Deutsche: Inequality getting worse

Via the FT, Deutsche has a big report out on inequality:

 

And they think its only getting worse. No surprises there.

This is one of our megatrends (see our primer for more details) that we see at the root of the lack of demand and the increases in debt. My take is that we are probably going to need another crisis before this gets resolved.

Maybe Trump’s tax cuts and plutocracy will inspire a lurch in the opposite direction – but that is years away.

 

 

 

Damien Klassen is Head of Investments at the Macrobusiness Fund, which is powered by Nucleus Wealth.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.

Comments

  1. GunnamattaMEMBER

    another chart from the US spotted this morn on twitter which gets to the nub of the issue

    It is the financialisation of all asset classes which is feeding the inequality, and the dynamic is the same across the board – those with assets to leverage can leverage cheaply to buy any other assets they like, and those without assets can only look on at spiraling prices.

    For mine the only overt phenomena of the post GFC era is that those with the most assets (ie top 1% or maybe even top 0.1%) can place the risk of any leveraged speculative purchase they make back with the financial system – because they own the financial system, they set the rules for the financial system, and because the political systems across the western world are wedded to a least regulated financial system as possible for them to sell politically – which means the public through the taxpayers of the world are taking on the risk for the 1%.

    The 1% take on the debt, and gain from the asset price. They dont take on the risk because the mechanisms they get the debt from are too big to fail. That leads to this type of outcome

    This is fairly stock standard monopoly capitalism. the financialisation of all asset classes, the pulling forward of future demand via debt, and ultimately the indebtitude of the political system through infrastructure spending and the like (the 1% will own the debt, and the governments and societies which take it on).

    The larger emerging economies – China, India, Russia, Brazil, and anywhere in Africa – are all caught ultimately in a middle income trap. I tend to the view this means that wages/labour are going to be compressed for a long long time, and that is before you start to think about automation.

    We are already seeing less and less expenditure on anything ‘real’ (food housing, transport) in the western world, it is more what would once be thought of as discretionary/aspirational/branding etc. Given that the 1% will own any ability for anyone to self actualise – the systems, and technology, the financial capital – we can expect that life itself will become a further series of meaningless ‘competitions’ – think the reality TV shows; kitchens/cooking singing/entertaining home/garden – in order to provide a payoff for them and make life more irritating (but more competitive and ultimately efficient) for us.

    I might mosey down the beach with my kids before they get privatised and made accessible only to big busted 22 year olds and shaven skulled tech geniuses…..

    The only way out from here is actually some form of revolt – and it will be illegal revolt, not something nice like sitting on lawns and chanting….

  2. “It is the financialisation of all asset classes which is feeding the inequality …”

    Thank you, sir. I will shoot the next person who posits that the tax system is at fault.

    Frankly, until the fraud that is the ‘fractional reserve’ banking system is ended the inequality gap will continue to get ever wider. Without the existing banking system financialisation of assets would be nigh impossible and houses would simply be a consumption item. The only people who’d get wealthy would be those building successful businesses. End of.

      • As a general point, taxation is a blunt tool … always … and then leads to the question of who to re-distribute it to? Cronies? Zombies? Basically anyone who the incumbent administration thinks is ‘deserving’ of it. In other words, Game of Mates, plus a few crumbs for the poor.

        Your suggestion is that taxation could be used to return the system to the status quo i.e. to negate the negative side effects of fractional reserve banking. Unfortunately this couldn’t be further from the truth. What fractional reserve banking does is construct a large ponzi scheme in which increases in money supply inflate asset prices, higher asset prices create more collateral … more collateral means that more money can be lent into existence … and so on in perpetuity, except in instances where the population stagnates or starts to decline … that’s when the ponzi starts to unwind (alternatively, the number of eligible borrowers just declines/disappears). People don’t get taxed until they ‘realise’ their gains anyway and most just sit on their ‘wealth’ and extract it via equity release to buy ritzy cars and ski-holidays in Aspen.

        The other negative effect of a fast ‘n loose monetary system is that it encourages speculation over hard work / business formation — a situation that has been in train here for some time and for which we will pay dearly (sooner than people think, I suspect). The best way to address the inequality is to base the economy on a sound money system — that way it is impossible for the connected oligarchs and the Govt to confiscate the wealth of its citizens, except through direct taxation, whose transparency at least serves as a ‘brake’ of some sort. People need to understand that there will never be true equality — there will always be rich and poor but at least those who have little money won’t have it robbed from them by the printing press.

  3. Yep, everyone has hit the nail on the head: Financialisation of the Economy 101.

    These days I laugh hard at people who delve into particulars about Australia’s housing bubble; it’s supply & demand, immigration blah blah blah. It’s like saying cardiac arrest or systemic organ failure was the reason someone with cancer died. The real reason they died is because of cancer, the rest is symptomatic… The real reason for Australia’s property bubble, is the financialisation of the economy.

      • Do you think every asset bubble the globe over has it’s root cause in a particular city’s rural growth boundary? Or is it simply that the finacialisation of the global economy has led to all this extraordinary private debt we’re seeing? People are bidding with what they are lent.

        In answer to your question, it would have no impact on the up & up of private debt levels tied to speculative bubbles.

