It’s something that comes to mind when reading Gillian Tett’s latest on who really owns the bulk of the Treasury market. As Tett notes, referencing the work of Sandy Hager, a postdoctoral research fellow at the London School of Economics:
Back in the 1970s, for example, the richest 1 per cent of Americans “only” held 17 per cent of all the federal bonds that were in private sector hands. This was partly because during the second world war and in the immediate aftermath there was a strong attempt to distribute Treasuries widely. But since the 1980s, the proportion of debt owned by the top 1 per cent started to rise sharply, hitting 30 per cent in 2000 and 42 per cent in 2013. The last time it was this high was in 1922, when the ratio was 45 per cent.
Which needless to say exposes the real Achilles heel of a political movement calling for lower debt levels, less government intervention and “default if we don’t get our way! ” while being backed by some of the wealthiest one percenters in the US.
That is presuming, of course, that the most cunning of the Tea Party billionaires haven’t countered the trend by diversifying their wealth into something less dollar-based.
As Tett notes, what matters the most is the polarisation in society that this creates. The rich now have a greater interest than usual in fiscal reform because they think this is a means to preserving the sanctity and reputation of their wealth. Millions of poor Americans, on the other hand, don’t have any skin in the default game at all.
That said, they do remain the clearest beneficiaries of the government spending associated with that debt.
Meanwhile, it’s questionable whether the one percenters have a genuine interest in physically shrinking US government debt, since without it they’d be lacking a very handy place to park their money. One man’s debt is another man’s saving. And, for as long as interest rates remain low, the message from the system is that a savings glut — representing a real world output surplus — prevails, meaning there’s no better way to protect wealth than by lending it to government.
Indeed, the reason the one percent have piled into US debt is because they don’t have many better choices to protect and grow their capital. It is as much a reflexive reaction to a stage in the economic cycle when the redistribution of wealth by government makes everyone richer and happier, as it is a power grab by the wealthy.
The flows into US Treasuries, after all, preceded the days of extraordinary QE policy.
The fact that more one percenters than ever are parking their wealth in US debt, in that sense, is arguably a good thing — since it facilitates the government’s ability to spend first and tax later, in a way that spreads wealth across the economic system.
Much more worrying for the one percenters would be if the US debt was constrained and they were forced in to ever more exotic “safe alternatives”, fuelling weirder and more precarious capital bubbles elsewhere.
Capital bubbles, which we daresay, would be leveraged by the shadow banking sector to service the increasing hoards of the unbanked and dispossessed regardless.
Treasury ownership marks wealth divide – FT
World War Zirp – FT Alphaville
Some are born solvent, some achieve solvency, and some have solvency thrust upon them – FT Alphaville