Wed. May 25th, 2022

The world, according to McKinsey, has never been richer. Planet Earth, even when plagued by a pandemic and restrictions, continues to ring the box. Adding up the value of real assets – buildings, machinery, etc. – and financial assets for 10 of the largest countries yields a global balance sheet of $ 1,540tn.

That, says McKinsey Global Institute, an outgrowth of the management consulting firm, is a fourfold increase over 2000. After deducting liabilities, this wealth equals about six times the gross domestic product, also sharply higher than the multiple of 4.5 times two decades ago.

Where does the new wealth come from? It is not surprising that the two largest countries brought most of the growth in net worth: half of China and almost a quarter of the US. Economist Thomas Piketty is right: at the domestic level, the rich get richer. The top 10 percent in both countries own more than two-thirds of the wealth. In outspoken capitalist America, the lower half distributes only 1.5 percent; in China – a country that strives for “common prosperity” – the comparable figure was 6 percent in 2015.

Household wealth is divided into roughly equal parts, between real estate and financial assets such as savings and shares. But there are big differences: France and Australia favor land and buildings; Americans pensions and stocks. The Japanese have never lost their yen for deposits, accounting for more than a third of total household assets.

Monday Lex chart showing global prosperity between, Average over sample countries and Pre-2000 average over sample with China, US and UK, and the last chart showing Assets in value by country, National balance sheet, GDP gross multiple, is France showing topland and Japan, UK, Sweden, China, Australia, USA, Germany, Mexico in that order.

These portfolios fueled a rise in net worth in the household sector from 4.2 times GDP in 2000 to 5.8 times last year. Low interest rates and easy money also helped.

MGI believes rising asset prices have broken the traditional link between growing GDP and rising net worth. The former was weak in developed economies. Savings search value ends up in real estate, two-thirds of the net worth.

The expected end of easy money should help bring GDP and net worth back into closer sync. Signals of declining bond markets and Chinese asset prices point to that realignment. It can be difficult for the rich in the short term – but good for them on a political level. Harvesting profits from state economic support is not a popular strategy to get rich quick, no matter how unintentionally it has been pursued.

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