A period in which the wealthy were able to amass even more wealth is coming to an end as a result of rising interest rates.
A little bit of esoterica that crosses my mind from time to time is as follows: Mark Zuckerberg has a mortgage.
Or at the very least, he possessed one. The creator of Facebook refinanced his mortgage on a property in Palo Alto that was worth $6 million ten years ago. At the time, he was worth $16 billion. which indicates that he could have purchased that mansion as well as a hundred others outright.
without the need for a mortgage. But First Republic Bank offered him an adjustable-rate loan with an initial interest rate of just 1.05 percent—below the rate of inflation. meaning the financier was paying him for the privilege of lending him money.
Zuckerberg was able to keep his shares in Facebook, load up on tax-advantaged debt, and profit from growing real estate values in the Silicon Valley area. Why don’t you just take out the loan?
Since the beginning of the 21st century in the United States, the question “Why don’t you take the loan?.” has served as a relatively accurate summation of the processes of wealth accumulation and social class.
The result of a prolonged era of low interest rates is that asset values have been on an upward trajectory. Because of this, the small percentage of Americans who are in a position to invest in real estate. farmland, stocks, bonds, commodities, art, patents, water rights, start-ups, private equity, hedge funds. other assets have become astoundingly wealthy, which has contributed to shockingly disparate levels of wealth.
Because of low labor-force participation and sluggish wage growth, the United States is increasingly resembling what theorists Lisa Adkins, Melinda Cooper.
Martijn Konings have referred to as a “asset economy.”
In an asset economy, prosperity is determined not by what you earn but by what you own. This is in contrast to the traditional model of an economy in which prosperity is determined by what you earn.
The times of asking “why not take out the loan?” have, at the very least, been put on pause.
As the Federal Reserve tries to rein in inflation, it is increasing interest rates to combat the problem. This has resulted in a bear market in equities (because corporate profits are at danger and investors are drawing back to safe assets).
a correction in the housing market (because mortgages have become much more costly). a free collapse in the technology sector (as many companies are being asked to deliver profits, for once).
There has been a severe lack of funding available for new business ventures, mergers, and acquisitions. And there is a possibility that the economy is on the edge of entering its second recession in the past two years, particularly if gas prices continue their upward trend. In the previous half year, animal spirits and a few hundred additional basis points have been responsible for the erasure of huge sums of paper wealth. including $2 trillion and counting in cryptocurrency. $7 trillion and counting in equities, and uncalculated sums of home equity.
Because of rising interest rates and spiralling inflation, there are no longer any loans available at 1.05 percent for anyone. not even the richest of the rich. This could mean that our period of asset capitalism is coming to an end.
Does this signify the beginning of a new economic equilibrium. one that is less favourable to capital and more beneficial to labour. one that is less favourable for high-wealth rentiers and more favourable to regular old renters?
No is the unsettling answer to this question. Even though they contributed to an increase in inequality. low interest rates helped to boost economic growth and employment.
However, increased interest rates will not result in a more equitable distribution of wealth in the economy.