Wealth of the “Top 0.1%” drops by $12 million per household; the wealth of the “Bottom 50%,” who have nearly nothing, rises.
By Wolf Richter for WOLF STREET.
The Fed, in its new release of data on the distribution of wealth in the US, cut its classic category of the “Top 1%” into two new categories: the “Top 0.1%” and the “Remaining 1%.” And then there are the three classic categories of wealth or lack of wealth: the top 2% to 10%; the Next 40%; and the “Bottom 50%.”
The results of splitting out the 0.1% are shocking – though we’ve known it all along: Just how much wealthier the “Top 0.1%” are than even the “Remaining 1%,” and what kind of outrageous gift they got from the Fed’s money-printing and interest-rate repression. While the “Bottom 50%” have nearly no wealth.
Fed’s QT and rate hikes reduce the enormous wealth disparity.
The new release is for Q2, when the selloff in the stock market and the bond market was in full swing. The selloff hit the total wealth (assets minus debt) of the “Top 0.1%” the most, because they own the most stocks and bonds, and those got hit the hardest: The “Top 0.1%” lost $12 million in wealth per average household, compared to the end of 2021. And the unbelievably enormous and mind-boggling wealth disparity in America actually shrank visibly.
QE ended in early 2022. The Fed started raising rates in March. QT started in June. By now, interest rates have shot up, bond yields have shot up, and bond prices have fallen. The Nasdaq started falling late November. The S&P 500 Index started falling at the beginning of this year. In terms of Q2, by the end of June, the S&P 500 Index was down 24%.
And in effect, the Fed’s reversal of QE and interest-rate repression is deflating the Everything Bubble and is therefore deflating a portion of the horrendous wealth disparity that QE and interest rate repression had made so much worse.
So here is the average wealth (assets minus debts) per household, by wealth category in Q2, 2022, and by how much it changed from the end of 2021 (in bold). Note the gain by the Bottom 50%:
- “Top “0.1%” (red in chart below): $133.8 million (-$12 million, -8.2%)
- “Remaining 1%” (purple): $19.8 million (-$2.0 million, -9.1%)
- The 2% to 10% (yellow): $4.4 million (-$253,000, -5.5%)
- “Next 40%” (green): $768,000 (-$16,500; -2.1%)
- “Bottom 50%” (not show in the chart): $69,100 (+$10,500; +15.5%).
The “Bottom 50%” of households don’t show on the chart below because they have so little, and a big part of what little they have are durable goods, such as cars, a little home equity, and pension entitlements. They own nearly no stocks and no bonds, directly or indirectly. But their net worth actually jumped from minuscule to a little less minuscule! Kudos!
So here it is, my Wealth Disparity Monitor. It shows the wealth (assets minus debts) in dollars, per average household in each category. To get there, I divided the total wealth for each category (Fed data) by the number of households in that category (number of households per Census data). The bottom green line is the average household wealth of the better-off portion of the middle class, the folks below the top 10% and above the Bottom 50%, which is an indictment of the wealth distribution in America:
Primary beneficiaries of QE and interest-rate repression: “The 0.1%”
The explosion of the wealth of the “Top 0.1%” households through 2021 (red line) shows that they were the primary beneficiaries of the Fed’s policies since March 2020. These policies were designed to inflate asset prices, and only asset holders benefited from that. The more assets they held, the more they benefited. And those that already held the most assets, benefitted the most.
From Q2 2020, the beginning of the Fed’s crazy QE and interest rate repression, through the end of 2021, the average 0.1% households gained $47 million in wealth!
This was an obscene gift that the Fed handed this small number of households for a monstrous increase of their wealth, and for an exponential increase in the already ridiculous wealth disparity to the rest of the households, even to the “Remaining 1%.” It was also the greatest economic injustice committed in recent US history over such a short period of time.
These monetary policies are largely responsible for the worst inflation in 4 decades that is mauling the “Bottom 50%” of households because they have so little, and spend all their money on necessities.
By Q2, the “Top 0.1%” households gave up $12 million of that $47 million in gains they’d made since March 2020. So the Fed has a long way to go with its tightening policies before this Wealth Disparity gets back to something that doesn’t tear up the American society.
Wealth Disparity between “The 0.1%” and “The 1%”
The wealth disparity even at the very top is just astounding. As we have long suspected, it’s not the 1% that get all the goodies; it’s the minuscule number of households that make up the top 0.1%: QE and interest rate repression since the Financial Crisis, and particularly since March 2020, simply blew out the wealth disparity between “The 0.1%” and the “remaining 1%.”
The effects of the Fed’s tightening are now beginning to dial back a small portion of that disparity; and there’s a long way to go:
My Wealth Disparity Monitor is a quarterly report card on the effects of the Fed’s monetary policies. The official reasoning for QE and interest rate repression is the well-known but dubious “Wealth Effect” which is the monetary equivalent of trickledown economics, where the Fed tries to make the already wealthy far wealthier by inflating asset prices with QE and interest rate repression, based on the doctrine that these households will then spend some of this newly gained wealth, which will then trickle down….
What we got instead of the wealth trickledown is a huge bout of inflation, of global inflation, since central banks globally have pursued similar policies of interest rate repression and QE.
Now the Fed and other central banks are furiously backpedaling, and as tightening progresses, there will be more progress in reducing the disastrous wealth disparity.
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