Allianz, who sell insurance and wealth management products, has issued its latest global wealth report. The preface begins with this comment:
It's ten years since the eruption of the major financial crisis that almost caused the global financial system to collapse. What lessons have savers learned from this profound event? The answer is surprising and, at the same time, sobering.
Despite low interest rates, private investors in industrialized countries have, on average, invested around EUR 1 trillion of fresh savings in bank accounts each year since the outbreak of the financial crisis, more than in any other financial product. Last year a record sum of almost EUR 1.4 trillion was achieved. That means they held about EUR 33 trillion of their financial assets in the form of bank deposits at the end of 2016. Such investment behavior has paradoxical results. From this angle, banks are turning out to be the crisis winners, while savers are suffering severe losses due to zero interest rates. In 2016 alone, they are thought to have lost around EUR 300 billion owing to inflation, even though inflation was low.
Think about that for a moment: the world's wealthiest people are so lacking in faith in the world's financial markets that they'd rather hold €33 trillion in cash and lose money as a result.
Ignore the angle on the banks that Allianz makes.
What this really says is that the world's wealthiest do not believe the puff of neoliberalism.
Nor do they believe that there is anything very entrepreneurial going on out there.
And they most certainly don't believe current market valuations and so they're actually withdrawing from markets.
For once they may have got something right.
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Where does the report mention anything about the ‘worlds wealthiest’ people.
It seems to refer to private investors in aggregate, so your extrapolation is without evidence.
Further, holding short-term cash as a diversifier in an uncertain world is a sensible strategy.
Silly me
Of course wealth is held by the world’s poorest people
By definition that has to follow, doesn’t it?
People across the spectrum have money in banks. Surely you must know this?
How much of the cash on banks is owned by the world’s wealthiest (and how has this changed over the last few years)?
Are you aware of how little money most people have?
Do you realise how crass you question is?
So you have no data to support your assertion?
Steve
With respect, the evidence that wealth is owned by the wealthiest people with an extraordinary concentration at the upper end is so overwhelming that I am not going to waste my time dealing with this comment or citing what is widely known
Please go and waste some other person’s time
It’s clear you’re not hear to add value
Richard
And you Steve have no experience or knowledge of the real world
Richard, wasn’t there a report a few months ago that a large percentage (40%?) of families in the UK had less than £500 in savings, so wouldn’t be able to fund even a month’s expenditure? I’m hazy on the details, but am pretty sure about the general point. If you have the actual figures to hand, I’d be gratefull.
https://www.theguardian.com/society/2017/feb/20/one-in-four-uk-families-have-less-than-95-in-savings-report-finds
I think it was the above
Wow! I sure got those figures wrong. Only 25% not 40%, but an amazing mere £95 rather than my overgenerous £500. Clearly major contributors to the 33 trillion Euro pot cited in your article – not!
Precisely
These figures about savings and income levels show the Government’s blithe pronouncements about Universal Credit to be what they are. Obscene and totally at odds with reality.
(They are I suppose predicated on the Daily Mail etc. revelations that benefits are in the region of £38,000 per annum in some cases, and average around £20-plus thousand. Yeah! Right! )
Government claims that transfers to Universal credit are being whatever-percent completed on time ignores the fact that the ‘acceptable’ target is six weeks!
I suggest that very few middle class families with feet firmly on a career ladder and in full time employment are able to weather a six week period of nil income. How many have a month’s mortgage payment, or rent sitting in the bank? Not many I suspect outside that top 10% of earners. Some (perhaps many) would still have some available card credit, but by no means all.
People relying on benefit payments to supply or supplement their income have not a cat in hell’s chance of weathering six weeks without dire consequences. God alone knows how many will be forced into the clutches of Loan Sharks (many of whom are ostensibly reputable companies like …Provident Financial for example.)
Part of the ‘joined-up thinking’ fantasy is that Universal Credit is designed to work online. Oh! they say, we know not everybody has online access at home but they can go to the library….which we just closed the other year! Clever or what?
I don’t know how Ian Duncan Smith envisaged this new system working, but I think it probably deeply significant that he jumped ship and dissociated himself when he could see that requisite funding to give it even a chance of success was not going to be forthcoming.
Even some Tories have noticed, at last, that is not going to end well.
You say “for once” but haven’t the wealthiest people been getting things right for ages over a long period of time? How else did they get wealthy? They didn’t all win the lottery.
For that statement to be true it would imply that the wealthy have been getting it wrong up to now. Which seems unlikely.
