Rich Middle Class, Poor Middle Class (April 9, 2015)

by charles hugh smith

This great generational injustice is the direct consequence of central banks lowering interest rates to zero and inflating asset bubbles.

How can middle class households have similar incomes but some are asset-rich and others are asset-poor?

Spending and saving habits matter, of course; some households spend virtually all their net income while others "pay themselves first" and scrimp to do so.

But the really big differences in wealth are the result of what assets the household bought and when they were bought.

Those who bought assets at the top of bubbles may still be underwater once inflation is factored in; those who bought long before the Federal Reserve and other central banks inflated credit bubbles every few years have substantial equity even after the bubbles inevitably crash to Earth (revert to the mean).



For example, a household that bought $25,000 of 30-year Treasury bonds paying 12% in the early 1980s

and reinvested the $3,000 annual interest (at much lower yields) ended up with over $100,000 by 2012.

Those who bought Apple stock shortly after Steve Jobs took the reins in 1997 did even better.

http://www.oftwominds.com/blogapr15/rich-poor-middle-class4-15.html