Capitalisms dirty little secret....

[RedOctober]

http://www.ft.com/cms/s/0/e23c6d04-659d-...ck_check=1

Debt is capitalism’s dirty little secretBy Ben Funnell
Published: June 30 2009 19:14 | Last updated: June 30 2009 19:14

Just why is there so much debt in the Anglo-Saxon world? Bankers and regulators know well that it is in nobody’s long-term interests to have allowed borrowing to escalate to a position where the US now owes far more, as a multiple of the economy, than at the start of the Great Depression.

The answer is capitalism’s dirty little secret: excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite.

The amount by which the elite has benefited is startling, and illustrates the problem with lightly regulated free markets: the rich get much richer while the rest do not get richer at all. According to Société Générale economists, the inflation-adjusted income of the highest-paid fifth of US earners has risen by 60 per cent since 1970, while it has fallen by more than 10 per cent for the rest. As was recently pointed out in the New York Review of Books, the Walton family, of Wal-Mart fame, is wealthier than the bottom third of the US population put together – about 100m people. These are staggering statistics, confirmed by measures such as the US and UK’s ever-rising Gini coefficients, which estimate income disparity. Another way of putting this is that the share of profits in gross domestic product is at a 100-year high, or was until very recently.

Put simply, the benefits of economic growth have gone into the pockets of plutocrats rather than the bulk of the population. So why has there been no revolution? Because there was a solution: debt. If you couldn’t earn it, you could borrow it. Cheap financing was made widely available. Financial innovations such as the asset-backed securities market aided this process, as did government-sponsored agencies such as Fannie Mae and Freddie Mac. Regulators welcomed it all while perhaps taking insufficient account of the moral hazard problem it posed: that ever-increasing leverage meant the authorities had to keep interest rates low, otherwise the debt burden would cripple consumption. This prompted more leverage, which exacerbated the problem.

A walk in any low-income area in the UK confirms this. There are BMWs in the driveways, satellite dishes on the roofs and furniture delivery vans on the streets. In both Britain and America the jobless were encouraged to buy their own homes. No one begrudges anyone else the right to own a home or buy luxury goods. The problem is that the luxuries need to be paid for out of earnings and the houses out of equity topped up with an affordable amount of debt.

The question is whether the debt load – total US credit market debt outstanding was $53,000bn (€38,000bn, £32,000bn) at the end of March, or 3.7 times GDP – is at all sustainable and, if not, how it can be lowered without sinking the economy. Those pushing extra debt in an effort to boost the economy via increased consumption point to the scale of assets backing the debt. The net worth of US households, including their houses and after counting debt, was $50,000bn in March, according to the Fed. Not a bad tally for 306m people: $165,000 each. However, the cost of servicing this debt as a proportion of income, even with record low rates, is at a 30-year high, above 15 per cent, as incomes have stagnated and the total level of debt has risen.

The debt burden has to come down, which means more saving and lower economic growth for many years to come. Along the way inflation is likely to return, probably sooner and more violently than most expect, which will prompt investors to demand a higher return and make it even harder for governments to tackle the debt. At best the debt will fall slowly over many cycles and simply trim otherwise resilient growth. At worst it could cause growth to lurch upwards before tumbling again, with all the attendant uncertainty that entails. At this point, no one can know which is more likely. I incline to the more benign view because of the size of household assets but, if the dollar’s reserve currency status should come under serious attack, rates would have to rise to defend it and that could itself cause a consumption crisis.

What can be done? First, although it is not ideal, we should not be too hasty about abandoning the capitalist model. It is less bad than any other system yet invented. But we should redouble our efforts to increase productivity through innovation and creating new markets; simply squeezing lower-income workers is a bad option, which helped get us into this mess in the first place. This requires investment in education and research. Second, we have to learn to live within our means. This means spending less than we earn, perhaps doing without the BMWs, flat-screen television sets and leather sofas. Third, we should be careful in distributing the higher tax burden that we will inevitably have to bear over the coming decade. Very high marginal tax rates did not work in the 1970s and will not work now. That said, income disparity at current levels is a political time-bomb that needs to be dealt with. Finally, we should all come to terms with the fact that these are structural issues needing structural solutions; they need to be enforced over a longer time period than any one government’s term. So we need a new political consensus, one aimed at reducing overall debt levels while reducing inequality by encouraging education, entrepreneurship and investment in innovation.

[mud]

Proverbs 22:7
The rich ruleth over the poor, and the borrower is servant to the lender.

