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Can The Top 10% Prop Up The Whole Economy?

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Is the top 10% up to the task of borrowing and blowing enough money to prop up a debt and bubble-dependent economy?

 
Since the entire economy depends on consumption for its "growth," and discretionary consumption is financed with either cash or debt, that leads to two questions: 1) who has cash to spend on non-essentials and 2) who is credit-worthy enough to borrow money for non-essentials?
 
What makes a household credit-worthy? A) disposable income, i.e. cash left over after servicing debt and paying for essentials, and B) assets that can act as collateral for loans.
 
Since the top 10% take home 50% of all household income, it follows that this top slice has most of the discretionary cash:
 
The top 10% is also the only slice whose income has exceeded inflation over the past four decades:
In terms of assets that can serve as collateral, the top 5% own most of the nation's household wealth. So not only do the top 10% earn most of the income, they also own most of the assets that can serve as collateral for loans:
 
Much has been written recently about the extreme concentration of wealth in the top .1%. The point here is that the top 9.9% may be doing OK, but much of the wealth owned by the top 10% is concentrated in the top .1%.
 
 
Since real income for all wage earners has declined since 2007 when adjusted for inflation, we have to ask just how well the top 9.9% is doing in terms of purchasing power.
 
 
Can the top .1% prop up the economy with their spending? Yes, they can prop up Maserati sales and buy $10 million vacation condos, but there simply aren't enough super-wealthy to do the job. As for the top 1%, they can prop up the local Porsche dealership and pay dock fees at the yacht club, but there aren't enough of them, either: around 1.5 million qualify as top 1%.
 
The top 5% households number around 6 million out of 121 million households, but that's not a big enough number to fill every high-end bistro and private school in the nation. So that leaves the top 10%, the 12 million households with half the income and roughly 80% of the assets, with the task of spending enough free cash or credit-money to prop up an economy that depends on serial asset bubbles for massive injections of unearned income.
 
Is the top 10% up to the task of borrowing and blowing enough money to prop up a debt and bubble-dependent economy? Right now, we're one stock-market-and-housing bubble pop away from finding out if the top 10% will be able and willing to spend, spend, spend once their bubblicious assets are evaporating like mist in Death Valley.
 

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Wed, 05/14/2014 - 13:01 | 4759561 LawsofPhysics
LawsofPhysics's picture

"Sustainability" of anything in closed systems such as the biosphere known as earth can be a real bitch.

Meh, same as it ever was...

Wed, 05/14/2014 - 13:21 | 4759635 max2205
max2205's picture

Charles do you just sit around and anti rich blogettes now.....  no one likes a hater

Wed, 05/14/2014 - 13:41 | 4759712 SheepDog-One
SheepDog-One's picture

Just a ball of rock with limited resources to fight over, that's all we got!

Wed, 05/14/2014 - 13:52 | 4759762 Canadian Dirtlump
Canadian Dirtlump's picture

It is a disquieting thought, but at some point there is a logical end to the growing number of people who will be generationally unproductive and sadly I expect it will involve deathsquads.

Wed, 05/14/2014 - 14:12 | 4759844 TahoeBilly2012
TahoeBilly2012's picture

NO! But the top .001% can prop up the top 10% who will help them get to their bunkers.

Wed, 05/14/2014 - 15:18 | 4760090 imapopulistnow
imapopulistnow's picture

Repubs had better recognize this is unsustainable.  It's going to turn moderates into leftists.  Envy is a strong emotion, particularly when it is percieved that the wealthy did not get their's fairly.  Had better agree to minimum wage increases and some added progressive taxation or they will in the end lose far more. JMO

Wed, 05/14/2014 - 17:03 | 4760546 rbg81
rbg81's picture

How about the Walmartians?  How did they get theirs exactly?  I look at them and have no fucking idea.  Oh, wait.....they vote for a living.  

Wed, 05/14/2014 - 17:43 | 4760691 Georgia_Boy
Georgia_Boy's picture

I'd be happy to see the GOP just die already, except for fear that what replaces it would be worse. They dug their own grave, I have no sympathy.

Fri, 05/23/2014 - 00:19 | 4787470 MeelionDollerBogus
MeelionDollerBogus's picture

pffft you never saw Spartacus? Idiocracy?

Gladiator Arenas.

Wed, 05/14/2014 - 15:32 | 4760170 Miffed Microbio...
Miffed Microbiologist's picture

Perhaps we can coerce more into taking the one way trip to Mars.

