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Bill Bonner
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Bill Bonner is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and the principal author of a daily financial column, Inside Investing Daily.
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Bonner & Partners
  • Rescue The Rich! 0 comments
    Nov 26, 2012 2:36 PM

    No group of Americans had more to be grateful for over Thanksgiving than the few people at the top of the pile. Over the past four decades, their wealth has soared... thanks largely to the feds.

    In 1971, President Nixon cut the last link between the dollar and gold, creating a pure paper money system. Total credit market debt in the U.S. has risen more than 30 times since then. As a percentage of GDP, debt went up from about 150% to 350%.

    In very round numbers, M2 money supply -- the category of money supply economists tend to look at to quantify the amount of money in circulation -- went up 10 times since the early 1970s (depending on how you measure it). So did the stock market, adding about $14 trillion to the nation's wealth.

    Recklessness, Extravagance and Negligence

    Who owns stocks? That's right: the 1%... the people at the top... the rich.

    And who runs these companies? The question demands a little cogitation. It seems obvious that the Fed's credit bubble raised the tide... and along with it the rich folks' yachts. But did it also increase executive salaries? Maybe.

    The Economic Policy Institute calculates that the typical worker got a real salary increase of 5.9% over the past 30 years. But executive pay rose 127 times as much. Today, execs earn about 206 times as much as the workers.

    Are executives really so much more valuable than they used to be? No one knows. But our guess is that as the feds bubbled up stock prices they also made corporate management seem much more important.

    If investors thought their stocks would do no better than the economy, they probably wouldn't have been willing to hand over to professional money managers so much of their cash.

    But the prospect of 1,000% in capital gains brought recklessness, extravagance and negligence to corporate compensation. Investors were willing to pay (or at least ignore) outrageous salaries as long as they thought they were getting rich too.

    A Stroke of Luck

    The trouble was asset prices were not stable. Instead, they were floating on a sea of debt. And when a storm blew up in 2008-09, they began to sink.

    In a matter of weeks, U.S. stocks lost about half their value. The rich looked at their balance sheets. Ouch! They had lost $7 trillion in stock value.

    But that's when they really got lucky. The feds quickly began their "Rescue the Rich" program, at a cost of more than $2 trillion. With that new tide of money rushing in, stocks went back up. The rich were saved!

    Since the "recovery" began, the top 1% has captured 9 out of every 10 dollars in extra earnings. And with President Obama in the White House for another term... and Bernanke at his post at the Fed... there seems every likelihood that they'll be about to get the other dollar over the next four years -- giving them a clean sweep of all of America's new earnings.

    Yes, dear reader, the rich have never had it so good. There are only a few of them. And they get almost all the new wealth created in the country.

    Of course, there are other benefits too. Rich people don't have to depend on Obamacare or Social Security or student loans. Which is a good thing, since these programs are all running deficits and will sooner or later go broke.

    Then the rich will have it even better... because they'll be the only ones still able to afford healthcare, retirement and university educations.

    Something Fishy

    But what's this? Americans used to admire people who made a lot of money. Now, they despise and distrust them.

    That was part of the reason Mitt Romney couldn't win the White House, even with so many Americans out of work. There was something fishy about a guy who had made so much money without getting his hands dirty.

    And now, they don't particularly appreciate the rest of "the rich" either. We turn to a dead economist, John Maynard Keynes, who understood how monetary debasement (the kind the Fed is practicing now) worked.

    Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.

    That's right: It enriches some...

    Those to whom the system brings windfalls [...] become "profiteers," who are the object of the hatred [...] as the process of wealth-getting degenerates into a gamble and a lottery.

    The rich are always objects of envy. Now they're becoming the objects of hatred too. Ordinary people figure that they must have done something wrong. How else could they have gotten so much money?

    Perhaps they recall Maupassant: "Behind every great fortune is a crime."

    But today's rich, generally, are guilty of no crime other than being in the right place at the right time. They own and run public companies at a time when the feds are pumping cash and credit into the system.

    So, give thanks, you lucky SOBs.

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    Disclaimer

    Article brought to you by Inside Investing Daily. Republish without charge. Required: Author attribution, links back to original content or www.insideinvestingdaily.com. Any investment contains risk. Please see our disclaimer.

    Themes: rich, GDP, Thanksgiving
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