Registered Investment Adviser Caleb Lawrence
The major averages enter the final hour mixed ahead of the looming government shutdown as political scandal and squabbling seem set to prevent a last-minute deal. Since Tuesday both the Standard and Poors 500 Index and NASDAQ are up a handful of points.
Credit Suisse recently released its 2017 Global Wealth Report. Highlights include global wealth hitting a new record high of 280 trillion Dollars last year, following a 6.4% increase. The 16.7 trillion-dollar gain was faster than population growth and pushed global mean wealth to an average of $56,540 per adult. The magic of statistics, or to quote Mark Twain, “there’s lies, dam lies and statistics.” If you don’t have $56,540 of wealth that’s inequality in action, something that has reached record levels in America, in fact most Americans can’t cover a $500 emergency expense without pulling out a credit card, per recent studies. The other side of the wealth coin is of course debt. So long as wealth is greater than debt, or assets greater than liabilities in accounting parlance everything’s just fine. The Institute of International Finance Global Debt Analysis noted that through the 3rd quarter of 2017 debt jumped by 16 trillion to a new record of 233 trillion Dollars. So far so good as assets 280 trillion minus liabilities of 233 trillion leaves a positive net worth of 47 trillion Dollars. That said there is the small matter of history, and the global exercise in borrowing one’s way to prosperity, an idea that blew up with devastating consequences following the financial crisis of 2007-2009. In 1997 global debt was 50 trillion, wealth a respectable 120 trillion or 2.4 times debt leaving a net worth of 70 trillion, solid numbers to be sure. Given that the 2017 assets to debt ratio is just 1.2, half what it was in 1997, and that net worth has fallen 33% to 47 trillion. Based on the data it’s safe to say that our collective attempt to borrow our way to prosperity isn’t working. Should asset markets and the economy blow up due to excess and record debt levels again, something that is highly likely, global net worth could hit zero. Because assets would only have to decline by 17% from their ridiculously high levels for that to occur.