As the disparity between soaring wealth and stagnating incomes becomes more entrenched, the risk of a return to recession rises, according to a new report on the effects of the unbalanced distribution of global wealth.
The analysis, by banking giant Credit Suisse, notes a record amount of household wealth around the world — some $263 trillion dollars — half of which is under the control of just 1 percent of the population.
The United States in the last year added some $12.9 trillion in personal wealth — exceeding the estimated $12.3 trillion hit the country is took during the Great Recession. Much of the accrued wealth was due to increased housing prices. But as wealth and asset values have risen over the 12-month period, incomes have remained stagnant — creating an imbalance similar to that which has foreshadowed past downturns and crashes.
At present, the disparity between wealth and income in the U.S. is as high as it was during the Great Depression, according the Swiss bank's report.
“This is a worrying signal given that abnormally high wealth income ratios have always signaled recession in the past,” the report states.
Wealth represents assets, stocks, bonds and property owned outright. The vast majority of it is likely to be in the hands of people who are already in a financially strong position, through unequal landholding perpetuated through inheritance, the study notes.
“Financial assets are disproportionally held by wealthier cohorts,” the report states.
To Marshall Steinbaum, an economist at the Washington Center for Equitable Growth, the gap between wealthy asset holders and workers living paycheck to paycheck contributes to the fragility of the U.S. economy, where the collapse of bubbles can send the country into a tailspin.
“You have on one hand people taking out loans, and then when house prices go down, their wealth is in negative territory,” Steinbaum said.