The stock market is hitting new highs on a seemingly daily basis. The job market is rebounding strongly as evidenced by the plummeting unemployment rate. Market analysts are overwhelmingly saying buy stocks, sell bonds. All this implies the economy is positively booming and surely everyone is getting richer. Sadly this is not the case and here are three reasons why this ain’t so.
1. The wealth is primarily flowing to those who are already in risky assets (stocks, funds etc) and this constitutes only about 25% of Americans. Sure a larger percentage have retirements accounts (401K, IRA) which are doing well but this is not money you can freely spend now and for most people retirement accounts have only recovered back to levels seen before the Global Financial Crisis. Also, if you only recently got back into stocks etc, you may have already missed the money boat. The same goes for housing.
2. As the economy improves, the Federal Reserve will start easing back on its easy money policy (known as Quantitative Easing). This means higher interest rates and the prospect of higher inflation. Killers for those not already in the money.
3. Income inequality grows. While the economy booms, the rich will get richer no doubt. The middle class will have to work harder and the poorest will get screwed the most. This is why income inequality is such a risk for economies. Poverty for the most part destroys the social fabric of society, leading to a welfare state as the government steps in to “buy” votes.
The reality is that a booming economy favors far fewer people than the mainstream media would have you believe. Sure it is better than a crashing economy, but remember that just because things may look good at a macro level, at a local level lots of Americans are struggling just as much as they ever have.