By John Packard
In 2008, the rich are likely to be uttering a new mantra — downsizing.
The fallout from the debt-market crisis, along with growing concerns about inequality and the environment, are likely to usher in a year of moderation for the rich.
The current economy lends to caution. The new gilded age may be at an end. It is time for anyone serious about money to be cautious, eliminate debt and look for opportunities.
Conventional wisdom today says the wealthy are exempt from the forces of economic gravity. The idea is that you don’t have to worry much about money once you reach a certain level. That is complete perception of course. The rich will need to downsize going forward as well.
The rich (especially the super-wealthy) always will fare better than the average consumer, since they have more of a financial cushion. Yet because so much of today’s wealth is tied to financial markets, the wealthy will feel the effects of any dramatic decline in stock markets, hedge funds and private equity. One key issue: Mergers and acquisitions — the main drivers of big wealth — could die down with tighter credit.
As of today March 7, 2008 we saw some hedge funds collapse.
The rich have also been funding their lifestyles with debt — from art loans and jumbo mortgages to jet financing. So if credit contracts further, high-end spending also will shrink.
Some wealthy families have been investing heavily in the sub prime derivatives markets. They invested with the confidence of realizing a high return which they did, for a while. Now days, they can not give theses instruments away.
The runaway prices for art, wine, vintage cars and other collectibles are sure to slow next year. And so far, prices of collectibles have held firm. Yet the markets have become so overrun with financial speculators or the noveu rich bidding up the prices of these non correlated assets to unsustainable levels.
The rich are also likely to become political targets this year as things look good for a democratic presidential nominee. The Democrats idea of rich is however flawed. A family making 50-60k will pay an extra $2k per year if any proposed tax reforms are to go through.
The government does a fantastic job redistributing resources (sarcasm heavy here)
No comments yet.