Asset Bubbles Are Making Davos Billionaires Richer

Davos

The global elite are meeting in Davos, Switzerland this week and are richer than ever. Bloomberg reports –

World Economic Forum Attendees mingle between sessions in Davos, 2009.Photographer: Adam Berry/Bloomberg

A decade after the financial crisis poured flat champagne on the World Economic Forum, gold-collar executives set to gather there this week have bounced back, and then some. 

David Rubenstein has doubled his fortune since 2009. Jamie Dimon has more than tripled his net worth. And Stephen Schwarzman has increased his wealth six-fold. 

It’s a remarkable showing given the economic and political tumult of the past decade, from Lehman Brothers to Brexit to Donald Trump. The fortunes of a dozen 2009 Davos attendees have soared by a combined $175 billion, even as median U.S. household wealth has stagnated, a Bloomberg analysis found. 

The data illustrate the ever-widening gap between the true haves—those in the 0.1 percent—and the have-nots of a global economy. UBS and PwC Billionaires Insights reports show that global billionaire wealth has grown from $3.4 trillion in 2009 to $8.9 trillion in 2017. A report from Oxfam on Monday revealed that the poorest half of the world saw their wealth fall by 11 percent last year.

As I discussed a few months ago in Forbes, the post-Great Recession wealth boom is actually an unsustainable bubble that is fueled by the Fed –

Since the dark days of the Great Recession in 2009, America has experienced one of the most powerful household wealth booms in its history. Household wealth has ballooned by approximately $46 trillion or 83% to an all-time high of $100.8 trillion. While most people welcome and applaud a wealth boom like this, my research shows that it is actually another dangerous bubble that is similar to the U.S. housing bubble of the mid-2000s. In this piece, I will explain why America’s wealth boom is artificial and heading for a devastating bust.

The chart below compares U.S. household wealth (blue line) to the underlying economy or GDP (orange line). In sustainable, organic wealth booms, household wealth tracks GDP very closely. Starting in the late-1990s, however, household wealth decoupled from the GDP as the tech stock bubble helped to inflate American portfolios until it came crashing down in the early-2000s. In the mid-2000s, the U.S. housing bubble boosted household wealth until the 2008 housing crash. Now, here we are in 2018, and the gap between household wealth and the underlying economy has never been larger. This unprecedented gap means that the coming reversion or bust is going to be even worse than the last two, unfortunately.

1 2 3
View single page >> |

For the author's full disclosure policy, click here.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.