Miffed;-)

Wed, 05/14/2014 - 13:02 | 4759566 Shizzmoney
Shizzmoney's picture

That is what the Fed, Pentagon, and Congress are betting on (and to be fair, I think it is more 20% - although 10% of that being the tip top wage earners, and the other 10% being their lackeys in management, boards, pundits, lobbyists, etc).

They'll lose obviously.  Even with the updated technology, once the people ask for the guillotine - THEY WILL GET THEIR GUILLOTINE.

Wed, 05/14/2014 - 13:09 | 4759589 Xibalba
Xibalba's picture

Lose?  They'll just change the formula to insure they win.  10% labor force participation?  no prob.  200% debt vs GDP?  no prob.  20% annual food inflation?  Great for business!

Wed, 05/14/2014 - 13:27 | 4759662 LawsofPhysics
LawsofPhysics's picture

Optimist.  History is pretty clear on what happens once supply lines break.

Are you not entertained?

Wed, 05/14/2014 - 13:06 | 4759575 Relentless101
Relentless101's picture

Short answer? No.

Wed, 05/14/2014 - 13:14 | 4759612 101 years and c...
101 years and counting's picture

a little more detail: the US doesnt make/produce anything they want.  

Wed, 05/14/2014 - 13:18 | 4759626 i_call_you_my_base
i_call_you_my_base's picture

Exactly, which is why "stimulus" even on the low end of earners isn't stimulating.

Wed, 05/14/2014 - 13:06 | 4759576 i_call_you_my_base
i_call_you_my_base's picture

It's more obvious than this. Give a top earner $10K more per year and it just goes into a slush account and gets saved. Give bottom earners $10K more per year and most will spend every dime. If the idea is to get flow through the economy the latter is more effective. The flaw in trickle down theory is that the bleed into savings and uneconomic wealth (like art, already produced) is greater among high earners. In any case, it's more about theft than theory.

Wed, 05/14/2014 - 13:51 | 4759754 A Cruel Accountant
A Cruel Accountant's picture

So we elimite the 10% tax bracket, and no ssi or medicare tax for the bottom 25%. On the state level eliminate sales taxes.

Wed, 05/14/2014 - 13:06 | 4759580 OC Sure
OC Sure's picture

 

 

 

The premise here is wrong therefore the analysis is incorrect.

Growth comes from production, not consumption.

The top tier has the most cash to spend because they are the primary recipients of the counterfeit.

The facts falsify the fiction and the fiction can not ever create the facts.

Wed, 05/14/2014 - 13:14 | 4759583 db51
db51's picture

W T F Kind of question is this?    They've been pulling it off since 2008.  Give me a fucking break.   Print up some more cash, give it to the banksters to offset their losses, increase the EBT card Limits, put another 30% of the workforce on Disability.  BTW.....we'll then be approaching 70% of the US workforce Disabled.   all of these folks will continue on their merry way, rinse, lather, repeat.   My two little Grandkids are going to be pissed off bigtime when they're living in a mudhut, pissing in their drinking water and standing in a breadline.  Life in The Hamptons won't change one iota.

 

We're Screwed.   One other thing....If Zero Hedge is still up and running after I'm pushing up daisies, they'll still be talking about bankers and political types swinging from lamposts.  That ain't gonna happen.

Wed, 05/14/2014 - 13:11 | 4759584 Ham-bone
Ham-bone's picture

Can the top 10% hold up the economy???

Does anybody care what the bottom 90% thinks or how they are impacted...or how the "economy" fares???  Bottom 90% are just collateral damage to maintain 10% (ok, really 1%) riches and power.

Wed, 05/14/2014 - 13:08 | 4759586 daxtonbrown
daxtonbrown's picture

Technically, my family would be in top 5%. But there is not that much cash flow given low interest and inflation. So forget about the "rich" doing diddly to save everyone's hides.  We are hunkered down like everyone else, because otherwise we are eating the seed corn.

Wed, 05/14/2014 - 13:11 | 4759596 SheepDog-One
SheepDog-One's picture

I'm not doing shit to prop up anything....like the Tool song says 'Some say the end is coming soon, I certainly hope it does I sure could use a vacation from this bullshit 3-ring circus'

Wed, 05/14/2014 - 13:42 | 4759717 edifice
edifice's picture

Maynard is laughing at you from his AZ vineyard, for taking his work seriously. All one need do is go back a little further, to the '80s:

www.youtube.com/watch?v=jKXr40gl9_k

Wed, 05/14/2014 - 13:12 | 4759602 corporatewhore
corporatewhore's picture

Do I believe the premise that the lexus driving self absorbed bleach blonde country club trophy wife (bitch) can support my meager labor efforts?

