csbrown28
DP Veteran
- Joined
- May 6, 2013
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- NW Virginia
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In 1980 the amount of credit debt carried per person (in inflation adjusted 2010 dollars) was about $58,000, today it's about $185,000 per person. That's $57 trillion dollars in total US consumer debt in 2010 (Source: The Fed).
To me the borrowing of money is a mixed bag of positive and negative consequences (mostly negative).
The first thing that strikes me is the reason that most people oppose minimum wage increases. People cite increased inflation and the increased price levels caused if you put more money into the hands of people at the bottom. The irony of that position is that raising minimum wage, in fact, does not create inflation in the traditional sense as the money to pay the increase does not come from adding new money to the money supply (thus no decrease in the value of the dollar). Since inflation is an increase in the money supply relative to goods and services, then it's not inflation in the traditional sense. Conversely, the issuance of credit to individuals from Fed member banks, does increase inflation as each loan increases the total supply of money in the economy. You may be tempted to remind me that the loan is usually offset by increases productivity, I would in turn remind you that in many cases the productivity comes before the loan, not the other way around.
In contrast paying additional wages to those at the bottom can in some cases result in higher prices (somewhere between 0.1 and 0.4% depending on the study you want to beleive) caused by an increase in demand as more money is available to minimum wage workers. This is called "demand pull inflation", but any increase in prices is offset by the increased demand it creates, which in turn can offset potential hour cuts and layoffs due to higher demand for goods and services. The effect of demand pull inflation depends on what our productive capacity is as a nation. Clearly with high unemployment rates and capital resources idle, some demand pull inflation would be healthy for the economy. Demand pull inflation only becomes an issue once the country reaches a level of "healthy" productive capacity. Continuing policies after this point would be counter productive, something the LBJ learned in the late 60's.
Which leads me to my next point, credit taken as consumer debt has increased sharply over the last 30 years, while at the same time salaries and wealth of the top most wage earners have been increasing. Is this just coincidence? I don't think so.
The result of so much wealth moving to the top creates a vacuum of money in the productive economy. The bottom 80% of America makes 40% of the income in the US and controls less than 20% of it's wealth and if you remove the home as a source of wealth the amount controlled by the bottom 20% drops to under 9%. Think about that, while the economy is inflated with new dollar creation, either from government programs like QE or corporate and/ or private borrowing, the result is still a shortage or money in the productive economy where 80% of us live and work. A sort of deflation for everyday people, while the overall economy is inflated. So if the amount of money at the bottom is shrinking, why don't we see the effects? The answer is that new credit is making up the gap. It's hiding the lack of money in the everyday economy that most of us live and work in. Hiding the fact that an ever increasing portion of the total amount of money is being consolidated into fewer and fewer hands. The Forbes 400 make up just .00035% of the total number of people in the US, but control about the same wealth as the bottom 50% (160,000,000) of US citizens.
So whatever your ideology, left or right, our system is failing. Money cannot move strictly from bottom to the top. It will not and cannot work. The quantity of money available, not just in absolute dollars over the entire system, but in the parts of the economy that most of us live in work must be adequate or the economy stalls. Making up for it with credit increases only encourages inflation and creates an unsustainable credit economy.
At the end of the day it comes down to this. As a greater and greater share of the total amount of money continues to fall into the hands of fewer and fewer people, no amount of jobs or investment will overcome the lack of money at the bottom. In other words, the system has worked in the past because people have disposable income, the share that is left over after essentials are paid for for the majority of the country is shrinking.
As a greater number of people fall into poverty they will be ineligible to take loans for cars and homes and this will stall the economy. This will expose the problem for what it is. People will start to understand that without money creation out of thin air, the system (as it works now) will not work. It's not that there isn't enough money, it's that too much of that money is in the hands of too few people and those few people do not spend or invest enough of that money into the everyday economy to keep everyone else employed.
How do we ensure that money captured at the top is available to re-earn by those in the bottom 90% of society?
