We've Left the Bottom 60% in the Dust, but Never Mind: S&P500 to 6000!

So here we are, with a handful of winners declaring the system is working great and high-fiving each other, too busy congratulating themselves to see the tsunami of karma racing toward shore.

It's a toss-up which is wider: the widening gap between the top 10% and the bottom 60%, or the gap between the complacency of the top 10% and the reckoning that's overdue. Call it karma, just desserts or the wheel of history, the unfairness and inequality of a rigged system generates blowback, and the longer it is suppressed, the greater the eventual swing of the pendulum to the opposite extreme.

But really, who cares about the bottom 60% being left in the dust by a system rigged to benefit the top 10% because hey, the S&P 500 is going to 6,000--yippee! More free money for everyone who bought assets years or decades ago before the Federal Reserve decided the best way to "boost growth" was to inflate assets to generate "the wealth effect" among those who already owned the assets being inflated.

And once the fortunate few were awarded the vast majority of the Fed's unearned largesse--the top 10% own 93% of stocks--they have the wiggle room to ignore inflation. The bottom 60% living on wages--well, not so much.



Readers remind me that many of Americans' financial ills are self-inflicted: poor money management, instant gratification over making sacrifices for long-term gains, getting into credit card debt with 22% interest rates, buying vehicles they can't afford, paying $100 for an oil change instead of learning how to change the oil themselves, and so on--all of which indeed make modest financial circumstances much more difficult.

Having been in the bottom 60% in terms of earnings most of life, I constantly preach the virtues of frugality and anti-consumerism, learning how to do things for ourselves so we don't have to pay for them, and building networks of reciprocity--I help you, you help me--that make all the difference between financial security and insecurity. These are the fundamentals of Self-Reliance.

But better money management doesn't erase the rigged system that has sluiced the lion's share of the nation's gains to the top 10% and left the bottom 60% in the dust. If the rising tide raises all ships, then how is it the bottom 50% own a rounding-error share of the nation's financial wealth-- 2.6%:



The bottom 50% own 11% of the nation's real estate value--a mere fourth of the 44% owned by the top 10%.



The top 10% excel at a few things they rarely receive full credit for: one is choosing their parents wisely, another is believing that since they're doing great, everyone is doing great-- a self-serving delusion that doesn't reflect reality: those who don't own a share of the $45 trillion in stock market wealth weren't issued rose-colored glasses:



The 10% below the top 10% reckon they're "middle class," but how can the top 20% be "middle class"? The reality that the "middle class" has eroded into the top 20% haves and the top layer of the have-nots who still harbor illusions is conveniently obscured by economic cheerleaders lumping the fantastic gains reaped by the top 10% in with the bottom 90% and declaring the entire population is reaping splendid gains. But statistical trickery can't obscure the systemic unfairness of a rigged game.



While many finger the abandonment of the gold standard as the Original Sin, this ignores an economic change of equal consequence: the collapse of all societal values other than increasing shareholder value, which optimized hyper-financialization (stripmining the real economy to enrich financiers and corporations) and hyper-globalization, which stripmined the nation to enrich the top 10% who own 93% of all corporate shares.

These forces drastically eroded the purchasing power of wages to the benefit of the owners of assets, who skimmed the vast majority of the immense financial gains of hyper-financialization and hyper-globalization. Those who depend on wages lost out, those who owned assets enjoyed ten-baggers not from genius but from mere luck.



So here we are, with a handful of winners declaring the system is working great and high-fiving each other, too busy congratulating themselves to see the tsunami of karma racing toward shore.



Those of us who did nothing more than buy a house and invest in index funds--the same common-sense steps taken by previous generations to earn modest returns--and who through no special effort reaped enormous gains thanks to the Fed's "wealth effect"--might benefit from a bit of humility by admitting our gains are the result of a system rigged to benefit all who bought assets before "the wealth effect" rocket-launched the value of our assets. The word few dare utter is "unearned."

In the end, it won't matter what we think, like, believe or hope, for reversal is the movement of Tao. Put colloquially, the pendulum of inequality driven by a rigged system will swing to the other extreme, and claiming that payback is somehow "unfair" won't change the trajectory or the volatility.

New podcast: The Great Unwinding. (33 min)

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