For US substitute UK .. the financial sector is not bound by national borders.
The Rich Get Richer Explained
Published on Oct 10, 2012
An explanation of the growing disparity between the poor and the rich in America.
by Omid Malekan
“Through the tax code, there has been class warfare waged, and my class has won,” Buffett told Business Wire CEO Cathy Baron Tamraz at a luncheon in honor of the company’s 50th anniversary. “It’s been a rout.”
Between 1979 and 2007, the richest one percent of Americans saw their incomes rise by 275 percent, according to a recent report by the Congressional Budget Office. The bottom fifth of Americans experience only a 20 percent jump.
Michael Hudson describes how the financial overclass suggest a solution to increase their wealth still further:
‘As TARP Special Inspector General Neil Barofsky has described, “saving the banks” has been a euphemism for saving Wall Street from losses, not to mention criminal prosecution.’
‘The U.S. and European governments assume that the solution to clean up the financial wreckage is for economies to “borrow their way out of debt,” by creating yet a new bubble. The new article of faith is that high finance cannot lose; only the economy can be made to suffer losses, regardless of responsibility.
There is an alternative, of course. It requires overcoming today’s tunnel vision to undo the economy’s tragic detour that led to the bubble, the bailout, austerity, and economic polarization between creditors (the 1%) and the 99% in debt to them. The bank lobbyists’ narrative underlying the claim that governments need to bail out the banks at the expense of the “real” economy is that austerity will enable debts to be paid down by enough so that people can begin to borrow again. A new bubble will rescue us – and this time it will be better managed.
The counter-narrative is to recognize the financial sector comprises the Liabilities side of the economy’s balance sheet of assets and debts. As such, it has become a separate and indeed a perverse mirror image of the “real” production and consumption economy. A new debt bubble cannot succeed as a solution based on the economy “borrowing its way out of debt” in an attempt to re-inflate real estate and other asset prices. More bank lending will only impoverish the economy more, indebting the bottom 99% further to the 1%.
The dream is that borrowing can become part of increas(ing) the Magic of Compound Interest, continuing to enrich a financial overclass. But this cannot go on for long. It is a fantasy for governments to accept the financial lobbyist’s dream that the way to pull the economy out of austerity and debt deflation is to create a new bubble – to restore real estate as a speculative activity, to “create wealth” by re-inflating asset prices. It cannot be done honestly.’
Interesting use of the phrase “borrowing its way out of debt” which the UK associates with the Tory jeer against the opposition. Of course, the Tories are meaning government borrowing and not private sector borrowing. In fact, they are extremely keen on personal and household borrowing to pull the economy out of its hole .. as Michael Meacher reported in 2011:
Incredible as it might seem, the last straw that the Chancellor is clutching at is a huge increase in personal and household borrowing, which is already at more than £1.5 trillion—well above the level of Britain’s entire gross domestic product. Although it was falling at the last election, the OBR is now forecasting that it will reach £2.13 trillion by 2015—half as large again as Britain’s entire GDP. That is an extraordinary admission. The Government’s only way of imposing massive public expenditure cuts is by pumping up a gigantic financial bubble in the private sector, which can only end in another colossal financial crash.
As Michael Hudson says this is the financial lobbyist’s dream of continuing to enrich the financial overclass at the expense of the real wealth producers, the 99.9%.
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