      • GunnamattaMEMBER

        More 1%ers will buy land to resell to the punterariat…..

        But seeing as urban growth boundaries provides a lovely dividend as they currently work I wouldnt hold your breath

    • You said housing bubble and property bubble – not asset price bubble.

      Hong Kong does not have much land but there is plenty of land in Australia. There is no excuse for having real estate bubbles in mining towns. And the bubble popped recently: http://www.smh.com.au/money/investing/diversity-is-the-key-to-avoiding-property-pain-20170922-gyn6vs.html

      No real estate bubble occured in Atlanta and Texas because they allow a house to be built just about anywhere – this is while some/most states in USA had a real estate bubble in 2006.

      Ireland had a real estate bubble and it popped in 2007 or 2008. You can see the documentary by RTE on Vimeo. Did rural Ireland run out of land?

      Food trucks are banned on most roads in MEL in order to keep the price of bricks and mortar restaurants high.

      Uber was banned to keep the price of taxi licences high.

      In London there is a phenomena called “sheds with beds” the car garage being used by poor people for cooking and sleeping. But hey, that cuts the price of bricks and mortar houses, so the authorities are cracking down on sheds with beds.

      • I say asset bubble to show that the only unifying factor between them all is the process of rampant financialisation. The property bubble could not exist without excessive credit being injected into the sector. Housing, irrespective of land constraints, could never get to a median of $1 million without the facilitation of debt well beyond people’s longterm ability to service it.

      • Jacob,

        A great quote from the article you linked: “I’m a real estate agent, so if I’m not safe, no one is.”

  4. I also expect this trend to continue. A crisis will not resolve, rather it will likely cement the chasm.

  5. Give out the $900 cheques again. Make them permanent and make them $9000/each instead of $900.

    Remember, the cheques did not go to the minority who had an income over $100k.

    Fund it by land tax, “skilled” immigration tax, LNG export tax, mineral export tax.

    • so the poor sods working their arses off to make 110k/yr get fd by inflation and reduced purchasing power, while gerry harvey etc rub their hands together as every previously destitute degenerate rushes to buy the latest 85″ ULED tv?

      • Nice astroturfing. That too without paying for subscription.

        “the minority who get paid over $100k are poor”

        (let inequality continue to soar)

        “the destitute will buy an 85 inch TV instead of food and shelter”

        (poor voters are poor because they make bad decisions)

        “reduced purchasing power”

        (I will feel less rich if the receptionist can afford a BMW!)

        “cut the Sunday penalty rates to increase wages”

        (cognitive dissonance is awesome)

      • I am astroturfing for the unemployed? Yeah, it is a very wealthy and powerful lobby group. Oh wait…you make no sense.

  6. Kids….leave. Australia is all about the Gerry Harveys, the Harvey Normans, the Woolies, the Coles, all the retail giants that screw people over and endorse a Big Australia so they can make a killing. The baby boomer generation have by and large, stood idly by while the decline of Australia gears up full speed. They have been the ones that have the greatest wealth by a mile, and yet, have done sweet fuck all to curb the 2 major parties stance on immigration and population overload. They could have advocated for future generations by banding together and taking a stand not to endorse the major 2 parties, not to go to the retail giants, not to do this, not to do that, not to contribute to the wealth gap by outbidding youth at auctions by topping up their “investment portfolios”. The Baby Boomers leave a legacy of the “me” generation, the all about the “self” generation. Congratulations. Kids…..the only thing going for Australia is Aged Care for this growing cohort, and the Chinese taking over our suburbs while locally born are pushed further and further out. Call me racist, call me whatever the f you want. It is time people saw this for the rort that Australia is now. This is fact.

    • Steernorth,

      Our political system is cleverly designed to give the mug punters the illusion that they have a choice, while political power remains firmly in the hands of the elite (the top 0.1% or so). Two political scientists in the US investigated the decisions made by Congress and found that policies desired by the elite were implemented and those desired by the bulk of the population were ignored unless the elite wanted them too. See

      http://pnhp.org/blog/2014/04/21/gilens-and-page-average-citizens-have-little-impact-on-public-policy/

      It is no different here. The politicians dance to the tune of the elite because they need them for election funding, favourable coverage in the media, and lucrative careers and investment opportunities after they leave Parliament. The public gets a say on symbolic issues such as gay marriage or the Republic, but not on immigration levels or tax incentives for landlords. Those issues are bipartisan. If a minor party starts to gain support, it will be infiltrated by the same sorts of greedy, amoral people who populate the major parties. The only cure would be sortition and/or citizen initiated referenda, which our rulers won’t give us. The elite can also shape the narrative through their control of the media, convincing people that there is no alternative, so they might as well vote for whichever major party will make them marginally better off. This was particularly effective before the Internet, when they could get away with out-and-out lies.

      As Prof. Peter Turchin explains, the elite don’t make concessions unless they are in danger of being strung up.

      https://aeon.co/essays/history-tells-us-where-the-wealth-gap-leads

      I blame the baby boomers who are part of the elite and their minions, or among the opportunists in the top 20% who can set up as petty exploiters. Those who would profiteer on a basic necessity of life are scum. Most baby boomers are just ordinary people, though, with no real say on anything. Younger voters are already in the majority. Why haven’t they fixed the problem if it is so easy?