In Forecasts & Trends on Tuesday, I reported that 84% of US stocks are owned by the richest 10% of US households (I’m curious if that number surprised you). In doing that research, I also ran across a similar but different study from Deutsche Bank which looked at who owns all the “wealth” in America, not just stocks.
The study found that the rich are getting richer, and the gap between the haves and have-nots in the US is, indeed, widening. Wealth includes homes, property, investments, automobiles, etc., etc. – including any assets that you can own.
The Deutsche Bank study used Federal Reserve data to conclude that the distribution of household wealth in America has become even more disproportionate since 2000. In 2018, the richest 10% of US households represented 70% of all US wealth in 2018, compared with 60% in 1989.
The study also found that the share of wealth among the richest 1% increased to 32% last year from 23% in 1989. You can see the trends in the chart below.
You can see that the orange section at the top of the chart represents the wealth held by the top 1% of wealthiest households, and the light blue section is the wealth held by the next 9% of richest households. Together, they own almost 70% of all the wealth in America. Unfortunately, the bottom 50% of households are barely noticeable in red at the bottom of the chart.
The Fed researchers said the change in wealth among the top 10% was mainly the result of that group obtaining a larger concentration of assets, with asset shares increasing the most for the top 1% of households. These increases were mirrored by decreases for households in the 50-90th percentiles of the wealth distribution, Fed researchers said.
The financial crisis of 2008-09 played a significant part in this growing gap, which resulted in the Federal Reserve stepping in to stem a massive ripple of losses through the global financial system as the stock markets plunged and the housing market imploded.
Another consequence of the financial crisis was a decline in home and stock ownership among households, especially among the bottom 50%. Many people lost their homes and sold their stocks near the bottom and never got back in the markets. Homeownership usually represents the largest share of household wealth.
During that period, the Fed slashed interest rates to near zero and bought several trillion dollars’ worth of Treasuries and mortgage-backed securities in a process known as “quantitative easing” or QE.
This unprecedented monetary intervention eventually rescued the stock markets and turned home prices higher, which benefitted affluent Americans the most. The S&P 500 Index has soared by 325% since the low in March 2009. Likewise, home prices are at record highs today in most parts of the country.
The national homeownership rate for the 1Q of 2019 was 64.2%, according to the US Census Bureau. That is below the historic average of 65.2%, which dates back to the 1960s. Here’s a chart from the Census Bureau showing the homeownership average since the late 1990s:
While the decline in homeownership bottomed in 2016 and has recovered somewhat since, most experts do not believe it will recover to anywhere near the 2004 highs. They cite the fact that the Millennial Generation, now the nation’s largest, is not buying homes at remotely the rate their Baby Boomer parents did.
The bottom line is that while stocks and home prices have recovered to new highs, ownership of homes and equities has shrunk, especially among the bottom 50% of American households. As a result, we have a wider wealth gap than at any time since the early 1930s just prior to the depression.
This explains in part why we are seeing a growing interest in what’s being called “Democratic Socialism” among the two dozen or so Dems who are challenging President Trump. They are calling for substantially higher income tax rates (up to 70% or more) on the wealthy.
Our system of capitalism itself is increasingly being challenged by the Left, including recently by hedge fund billionaire Ray Dalio, founder of Bridgewater Associates. I, of course, do not believe that socialism or 70% taxes on the rich are the solution, but that’s a long story for another day.
In closing, I have heard from a number of readers who were as surprised as I was to learn that 84% of stocks are owned by the richest 10% of households. I suspect that many readers also did not know that 70% of the nation’s total wealth is owned by the richest 10% of households.
That’s why I read so voraciously week in and week out, in an effort to bring you interesting information you may not already know.
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