of the bailed out nations of the euro zone, sovereign default is the worry as this can create a cascading knock-on effect like the failure of Creditanstalt in 1931 that ushered in the banking crisis of the Great Depression. We see this from the default in Greece, which led to bank insolvency in Cyprus and now threatens to bankrupt the sovereign as well. These kinds of cascades of bankruptcy is what Europe is desperately trying to avoid. The question then is what to do about it.
Recently the ECB conducted a eurosystem household finance and consumption survey and man have been talking about it because it shows that household wealth in places like Italy and Spain is greater than it is in Germany. The question I think warrants discussion is why Germans are poor. There are four reasons: property, pensions, eastern Germany and household formation.
Debt and Democracy: Has the Link been Broken?
Sixty percent of the rich Chinese people have said they intended to migrate from China in a recent poll. What would that mean for FX reserves, interest rates and the economy?
This is a temporary tax proposal to demonstrate solidarity in tough times. It reminds me of the solidarity tax Germans paid to deal with their reunification.
Jon Stewart has noticed that Fox News is selling viewers on the view that ‘socialists’ like Warren Buffet and Barack Obama are engaged in class warfare. He presents an amusing view; take a look.
Can Russia get the best of both worlds by freeing its economy from technologically unnecessary charges and rentier tolls paid to special interests? Such expenditures prevent the economy from developing. That is the basic cause of poverty – and hence of national decline. Now that neoliberal financial lobbyists have turned Progressive Era economic reforms upside down, it is necessary to “reform the reformers” in order for Russia to rebuild its economy in the way that made the U.S. and Western Europe so successful during their economic takeoffs.
Executive pay has skyrocketed. Meanwhile, the real average hourly wage peaked in 1973. It declined precipitously until the mid-1990s before rising somewhat. The increase in labour participation rates due to the addition of women in the paid work force has meant that Americans’ per capita and household income levels have risen. However, now labour force participation rates are at their lowest in 30 years.
The Financial Times is reporting that China is attempting to address its wealth gap through a number of measures, the principal one of which is raising the tax exemption on income. As welcome as such a move is for consumers facing significant food and energy inflation, in the broader context of the Chinese inflation picture it is a net negative.