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Wealth to Income Ratio - 11/3/14

According to Credit Suisse, the ratio of wealth to income in America hit a post-World War II record.  Wealth in America has simply skyrocketed in recent years, driven primarily by surging stock prices.  Those surging equity prices mostly benefit the rich, helping them to widen the wealth gap with the balance of the population. 

By contrast, the average person’s income has been expanding only slowing.  The Credit Suisse analysts determined that the ratio of wealth to income in the U.S. is presently in the range of 6.5.  As indicated by CNNMoney, for more than 100 years, it has typically rested between 4 and 5.  But this is more than just another measure indicating what we all know -- that wealth in America is becoming increasingly unequal. 

This may be signaling the next recession.  According to the Credit Suisse report, "abnormally high wealth income ratios have always signaled recession in the past."  For instance, just before the Great Depression, the wealth to income ratio in America came to exceed seven.  The wealth to income ratio also rose above 6 prior to the dot-com bust recession and the Great Recession of 2007, 2008 and 2009.

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.