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Global Economy: With More Billionaires, More Inequality and More Instability, A New Collapse Is Inevitable


September 20, 2014
Ansuya Harjani / CNBC & Joanna DiGeronimo/ Yahoo Finance

The world economy is going through a rough patch, yet the world's billionaire population is at an all-time high. 155 new billionaires were minted this year, pushing the total population to a record 2,325 -- a 7 percent increase from 2013. Credit goes to the US -- home to 57 of these new billionaires. Economics columnist Martin Wolf tells Yahoo Finance editor in chief Aaron Task that more turmoil is "more or less inevitable" because "nothing profoundly changed" since 2008.

http://www.cnbc.com/id/102007270

Number of Billionaires Hits Record High in 2014
Ansuya Harjani / CNBC

(September 17, 2014) -- A new survey shows that 155 new billionaires were minted this year, pushing the total population to a record 2,325 -- a 7 percent increase from 2013. Credit goes to the United States -- home to the most billionaires globally -- where 57 new billionaires were recorded this year, according to the Wealth-X and UBS Billionaire Census 2014 released on Wednesday.

Asia and Latin America and the Caribbean were also large contributors, with 52 and 42 new entrants, respectively.

"The fastest growing segment of the billionaire population, in terms of wealth source, are those who inherited only part of their fortunes and became billionaires through their own entrepreneurial endeavors," the report said, noting that 63 percent of all billionaires' primary companies are privately held.

Billionaire populations in emerging markets showed mixed signals however. In Africa, billionaires' total wealth grew, but the overall number of billionaires decreased, due primarily to volatile socio-political conditions. A similar situation occurred in the Middle East.

Nevertheless, the combined wealth of the world's billionaires increased by 12 percent to $7.3 trillion, higher than the combined market capitalization of all the companies that make up the Dow Jones Industrial Average.

Profiling Billionaires
The average billionaire is 63 years old, with a net worth of $3.1 billion, according to the report, which noted that most wealthy individuals do not reach the $1 billion threshold until their late forties. Almost 90 percent of male billionaires are married, 6 percent are divorced, 3 percent are single and 2 percent widowed.

For male billionaires the top five industries are finance and banking, industrial conglomerates, real estate, manufacturing and textiles, and apparel and luxury goods.

Sixty-five percent of female billionaires are married, 10 percent divorced, 4 percent single and 21 percent widowed. They are involved in similar industries to their male peers, but one difference is that many run non-profit and social organizations.

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Another Financial Crisis Is Inevitable
Joanna DiGeronimo/ Yahoo Finance

(September 18, 2014) -- Economics columnist Martin Wolf doesn't want to predict when the world economy will face another financial crisis. But he tells Yahoo Finance editor in chief Aaron Task, more turmoil is "more or less inevitable" because "nothing profoundly changed," since 2008.

The Financial Times' chief economics commentator says economic growth is too closely tied to debt. Wolf's new book, "The Shifts and the Shocks: What We've Learned -- and Still Have to Learn -- From the Financial Crisis," looks at how dependent world economies remain on the creation of money and credit by financial institutions. These banks, he says, are "highly leveraged, highly integrated with one another and very, very complex." Wolf says that in some respects, the situation has gotten worse because there are fewer institutions today, making them truly "too big to fail."

Not much is being done to better regulate these institutions, says Wolf. In the immediate aftermath of the crisis, Wolf feels then-Chairman of the Federal Reserve, Ben Bernanke, then-Treasury Secretary Henry Paulson and his successor Timothy Geithner took appropriate action.

Wolf supported TARP, the Troubled Asset Relief Program, which he believes kept the financial sector afloat. He thinks the program was necessary and reduced economic fragility in the short-term. But beyond the rescue, there was no reform.

Wolf believes regulatory reform has fallen short largely because the oversight became so complex. However, politics also played a big role. Banks and financial institutions have used their lobbying clout and ended up with fairly lax regulations. The argument the banks have made is that tighter regulatory oversight slows growth. Wolf believes regulators have become intimidated by these claims.

The banking industry often outsmarts any regulatory progress made. "Banks have such a powerful interest in finding ways around regulation," Wolf says, and they always succeed at it. Wolf fears this is putting us "back where we were" before the crisis happened.

So how can the broken system be fixed? Wolf says the first step is to make world economies less dependent on debt. He thinks the leverage of the banking system needs to be reduced and capital requirements should be boosted. He believes banks have so little equity and as a result have too much risk. Wolf also radically proposes moving to a 100% reserve banking system which would essentially require banks to have the full amount of cash on hand and ready for withdrawal if need be.

His ideas are big, but Wolf says radical reform of the financial system is necessary to put the world economy on steady ground. Right now, he says, there is still "incentive for the people inside" to play "the leverage game," and it's just too dangerous.

Posted in accordance with Title 17, Section 107, US Code, for noncommercial, educational purposes.

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