The dirty little secret about debt (duh!)

[j_b]

Even the corporate media occasionally let the truth slip out

 

Debt is capitalism’s dirty little secret

By Ben Funnell

Financial Times

Published: 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.

 

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.

 

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.

 

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.

 

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 (with subscription): http://www.ft.com/cms/s/0/e23c6d04-659d-11de-8e34-00144feabdc0.html?nclick_check=1

[StevenSeagal]

Hey man, when you gonna realize that the beauty of capitalism is that anyone who works hard will eventually become filthy rich and control everything! I'm almost there, how bout you?

[StevenSeagal]

Just as soon as I pay off these credit cards and car loans. And mortgage. And Bed Bath and Beyond charge account. And...

[Kimmo]

the US now owes far more, as a multiple of the economy, than at the start of the Great Depression.

 

that sounds dramatic, but is that the best comparison point?

 

As of June 2009 the debt was 82.5 percent of GDP based on current GDP. This level of debt has not been seen since 1951, with the nominal value the largest in recorded history.

 

link

[j_b]

It especially seems contradictory since the "economy" is usually taken to be the GDP. But, imo, that is a minor point of the article compared to the issue of the distribution of wealth worthy of the age of the robber barons and how it has been hidden from sight by indebting people (and making a killing in the process).

[j_b]

Just as soon as I pay off these credit cards and car loans. And mortgage. And Bed Bath and Beyond charge account. And...

 

You better watch out or the commies will redistribute it all away ...

[prole]

Just as soon as I pay off these credit cards and car loans. And mortgage. And Bed Bath and Beyond charge account. And...

 

Freedom isn't free.

[StevenSeagal]

Just as soon as I pay off these credit cards and car loans. And mortgage. And Bed Bath and Beyond charge account. And...

 

Freedom isn't free.

 

Maybe not, but you're just jealous because I got my freedom for a great introductory rate of just 2.9% with no money down and zero payments for 18 months, at which point account is subject to a nominal APR of 24.98% and back interest.

[Kimmo]

But, imo, that is a minor point of the article compared to the issue of the distribution of wealth worthy of the age of the robber barons and how it has been hidden from sight by indebting people (and making a killing in the process).

 

i'm not quite sure if anything has been "hidden from sight", as you say; i've read somewhat regularly about wealth distribution in main-stream zines (although you do say it has been hidden from people by "indebting" them, which i can't say i understand).

 

also, "indebting people" (within our current economic structures) isn't done without the compliance, to a large degree, of the very people being indebted. what i don't like is when the argument is framed as if the poor helpless americans have no choices about their finances.

 

having said that, i'm not particularly a fan of an unfettered capitalism. having a limited fungible commodity (money) so unequally harvested and collected and hoarded by so few does not set up the conditions most conducive for collective well-being.

[Fairweather]

Just as soon as I pay off these credit cards and car loans. And mortgage. And Bed Bath and Beyond charge account. And...

 

I have. And I'm not interested in working an extra ten hours per week for the rest of my life because you, j_b, and Prole can't manage your personal finances.

[StevenSeagal]

Just as soon as I pay off these credit cards and car loans. And mortgage. And Bed Bath and Beyond charge account. And...

 

I have. And I'm not interested in working an extra ten hours per week for the rest of my life because you and Prole can't manage your personal finances.

 

hey I'm just trying to share- what's mine is yours! Debts included!

 

I'm off to Best Buy to get a flat screen- can I borrow your Visa card?

[j_b]

But, imo, that is a minor point of the article compared to the issue of the distribution of wealth worthy of the age of the robber barons and how it has been hidden from sight by indebting people (and making a killing in the process).

 

i'm not quite sure if anything has been "hidden from sight", as you say; i've read somewhat regularly about wealth distribution in main-stream zines (although you do say it has been hidden from people by "indebting" them, which i can't say i understand).

 

Before the last 9 mos or so, which mainstream zines have discussed the incredible change in wealth distribution and lowering of real income for most americans that have occurred starting with Reagan (actually Carter)? Which mainstream zines (or politicians for that matter) exactly wasn't spewing the trickle down non-sense and rising tide that lifts all boats crapola?

 

You don't understand how most people don't even know their real wage has decreased over the last 30 years even though most have been had to used cheap credit extensively to stay afloat? I'd like to say I don't understand it either but believe it has to do with the false portrayal of economic reality and value of real-estate assets by dominant culture as orchestrated by the corporate media.

 

also, "indebting people" (within our current economic structures) isn't done without the compliance, to a large degree, of the very people being indebted. what i don't like is when the argument is framed as if the poor helpless americans have no choices about their finances.

 

What choice? Be poor and living poorly without debt or be poor and living well fed with debt? Most people would rather bury their head in the sand than acknowledge pauperization.

[prole]

And I'm not interested in working an extra ten hours per week for the rest of my life because you, j_b, and Prole can't manage your personal finances.

 

Get a raise, dumbass.

[j_b]

Just as soon as I pay off these credit cards and car loans. And mortgage. And Bed Bath and Beyond charge account. And...

 

I have. And I'm not interested in working an extra ten hours per week for the rest of my life because you, j_b, and Prole can't manage your personal finances.

 

In June alone, another 450,000 laid off people just lost their capacity to handle any level of debt, jackass. Where these people supposed to not believe anything they heard from Bush, the guy you voted for twice, and his media lapdogs over the last 8 years?

[Fairweather]

 

In June alone, another 450,000 laid off people just lost their capacity to handle any level of debt, jackass. Where these people supposed to not believe anything they heard from Bush, the guy you voted for twice, and his media lapdogs over the last 8 years?

