Bill Bonner, Contributor
Investing |10/18/2011 @ 8:46AM |
The debt-slave rebellion! Get ready, it’s coming, the uprising of the popolo minuto, the revolt of the masses…the Jacquerie!
I’ve read reports on Occupy Wall Street and the worldwide demonstrations in The Washington Post, Bloomberg and The Wall Street Journal. Nowhere was there the slightest hint at the real problem. Nobody’s interested in the real problem.
There are two aspects to humans, said the ancient Greeks. There is the “appetite,” which is the rational mind figuring out how to get what it wants. Then there is the “spirit,” concerned with intangible things, like honor, status, religion and so forth.
It may be the appetite that builds wealth, but it’s the spirit that fuels revolutions. People have an innate sense of what’s right and what’s wrong, what’s fair and what’s not fair. When they feel they are being cheated, they join the revolution.
The press talks about how the rich got richer. Here’s The Washington Post:
From 1973 through 1985, as Simon Johnson, former chief economist of the International Monetary Fund, documented in 2009, American banks never earned more than 16 percent of domestic corporate profits. By the mid-2000s, that figure rose to 41 percent. As with profits, so with pay: For more than three decades, from 1948 to 1982, pay levels in finance ranged from 99 to 108 percent of the average of private-sector pay. By 2007 they had reached 181 percent.
But why? How? “Wall Street greed” is the reply given by both the protestors and the press. But wait. Wall Street was just as greedy back when it made 10% of corporate profits. Wall Street is always greedy. So is everyone else. It wasn’t Wall Street’s greed, however, that tilted the world’s playing field in the direction of the rich.
The post-1971 U.S. dollar-based monetary system permitted an explosion of credit, which naturally favored the credit industry directly, and the entire financial asset-holding investoriat, indirectly, at the expense of the middle and lower classes. In other words, the expansion of credit, caused by a flexible, expandable money regime, set the whole economy ablaze. The middle and lower classes went deeply into debt to buy things.
The “rich,” or at least those who owned stocks and bonds, got richer as consumer spending lit up the business world, and particularly the financial industry itself. Profits from the financial industry were only about 10% of the total profits on Wall Street in 1970. By the time the credit bubble blew up in 2007 they had grown to 40%.
Wages for working stiffs were flat for 40 years. But earnings on Wall Street soared. In 1970, the typical salary in the financial industry was about the same as for equivalent positions in the rest of the economy. But, by the dawn of the twenty-first century, Wall Street salaries were nearly twice as high.
People who complain about “greedy” executives and rich people miss the point. Guys like Lloyd Blankfein at Goldman Sachs and Jamie Dimon at JPMorgan Chase are just doing their jobs. People, rich and poor, are always greedy but they don’t always have a monetary system that encourages debt and favors investors over working people. This money system was created in 1971 by the Nixon administration, which probably didn’t know what it was doing, and it was later perfected by subsequent Federal Reserve chairmen.
In addition to stretching the gap between rich and poor, the non-gold monetary system had one other notable consequence. It undermined the working class’ ability to compete in the modern world. This it did by moving more and more production to the emerging markets.