DUmmies fail basic economics again.....marmar (1000+ posts) Wed Jul-01-09 09:49 PM
Original message
Financial Times: Capitalism's Dirty Little Secret
Debt is capitalism’s dirty little secret
By Ben Funnell
Published: June 30 2009 19:14 | Last updated: June 30 2009 19:14
Just why is there so much debt in the Anglo-Saxon world? Bankers and regulators know well that it is in nobody’s long-term interests to have allowed borrowing to escalate to a position where the US now owes far more, as a multiple of the economy, than at the start of the Great Depression.
And how many DUmmies used debt instruments to pay for the cheeto's, since they already used cash for the pot? Bags of preprocessed food aren't known to increase in value. Things like real estate, stock, and bonds however...
The answer is capitalism’s dirty little secret: excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite.
Who is this elite? If you have stock in banks are you elite. If so, I'm under dressed, I need my top hat and monacle. Yes Ben, even you can be one of the elite. But then you wouldn't be able to rail against them.
The amount by which the elite has benefited is startling, and illustrates the problem with lightly regulated free markets: the rich get much richer while the rest do not get richer at all. According to Société Générale economists, the inflation-adjusted income of the highest-paid fifth of US earners has risen by 60 per cent since 1970, while it has fallen by more than 10 per cent for the rest. As was recently pointed out in the New York Review of Books, the Walton family, of Wal-Mart fame, is wealthier than the bottom third of the US population put together – about 100m people. These are staggering statistics, confirmed by measures such as the US and UK’s ever-rising Gini coefficients, which estimate income disparity. Another way of putting this is that the share of profits in gross domestic product is at a 100-year high, or was until very recently.
How many of that bottom third exist on government handouts? Not all to be sure, but too many still. Of course people that work generally enjoy a higher standard of living than those who don't.
Put simply, the benefits of economic growth have gone into the pockets of plutocrats rather than the bulk of the population. So why has there been no revolution? Because there was a solution: debt. If you couldn’t earn it, you could borrow it. Cheap financing was made widely available. Financial innovations such as the asset-backed securities market aided this process, as did government-sponsored agencies such as Fannie Mae and Freddie Mac. Regulators welcomed it all while perhaps taking insufficient account of the moral hazard problem it posed: that ever-increasing leverage meant the authorities had to keep interest rates low, otherwise the debt burden would cripple consumption. This prompted more leverage, which exacerbated the problem.
Fannie and Freddie, I seem to remember that being a Roosevelt invention. Further, I can go to my online brokerage account and buy stock in any company I expect to do well. I assume any DUmmie can do the same. If they won't or can't buy stocks they are of no general threat of insurrection.
A walk in any low-income area in the UK confirms this. There are BMWs in the driveways, satellite dishes on the roofs and furniture delivery vans on the streets. In both Britain and America the jobless were encouraged to buy their own homes. No one begrudges anyone else the right to own a home or buy luxury goods. The problem is that the luxuries need to be paid for out of earnings and the houses out of equity topped up with an affordable amount of debt. ............(more)
The complete piece is at: http://www.ft.com/cms/s/0/e23c6d04-659d-11de-8e34-00144...
They could have settled for any of a large number of reasonably priced vehicles. They could have used debt to increase their marketability and revenue potential. They made their bed, now they should be allowed to lay in it.
xchrom (1000+ posts) Wed Jul-01-09 10:43 PM
Response to Original message
1. we know this -- we know it in our bones --
and yet we are not angry --
'The answer is capitalism’s dirty little secret: excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite.'
Yep. Barbara Steisand, Steve Jobs, Zero, and their ilk should have all of their wealth taken from and distributed to the "poor". They don't deserve it ya know.
Hydra (1000+ posts) Wed Jul-01-09 11:30 PM
Response to Original message
2. Good start of the article, but he drops the ball later
Capitalism is built on a dangerous premise: That cheap and exploitable labor and resources will always be available, and someone with the means will buy the products that are produced.
How about we stop obsessing about "growth" and start with something logical, like our basic needs? Stop thinking about huge profit margins and investing money expecting a large return and start feeding, clothing, housing and medically treating everyone?
Should the system work for everyone, or just the "Elite"?