We can (and have) taxed it...
We could increase minimum wages...
We could overhaul the banking system...
We could change the way money is created...
We could make investment mandatory...
Thoughts?
To me the borrowing of money is a mixed bag of positive and negative consequences (mostly negative).
The first thing that strikes me is the reason that most people oppose minimum wage increases. People cite increased inflation and the increased price levels caused if you put more money into the hands of people at the bottom. The irony of that position is that raising minimum wage, in fact, does not create inflation in the traditional sense as the money to pay the increase does not come from adding new money to the money supply (thus no decrease in the value of the dollar). Since inflation is an increase in the money supply relative to goods and services, then it's not inflation in the traditional sense. Conversely, the issuance of credit to individuals from Fed member banks, does increase inflation as each loan increases the total supply of money in the economy. You may be tempted to remind me that the loan is usually offset by increases productivity, I would in turn remind you that in many cases the productivity comes before the loan, not the other way around.
In contrast paying additional wages to those at the bottom can in some cases result in higher prices (somewhere between 0.1 and 0.4% depending on the study you want to beleive) caused by an increase in demand as more money is available to minimum wage workers. This is called "demand pull inflation", but any increase in prices is offset by the increased demand it creates, which in turn can offset potential hour cuts and layoffs due to higher demand for goods and services. The effect of demand pull inflation depends on what our productive capacity is as a nation. Clearly with high unemployment rates and capital resources idle, some demand pull inflation would be healthy for the economy. Demand pull inflation only becomes an issue once the country reaches a level of "healthy" productive capacity. Continuing policies after this point would be counter productive, something the LBJ learned in the late 60's.
Which leads me to my next point, credit taken as consumer debt has increased sharply over the last 30 years, while at the same time salaries and wealth of the top most wage earners have been increasing. Is this just coincidence? I don't think so.
The result of so much wealth moving to the top creates a vacuum of money in the productive economy. The bottom 80% of America makes 40% of the income in the US and controls less than 20% of it's wealth and if you remove the home as a source of wealth the amount controlled by the bottom 20% drops to under 9%. Think about that, while the economy is inflated with new dollar creation, either from government programs like QE or corporate and/ or private borrowing, the result is still a shortage or money in the productive economy where 80% of us live and work. A sort of deflation for everyday people, while the overall economy is inflated. So if the amount of money at the bottom is shrinking, why don't we see the effects? The answer is that new credit is making up the gap. It's hiding the lack of money in the everyday economy that most of us live and work in. Hiding the fact that an ever increasing portion of the total amount of money is being consolidated into fewer and fewer hands. The Forbes 400 make up just .00035% of the total number of people in the US, but control about the same wealth as the bottom 50% (160,000,000) of US citizens.
So whatever your ideology, left or right, our system is failing. Money cannot move strictly from bottom to the top. It will not and cannot work. The quantity of money available, not just in absolute dollars over the entire system, but in the parts of the economy that most of us live in work must be adequate or the economy stalls. Making up for it with credit increases only encourages inflation and creates an unsustainable credit economy.
At the end of the day it comes down to this. As a greater and greater share of the total amount of money continues to fall into the hands of fewer and fewer people, no amount of jobs or investment will overcome the lack of money at the bottom. In other words, the system has worked in the past because people have disposable income, the share that is left over after essentials are paid for for the majority of the country is shrinking.
As a greater number of people fall into poverty they will be ineligible to take loans for cars and homes and this will stall the economy. This will expose the problem for what it is. People will start to understand that without money creation out of thin air, the system (as it works now) will not work. It's not that there isn't enough money, it's that too much of that money is in the hands of too few people and those few people do not spend or invest enough of that money into the everyday economy to keep everyone else employed.
How do we ensure that money captured at the top is available to re-earn by those in the bottom 90% of society?
We can (and have) taxed it...
We could increase minimum wages...
We could overhaul the banking system...
We could change the way money is created...
We could make investment mandatory...
Thoughts?