[IV]

Speaking of "capitalism's dirty little secret...."

It requires hard work. It requires determination. It requires a work ethic unlike any other. One mustbelieve in thedream strongly enough that they will go out and work theirrear off to achieve what they need to feed their family and succeed.

I don't call this greed. I call this actually wanting a better life for your family so that they don't have to suffer and deal with financial hardship and all the problems it creates.

It bothers me that all the have-nots will harp on and nitpick the haves or the people that are trying to succeed in the name of religion. Just because God does not want us to have the better than thouattitudes that some wealthy people have, does not mean that he wants us to fail either.

God clearly tells us not to fail as a provider.

Timothy 5:8

But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever.

[RedOctober]

IV Wrote:Speaking of "capitalism's dirty little secret...."

It requires hard work. It requires determination. It requires a work ethic unlike any other. One mustbelieve in thedream strongly enough that they will go out and work theirrear off to achieve what they need to feed their family and succeed.

I don't call this greed. I call this actually wanting a better life for your family so that they don't have to suffer and deal with financial hardship and all the problems it creates.

It bothers me that all the have-nots will harp on and nitpick the haves or the people that are trying to succeed in the name of religion. Just because God does not want us to have the better than thouattitudes that some wealthy people have, does not mean that he wants us to fail either.

God clearly tells us not to fail as a provider.

Timothy 5:8

But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever.

FYI.....

That isn't capitalism.

[IV]

RedOctober Wrote:

IV Wrote:Speaking of "capitalism's dirty little secret...."

It requires hard work. It requires determination. It requires a work ethic unlike any other. One mustbelieve in thedream strongly enough that they will go out and work theirrear off to achieve what they need to feed their family and succeed.

I don't call this greed. I call this actually wanting a better life for your family so that they don't have to suffer and deal with financial hardship and all the problems it creates.

It bothers me that all the have-nots will harp on and nitpick the haves or the people that are trying to succeed in the name of religion. Just because God does not want us to have the better than thouattitudes that some wealthy people have, does not mean that he wants us to fail either.

God clearly tells us not to fail as a provider.

Timothy 5:8

But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever.

FYI.....

That isn't capitalism.

I know that, but tell that to all the people who criticize others for getting ahead or wanting to get ahead by calling it capitalist greed. Some people really don't understand it.

[RedOctober]

[user=13]IV[/user] wrote:

Quote:[color="darkred"]It requires hard work. It requires determination. It requires a work ethic unlike any other. One mustbelieve in thedream strongly enough that they will go out and work theirrear off to achieve what they need to feed their family and succeed. [/color]

I don't call this greed. I call this actually wanting a better life for your family so that they don't have to suffer and deal with financial hardship and all the problems it creates.

Oh come on IV....say that dirty word! You just advocated an economic system that is considered taboo!

Quote:Socialists mainly share the belief that capitalism unfairly concentrates power and wealth among a small segment of society that controls capital, creates an unequal society, and does not provide equal opportunities for everyone in society. [color="darkred"]Therefore socialists advocate the creation of a society in which wealth and power are distributed more evenly based on the amount of work expended in production, although there is considerable disagreement among socialists over how and to what extent this could be achieved. [/color]

Translated into plain terms, it means if you work hard you should get paid for doing so. But not at a disproportionate amount.

Quote:I know that, but tell that to all the people who criticize others for getting ahead or wanting to get ahead by calling it capitalist greed. Some people really don't understand it.

What does "getting ahead" entail? If you answer yes to these questions below, your a capitalist, if you answer no.....you are advocating a form of socialism.

Are you willing to exploit a neighbor for disproportionate monetary gain?

Are you willing to use your market position and leverage to obtain the maximum allowable profit and ignore any social consequences on society, believing that its a "natural" distribution of resources?

A lot of people don't realize, they are actually socialists....albeit market socialist...but none the less, they do indeed advocate that dirty word.

Most who advocate capitalism as a rewarder of hard work tell me one thing specifically...they don't know what the heck they are talking about.

[IV]

RedOctober Wrote:[user=13]IV[/user] wrote:

Quote:It requires hard work. It requires determination. It requires a work ethic unlike any other. One mustbelieve in thedream strongly enough that they will go out and work theirrear off to achieve what they need to feed their family and succeed.

I don't call this greed. I call this actually wanting a better life for your family so that they don't have to suffer and deal with financial hardship and all the problems it creates.

