The Rich Get Richer Explained by the Bears

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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.

http://www.huffingtonpost.com/2011/11/15/warren-buffett-tax-code-l_n_1095833.html

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%.

http://neweconomicperspectives.org/2013/01/the-delicious-irony-of-morris-greenbergs-aig-suit-against-the-us-treasury.html#more-4415

http://www.michaelmeacher.info/weblog/2011/06/the-osborne-budget-1-year-on/#more-2527

Related Think Left post:

Neil Barofsky: How Washington Saved Wall Street and Abandoned Main Street

Plutonomy – Invasion of the Political Body Snatchers.

The Bears explain how The Rich Get Richer

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The Rich Get Richer Explained

Published on Oct 10, 2012 by 

An explanation of the growing disparity between the poor and the rich in America.
by Omid Malekan
http://www.omidmalekan.com
@omidmalekan

Hat-tip http://www.zerohedge.com/

In an attempt to break the now ubiquitous narrative that “its all about income tax rates”, and to challenge the ridiculous new support for QEternity; ‘The Bears’ that brought you ‘The Bernank’ are back. In this cartoon, they explain how the bailouts made people like Warren Buffett far wealthier than they should be and exposes who actually benefits from all this QE. The Bears, The Buff-ate, and The Bernank – simply perfect.

Does Nick Clegg know where money comes from? … the Bears explain.

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Only someone who doesn’t know where money comes from, could possibly believe that the UK was ever in danger of becoming like Greece.  Will Hutton calls the idea risible.  So, giving Nick Clegg the benefit of the doubt over his veracity, the Bears will explain for him where money comes from …

“Modern finance is generally incomprehensible to ordinary men and women….. The level of comprehension of many bankers and regulators is not significantly higher.

It was probably designed that way. Like the wolf in the fairy tale:

“All the better to fleece you with.”

–Satyajit Das,a risk consultant and author of Traders,Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives –Revised Edition (2010, FT-Prentice Hall).

Economist J. K. Galbraith :

The process by which banks create money is so simple that the mind is repelled. When something so important is involved, a deeper mystery seems only decent.

Physical cash accounts for less than 3 per cent of the total stock of money in the economy. Commercial bank money – credit and coexistent deposits – makes up the remaining 97 per cent of the money supply.

There are several conflicting ways of describing what banks do. The simplest version is that banks take in money from savers, and lend this money out to borrowers. This is not at all how the process works. Banks do not need to wait for a customer to deposit money before they can make a new loan to someone else. In fact, it is exactly the opposite; the making of a loan creates a new deposit in the customer’s account.

More sophisticated versions bring in the concept of ‘fractional reserve banking’. This description recognises that banks can lend out many times more than the amount of cash and reserves they hold at the Bank of England. This is a more accurate picture, but is still incomplete and misleading. It implies a strong link between the amount of money that banks create and the amount that they hold at the central bank. It is also commonly assumed by this approach that the central bank has significant control over the amount of reserves banks hold with it.

We find that the most accurate description is that banks create new money whenever they extend credit, buy existing assets or make payments on their own account, which mostly involves expanding their assets, and that their ability to do this is only very weakly linked to the amount of reserves they hold at the central bank. At the time of the financial crisis, for example, banks held just £1.25 in reserves for every £100 issued as credit. Banks operate within an electronic clearing system that nets out multilateral payments at the end of each day, requiring them to hold only a tiny proportion of central bank money to meet their payment requirements.

http://www.neweconomics.org/publications/where-does-money-come-from

Related Posts:

New Economics Foundation – ‘Where does money come from?’  (video clip) http://www.youtube.com/watch?v=l7L3ZtCSKKs&feature=related

6 Myths about Money & Banking – Josh Ryan-Collins (video clip from positive money)

https://think-left.org/2012/08/04/the-uks-budget-deficit-is-rising-not-falling/

https://think-left.org/2012/07/27/simon-says-qe-is-the-biggest-confidence-trick-of-all-time/

https://think-left.org/2012/08/25/why-does-the-structural-deficit-remind-me-of-libor/

https://think-left.org/2012/08/01/michael-hudson-and-max-keiser-fictitious-capital-explained/

http://www.debtonation.org/2012/06/ann-pettifor-speech-notes-for-presentation-to-the-winning-labour-conference-doncaster-19th-may-2012/#more-5904

Quantitative Easing and Greedy Bankers as explained by the bears.

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More Quantitative Easing is expected this week.  It is likely that the Bank of England will click on their computer mouse to issue another £50 billion, to add to the £325 billion that has already been poured into the banks .. never to be seen again.

Rather unfortunate timing given the weekend’s revelations about Libor-fixing banks.

Nov 11, 2010

What the Federal Reserve is up to, and how we got here.

Feb 1, 2012

The bears are back to discuss the latest doings by the Federal Reserve and The Bernank.

ThinkLeft’s  Is ‘Austerity’ intended to increase unemployment and suppress wages? outlines the same system operating in the UK.

QE obviously isn’t working in the way it is intended. The credits given to banks are not finding their way into the real economy. QE is simply not stimulating growth in the money supply in the way it is intended to.

So what has gone wrong?  In short – bankers greed.  Banks demand a 15% return on equity to enable them to support their “business model”  of spending over half their turnover on pay packets that average £350,000 . This level of return is so high and greedy that banks have no interest at all in lending for mortgages or to small businesses – the returns are too small.

‘The Tories and their backers want high unemployment and household debts to rise as this lowers wage demands and increases corporate profits. They are deliberately engineering a slump in order that the banks who provide 50% of their funding and the donors who can afford the £250,000 dinners with Cameron can slightly increase their profits.

Business is sitting on £700 billion of retained profits, banks are rich enough to pay an average of £350,000 to their staff. So what does Cameron do? He abolishes the bankers bonus tax, drops the 50p highest tax rate, lowers corporation tax and exempt overseas subsidiaries of multinationals from paying tax. The rest of us get a 5% hike in VAT, trebling of university tuition fees, youth unemployment raised to 20% and once again (as with Thatcher) unemployment knocking on 3 million people.’

A sensible government would announce that the money supply is shrinking, that the £325 billion in the Asset Purchase Facility can be safely monetized and that public sector cuts are cancelled and a £175 billion stimulus package can safely be afforded.