Why Much Wealth Must Be Confiscated

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

Why it is US inflation you should worry about

Before I begin, let me caveat what is to follow by saying that this month’s Absolute Return Letter on inflation and confiscation of wealth is very US-centric, and there is a good reason for that. As you can see in Exhibit 1 below, US wealth-to-GDP has, since we emerged from the Global Financial Crisis in 2009, gone absolutely ballistic and is now – as at the 30th June – a whopping 623%.

Exhibit 1: US wealth-to-GDP (%)
Source: MacroStrategy Partner LLP

The long-term mean value of US wealth-to-GDP is about 380% so, at 623%, US wealth is now massively above what can be sustained longer term. There are some very good reasons why wealth cannot grow faster than GDP in the long run (based on economic growth theory) which I shall not bother you with. However, the fact stands – sooner or later, wealth-to-GDP will begin to mean-revert. Exhibit 1 covers US wealth only, as most other countries do not provide as much detail on wealth as the Americans do, but I can assure you that the US is an outlier in the context of wealth relative to GDP – at least in the OECD.