What’s never mentioned is that incomes have been trending down so if assets remained static (houses, real estate values, etc.) then, of course, wealth will rise relative to income.
For 45 years – until roughly 1994 – the average wealth-to-income of American households had held steady around 4.9x. Then the stock bubbles started, first under Greenspan, then Bernanke, and now, Yellen and really every other central bank, and as a result as of Q1 2017 for the first time in US history, household wealth reached a point where it is over 6.6 times larger than inflation-adjusted household disposable income in America.
As we showed earlier in the day, the surge in wealth, driven almost entirely by new all time highs in the S&P, pushed this measure of relative exuberance (think of it as the country’s price-to-earnings ratio) above the housing boom peak of mid-2000s and well above the dot-com bubble driven highs of the last 1990s.
As Alliance Bernstein economist Joe Carson recently wrote in a note: “Economic and financial history do not always repeat, but sometimes they do.”
The logical next question is how much higher can this disconnect go, before something snaps?