In today’s U.S. economy, we have a very small portion of the population earning most of the total income generated by the economy, while the majority of people suffer, as their incomes have failed to rise at the pace of the rich.
According to a study by the Paris School of Economics, the richest 0.1% of Americans takes home nine percent of the U.S. national income. The bottom 90%, which is pretty much everyone else, earns just 50% of the national income. (Source: MarketWatch, February 26, 2014.)
Income inequality in the U.S. economy is worse now than it was during the 1920s in Great Britain.
Aside from income inequality, the other big problem with the U.S. economy is that the majority of Americans simply don’t have liquid wealth. Liquid wealth is assets that can be quickly converted into cash if needed (a home is not considered liquid).
According to Phoenix Marketing International, 25% of U.S. households hold about 75% of the liquid wealth in the U.S. economy. (Source: Phoenix Marketing International, January 16, 2014.) The U.S. is becoming more and more like Europe, where there are the very wealthy and the very poor. The middle class, who should be the backbone of the American economy, well, they have all but disappeared.
Consider that in December of 2013, 22.7 million households in the U.S. economy used food stamps. Not long before then, in 2010, that number was 20.6 million households. (Source: U.S. Department of Agriculture, March 7, 2014.) And that’s after the U.S. government cut back on food stamps funding!
For economic growth, you need personal incomes rising at all levels. When the average Joe feels better about his income, he goes out and spends. This creates economic prosperity, as companies have to produce more because they are selling more. Thus, these companies are hiring more people, investing in new projects, and stimulating the U.S. economy—three things that are not happening right now.
The Federal Reserve’s policies of money printing and keeping interest rates artificially low for so many years have made the rich much richer (I can give you countless examples of this). But these policies hurt the poor and have made retirees who are dependent on fixed income from their investments even poorer.
Income inequality is dangerous. It leads to chaos, not economic growth. The rising stock market—don’t for a second believe it’s representative of economic growth. That’s why this rally in stock prices is a mirage…it won’t last.