The pandemic was and remains brutal for average people. But not for the rich: central bank policies created 5 million new millionaires during the pandemic. It’s the latest sign that our economy is rigged for the wealthy.
A new report from Credit Suisse has revealed that more than five million people have become millionaires over the course of the pandemic, while the number of people worth over $50 million increased by over a quarter.
The main driver of this shocking increase in wealth has been rising equity and residential property prices, which increased aggregate household net worth to around $418.3 trillion. Meanwhile, more than half of the world’s population had less than $10,000 in net assets.
Most of the increase in wealth was concentrated in already wealthy countries, with the United States accounting for a third of the new millionaires. The number of millionaires in China is increasing and has now reached around one in two hundred; but in the United States, 8 percent of the population are now millionaires.
How is it that the countries worst affected by the pandemic were also those that registered some of the largest increases in wealth over the course of the last year? One reason stands out above all others: central bank asset purchases.
Over the course of the pandemic, central banks have pumped around $9 trillion worth of new money into the global financial system. This comes on top of the $10 trillion added between the financial crisis and the pandemic. The world is awash with central bank money, and it’s all flowing up rather than trickling down.
Central bankers initially argued that quantitative easing — as the policy of creating new money to purchase assets such as government bonds is known — would boost lending by providing commercial banks with more cash. Of course, the issue banks were facing in the wake of the financial crisis was not a lack of access to cash, but a lack of viable investment opportunities in the context of chronically deficient demand, exacerbated by austerity.
It ultimately became clear that QE worked, but not in the way we had initially been told. Rather than boosting lending, QE came to operate through a portfolio rebalancing effect — in essence, when governments purchased long-dated government debt, they provided private investors with cash that needed somewhere to go.
Investors responded by rebalancing their portfolios away from government bonds, which were providing negligible yields thanks to increased central bank demand, and toward other assets like equities, corporate bonds, and real estate.
Continued next page