 

News flash, moron: Obama has been president since January. Those June unemployment numbers belong exclusively to Obama-brand class warfare. But I'm sure once Cap and Trade legislation is signed their job prospects will brighten.

[Kimmo]

Before the last 9 mos or so, which mainstream zines have discussed the incredible change in wealth distribution and lowering of real income for most americans that have occurred starting with Reagan (actually Carter)?

 

i have read about it in the economist and wsj, time, newsweek etc. even back in the '90's.

 

i just don't think it's been some great conspiracy secret that you make it out to be. i'd wager that a majority of americans know about the general changes, if not the specific numbers. it seems to be mainstream knowledge that people are working harder for less, and the rich have gotten richer.

 

i think the salient point with this is that people don't know what to do about it; do you? can you articulate the situation in a way that isn't simply the product of one ideology banging against another, with the resultant sparks constituting what passes for discourse?

 

 

You don't understand how most people don't even know their real wage has decreased over the last 30 years even though most have been had to used cheap credit extensively to stay afloat?

 

i just don't buy that: see above. as far as cheap credit goes, an amazing amount of it was used to fuel consumerism, not simply to "stay afloat".

 

I'd like to say I don't understand it either but believe it has to do with the false portrayal of economic reality and value of real-estate assets by dominant culture as orchestrated by the corporate media.

 

"dominant culture" portrayal of "economic reality"? what does that mean?

 

"value of real-estate assets"? i assume you mean the ignorance of the RE bubble? the warnings were there, but EVERYONE ignored it: Gold Rush! i guess i don't smell the conspiracy....

 

What choice? Be poor and living poorly without debt or be poor and living well fed with debt? Most people would rather bury their head in the sand than acknowledge pauperization.

 

again, refer above. easy credit fueled consumerism without a doubt. i think your scenario about the poor indebted american needing loans and credit cards to survive might apply to a small minority of people (not to be discounted), but is not the general reality.

[Kimmo]

News flash, moron: Obama has been president since January. Those June unemployment numbers belong exclusively to Obama-brand class warfare. But I'm sure once Cap and Trade legislation is signed their job prospects will brighten.

 

your lack of knowledge regarding the workings of the economy are telling, or your ideological blinders need a little windex.

 

it's similar to when lib ideologues tried to pin the '01 recession exclusively on bush, as if the '90's bubble had nothing to do with it.

[j_b]

 

In June alone, another 450,000 laid off people just lost their capacity to handle any level of debt, jackass. Where these people supposed to not believe anything they heard from Bush, the guy you voted for twice, and his media lapdogs over the last 8 years?

 

News flash, moron: Obama has been president since January. Those June unemployment numbers belong exclusively to Obama-brand class warfare. But I'm sure once Cap and Trade legislation is signed their job prospects will brighten.

 

I am bemused at being called a moron by someone who claims that 6 months should be enough to inverse the trend in a cratering economy and a financial crash such as we have seen in more than 60 years.

[Kimmo]

I am bemused at being called a moron by someone who claims that 6 months should be enough to inverse the trend in a cratering economy and a financial crash such as we have seen in more than 60 years.

 

 

especially when the "crash" is based on an unsustainable economic bubble perhaps 10 years in the making (or much longer, depending on how you view it, and to what "floor" the current unwinding takes us to).

[Fairweather]

Just making sure the Obama faithful aren't eating their cake. I propose that the blinders currently rest on the nasal bridges of the president's flock who ravenously devour the bits of class-flesh he tosses out even as he (intentionally?) steers us toward the edge. One parishioner here is willing to let civilization burn for another year--and that's better than most--but I suspect the true believers are hoping for total economic collapse. Am I wrong?

[No. 13 Baby]

News flash, moron: Obama has been president since January. Those June unemployment numbers belong exclusively to Obama-brand class warfare.

 

...and yet the terrorist attack on the United States nine months into dumbya's reign were the previous administration's fault!

[Fairweather]

News flash, moron: Obama has been president since January. Those June unemployment numbers belong exclusively to Obama-brand class warfare.

 

...and yet the terrorist attack on the United States nine months into dumbya's reign were the previous administration's fault!

 

Now turn that 180. Scorched Earth arguments leave the whole world blind.

[StevenSeagal]

Just making sure the Obama faithful aren't eating their cake. I propose that the blinders currently rest on the nasal bridges of the president's flock who ravenously devour the bits of class-flesh he tosses out even as he (intentionally?) steers us toward the edge. One parishioner here is willing to let civilization burn for another year--and that's better than most--but I suspect the true believers are hoping for total economic collapse. Am I wrong?

 

You have a viral mistrust and lack of faith in humanity, even within your own culture. I like to assume people have good intentions even if I disagree with their process. How do you function in everyday society without totally imploding?

[Kimmo]

Just making sure the Obama faithful aren't eating their cake. I propose that the blinders currently rest on the nasal bridges of the president's flock who ravenously devour the bits of class-flesh he tosses out even as he (intentionally?) steers us toward the edge. One parishioner here is willing to let civilization burn for another year--and that's better than most--but I suspect the true believers are hoping for total economic collapse. Am I wrong?

 

i'll go with the "there are no dumb questions" tack on this, and answer that of course (as you know) you are wrong. your position reeks of the paranoia that some exhibited about bush's plan to declare martial law in order to remain in office (most people don't perhaps understand that bush stayed in office! except for some (very important) changes).

[StevenSeagal]

I mean really, who would actually hope for the collapse of ones own economy in which they, their friends, families, depend upon for sustenance? That it nonsensical hyperbole.