I thought this was the perfect opportunity for me to post a pet economic theory I have been working on for a while.
The number of $US dollar millionaires has increased to 67,000 this year, according to their estimates. I however, do not buy that. I believe it is far higher, due a long list of reasons. Many I have posted before. Likewise, I believe the actual poverty rates, and definitely those with less than $10,000 U.S. in assets is also distorted.
http://publications.credit-suisse.com/i ... t-2018-en/
Here is what they wrote about Chile:
LatAm wealth champion
Chile has the highest wealth per adult in Latin America.
The contrast in household wealth with its neighbors is
striking. Chile's Gross Domestic Product per adult is
similar to Argentina's and 46% greater than Brazil's,
but its average wealth is more than three times greater
than that in either of those two countries. Since the
turn of the century, wealth per capita has risen at an
annual average rate of 7.6% in US dollars. Using
current exchange rates, all of that growth occurred
before 2013, but using a smoothed exchange rate
indicates that growth continued over the last five years,
although at a lower rate than before.
Chilean household assets are split evenly between real
and financial form. Holdings of financial assets have
been encouraged by low inflation, well developed
financial markets, and a strong pension system. The
high urban home-ownership rate of 69% exceeds the
65% found in the United States, and contributes to
substantial holdings of real estate. At 14% of gross
assets, household liabilities are moderate by interna
Chile's wealth per adult, at USD 62,220, is close to
the world average of USD 63,100, and is high relative
to most emerging-market countries. It has a smaller
fraction of adults with wealth below USD 10,000 than
the world as a whole (36% versus 64%), and slightly
more above USD 100,000 (11.4% versus 9.4%).
Overall inequality is relatively high, as indicated by a
Gini coefficient of 77%. By our estimates, Chile has
67,000 US dollar millionaires, and 80,000 adults in
the top 1% of global wealth holders.
As I look out my window at Lake Llanquihue with my cup of coffee, I can see hundreds, possibly thousands of properties, that are worth more than a million dollars. I could get in my car, drive around the lake for say a week, and ID probably more than 67,000 properties that are worth more than 1 million dollars. That is one part, of one region, that is not even in the Central Region where most of the wealth of the country is concentrated.
Everything from the Sanitagian vacation homes, to the old German farms. In fact, in little Frutillar, population 15,000 people or so, I can probably find a 1,000, U.S. dollar millionaires without too much trouble. The farm, about 10 meters from my front door, sold recently for over $5,000,000 U.S.; I can see the property of one of the richest men in Chile, worth an easy $10 million, and he is worth an easy 100 million U.S. one farm over just beyond that one.
Now, granted Frutillar, and the lake, is fairly high rent district as Chile goes, but there are a lot of agro properties all across the country that are simply not counted, have never had an appraisal done on them (or at least not recently), that are worth tens of millions of dollars.
Now, we can debate who owns what, and how it is counted, etc; however, the point I am trying to make is this 67,000 millionaire number, does not even come close to passing the smell test.
I just was told that the sale of luxury cars has grown so much, that Porsche, is producing two cars just for the Chilean market. You do not buy a $100,000+ dollar car, unless you have assets approaching a million dollars (well, not a good idea anyway). As I have said before, stand on the street corner of say Los Condes, or even down town Santiago, and count the number of cars that cost more than 20 million pesos ($30,000 U.S.). It will confirm that most of the poverty stats being used internationally are wrong. No matter how rich you are, you can only drive one car at a time.
At the same time, as I am a great fan of watching the real estate auctions in Chile, I almost never ever see one of those low income house go to auction for less than 6-8 million pesos (over $10,000 U.S.), minimum. In other words, the minimum in those auctions is set at the legal value. They actually sell, at auction, for a lot more. Typically at least 2-3 times as much. That is in marginally desirable neighbourhoods of places like Puerto Montt.
My major reasons for all this is:
1. Real estate values in these international studies are grossly under reported, due to the property tax system in Chile. As near as I can tell, these property values are based on the "legal" value. That is, the basic value used by the Chilean IRS to determine the tax bases for property taxes. Due to a whole mess of historical reasons, this is, and has always been super low. For instance, rural agricultural property is still often tax exempt or pays very little in tax. So, a property with a market value in the millions of dollars, may very well only pay a few hundred dollars a year in tax or no tax at all. They historically have only reassessed the value of properties nation wide every 10 years, and then using a super politically loaded formula for setting the tax value.
Even people that own one of those government subsidized track homes, very rarely will you find one these days that sells for less than $10,000 U.S., add in a car or whatever, and most Chileans are worth more than $10,000 U.S.; Only recently, with the arrival of the large number of Venezuelans, Haitens, can I see how there is 36% of the population with less than $10,000 in assets. Even the new arrivals, given say 10 years or so, many will be worth more than $10,000. I am however going to set them aside for the moment, as they are likely distorting the stats in both directions. many are just now getting legal documentation to work and so on, so their numbers are very distorted. I will get back to this immigration impact.
2. Pensions and Health care. When you look at the income levels of many countries, they fail to subtract the lack of pension and cost of health insurance from overall income of the individuals. The most obvious example is the United States. I seen a recent number that pegged the cost of basic health insurance in the United States at around $8,000 U.S. per person, for a moderately adequate coverage, not counting deductible and rather slim health care services; or, how about nearly 70% of Americans have less than $40,000 u.s. in retirement savings, and that is just among Americans that have any retirement savings at all. Those should be viewed as debts, to themselves, on their books that should be subtracted from wealth calculations. Who cares if you make $50,000, $100,000, $500,000 a year, if you die early of some treatable condition; or, who cares if you make $100,000 a year, but then have to eat dog food once you retire (or, perhaps worse, can never retire).
3. Chileans are notorious for under reporting their wealth, through all sorts of mechanisms. For example, putting assets in their kids names. Using corporate structures to park their assets. So on, and so forth. Just looking at tax returns, will not tell you how rich, or poor, someone is in Chile. For example, I have a friend that has owned a company for 20+ years in Chile, makes well over $500,000 U.S. a year, that was denied a checking account by a bank due to not having sufficient income. All his wealth is tied up in a corporate structure, that does not get reflected in his personal tax return.
So, most of these above arguments I have covered at some point on the forum.
Now, something that has bugged me for a very long time about these international reports and rankings: Income inequality.
As the above report states:
Stand by, I am going to make another post.Overall inequality is relatively high, as indicated by a Gini coefficient of 77%.