Posted on 02/01/2014 3:58:11 PM PST by BfloGuy
The gap between the rich and poor continues to grow. The wealthiest 1 percent held 8 percent of the economic pie in 1975 but now hold over 20 percent. This is a striking change from the 1950s and 1960s when their share of all incomes was slightly over 10 percent. A study by Emmanuel Saez found that between 2009 and 2012 the real incomes of the top 1 percent jumped 31.4 percent. The richest 10 percent now receive 50.5 percent of all incomes, the largest share since data was first recorded in 1917. The wealthiest are becoming disproportionally wealthier at an ever increasing rate.
Most of the literature on income inequalities is written by professors from the sociology departments of universities. They have identified factors such as technology, the reduced role of labor unions, the decline in the real value of the minimum wage, and, everyone’s favorite scapegoat, the growing importance of China.
Those factors may have played a role, but there are really two overriding factors that are the real cause of income differentials. One is desirable and justified while the other is the exact opposite.
In a capitalist economy, prices and profit play a critical role in ensuring resources are allocated where they are most needed and used to produce goods and services that best meets society’s needs. When Apple took the risk of producing the iPad, many commentators expected it to flop. Its success brought profits while at the same time sent a signal to all other producers that society wanted more of this product. The profits were a reward for the risks taken. It is the profit motive that has given us a multitude of new products and an ever-increasing standard of living. Yet, profits and income inequalities go hand in hand. We cannot have one without the other, and if we try to eliminate one, we will eliminate, or significantly reduce, the other. Income inequalities are an integral outcome of the profit-and-loss characteristic of capitalism; they cannot be divorced.
Prime Minister Margaret Thatcher understood this inseparability well. She once said it is better to have large income inequalities and have everyone near the top of the ladder, than have little income differences and have everyone closer to the bottom of the ladder.
Yet, the middle class has been sinking toward poverty: that is not climbing the ladder. Over the period between 1979 and 2007, incomes for the middle 60 percent increased less than 40 percent while inflation was 186 percent. According to the Saez study, the remaining 99 percent saw their real incomes increase a mere .4 percent between 2009 and 2012. However, this does not come close to recovering the loss of 11.6 percent suffered between 2007 and 2009, the largest two-year decline since the Great Depression. When adjusted for inflation, low-wage workers are actually making less now than they did 50 years ago.
This brings us to the second undesirable and unjustified source of income inequalities, i.e., the creation of money out of thin air, or legal counterfeiting, by central banks. It should be no surprise the growing gap in income inequalities has coincided with the adoption of fiat currencies worldwide. Every dollar the central bank creates benefits the early recipients of the money—the government and the banking sector — at the expense of the late recipients of the money, the wage earners, and the poor. Since the creation of a fiat currency system in 1971, the dollar has lost 82 percent of its value while the banking sector has gone from 4 percent of GDP to well over 10 percent today.
The central bank does not create anything real; neither resources nor goods and services. When it creates money it causes the price of transactions to increase. The original quantity theory of money clearly related money to the price of anything money can buy, including assets. When the central bank creates money, traders, hedge funds and banks — being first in line — benefit from the increased variability and upward trend in asset prices. Also, future contracts and other derivative products on exchange rates or interest rates were unnecessary prior to 1971, since hedging activity was mostly unnecessary. The central bank is responsible for this added risk, variability, and surge in asset prices unjustified by fundamentals.
The banking sector has been able to significantly increase its profits or claims on goods and services. However, more claims held by one sector, which essentially does not create anything of real value, means less claims on real goods and services for everyone else. This is why counterfeiting is illegal. Hence, the central bank has been playing a central role as a “reverse Robin Hood” by increasing the economic pie going to the rich and by slowly sinking the middle class toward poverty.
Janet Yellen recently said “I am hopeful that … inflation will move back toward our longer-run goal of 2 percent,” demonstrating her commitment to an institutionalized policy of theft and wealth redistribution. The European central bank is no better. Its LTRO strategy was to give longer term loans to banks on dodgy collateral to buy government bonds which they promptly turned around and deposited with the central bank for more cheap loans for more government bonds. This has nothing to do with liquidity and everything to do with boosting bank profits. Yet, every euro the central bank creates is a tax on everyone that uses the euro. It is a tax on cash balances. It is taking from the working man to give to the rich European bankers. This is clearly a back door monetization of the debt with the banking sector acting as a middle man and taking a nice juicy cut. The same logic applies to the redistribution created by paying interest on reserves to U.S. banks.
Concerned with income inequalities, President Obama and democrats have suggested even higher taxes on the rich and boosting the minimum wage. They are wrongly focusing on the results instead of the causes of income inequalities. If they succeed, they will be throwing the baby out with the bathwater. If they are serious about reducing income inequalities, they should focus on its main cause, the central bank.