No.  I just wish she'd get in an accident and get incinerated.

Wed, 05/14/2014 - 13:15 | 4759615 litemine
litemine's picture

Stop, step back and see who allowed this to Happen.  All the QE's went to the Rich where we were "TOLD" it's the rich that create Jobs? Where are they.......It was just out and out Theft allowed by the American Government, along with the BOJ and the Bank of England.    The Rich got richer because they just wanted "MOAR".    the rest of us just got Fisted, knowing our children will be in poverty as will theirs is just sad but when you have nothing, you have nothing to lose.............Fortifications will hold out for so long, the protectors have family outside the fence and someone will break, heads will roll.   A new WORLD oRDER    YOU BET.  Just not one the rich expect. Farm your own food, depend on no one.  

Wed, 05/14/2014 - 13:17 | 4759620 Ness.
Ness.'s picture

Off Topic but I had to post this recent tweet from the FED.  The FED giving advise on identifying counterfeit notes... oh the irony.

 

 5m

How do I determine if a banknote is genuine? What should I do if I think I have a counterfeit note?

 

 

Wed, 05/14/2014 - 13:21 | 4759623 Dr. Engali
Dr. Engali's picture

Mr. Rogers says gold is going below $1,000.... Probably a good sign that the bottom is in:

 

 

Gold is a buy under $1,000 an ounce; here's why it could get there: Jim Rogers

 

http://finance.yahoo.com/blogs/daily-ticker/gold-is-a-buy-under--1-000-an-ounce--jim-rogers-154211336.html

Wed, 05/14/2014 - 13:19 | 4759627 db51
db51's picture

The 90% are responsible for all of these shenanigans.  Who in the fuck do you think are sitting around watching The Kardashians, Dancing with the Stars, and spending money going to see sporting events, amd shit movies that pad the pockets of the 1%ers.    There should be mobs storming Washington right now and dragging those mfers out of their dens of thievery.  No sense getting all pizzed off at the 1%.   We're the ones to blame for putting up with this crap.   Me included.    God apparently loves this whole criminal set-up....cause the perps are never punished.   Sickening.

Wed, 05/14/2014 - 13:20 | 4759632 slaughterer
slaughterer's picture

As the charts shows, this has been going on for 32 years already.    Nothing indicates it will stop anytime soon.  

Wed, 05/14/2014 - 13:22 | 4759638 Kirk2NCC1701
Kirk2NCC1701's picture

Banking, finance and mortgage companies are all too happy to make loans and mortgages to anyone with a "decent" credit score -- as long as they can make their monthly payments.

The pre-2008 bubble is being re-inflated, to stave off the demise of the US stock market and with it, the Dollar.  "When things get really bad, you lie, lie, lie!"

Smart/wise people will minimize or eliminate debt and shore up with liquid assests (cash/currencies, PM), and wait for the amazing deals to be had after the Financial Reset.

Wed, 05/14/2014 - 13:27 | 4759659 I Write Code
I Write Code's picture

Is the top 10% up to the task of borrowing and blowing enough money to prop up a debt and bubble-dependent economy? 

No.

That's why the Fed has to print and distribute at least a trillion dollars a year now.  This is BETTER than having the Treasury *borrow* a trillion dollars a year and hand it out.  Unfortunately we are currently doing both at once!

But by that same light, it is why it is mostly harmless to do the printing, and almost mostly harmless even to do the borrowing (after factoring out double counting when the Fed prints and uses it to buy Treasury bonds).  But not quite.  Even at ZIRP the long bond requires interest, and that interest has to be paid or monetized.  Fed printing at $1t/year JUST ABOUT monetizes it!  Maybe entirely.  But it's still the Fed's doing.  Of course it also requires government lie about the rate of inflation.

This has been a secondary motivator for Bernanke's moves all along, I'm pretty sure they've had pretty much exactly this discussion at the Fed, over and over and over again.  They printed a couple of trillion to bail out the banksters, and a couple of trillion for the rest of us.  They can cut back on the banksters if they want to (what are the odds), but they CANNOT cut back on the printing that supports the 90%, that may now be PERMANENT.  And what I'm saying is, it may be "right".

