JANUARY 5, 2016
INCOMES or CAPITAL GAINS
The vast majority spend little or no time dwelling upon how the economy works. Purchasers believe they are owners yet much of what they buy is on credit. Debt is wealth is what the creditors would have you believe. The promise of the future is nothing without incomes that increase faster than prices.
Without credit increasing prices depend upon growing incomes. No credit means earnings limit the cost of everything. Debt and low monthly payments let buyers pay more. This is true for businesses, governments, families and individuals. For bankers debt expansion is everything: Every spare dollar any debtor has should go to service debt. If you have no debt, get some.
The financial elites of the world use their vast pools of wealth to speculate in financial assets. Companies borrow cheap to pay dividends and buy back stock. They put cash in their stockholder's pockets to save and to invest after the next stock market crash. Meanwhile trading in currencies or other financial paper can happen in minutes. Buy in one market. Sell in another at a slightly higher price. If the transaction amount is large enough, thousands of dollars may be earned in moments. No jobs. No production. No consumer or business goods purchased. But the accounts of the financial elites show a higher balance. Information technology, high speed computers, and trading algorithms designed by physicists make profits instantaneous.
The US government saved many banks and corporations in the wake of the great recession. In the years since financial assets have soared in value. Yet recently they seem to have hit a bump. Where are the investments that will put people to work in jobs having a future? After the next crash will there be anything left to invest?
Employment real income growth has been stagnant for the last forty years. Housing costs as a percentage of income have perhaps doubled during the same time. The tenure of a typical homeowner is about seven years between moves from one house to another. For many mortgage payments never end. House price appreciation holds the only hope for gain for most owners. That worked for about sixty years after World War Two.
The costs of debts bring down or prohibit investments in economic growth. Those costs reduce consumer and business purchasing power. The economic lives of individuals and families may fail to improve. Is it possible that buyers may start to doubt that debt is wealth?
Where does it end?
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Note: My opinions have been influenced by the writing and audio presentations of Jack Rasmus. I recommend his work. His latest book is: "Systemic Fragility in the Global Economy" which is published by Clarity Press, Inc. His websites are: jackrasmus.com and kyklosproductions.com.