Oh come on IV....say that dirty word! You just advocated an economic system that is considered taboo!

Quote:Socialists mainly share the belief that capitalism unfairly concentrates power and wealth among a small segment of society that controls capital, creates an unequal society, and does not provide equal opportunities for everyone in society. Therefore socialists advocate the creation of a society in which wealth and power are distributed more evenly based on the amount of work expended in production, although there is considerable disagreement among socialists over how and to what extent this could be achieved.

Translated into plain terms, it means if you work hard you should get paid for doing so. But not at a disproportionate amount.

Quote:I know that, but tell that to all the people who criticize others for getting ahead or wanting to get ahead by calling it capitalist greed. Some people really don't understand it.

What does "getting ahead" entail? If you answer yes to these questions below, your a capitalist, if you answer no.....you are advocating a form of socialism.

Are you willing to exploit a neighbor for disproportionate monetary gain?

Are you willing to use your market position and leverage to obtain the maximum allowable profit and ignore any social consequences on society, believing that its a "natural" distribution of resources?

A lot of people don't realize, they are actually socialists....albeit market socialist...but none the less, they do indeed advocate that dirty word.

Most who advocate capitalism as a rewarder of hard work tell me one thing specifically...they don't know what the heck they are talking about.

Oh my. Someone is looking for trouble here.

While I won't get to deep into it, I'm not a big believer of sharing what I've earned with the rest of the country. Sure, we should help out when we can, but what I've earned should be mine to do with as I wish. In socialism, your wealth goes to the govt to then be spread out amongst everybody...while we know that doesn't really ever happen.

Capitalism can be a good thing. I believe it can work when applied with moral values. Here's the definition.

an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, esp. as contrasted to cooperatively or state-owned means of wealth.



I mean...what else can I say here? I'm a capitalist...I try to make some money...reapply it to my business and try to grow it more. What's wrong with that? I help people fix their computers and they pay me for the service. No one get's hurt.

Capitalists aren't only people who run huge corporations unethically. I don't think you can lump everyone who owns a business and tries to get ahead as a dirty greedy you know what. Maybe the people at Webster should come up a seperate definition for a capitalist who tries to take the high road.

[RedOctober]

IV Wrote:

RedOctober Wrote:[user=13]IV[/user] wrote:

Quote:It requires hard work. It requires determination. It requires a work ethic unlike any other. One mustbelieve in thedream strongly enough that they will go out and work theirrear off to achieve what they need to feed their family and succeed.

I don't call this greed. I call this actually wanting a better life for your family so that they don't have to suffer and deal with financial hardship and all the problems it creates.

Oh come on IV....say that dirty word! You just advocated an economic system that is considered taboo!

Quote:Socialists mainly share the belief that capitalism unfairly concentrates power and wealth among a small segment of society that controls capital, creates an unequal society, and does not provide equal opportunities for everyone in society. Therefore socialists advocate the creation of a society in which wealth and power are distributed more evenly based on the amount of work expended in production, although there is considerable disagreement among socialists over how and to what extent this could be achieved.

Translated into plain terms, it means if you work hard you should get paid for doing so. But not at a disproportionate amount.

Quote:I know that, but tell that to all the people who criticize others for getting ahead or wanting to get ahead by calling it capitalist greed. Some people really don't understand it.

What does "getting ahead" entail? If you answer yes to these questions below, your a capitalist, if you answer no.....you are advocating a form of socialism.

Are you willing to exploit a neighbor for disproportionate monetary gain?

Are you willing to use your market position and leverage to obtain the maximum allowable profit and ignore any social consequences on society, believing that its a "natural" distribution of resources?

A lot of people don't realize, they are actually socialists....albeit market socialist...but none the less, they do indeed advocate that dirty word.

Most who advocate capitalism as a rewarder of hard work tell me one thing specifically...they don't know what the heck they are talking about.

Oh my. Someone is looking for trouble here.

While I won't get to deep into it, I'm not a big believer of sharing what I've earned with the rest of the country. Sure, we should help out when we can, but what I've earned should be mine to do with as I wish. In socialism, your wealth goes to the govt to then be spread out amongst everybody...while we know that doesn't really ever happen.

Capitalism can be a good thing. I believe it can work when applied with moral values. Here's the definition.

an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, esp. as contrasted to cooperatively or state-owned means of wealth.



I mean...what else can I say here? I'm a capitalist...I try to make some money...reapply it to my business and try to grow it more. What's wrong with that? I help people fix their computers and they pay me for the service. No one get's hurt.

