If we have income inequality we are likely to have an increasingly asset focussed capitalist system. That is the demand for non productive assets and securitised indirect investment in productive capital should increase as demand for goods and services as a proportion of national income declines.
We should see asset prices rising relative to GDP as more of income is directed towards assets and less towards personal consumption expenditure and capital expenditure. This appears to have been the case and for a long while the impact of this trend was allayed via rising debt, falling savings and home equity withdrawals.
The following chart shows total household and NPO financial assets to GDP:
As you can see the ratio is at its highest level based on available data. So let us look at this data set against real GDP growth rates:
The red line is the average annual geometric real growth rate of GDP over rolling 5 year periods. We have real growth rates falling and asset values rising. Note the following chart showing total US debt (ex financial debt) growth over and above GDP growth as a percentage of GDP growth – all nominal – from 1945 to Q4 2013 (based on annual data up to 2012 and Q4 2013 data)
We can also trace the rise in asset values (supply x price) relative to per capital income. Again, based on Q3 data, this ratio is closing in historically high levels.
But if the we then flip the above a bit and represent the data in terms of real personal disposable income growth, we get an even more extreme picture. So we we are looking at the ratio of the data in the above graph to average annual growth in real PDI over rolling 5 year periods. This ratio is at an extreme historical high:
But profits are at extremely high levels, so let us look at the financial asset ratio to profits:
And then flip this data in terms of capital expenditure:
This ratio stands at its highest level since the 1950s. But we can also see that growth in Capex dominated growth in assets up to the 1980s:
And more formally, perhaps the most damning chart of all: