This great generational injustice is the direct consequence of central banks lowering interest rates to zero and inflating asset bubbles.
How can middle class households have similar incomes but some are asset-rich and others are asset-poor?
Spending and saving habits matter, of course; some households spend virtually all their net income while others “pay themselves first” and scrimp to do so.
But the really big differences in wealth are the result of what assets the household bought and when they were bought.
Those who bought assets at the top of bubbles may still be underwater once inflation is factored in; those who bought long before the Federal Reserve and other central banks inflated credit bubbles every few years have substantial equity even after the bubbles inevitably crash to Earth (revert to the mean).
For example, a household that bought $25,000 of 30-year Treasury bonds paying 12% in the early 1980s and reinvested the $3,000 annual interest (at much lower yields) ended up with over $100,000 by 2012.
Those who bought Apple stock shortly after Steve Jobs took the reins in 1997 did even better.
But few of us are blessed with the insight and courage to make big bets at just the right moment, and hold the bets for decades. Most of us buy homes when we scrape up the down payment, or upon getting married, having children, moving to a new locale, etc. Few of us have the years or willingness to attempt to time long real estate cycles.
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Few of us acquire substantial amounts of stock in a corporation unless we work for the company and are granted stock options.
Thus it is no surprise that relatively few households below the top 5% hold substantial financial assets such as stocks and bonds.
Stagnating wages for the lower 90% haven’t made it any easier to save up capital to invest. As noted yesterday in Neofeudalism 101: Strip-Mining the Upper Middle Class, most of the income gains of the past 40 years have flowed to the very top of the income pyramid.
