Just saw a politically charged segment on CNBC where the Republicans are trying to frame the 2012 election as Envy vs. Aspiration.
People that say “Wall Street is a bunch of crooks that are rigging the political system for their own gain while screwing the majority.” are simply evil, envious losers.
The good people are those that aspire to climb the rungs of society to become rich and powerful, so they can rig the system for their own gain while screwing the majority.
Really?
That is how the rich and powerful want to frame the arguement?
How about this?
Since total goods and services bought must always exactly equal all sold, it is not possible for one person to sell more than they buy, accumulating money, unless someone else is buying more than they sell by first borrowing the money into existance.
To fund international trade imbalances and widening domestic wealth disparity, we’ve been increasing debt at 3x the sustainable rate. In the United States, each household’s share of total debt has increased from 2.8x medina income in 1980 to 6.5x median income today.
Our trade imbalance plagued economy did not boom despite the debt, it boomed because of it.
Once the debt has been created via a trade imbalance, it becomes impossible for the person with debt to repay the debt unless the people with money are willing to spend the money.
Our imbalance plagued economy (international and domestic widening wealth disparoty) does not only need debt, it needs debt to constantly increase at an unsustainable rate.
Private sector debt can not increase at an unsustainable rate forever. You grow the private sector’s ability to carry debt by lowering interest rates, loosening lending standards and lengthening loan terms. Eventually you reach the point of sub-inflation interest rates that can’t go lower, lending standards so loose that fraud becomes the norm rather than the exception, and you reach interest only, infinate length loans.
The private sector maxxed out by 2007 when Fed Rates were at or near 0%, lending standards were so loose that fraud was common and the standards had to be tightened, and people could not pay on their debt even in the interest only terms.
With the private sector maxxed out on debt, the federal govrnment has stepped up with massive deficits to create the $1.3T per year new debt our economy needs to function. But, in 5 years we added more real government debt (publically held) that we had in the previous 230 years. At most we have 5 more years before the debt reaches a breaking point for the federal government.
People speak of an economic recovery that would make the federal deficits unnecessary, but that would require the private sector be able to support the new debt needed to fund the trade imbalances or for the trade imbalances to go away. We are taking no action to shrink nor reverse the widening wealth disparity, $2 per hour global labor wage is preventing us from closing international trade imbalances.
For all the talk of household deleveraging, the Federal Reserve Z.1 tells another story with household debt having increased from $7T in 2000 to $13.8T in 2007 and 2008. In the 3 years since 2008 household debt has only drifted down to $13.2T. Millions of bankruptcies and foreclosures alone should have reduced the debt by more than $600B, meaning net other debt is still increasing. Net non-mortgage household debt is flat for the last 2 years.
Business debt is actually back above the 2008 peak.
This is not a private sector that is regrouping and about to go into another orgy of debt creation. It is a private sector that is holding on by its finger nails, sucking up every penny of federal government money printing.
The only end-game for the road we are on is for the federal government to max out on debt. When that happnes, they can either print massive amounts of nre money, triggering commodity inflation in the face of falling wages and crash the economy or default on the debt causing the global economy to collapse. There is now end of this road that does not involve economic collapse.
Now, tell me where in that disertation I seemed envious of those that hold $ trillions of other peoples’ unrepayable debts, or why I should want to aspire to scrimp and save to accumulate $ trillions of other peoples’ unrepayable debts?
The only “non collapse” outcome is if we change course and directly attack the trade imbalances with tariffs and a steep income tax with an insanely high top rate. I see no hope of that happening soon.
I am not envious. They can not fill me with aspiration to win the doomed game.
I am left with dispair.
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