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The US is where the rich are the richest

Things are looking rosy for American billionaires and millionaires as wealth accumulation goes into overdrive.

It’s an excellent time to be rich, especially in the US.

Around the world, the number of millionaires and billionaires is surging right along with the value of their holdings. Even as economic growth has slowed, the rich have managed to gain a larger slice of the world’s wealth.

Globally, almost 18 million households control more than $1 million in wealth, according to a new report from the Boston Consulting Group. These rich folk represent just 1% of the world’s population, but they hold 45% of the world’s $166.5 trillion in wealth. They will control more than half the world’s wealth by 2021, BCG said.

Rising inequality is of course no surprise. Reams of data have shown that in recent decades the rich have been taking ever-larger shares of wealth and income—especially in the US, where corporate profits are nearing records while wages for the workforce remain stagnant.

In fact, while global inequality is simply accelerating, in America it’s gone into overdrive. The share of income going to the top 1% in the US has more than doubled in the last 35 years, after dropping in the decades after World War II (when the rich were taxed at high double-digit rates). The tide shifted in the 1980s under Republican President Ronald Reagan, a decade when “trickle-down economics” saw tax rates for the rich fall, union membership shrink, and stock markets spike.

Now, those policies and their progeny have helped put 63% of America’s private wealth in the hands of US millionaires and billionaires, BCG said. By 2021, their share of the nation’s wealth will rise to an estimated 70%.

The world’s wealth “gained momentum” last year, BCG concluded, rising 5.3% globally from 2015 to 2016. The firm expects growth to accelerate to about 6% annually for the next five years, in both the US and globally. But a lot of that can again be attributed to the rich. The wealth held by everyone else is just barely growing.

Where is all this wealth coming from? The sources are slightly different in the US compared with the rest of the world. Globally, about half of new wealth comes from existing financial assets — rising stock prices or yields on bonds and bank deposits — held predominately by the already well-off. The rest of the world’s new wealth comes from what BCG classifies as “new wealth creation,” from people saving money they’ve earned through labor or entrepreneurship.

In the US, the creation of “new” wealth is a minor factor, making up just 28% of the nation’s wealth increase last year. It’s even lower in Japan, at 21%. In the rest of the Asia Pacific region, meanwhile, two-thirds of the rise is driven by new wealth creation.

Political changes could boost the riches of American millionaires even further. After the 2016 election, US stocks rose as investors hoped Republican President Donald Trump and a Republican Congress would agree to eliminate regulations and lower corporate tax rates. The wealthy may also get a tax cut as part of the bargain. For example, the American Health Care Act, passed by the US House of Representatives to repeal and replace Obamacare, includes the elimination of taxes paid almost exclusively by the top 1%. 

“No one knows” what kind of tax changes will become law, said BCG senior partner Bruce Holley. However, “this could buoy the [growth in US wealth] that we are predicting.”

Unsurprisingly, for a country where almost a quarter of income goes to the rich and where they hold the highest concentration of wealth, a big chunk of the world’s richest call America home. Two out of five millionaires and billionaires live there, and their ranks are growing fast. There are now about 7 million Americans with more than $1 million, and BCG expects 10.4 million millionaires and billionaires in the US by 2021. That’s an annual growth rate of 8%, or about 670 000 new millionaires each year. 

Millionaires are far rarer in the rest of the world than in the US, where 5.7% of all households own more than $1 million in assets. The only countries with a higher concentration of millionaires are much smaller nations, such as Bahrain, Liechtenstein, and Switzerland, most with a reputations as havens for the wealthy. China has the second most millionaires and billionaires, at 2.1 million, though its population is four times the size of America.

© 2017 Bloomberg

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Those who are closest to the origin of newly created money benefits most, while those furthest away loses most. The businessmen and large investors in the USA are the biggest beneficiaries of QE en record-low interest rates because their assets are inflated immediately as newly created money supports the value of their assets. The cheap credit they have access to makes it possible for them to leverage, or use gearing, that is too expensive for those further away from the printing presses.

Those furthest away from the printing presses are the commodity producers in the countries who use the US dollar as reserve currency. Their cost of production rises faster than the value of their sales. The people even further away from the source of newly created credit are the actual workers who produce the commodities. The mine-workers and farm-workers are the last in line to receive the newly created money. By the time they receive their wages the cost of living has escalated way above the purchasing power of the wage.

What all this comes down to is that Americans are wealthy because those who own mines and farms outside of America, and those mine-workers and farm-workers are poor.

The primary reasons for the number of millionaires in the US are more mundane: low house prices, reasonable taxation and the low cost of living relative to (generally modest median) incomes. This leaves Joe Average money to invest in pensions or the stock market each month. With time and the long term stability and growth of the economy, this is all that is necessary to push millions of people over $1m in wealth.

Almost all other large wealthy countries have some combination of high taxation, high house prices and a culture where the government provides in old age negating the incentive to save a significant pension; all of which reduce long term investment and wealth.

Generally, it boils down to discrimination. A competent business person is not necessarily one with a stack of cash, by definition. CEO of Corporations seldom have cash (not share options) in a business, as the same advances requirements for people creating new wealth. If we have to put this test to the CEO of our financial institutions, I think it is pretty obvious that they will fail this test?

Productivity, unlike most other things are not distributed normally. Productivity has a Pareto distribution, most people are hopelessly unproductive and only a few are very productive.

For example most actors starve whilst only a few are fabulously wealthy.

The same thing happens with countries. The US is very productive, whilst most countries are not.

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