Capitalists aren't only people who run huge corporations unethically. I don't think you can lump everyone who owns a business and tries to get ahead as a dirty greedy you know what. Maybe the people at Webster should come up a seperate definition for a capitalist who tries to take the high road.

Oh?

Sharing what you earned? Economicaly speaking, a lot of what you are capable of earning is the result of "sharing what you earn". The very roads that get us to work and allow us tomake a livingis the result of sharing what we earn. The fire protection you get from the fire department is the direct result of "sharing what you earn"......and all of these are socialist notions (and could go on quite a bit pointing out how socialism is a big part of what you earn). But lets pick apart what you said....

Quote:Sure, we should help out when we can, but what I've earned should be mine to do with as I wish. In socialism, your wealth goes to the govt to then be spread out amongst everybody...while we know that doesn't really ever happen.

False. Tax systems in free market socialism are very progressive. The tax bite you feel at a lower or middle class level is nowhere near say if you were making 10 million a year, granted you may only keep 4 million after taxes...but somehow I don't think anyone will have any trouble making a living off of only 4 million. Furthermore your implying as if somone just gets in a line and gets a government check. That isn't socialism, the vast majority of money you give to the "government" you recieve back in services and infrastructurethat are cheaper in cost due to the principals of economies of scale and allow you to more easily...guess what...make a living. Furthermore, ifa person refuses to work in asocialist system...you don't have an income and the state will not take care of you unless you are unequivocally disabled. Novel thought huh? (I could go into further how the current welfare system in the USis not a socialist ideal...but thats another topic)

Quote:Capitalism can be a good thing. I believe it can work when applied with moral values. Here's the definition.

And that is the qutisential problem....Capitalism is devoid of moral principles and directly encourages excess and abandoment of morality. Its been the main complaint about it since its inception in the 14 century...long before Marx or any other modern economist brought up those points. Its the main reason why crime rates, teenage pregnancies, etc. are higher here in the United States vs. more socialist states. If you enforce moral values on capitalism it is no longer capitalism...its socialism. One the underlying reasons capitalims didn't gain traction sooner was due to the fact most viewed as an attack of morality....and guess what...it is.

Quote:I mean...what else can I say here? I'm a capitalist...I try to make some money...reapply it to my business and try to grow it more. What's wrong with that? I help people fix their computers and they pay me for the service. No one get's hurt.

And people in socialist systems dont do the same? Guess what, your a victim of a conspiracy. The idea propogated by the United States Government that socialism takes away all your money, you can't have your own business, and a whole host of other myths. Socialism is intended to keep a fair market up and runningso you can indeed grow your business through your own innovation and keep any of your suppliers from fleecing you while should you become very succesful, you don't fleece your customers and unfairly compete with a small competitor....such as undercutting his price and taking a loss to the point he goes out of business...just because you can afford the loss for the short term and he cannot. Your example you described in can niether be attributed to capitalism or socialism alone because it exists in both systems. Don't fall for the line that it only occurs in capitalist systems.....virtually everyone here is a product of the US school system under the Cold War era....most of what you have been taught and told to expect under diverging economic systems has been a pack of lies.

Quote:Capitalists aren't only people who run huge corporations unethically. I don't think you can lump everyone who owns a business and tries to get ahead as a dirty greedy you know what. Maybe the people at Webster should come up a seperate definition for a capitalist who tries to take the high road.

IV, virtually every stout capitalist will tell you "greed is good" and everyone serving thier own self desires will benefit everyone. I USED to take it as gospel...then I studied some more and opened my eyes. If everything what they say about capitalism was true, then income inequality would be cyclical...not a constant and persistent trend of growing worse with no abberations. To put that in perspective, adjusted for inflation, you make less than what your father did at your age....and even less than what your grandfather did at your age. Sure we may have more "toys" but in actuality the price of those toys have come down considerably when you adjust for everything. Why do you think the government subsidizes food (or allows cheaper imports) today and allow cheap labor from south of the border to flow in unhindered? Because if food were left to its unhidered market forces it would be considerably higher and a enormous portion of your wages.

You can put your hands over your ears and say la-la-la, but it doesn't change the reality. What you were advocating is a socialist principle and its because of numerous socialist programs that exist today is what enables you and everyone else to make a living. Just no one want's to use the "s" word due to the constant barragement of it since the Red Scare of the 1920's. Of which they just took some of the underlying principles of socialism and called it capitalism. I could go on...but its getting late.