Wealth-to-GDP Ratios in the U.S. Since 1945

Am I the only person alive who makes a big deal out of this? I never hear it mentioned, but it seems logical to me that there is a limit to how much net wealth savers can amass in a developed economy--especially one that is 77% based on services.

I mean, there is a limited amount of paper wealth you can save up in your bank in order to pay for haircuts and tax lawyers and restaurant service and stuff, right? And if millions of retirees have all this saved wealth, the amount of services they can get from a slower-growing labor force has to shrink, right?

Most people view savings/investment as a driver of economic growth, but isn't it also true that too many savers results in an unbalanced, top-heavy wealth structure where too much paper wealth is chasing too few goods and services? It seems as though either (A) inflation has to erode the amount of services that can be bought, or (B) the market value of paper wealth has to plummet until the wealth-to-income ratio comes back to within historical norms. I think we're seeing the effects of (B).

I think that the explosive growth of defined-benefit pension and health care schemes of the 1960s & 1970s are responsible for a lot of this (along with demographic changes from the sexual revoluton, i.e. an aging populace), although increasing capital inflows from third world countries into the U.S. probably has a lot to do with it as well.

From the Federal Reserve's " Flow of Funds" reports, which go back to 1945, the original ratio from that year was 3.18, which was quite low. From there, it went as high as 3.60 in 1949, back down to 3.25 in 1953, back up to 3.71 in 1961, all the way down to 3.04 in 1974 (as wealth shifted from the U.S. to OPEC), back up to 3.72 in 1991, and then down to 3.60 by 1994. All of this, from 1945 to 1994, was within a range from 3.04 to 3.72, with a historical average of 3.41 for the 41 years from 1945-85, and a historical average of 3.45 for the 50 years from 1945-94.

Then the WTO came into operation in 1994, and looked what has happened since:

Net Wealth in the U.S.
(Year, Net Wealth at end of year, Nominal GDP, Wealth-to-GDP Ratio)
(GDP & wealth figures given in trillions of USD)
1994, 25.54, 7.09, 3.60
1995, 28.21, 7.41, 3.80
1996, 30.10, 7.84, 3.84
1997, 33.96, 8.33, 4.08
1998, 37.91, 8.79, 4.31
1999, 43.02, 9.35, 4.60
2000, 43.28, 9.95, 4.35
2001, 43.13, 10.29, 4.19
2002, 42.10, 10.64, 3.96
2003, 48.02, 11.14, 4.31
2004, 54.96, 11.85, 4.64
2005, 61.22, 12.62, 4.85
2006, 65.65, 13.38, 4.91
2007, 66.17, 14.03, 4.72
2008, 53.55, 14.29, 3.75
2009, 55.59, 13.94, 3.99
2010, 59.16, 14.53, 4.07
2011, 60.04, 15.09, 3.98

NOTE: The only years since 1945 in which nominal wealth decreased were 2001, 2002, & 2008.



CONCLUSION: I'd say that net wealth has another ~15% drop coming at some point if my theory about the wealth-to-GDP ratio being unbalanced is true.