One way or another cheap labor will always be around, if it isn't workers in China, it will be workers in Vietnam, eventually it will be robotic workers and the others will either find some new activity or starve to death. There is an entire universe of untapped resources. Oh, and growth is the only way it is remotely possible to keep paying for your liberal Ponzi schemes, you make Madoff look like a hack in that department.
Blackhatjack (1000+ posts) Wed Jul-01-09 11:47 PM
Response to Original message
3. Walton family, of Wal-Mart fame, is wealthier than the bottom 1/3 of US pop(100mil)...
Kind of puts it in perspective.... they are the Potters of "It's a Wonderful Life" picking up the assets for pennies on the dollar.
We are the individuals struggling to get by on stagnant wages, and are offered debt rather than increased income at a time of huge profitability for the richest elites of our society.
Put another way, Potter managed his resources adequately and leveraged them when everyone else was in a run for cash. He may be the carefully crafted villian, but without him the S&L doesn't exist. George Bailey was forced to pay out of the S&L when it should have been purchasing assets the same as Potter. If you think banking is easy and guaranteed, buy stock in them, or purchase their debt via bonds.
Donnachaidh (1000+ posts) Wed Jul-01-09 11:54 PM
Response to Original message
4. Banks have turned us into workers at the company store.
And people are not smart enough to realize that. It's pitchforks and torch time.
Incorrect. Evidence indicates DUmmies don't work.
kentuck (1000+ posts) Wed Jul-01-09 11:56 PM
Response to Original message
5. A similar discussion a couple of months ago on DU..
"Easy credit was substitute for higher wages...."
Posted by kentuck in General Discussion
Sun Apr 05th 2009, 02:05 PM
Barbara Ehrenreich just made that statement on the C-SPAN II panel of The Nation magazine. Think about it. She is absolutely right!
If consumers, you and I, don't have the money to buy the products on the market, then the producers of those products do not make any profits. And the sad fact is that, for years, the minimum wage was stuck at about $5.15 per hour and millions of American "consumers" were stuck in the $8-$12 dollar range. So how could people buy anything with those types of wages?
Simple. The big banks would give them credit cards. They would pay off one credit card with another credit card and this cycle could go on for years. So long as the people were "buying". They were even offered new homes with no money down. Then they could re-finance those homes and get $20-$30,000 dollars and continue buying the products our economy was selling. But then, the housing market stopped dead in its tracks. People could no longer re-finance. They could no longer pay off their credit cards. But they were still stuck with their low wages. And no matter what the banks do or what this Administration does, people will still be stuck with their low wages and no money to buy the products to keep our economy going.
Barbara Ehrereich is right on target!
$8 -$12 an hour? Again, debt could have been used to buy things like an education that would have put them over that mark. Their spending turned into everyone else's problem. Now, the poor aren't going to have those things available to them for years after everyone else is back to normal. What do you think of that DUmmies?
Greyhound (1000+ posts) Thu Jul-02-09 01:35 AM
Response to Original message
8. K&R. Unfortunately there's no way out of this cycle except a complete
re-design of the fundamental system.
As long our currency and wealth are initially generated through debt and financed through interest charged on that debt, this cycle must continue.
ProudDad (1000+ posts) Thu Jul-02-09 02:43 AM
Response to Original message
10. The solution is to
Edited on Thu Jul-02-09 02:44 AM by ProudDad
withdraw as much as possible from the debt economy.
And build a localized, steady state economy...
The Steady State Economy
A prosperous and dynamic economy does not have to be a growing economy. A steady state economy features stabilized population and consumption. Such stability means that the amounts of resource throughput and waste disposal remain roughly constant. The key features of a steady state economy are:
(1) sustainable scale, in which economic activities fit within the capacity provided by ecosystems;
(2) fair distribution of wealth; and
(3) efficient allocation of resources."
http://steadystate.org /
http://dieoff.org/page88.htm
If ya' don't NEED it, don't buy it.
Buy Used
Buy Local
Avoid National Chains.
NEVER BUY ANYTHING AT WAL-MART!
In other words a steady state economy will be marked by shortages of basic goods and services and grinding poverty not even seen in North Korea. Of course, it will also have a totalitarian government to determine how many children a household is allowed, and how much of any resource they are allowed to have.
Is there any DUmmie, just one, that has any notion of what it is they are asking for?
