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Hullabaloo


Thursday, June 12, 2014

 
The rich are just sitting on the money

by David Atkins

As the economy continues to sputter even though stocks, corporate profits and other assets are at record highs, it has become abundantly clear that what is good for Wall Street isn't good for Main Street. The entire idea behind supply-side economics has been that if you give the rich more money, they'll make increased investments, which will in turn result in better lives on Main Street.

We all know that's a lie. Increased investment by the wealthy does not in fact produce better jobs and wages for workers.

But not even the first part of the corollary is true. These days the rich aren't even bothering to invest a huge amount of their growing hoards. They're just sitting on massive piles of cash:

Canny caution or bumbling oversight, the world’s richest people have retained huge stockpiles of zero-yielding cash throughout the recent surge in financial asset prices.

Their persistence may have, counter-intuitively, prolonged the buoyancy of those very assets in the process — helping to inflate the outsize wealth of the super-rich further.

With the debate about rising inequality re-invigorated this year by French economist Thomas Piketty’s best-selling book on ballooning wealth gaps, the spending and savings behavior of the so-called “plutonomists” has rarely seen more scrutiny or had more influence on the economy and markets.

Political clamor for redress through greater taxation of asset incomes, rents, gifts and inheritances may well build. But few expect much change in the rising wealth of the richest 1% of households or the 0.1% deemed ‘high net-worth individuals.’

Yet as stock markets barrelled to record highs — with the MSCI’s all-country index up almost 30% over the past 18 months — investment advisors estimate up to 40% of their money remains un-invested and is still parked in deposits.

As the latest equity market surge began early last year, a benchmark survey by CapGemeni and RBC Wealth Management had average cash or deposit holdings among those global wealth investors at almost 28% — more than the 26% held in equity or some 20% in real estate.

Defining the richest 12 million savers as those with more than $1 million in investible assets — excluding their primary residences and collectibles — the survey’s high cash holdings may simply reflect a preference for banking large slices of wealth rather than risking it in volatile markets.

And, to be sure, returns on the 70% of other investments would have paid handsomely enough anyway.

The richest have always tended to hold relatively high levels of cash. Liquid holdings are preferred for wealth protection, tax-avoiding mobility, inheritances or gifts.

Yet the survey’s cash levels are more than twice the levels registered in the equivalent survey from the height of the pre-crisis go-go years in 2006 and 2007.
All of that money is sitting around as useless as the cash in Walter White's storage shed--and most of it is just as immorally made. Not only are the investments of the rich not producing better results in the economy, they're not even bothering to invest their money.

There isn't a single piece of supply-side economics that stands up to scrutiny. It's a fraud, top to bottom.


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