The Next Millionaire – the 1990’s Dramatic Increase in Millionaires
During the 1990’s the total number of millionaires dramatically increased due to low interest rates, a soaring stock market, low inflation, and a strong American dollar, thus creating the next millionaire on average three times per day. This vast increase in wealthy individuals occurred because the qualities previously mentioned came together to produce a market in which investment was both easy and usually highly profitable. With a multitude of easy investments available, even the average person found it unusually simple to make millions of dollars in profit.
Between the years of 1990 and 2001, when the World Trade Center was attacked and the stock market consequently plummeted, the total number of millionaires in the United States more than doubled from three million millionaires to over six million. The net worth of these wealthy individuals rose from thirteen trillion dollars to over forty trillion dollars – an almost three hundred percent increase. This happened primarily because of low interest rates.
The Federal Reserve monitors the interest rate on national holdings and helps regulate the interest rate the banks are allowed to charge clients, loan holders, and mortgage carriers. An interest rate is a percentage that is charged for the use of an institutions money or capital. This rate varies from lender to lender; however, during the 1990’s interest rates were unusually low. This meant that is cost less money to borrow capital for use in investment. Therefore, more individuals could afford to borrow larger amounts of money. This borrowed money was then used to create or generate wealth for smart and successful investors. The loans were then paid off and the process started anew.
Another related issue that helped create the next millionaire during this era of dramatic growth was the strength of the American dollar abroad. Put another way, when the dollar was compared to other currencies, the dollar was worth more per a unit of measure. This means that the dollar could purchase more overseas than other currencies. Therefore, investment dollars were not only easy to acquire through loans, but their purchasing power was greater than at other time in history.
A corollary to a strong currency, in this case the United States dollar, is a low inflation rate. Inflation occurs when month to month (sometimes day to day) the currency of a nation declines in value. For example, yesterday a loaf of bread cost one dollar. Today that same loaf of bread costs two dollars. This increase in cost is related in inflation. There are other factors that affect inflation such as the cost of living, energy costs, private earnings, and increases or decreases in average salaries. However, the general idea is that a currency devalues.
During the 1990’s inflation hovered around all time lows. This mean that investors could be confident that the money they borrowed yesterday would be worth as much, if not more, today. With little risk of inflation, investors did not have to worry about the buying power of their capital acquired through loans and mortgages.
All of these previously discussed characteristics came together to create a strong stock market. Investment in stocks created more wealth during this time than at any previous time combined. Take all these factors into account and it was one wonder that the 1990’s saw such a dramatic increase in the total number of millionaires.
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