..and the poor getting poorer.
The World Bank has reported that the disparity between the richest percentage and the poorest is growing. This is corroborated by the increase in both prices and sales in the luxury goods market.
Rolex have announced they are putting their prices up again, even though the prices of pre-owned – which is code for second hand – is down by 21%. And that is because the super-rich only buy new, bright and shiny – unless it is a superyacht and even then the yacht goes straight into a refit yard for a total make-over costing millions of dollars.
Bright and shiny luxury items lose much of their value on sale, instantly depreciating. A bed from Roberto Cavalli with a mattress from Tecca Paris will set you back forty grand. Once it has been delivered to the customer and the mattress taken out of its wrapping you will be lucky to get two thousand. Because the super rich do not buy hand me downs.
The only market exempt from this inexorable law is vintage. Watches, jewellery and some clothing defy the law of price gravity and in some cases increase in prices.
How did billionaires get so rich so quick and how come they are getting richer by the day?
One explanation is that the banks have been printing money like it was 1999, – trillions of dollars, and if you know how to get your hands on that freshly minted cash, it is there for the taking. You just got to be in the know. Which is who and how.
What goes up must come down. The tech billionaires have taken a hammering in the last year, with millions, even billions, taken off their stock holdings. Many of the Russian oligarchs have it all frozen.
The debasement of currency was caused by a massive increase in the money supply in the US and Europe, followed by free money given to furloughed workers during the pandemic , and resulted in high inflation.
Inflation messes up stable economies and worsens vulnerable ones. Look at Germany in 1928 when people walked around cash in wheel barrows with rampant inflation. The Holocaust has its immediate origins in this economic instability.
If you got several billion, you are not worried too much about a cost of living crisis. But if you are close to the edge of financial security – and 365 million people are living with daily food insecurity, up 195% in twelve months – then every dollar, pound or euro spent is a big thing.
And if you consider that the price of bread hardly rose between 1290 and 1550, and likewise the money supply barely grew in this time, it is remarkable that billionaires sprouted up like mushrooms in only two decades from the year 2K – in many cases from relative poverty to multi billion dollar personal wealth.
Take the owner of WhatsApp, Jan Koum from the Ukraine. In 2007 he was just another software designer in Silicon Valley with a lot of good tech. Now he’s worth 49 billion. according to some estimates, with two – possibly three – super yachts in his fleet. Superyachts cost hundreds of millions to maintain in terms of crew, fuel, birthing, food, and all the rest that goes with a luxury lifestyle of the super rich on a yacht.
In a time of cost of living crisis, with exponential food insecurity, the superyacht industry has never been so busy, sales and charter wise.
The division between rich and poor have never been greater : three hundred and sixty five million living breathing human beings do not know how they will feed themselves from one week to the next, some even daily. A teacher in Brazil says that 90 % of his child pupils come to school without breakfast or dinner, the only meal of the day provided by the school.
Is this socially sustainable?
History can tell us a thing or too about what happens when a country’s money supply is artificially inflated. In the sixteen hundreds Spaniards discovered silver and gold mines in Chile and imported masses of these precious metals from the New World. These metals were transformed into currency. As a result of this influx of money, considerable wealth was created for the European elites and upper classes who were in a position to get access to this newly created imported money but it also resulted in inflation and social unrest. They built themselves splendid castles and dressed in the finest silks. When the money ran out they were unable to adapt their lifestyles and lost their heads.
Going even further back, to the Roman Republic, a relatively stable political system – albeit with only only ten months in the year – was upended by a surge in money supply as a result of expansion East and the appropriation of Greek wealth. The Republic fell, Julius Caesr became dictator and we got the months July and August.
The problem facing the financial controllers of an economy when there is an increase in money supply how to distribute this equally and fairly.
It estimated that the banks of this world, European Bank, the Bank of England, and the Federal reserve, have printed in the region of $150 trillion. Fancy names, such as quantitive easing disguise the fact that a bank is just printing money and then handing it out to institutions to invest. These institutions have rebranded themselves as venture capitalists such as Blackhawk. fI you had a really convincing sales pitch to make to a venture capitalist, promising good returns in an unspecified future, the likelihood was that investment funds would come your way. Jeff Bezos of Amazon hoovered up billions of investment funds as did of course, Elon Musk. If Musk had said I’m gonna take this money and give it to the poor of the world, he would be politely shown the door. But the idea of Starlink and mining minerals on Mars, these were ventures that could be packaged up and sold on to other investors.
A self contained world of wealthy characters fed off each other, they lived close together, they bought shares in each other’s products , they ganged up against outsiders buying up interlopers into their universe. It became an autonomous micro economy fuelled by cheap money from the worlds banks, self perpetuating.
There was some trickle-down and a lot of people in the middle majority never had it so good. People did have to work for the wages at Amazon and the billionaires’ companies, but in general societies in the West, and many in the East became richer. Countries that were excluded from this, such as the poor African countries, that were not self-sufficient in food and money suffered starvation problems while the West prospered – for a while.
The trillions of dollars printed were to make up for the trillions of dollars lost by the irresponsible and ethically dubious banking practices which led to the 2007 crash. The surge in money supply was always very precarious, and it just took a little virus, the coronavirus, to put the whole financial system off balance. Cheap money had to come to an end because it had just devalued and debased the whole financial system. The only way for inflation was up. Suddenly the share values of those companies which had benefitted the most from the newly printed money fell.
Several individual’s wealth fell by more than the total GDP of a middling size economy. Zuckerbergg $110 billion. Musk $140 billion. Bezos $10 billion in a day.
The rich are not getting richer in a cost of living crisis. It only appears so, because their wealth insulates them from the shocks facing the majority of people in developed economies and practically everyone in the developing nations. And with inflation impacting the living standards of public sector workers, governments are unable to borrow cheap money to increase wages – with the exception of the USA to a degree which unleashed a mighty regeneration package, causing further inflation.
Unfortunately we are stuck with this unbalanced system. The most optimistic predictions envisage a return to stability and equitable prosperity by 2005. Others say decades.
The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails. And so will our economies in 2023 adjust to our relative impoverishment, as we tighten our belts and get on with living our lives.