Perhaps it would make more sense if you headline was worded;
“Once again the wealthy get it right”
Does that help at all?
Ah, the age old “They’re wealthy so they’re clever” routine
Clever enough to have been born in the right bed, and so many other ways in which advantage is passed
I am not saying there aren’t clever wealthy people
And that no one deserves their wealth from their own endeavours
But your comment is trite and I think you will be another heading for the trolling bin very quickly
Somewhere at the back of head I believe I read a report recently that most of the wealth the super-rich have is inherited.
Picketty perhaps?
The extent to which cash is being held is apparently perverse but it is mostly I think a question of expectation of the inevitable collapse of central bank distorted markets. This collapse may take a while there’s a lot more loose money and looser credit to be sucked in yet. The Bull may have along way to run yet.
Inflationary ‘benchmarking’ by passive tracking funds is fuelling rising stock markets. The savvy investors (as opposed to speculative traders) are getting their cash out and waiting to pick-up the spoils at bargain basement prices.
Small (what the Americans call ‘mom and pop’) investors have virtually no impact on this sort of market activity. Except that they are being gulled into believing the passive investment hype.
Savers. There are a few (million) who have small change to keep in the bank are, as you observe, they are insignificant players, but are behaving in a way that was not predicted. Financial insecurity means that rather than responding to low (derisory) interest rates by spending they are actually (if they can afford to) increasing their level of savings to compensate for the poor returns – another contributory factor in hollowing out the economy.
Sorry if I haven’t completely got my head around this (i’m learning) but, would this be a strong argument why we need state lead investment? from what you have presented, it seems clear that investors are choosing to stick their money into the bank rather than invest into the private sector. Which means the economy as a whole suffers? This obviously flies directly into the face of the Neolib/Conservative faith that the private sector will do the investment, not the state.
Yes, in a word
Backed by secure bonds that have a very low interest rate as they are more (I stress, more) secure than cash
The Thatcher narrative (if we are allowed to go back that far) was that government could not afford to invest in the necessary industries which make a country fit to live in – eg. Electricity, water, transport, tax collection, health and healthcare/social services, education, social housing, mail delivery etc..etc..
The Thatcherite (neo liberal) solution: Let’s get the investment from those nice capitalist free market people (She, Margaret Thatcher, referred to them as PLUs- people like us). They will ‘put money into’ providing these essential services. (fine generous, philanthropic, upstanding people that they are).
(Personally I think Margaret Thatcher was actually stupid enough to believe that this fairy tale was true. Being a ‘good communicator’ she managed to persuade vast swathes of the public that it was true. Those who didn’t believe it were powerless to prevent it.)
In reality of course (most) people who are prepared to invest do so only in order to increase their wealth, not to give it away. In order to ensure that ‘investors’ didn’t lose out on the deal the government arranged that public assets were sold cheap and there was plenty of thinly disguised public subsidy to ensure that the newly privatised industries were profitable.
To describe this wholesale transfer of public estate to the private sector was described by (that arch communist) and elder statesman of her own party Harold Macmillan as selling the family silver. He understated by a bit. The process gave away the entire sideboard and contents which had been accumulated by our forebears over several generations.
Some of us think it’s high time we got it back, because the new owners don’t use cutlery they eat with their fingers and they don’t polish the cabinet and they don’t clean the silver.
Thatcher was constantly harping on that there was no such thing as “public money” but would never deign to provide a coherent explanation how the nation did create its money. Of course, for the economic and monetary illiterate this was music to their ears, who in their “right” mind wanted to pay taxes to anybody!
It would be nice if the rich had lost faith in markets – particularly the financial ones who always get their cut.
So the next question would be what would entice them to put that money to good use? Would they settle for more secure, long term investment returns from a more regulated market?
A guarantee isxwhat they need
Backed by real returns
Like a bond invested in social housing
I like it!
If you were playing by the orthodox rules; swingeing corporation tax with generous allowances for the behaviour you wish to encourage – viz investment in productive capacity? (Define ‘productive’ as you will)
It probably wouldn’t work too well because of the threads holding the holes in the tax system together being too far apart to catch anything to tax.
Besides which philosophically it’s pretty stupid to tax production. It’s actually pretty stupid to tax employment income at all, but it’s relatively easy and we’ve got used to it. Doesn’t make a lot of sense though.
This would appear to be a classic textbook case for those that are learning about Keynes, Uncertainty and Liquidity Preferences.
Or so it would seem.