Wed, 05/14/2014 - 13:27 | 4759665 MFL8240
MFL8240's picture

Sure they can just look at the way they held it up in the 1930's!!

Wed, 05/14/2014 - 13:27 | 4759666 q99x2
q99x2's picture

Arrest the .001 percent. Throw them into jail. redistribute their stolen wealth. Replace Washington D.C. with open source software.

Wed, 05/14/2014 - 13:55 | 4759771 Platinum
Platinum's picture

Replace Washington D.C. with open hole in the ground.

FIFY.

Washington Dump City is ready to take all your hazardous waste!

Wed, 05/14/2014 - 13:41 | 4759713 dontgoforit
dontgoforit's picture

Jading coming on.  

Have you ever listened to a record over and over and over until you finally say, "No, I really don't like that song anymore."?

Wed, 05/14/2014 - 13:44 | 4759726 delivered
delivered's picture

Sure they can as long as they continue to purchase yellow diamonds at record levels (today on MSN), purchase a 40 day premium booze vacation for over $1 million (today on CNN), set all kinds of records with art auctions (today on ZH), and spend roughly a quarter of a billion dollars on prime real estate in London (last week on ZH). No worries as I'm sure this will trickle down to Main Street and dirve real economic growth for the masses and lift the entitlement crowd out of poverty. Funny thing is, the worst fear of hyper-inflation setting in has been realized but only for the 1% as since they accumulated all of the CB's printing of currencies over the past 5+ years, they're spending it as quickly as possible (on everything from art to stones to RE to booze).

You know things have gotten out of hand when Mark Cuban states that the Clippers, one of the worst NBA teams over the past 30 years (although doing better the last couple of years) is worth more than $1 billion. I actually feel sorry for the superwealthy now as a billion dollars just doesn't go that far anymore. 

Wed, 05/14/2014 - 13:47 | 4759733 samsara
samsara's picture

Isn't that interesting,   Financialization started at the same time as "Morning In America"

I'm sorry.  That should have been "Mourning In America"

 

Wed, 05/14/2014 - 14:08 | 4759829 CHX
CHX's picture

Good mourning America, and god bless.

Wed, 05/14/2014 - 13:59 | 4759789 TrumpXVI
TrumpXVI's picture

Ummm, just one thought....exzackatickly when was the last time that credit worthiness was a criterion for borrowing money?

Wed, 05/14/2014 - 14:23 | 4759875 Jack Burton
Jack Burton's picture

The media, especially the so called financial media, has been repeating over and over again the report that consumers are spending again, that their spending is up and this is driving the US economic recovery. Well, this is false. What recovery we do have is driven by asset price increases, stocks are juiced by money printing liquidity, the wealth effect has prodcued record returns for the 10% who hold most stocks and other assets. Recovery also comes from the spedning spree of Government, we know that the Federal Government is spending 2 dollars for every one dollar they take in in tax revenues. The rest is borrowed or printed. So that juices the spending overall. Poor people who would be homeless and hungry, are feed and housed with tax payer money. This allows for some consumption by even the poorest. Middle class is also getting any number of government payouts, from food stamps on up. Students are consuming too, this comes from federal student loans, scholarships and parents hand outs.

Strip away the false stock and asset bubbles created by money printing. Strip away the over spending by governments, twice what it can really afford. Wealth effect all comes from government and federal reserve programs. The real economy, the private sector wage and salary machine that should be the measure of the economic health, is stuck in reverse. Wages are stuck or falling. Jobs created are mostly low wage no benefit and many are part time. If there is consumer spending, most of it traces directly to government actions and Federal reserve policies.

The top 10% are gaining ground or holding their ground. the top 1% is in a period of explosive growth due to wealth effect policies. The 90% are lucky to hold their own, most are slipping, some fast some slow. The real economy is in deep recession, subtract government money printing and the economy is dead on arrival.

Like I always say. Imagine government living within it's means. That means the entire federal budget and aid to states and cities would experience an instant 50% cut. Military goes from 1 trillion to 500 billion overnight. Several million jobs disappear in a flash. SS and Medicare are cut 50%, another sevral million jobs vanish. Federal agencies lose 50% of operating budgets, another several million jobs vanish. Business that lives off of government contracts all take 50% cut, another several million jobs vanish. I could go on, but the point is made.

