[quote=dumbrenter][quote=livinincali][quote=dumbrenter]
That’s a pretty good explanation of wealth backed by debt, livinincali.
But if there is a debtor, there needs to be the counter-party creditor.
In this situation, who is the creditor? folks who buy the treasury bonds?
Is it the banks? The FED? Treasury? Foreign governments that peg their currency to dollar?
How are they going to react once they find out that there is very little for them to claim in terms of what they lent against (i.e. assets)?[/quote]
The creditor is the big banks, pension funds, the growing wealth gap between rich and poor. As the American populace has taken on increasing amounts of debt to buy things they want now rather then waiting they made the rich people wealthy. They are responsible for the large wealth gap in this country.
In all honesty I think this is just the natural state of affairs based on the demographics. People are growing older and are desperate to acquire assets to be sold to finance consumption in retirement. The need for somebody to owe you in retirement has lead to the loose money policies. People nearing retirement are desperate to claim part of a future workers productivity.[/quote]
How can a creditor be a “wealth gap between rich and poor”? Shouldn’t the rich become poorer because of loss of wealth.
Let me see if this makes sense:
Poor need “things” right now.
Rich have Money.
Rich loan money to poor buy “things”
Poor default
Rich are left holding a highly devalued asset as a repo.
Poor are exactly where they began other than losing FICO score.
Rich have lost wealth (in real terms).
So from above, the deleveraging process actually evens out the wealth field rather than concentrating it.
Maybe unless the rich get the government to buy the devalued asset and make them whole and stick the difference to the tax payers who are mostly poor. But that would never happen in a democracy, right? :-)[/quote]
DR,
You are right about the eventual conclusion IF we allowed all the defaults to happen. This is why we’re seeing all of the interventions. As you noted, this is why we’ve racked up all of this govt debt. It’s not for the poor people that they’ve initiated all the foreclosure moratoriums, bank bailouts, unemployment insurance extensions (so the debtors can pay off more of their debts), etc.; we’re deeper in debt because they are trying to protect the asset prices of the rich…in order to maintain the wealth gap. Now, they are trying to deflect blame by claiming that workers are somehow responsible for these debts.
While I agree that debtors are indeed responsible for part of this wealth gap as livinincali mentioned, that’s just part of the story. What caused everyone to go into debt is the loss of decent, middle-class jobs in the U.S. that resulted from outsourcing jobs (and bringing in cheap/illegal labor). Americans were trying to maintain their former standard of living, since they were often told that the “downturns” would be temporary, so they started using credit instead of savings for consumption.
Globalization is the leading cause of the wealth gap, and this benefited the rich as their profits increased as a result, and the workers saw their wages decline/stagnate over decades.
Tax policies that favored investment income over labor then finished the job. The rich were then able to accelerate the accumulation of wealth since investment income is taxed at such a low rate. Their wealth compounded at an incredible rate because the tax savings enabled them to use that money to make even more money, which was taxed at a lower rate, and on and on it went.