I would read this evidence differently, and far more negatively than you do: hoarding and rent-seeking are the predominant economic behaviour of the wealthy.
Here, we see the hoarding of cash.
Your other conclusion is unduly generous:
“Nor do they believe that there is anything very entrepreneurial going on out there.”
They simply do not care whether there is, or not: very wealthy people preserve their wealth from all sources of risk and they do not deploy their wealth into productive enterprises.
The middle classes, who used to be a significant force in the capital markets, did do that; and they still do, to the limited extent that they have money to deploy. They are, of course, the seed of all startups and entrepreneurial potential: but the capital markets reflect the preferences of the dominant holders of capital.
Nile
There are moments when I need your well reasoned perspective
And you add value with this
Thanks
Richard
You are right about at least one thing: the wealthy have learned *not* to seek returns in a ‘flight to garbage’ and the folly of leveraged speculation. The resulting ‘Flight to quality’ has run its course and culminated in a steady state of ‘Sit in safety’.
An interesting corollary: if the banks are stuffed with inactive cash, surely we can presume that the next financial crisis won’t be a liquidity crunch?
The next question is: are the seeds of the next financial crisis hidden in plain view? The world is not behaving as if there is a surplus of liquidity, despite the free availability of cash.
Could it be that the wealthy, and the banks, will sit on their cash, utterly immovable despite all economic demand, in a ‘Water, water, everywhere, but not a drop to drink’ liquidity crisis where the world is awash in cash that no-one ever touches?
I think that entirely possible
But that opens a possibility that can’t be dismissed next time, and that’s of a serious haircut for wealth. I’ve always resisted this notion, but if this were to happen I think some top slicing may be required.
Of course I wouldn’t suggest sequestration but maybe the banks should be recapitalised by an equity / top slice of cash swap? So much more equitable (pun intended) than state support
Provision at EU level allows for ‘bail-in’ next time the banks have difficulties which they may well experience since as we know they don’t have their strong rooms piled high with bank notes. BofE stress tests are widely believed to be ….hogwash(?).
Who knows what banks are doing with all this ‘cash’? That’s not a rhetorical question. If they are playing silly-buggers with it it isn’t going to help in a liquidity crisis. In fact it’s more likely to add fuel to the flames as they try to recover it.
Interestingly the Italian banks (two of them) didn’t bail in recently they were bailed out. In theory they weren’t allowed to do that according to the new rule book.
I think this might be a little misleading. Although a lot of cash was put aside last year, the chart on page 22 of the report shows total deposits held are 27% of assets. This total has varied between 25% and 30% over the last 10 years, suggesting the current level of cash held is pretty normal. It certainly doesn’t imply a crisis of confidence from the wealthiest. If anything I suspect it just shows a little rebalancing in action, following a jump in the value of other assets.
They made the point, not me
They are the people who thought this trend so significant they made it their highlight
Why do you think they did that if it wasn’t important?
Who knows… I suspect only Allianz can answer that. Those who produce these reports often like get publicity for them I suppose, so they are looking for headline-grabbing statements and maybe overegg the findings in the process. ‘Everything is the same as last year’ won’t get you much coverage.
It doesn’t alter the fact that the proportion of wealth held in cash over the last 10 years has barely moved, so the point you make in the last four paragraphs doesn’t seem to backed up by the evidence shown in this report.
You are choosing a very particular reading
But that is your right
Hang on Stuart,
You say: “I think this might be a little misleading. Although a lot of cash was put aside last year, the chart on page 22 of the report shows total deposits held are 27% of assets. This total has varied between 25% and 30% over the last 10 years, suggesting the current level of cash held is pretty normal.”
Allianz says: “Despite low interest rates, private investors in industrialized countries have, on average, invested around EUR 1 trillion of fresh savings in bank accounts each year since the outbreak of the financial crisis, more than in any other financial product. Last year a record sum of almost EUR 1.4 trillion was achieved”
They are talking about the last 9 or 10 years on the whole – as compared to conditions as they were pre-GFC – and saying that the post-GFC trend has persisted, become entrenched and reached a record level last year. Viewed in historic terms there is nothing “normal” about the last ten years and nothing “misleading” about the observations being made.
So, in that context any reference to proportions remaining the same over the last ten years is moot and merely reinforces the point that both they and R. Murphy are making.
Until a year or two ago I would have agreed up to a point, but I am starting to see people who are not wealthy, but in work (or even runing a small business) starting to save, which previously they saw no point in even trying. We all have different definitions of what it means to be wealthy.