In 1923, Germany returned to its pre-war currency and the gold standard with essentially no gold. It did it by pledging never to print again. We should do the same.
It surely is. It's stealing the savings of retirees, eating the capital of businesses invisibly, and driving the cost of living higher by the year while wages stagnate.
Excellent point -- worth repeating. Government is never the cause of our problems to these people. We are the cause of our problems and must be subdued.
Why would I claim that?
and that it happens all at once equally for every good and every consumer.
If the price of gasoline rises $0.10 tomorrow, how does the bank that sold some bonds last week to the Fed pay a lower price than me?
For Pete's sake, that was understood to be false some four centuries ago.
Thanks for the link. Which part of it was supposed to back your claim?
The Fed buys a bond, yielding say 2.6% to 4.5%, from a bank, giving them in return, cash yielding 0.25%.
Gee! Why did the stupid banks agree to that?
Primary dealers serve as trading counterparties of the New York Fed in its implementation of monetary policy. This role includes the obligations to: (i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and (ii) provide the New York Fed's trading desk with market information and analysis helpful in the formulation and implementation of monetary policy. Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account-holders.
As a young man I thought I could change the system by voting and working hard. It was a battle of ideals and effort. I grew older and possibly wiser. Then I thought the system was corrupt and it required more to solve. It would require violence against that system to defeat the ideals. Kind of shoot the lawyers and politicians ideology. I grew older and possibly wiser. I am now at the point where I see the system as a symptom of the populace. My current view is its time to shoot the low info voter. I now advocate decentralization and war against the political tyrants 1000 miles away (NE/West Coast) I hope I grow older and wiser.
I hope my children never ask why I saw this all and did nothing. I speak my opinion in the current safety of my home. I don’t have the conviction or wisdom of Jefferson, Adams or others from history. I am unsure what needs to be done but my current opinion is there needs to be war against those that want to force me my children and grandchildren into slavery for the common good. That’s not 1% or 2%. Its 30% of the people maybe more.
I believe this in my soul to be true.
That is one of the most concise and clear explanations I’ve ever read. Thank you.
Your job was to work hard and vote. Your job wasn’t to run around after your elected officials with a pooper scooper.
You did your job. They didn’t do theirs.
I will say this about blaming the low information voters.
Please give me a list of even ten steady Conservatives that have run for office at the national level in the last twenty years.
Reagan was the last Conservative presidential candidate. He ran last in 1986. That’s 30 years ago, by 2016.
There you have it. We can blame ignorant voters all we want, but if there aren’t any Conservative “NAMES” out there educating them, it’s our leader’s fault, not the low information voters.
I think Reagan could win today. He had a way of telling it like it is, and you knew your “Uncle Ronald Reagan” was shooting straight with you. How many candidates do we get that from these days?
One tells you, hey I’m dead set against Amnesty. What I do support is them registering so they can stay here and work. Then if they do what they’re supposed to...
They talk out of both sides of their mouth, and expect us to buy in. I say hell no. Not only are they lying to me, they are turning folks off to Conservatism, by playing “Tell me which cup the truth is under.” I’m so sick of that.
We run folks like McCain, and then we talk about the low information voter. Hell, the low information voter saw the fake McCain ten miles off.
Mr. Hey I’m going to dismantle Obamacare and replace it with Romenycare wasn’t fooling anyone. If a government heath system is wrong, then naming it after yourself doesn’t make it right? Who knew? Well, the low information voter did.
I may not like Obama, but geez Louise, I’ll be darned if I can tell my people to vote for McCain.
The GOPe is in for a rough ride over the next few years. I think they deserve just about anything that comes their way.
My adult political life view was based Reagan. I graduated HS while he was president. He was the last patriotic politician in the executive branch or even running for the office.
I just wish we had another leader stepping up to lead the patriots. Its been too long and I am truly fearful of what needs to be done or maybe its fear nothing can be done to stop the madness.
Toddster, that is so much financial gobbledygook. I don't care a whit about regulations and requirements. I care about the economic theory that a government central bank that continually expands the money supply is damaging the economy.
I get it that you're a great admirer of the Federal Reserve. I just can't see why.
It answered your question.
So how does that benefit the banking sector?
I care about the economic theory that a government central bank that continually expands the money supply is damaging the economy.
What economic theory is that?
This one. You'd do well to, at least, read it. It isn't unknown.
And it's the only one that makes sense. You may heard of Hayek -- or maybe not.
Which part proves that continually expanding the money supply is damaging the economy?
Most people live on two incomes. Nothing against women working, but two incomes are necessary for most people because of taxes. I am an accountant for a very small company of three employe3s with modest salaries ($30K to $50K), and our withholding sent in to the government over 22 years is close to $1.3 million dollars! Government takes, and the middle class loses.
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