How the word ‘millionaire’ became meaningless
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Version 0 of 1. Good news. We’re all rich. Well, lots of us look like we are rich on paper anyway. Numbers out from Barclays this week tell us that one in 65 UK adults (715,000 people) is officially a millionaire – the value of their houses and their investments adds up to more than one million pounds. Now we all know that £1m isn’t what it used to be but it’s still a pretty good pile of cash. Related: One in 65 UK adults now a millionaire, figures show However, while being a millionaire might sound good, there are a few problems with being counted as one in the UK today. The first is that most of the millionaires in question won’t have anything like £1m to hand. Why? Because it is in their houses. The average house price in the UK (on Nationwide numbers) is £195,000 and there are some 400,000 to 500,000 houses in the UK estimated to be worth £1m or more. There’ll soon be more: most housing market forecasters are expecting house prices to rise by 20-30% over the next five years. That might be nice for people who have houses but it doesn’t really get them, (or the rest of us) anywhere. Unless you are moving from London and the south-east to the likes of Northumberland or you are able to constantly remortgage, you can’t get any cash out of your house, so its value is entirely meaningless. You can’t eat your house, use it to go on holiday or pay your bills with it. Not if you want to live in it too. That’s why most useful classifications of wealth ask people to ignore the value of their primary home. The second problem is that a large part of the wealth, housing or otherwise, of the lucky 715,000 is entirely illusory. Go back, if you can bear it, to the Bank of England quarterly reports from 2011 . This one has a chart on p202 that shows you very clearly what quantitative easing is supposed to do. It raises asset prices. The Bank of England described it like this back in 2011: “Purchases of financial assets financed by central bank money should initially increase broad money holdings, push up asset prices and stimulate expenditure by lowering borrowing costs and increasing wealth.” When QE ends there is an 'adjustment phase' and real asset prices fall Print money in the way that the Federal Reserve, the Bank of England, the Bank of Japan and the European Central Bank have been doing and house prices, bond prices and equity prices all go up. That’s not an opinion. It’s a fact. And the more they go up, the richer people who hold assets become and the more millionaires the UK gets. But the BoE report doesn’t stop with telling us what loose monetary policy does. It also tells us what happens when it ends: there is an “adjustment phase” and real asset prices fall. Raise interest rates (and one day someone’s going to blink) and large parts of the wealth the number crunchers at Barclays have been so busy adding up could just vanish (it looks as if it might have begun earlier this week). So here’s the sad fact about Britain’s boom in millionaires. It isn’t down to a rise in productivity, a shift to high-level manufacturing, or fast economic growth – although all these things are possible in the UK. It is down to the way in which super low interest rates and global quantitative easing have forced up asset prices regardless of the real worth of those assets. That’s neither useful nor sustainable. |