Our masters are having problems these days, particularly in the United States.
Engaged in disastrous, unwinnable wars in Iraq and Afghanistan, with an economy
that verges on collapse, a leadership with no legitimacy and an opposition that
won’t oppose, the country just sinks deeper into the muck. The US model of
political economy has outlived its usefulness. Caught in the dilemma of a
paradigm that is moribund but unwilling to change to a sustainable model they,
our Dear Leaders, are following Dylan Thomas’ advice to “not go gentle into
that good night.” Change will never come from the top; they will fight to the
last drops of our blood to maintain their power. History shows that our masters
care not much for us. Consider the following statistics.
_____________________________________________
|Year|CPI1_|GDP/cap.2|Consumer_Debt3|Debt/cap.|
|1960|88.7_|13,847___|60_B__________|330______|
|1970|116.3|18395____|131.5_B_______|645______|
|1980|246.8|22716____|351.9_B_______|1550_____|
|1990|391.4|28493____|808.2_B_______|3249_____|
|2000|515.8|34788____|1,722.4_B_____|5939_____|
|2004|565.7|36627____|2,204.1_B_____|7600_____|
1- CPI base year 1967=100
2- Per capita GDP in constant year 2000 dollars
3- Consumer debt does not include mortgages, merely cars, tv’s, vacations,
latte grandes etc. and are in “current, nominal” not yearly-adjusted “real”
dollars.
The above figures could have been expanded through 2nd quarter of this year and
recalculated for common base years but the trend is so huge that the meaning
wouldn’t change. From 1960 to 2000 the CPI increased by a factor of 5.8, GDP/
cap. increased by a factor of 2.5, while debt increased by a factor of 28.7,
and per capita debt increased by a factor of 18. Today,(non-mortgage) consumer
debt is about $8000 for each and every one of us, even the tiniest newborn, and
the National debt is an additional $30,000+ for each of us. So, if you are an
intact family of four then:
______________________________________________________________
|Year|”Nominal”_share_GDP|Family_consumer_debt|Debt_%_of_income|
|1970|_________202601____|___________25801____|_________12.7___|
|2000|_________139152____|___________23756____|_________17.2___|
|2004|_________146508____|___________30400____|_________20.7___|
1- These are 1970 dollars.
If we tack on the National Debt (using 2004 as a baseline) then that works out
to 84.7% of “nominal” family income and added to current consumer debt that
totals more than 105% of your family’s share of GDP. This not only doesn’t
include housing costs, it also doesn’t fill your gas tank in the morning or
your belly at lunch. And while debt must be paid out of income not all GDP is
dispersed as income and most of us (nearly all, in fact) never get “our” share
of this national income. Since these days debt is commonly paid through new
debt this digs our hole deeper each year. Financial counselors and book authors
are famous, and rather trite, in preaching us to live within our means but
living on borrowed money is the norm for all, including governments, banks and
corporations. Debt’s a “funny” thing. Consider this from Financial History of
the United States by P. Studenski and H. Krouss ©1952:
Who owns the debt is much more important than its size, for if the
debt were divided among the citizens in proportion to their tax
liability, each individual would be paying to himself the interest on
his bonds and the whole debt would lose all meaning and could be
canceled. On the other hand, once debt is distributed in different
proportions from taxes, it involves a burden on taxpayers for the
benefit of bondholders.
The above quotation describes national debt but in a large sense the same
people who own Treasury bonds also own corporate bonds and municipal bonds and
consumer and mortgage debts as well. We are beholden to a class of rentiers and
these parasites have bought the best government they can afford. Not to get too
far ahead but we basically live in a deflationary era where productivity is so
high that production growth outstrips market growth, commodity prices fall, and
with many decades of the assault on labor, ordinary workers can’t afford to buy
so our masters advance us credit to keep the production line moving and sales
growing and, hey!, they make money on the back end too through interest. Thus
rises debt and our further impoverishment with each passing year.
The Financial Times wrote recently that corporate profits are at their highest
level in more than half a century and that last year those profits totalled
$1.35 trillion pre-tax and that companies retained $460 billion rather than
disburse them through dividends. Some of these retained earnings have gone to
buy back stock to prop up exchange prices and a lot of it has been invested in
financial instruments, some being in those types currently in the news as they
crash and burn around us. Back during the dot.com boom there was the book Dow
at 36,000 or some such name. Most who heard of it (this writer included) were
astounded and wondered if stock prices could go so high and the forecast was
dismissed as unrealistic if not silly. Upon further thought, however, what
would it mean if the index did balloon that high? Recently, an analyst named
Henry Liu wrote in the Asia_Times that at the end of 1994 the total dollar
value of all US stocks was $5.3 trillion and at the end of 2006 that same value
had ballooned to $35 trillion. Anyone old and literate enough to read a
newspaper knows that the real economy didn’t grow more than 600% over those 12
years. We don’t have 6 times the wealth or jobs or cars or even computers. What
happened was asset inflation; stock prices lost their tether to reality and
today have little relationship to underlying real value. And just as millions
are losing their homes through foreclosure so too the reckoning for the economy
and the country is coming due. Not only the degenerate gambler doubling down to
get back the bookie’s stake has to pay the piper; at some point reality
crunches us all.
The other day Fed chairman Bernanke cut the discount rate to increase liquidity
to forestall the collapse of mortgage lenders and other financial companies.
Ensuing days produced paeans to Bernanke’s acumen as he cut his academic teeth
on the Great Depression and the lack of liquidity that brought the economy to a
(virtual) halt. Problem is, today’s world is different. First, in the 20’s
money was tied to gold; thus, the dollar more or less moved in lockstep with
commodities. Today we have fiat money, constantly inflated since WWII days and
particularly since 1973. Today money is debt and that debt was created through
constant injections of liquidity into the system, with worse money chasing bad
money. This Fed move can only delay, not avoid, the day of judgment. Today it
is almost a truism that everything is connected to everything else. So, let’s
unravel these threads and see if they all lead to the same source, if all roads
lead to Rome.