Money printing and government borrowing is all that prevents the greatest depression in American history, one that would last 25 years minimum. This all leads to King Dollar, reserve currency status is ALL there is allowing the printing and borrowing to continue.  We are as dependent now on government as the Union of Soviet Socialist Republics was in the run up to it's collapse. All this and Washington is war mongering all over the world looking for wars to fight and nazis and terrorists to fund in order to destroy more states. Yet, the media acts as if it was 1965 and America was the worlds workshop and great exporter. Instaed of the greatest debtor ever known to civilization.

Wed, 05/14/2014 - 14:30 | 4759899 Peak Finance
Peak Finance's picture

Umm, this is a trick question, right?

Question: 

Can The Top 10% Prop Up The Whole Economy?

Anwser: The top 10% does not have enough wealth to cover the needs of the top 10%! 

Consider the amount of levergae in the system, re-hypothication, loans, debt, assets across multiple balance sheets, fake hard-asset prices propped up by inflation (meaning that even hard-assets are vastly over-valued) 

There is simply not enough real "wealth" to cover all of the paper.

Wed, 05/14/2014 - 14:31 | 4759910 malek
malek's picture

The majority of top 10% households especially with kids can see the writing on the wall that surging health insurance costs and (potential) college costs will consume all their income in a few years, if they don't have a "anchor family member" in some civil servant job to cover the family's health insurance.

Wed, 05/14/2014 - 14:56 | 4759989 Occams_Chainsaw
Occams_Chainsaw's picture

You nailed it.  I started college in 1987 and was able to get through the local university ($500 a semester but went up a bit each year....now it's $3500 a semester) by living in my parents basement and worked 20 hours a week during the school year and full time in the summers.  I made good coin upwards of $9 an hour in a technical call center.  I was also able to afford my car, insurance, health insurance (under mom and dad's plan), gas and always had coin for shit burgers and beer.  Today....my 16 year old can't even come close to holding even like I did.  The bastards want you to take out loans so they own your ass from day 1.  I'm going to do everything in my power to get him through without loans and hope those damn rich people will pony up some more to spend on my non-existant retirement funds when I can't get out of bed any longer to report to work.

Wed, 05/14/2014 - 15:19 | 4760101 I Write Code
I Write Code's picture

Yeah.  The top 10% is a household income of about $125k.  The top 1% is a household income of about $350k.  You don't get into the top 1% on salaried work of one or even two people.  So maybe 8 out of 10 of the top 10% are still in the struggling category.

So the real question is can the top 1%, or top 0.01%, spend enough to trickle down onto the rest of us, and the answer is absolutely not.

Wed, 05/14/2014 - 14:33 | 4759914 Pootie Tang
Pootie Tang's picture

The monetization will continue until morale improves

Wed, 05/14/2014 - 15:14 | 4760077 Itchy and Scratchy
Itchy and Scratchy's picture

I hate when guys come up with better lines than me :(

Wed, 05/14/2014 - 14:40 | 4759936 wagthetails
wagthetails's picture

can't borrower our way out of this balance sheet disaster - using the debt clock numbers the country (business + household + gov).  Even if you confiscated every single asset we'd still be short about $76T. 

Total Assets - $115T

Total Debt - $62T

Total Unfunded Liabilities - $129T

Total Net Worth ($76T) 

Due to so much UFL, even inflation wont' help us as those UFLs will grow with inflation. 

Wed, 05/14/2014 - 16:22 | 4760366 kurt
kurt's picture

I can't wait till Richy Rich is on his yacht, stranded. He's yelling into his phone, "What do you mean I can't have the new casting for my bow thrusters and the turbine is unavailable! Without my bow thrusters I can't park this thing! How could this happen! Give me your manager... Oh, you are the manager"

It seems the middle class implosion has killed the small specialty shops and his parts are not available. Like an unsupported operating system his boat is obsolete. Too bad its too dangerous to go into port these days, especially with such an obvious profile. The hoards will likely string him up to his mast and eat all his victuals.

Nice knowing you Richy. You should have cared more about what was going on, and how you were protected by a hopeful and expectant middle class.

"Oh, Shit! did you see that seagull pluck out his eye!"

Wed, 05/14/2014 - 22:31 | 4761463 tumblemore
tumblemore's picture

quite. this is how they always destroy economies. they concentrate the wealth to the point where the economy can't function any more.

 

also note the 1965 immigration act as the primary initial cause followed by off-shoring from the 80s - both destroying middle class disposable income which is the key factor in prosperity

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