Income Inequality, commonly refereed as the Wealth Gap is the uneven distribution of income and wealth.
Debt and Credit
Debt is an obligation owed by a debtor to a creditor, created when the creditor loans assets(provides credit) to the debtor. When this credit is spent, the debtor's future consumption is leveraged which bloats the current economy at the expense of the future economy. This leveraged consumption inflates the current market values of assets and services.
Economic Trends
- The debt levels in western economies have grown significantly since the early 1970s.
- The degree of income inequality in western economies has grown significantly since the early 1970s.
Why is there a Correlation between Income Inequality, Debt and Credit?
During the beginning of a credit cycle, credit expansion inflate asset values which predominantly benefit the wealthy. During the end of a credit cycle, central banks intervene to buffer economic contraction by bailing out financial institutions and insolvent 'too big to fail' companies which predominantly benefit the wealthy. The conversion of private debt to public debt disproportionately benefit the wealthy.
Income Inequality and Asset Values
In 2007, the wealthiest 10% owned over 80% of all the stock market wealth. Government bailouts and ongoing government stimulus predominantly benefit the wealthy and grow income inequality. Concurrently, the bloated stock values and the subsequent market caps of their public companies are funding the disingenuous greedy compensation and stock packages of their board members and founders as well as the tens of thousands of their upper-level managers.
Credit Market Debt Bubble
Ever since the Global Financial Crisis of 2007-2008 decimated world economies, world economies have required monetary stimulus / credit expansion to grow and sustain their economies.
The chart below shows the total amount of credit market debt owed in the US. Total credit surged to a record high of US$54.6 trillion (in the first quarter of 2012), from close to zero when records began in the early 1950s. Initially credit growth remained subdued. But during the 1970s it picked up…and never looked back.
An August 2014 analysis by Standard & Poor noted the growing Income Inequality was predominately due to the greater reliance on equity options in executive compensation, the rise of the super managers in both the financial and nonfinancial sectors and the superstar compensation of entertainment and sports celebrities aided by technological innovation that broadened their reach across global markets. But in reality, the growing Credit Market Debt Bubble overblown by government monetary stimulus has inflated asset values and subsequently bloated the compensation of company executives. super managers and the superstar entertainment and sports celebrities.
According to the same 2014 analysis by Standard & Poor, as the income gap has widened, it has created an undercurrent of social unrest that, should the trend continue, will worsen, possibly spurring widespread civil unrest.
Standard & Poor Analysis
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