Global wealth tripled over the last two decades. Among the leaders, China overtook the US and claimed the top spot in gains.
This revelation is part of the report issued by McKinsey & Co in 2021. It examined the national balance sheets of ten countries that hold 60% of the world’s wealth.
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Global Wealth Went From $156T in 2000 to $514T in 2020
According to Jan Mischke, partner at the McKinley Global Institute, the world is increasingly getting richer. “We are now wealthier than we have ever been,” Mischke said.
The world’s net worth totaled $514 trillion in 2020. This is three times more than the $156 trillion total in 2000.
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Among the world’s wealthiest, China accounted for almost one-third of the gains. From a mere $7 trillion in 2000, the country’s wealth surged to $120 in a span of twenty years.
During the time, China joined the World Trade Organization, which boosted its economic ascent.
Richest 10% Controls 60% Of Global Wealth
Meanwhile, the US also managed to double its wealth. Due to a slower increase in property prices, the country’s net worth doubled from $40 trillion to $90 trillion in the same period.
In both the US and China, which are the world’s biggest economies, the richest 10% of households hold two-thirds of their wealth. This share continues to increase.
McKinsey also computed that around 68% of global wealth is in the form of real estate. The remainder consists of infrastructure, machinery, and equipment.
To a much lesser extent, the balance belongs to intangibles such as intellectual property and patents. McKinley did not count financial assets in global wealth calculations.
These are assets that are usually offset by liabilities. An investor holding a corporate bond means holding an IOU from that company.
Global Wealth Rose Steeply Over the Last 20 Years
The $358 trillion increase in global wealth between 2000 and 2020 outpaced the growth in global gross domestic product. The wealth gain owes its rise to surging property prices as well as declining interest rates.
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McKinley found out that asset prices are nearly 50% above their long-run average relative to income. This development raises questions about the sustainability of the recent wealth boom.
“Net worth via price increases above and beyond inflation is questionable in so many ways. It comes with all kinds of side effects,” Mischke said.
In fact, ballooning real estate prices can increase the risk of another financial crisis. Once property prices become too high, many won’t be able to afford it.
This is what happened during the 2008 crisis when the US housing bubble burst. China risks a similar scenario as one of its major developers, the China Evergrande Group, is running into debt.
Global Wealth Should Go Into Productive Investments
The McKinsey report recommends an ideal resolution to avoid another bubble. Global wealth should find itself invested in productive enterprises that increase GDP.
Otherwise, a single collapse in asset prices such as real estate can wipe out as much as a third of the global wealth. This will bring it more in line with the current world’s income.
Watch the Yahoo Finance video reporting that global wealth soared to an all-time high of $250 trillion in 2020:
What do you think about global wealth ballooning from $156 trillion in 2000 to $514 trillion in 2020? Do you agree that this is an unsustainable growth that can collapse at any time?
Let us know what you think. Share your comments below.