World wealth: asset inflation separates the rich from GDP

The world, according to McKinsey, has never been richer. Planet Earth, even when hit by a pandemic and blockade, continues to raise funds. Summing up the value of real assets – buildings, machinery and so on – and financial assets for 10 of the largest countries, gives a global balance of $ 1,540 trillion.

That, says the McKinsey Global Institute, the offshoot of the management consulting firm, is a fourfold increase from 2,000.

Where does the new wealth come from? Not surprisingly, the two largest countries brought most of the growth in net worth: half from China and almost a quarter from the United States. Economist Thomas Pickett is right: at the household level, the rich are getting richer. The top 10 percent in both countries own more than two-thirds of their wealth. In frankly capitalist America, the lower half share only 1.5 percent; in China, a country in pursuit of “common prosperity”, the comparable figure was 6 percent in 2015.

Household wealth is divided into approximately equal parts, between real estate and financial assets such as savings and stocks. But there are huge variations: France and Australia prefer land and buildings; American pensions and stocks. The Japanese have never lost their yen on deposits, which account for more than a third of total household assets.

Lex chart on Monday showing global wealth between the average for the sample countries and the pre-2000 average in the sample with China, the US and the UK, and the latest chart showing the value of assets by country, national balance, gross multiplier of GDP are France, showing the leading country and Japan, the United Kingdom, Sweden, China, Australia, USA, Germany, Mexico in this order.

These portfolios led to an increase in net worth in the household sector from 4.2 times GDP in 2000 to 5.8 times last year. Low interest rates and easy money also helped.

MGI believes that rising asset prices have broken the traditional link between growing GDP and rising net worth. The first is weak in developed economies. Value-seeking savings become real estate, two-thirds of net worth.

The expected end of easy money should help bring GDP and net worth back in line. Signals from falling bond markets and Chinese asset prices point to this restructuring. This may be annoying for the rich in the short term, but it is good for them on a political level. Gathering profits from state economic support is not a popular strategy for getting rich quick, no matter how unintentionally it has been pursued.

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