The bill for cleaning up the financial sector
(posted by jackson)
I am referring to the fact that the credit extension the fueled the most recent boom didn’t generate any real income gains for most Americans. Times weren’t all that good for most Americans even before the credit bubble burst.
…And, sadly, it is likely both that median income will fall during the now almost certain recession and that the median family will get stuck with at least some part of the bill for cleaning up the financial sector.
March 11th, 2008 at 5:32 pm
Most of the consumer credit expansion was a way of compensating for thirty years of stagnant wages, and keeping up consumer purchasing power. Instead of the old Keynesian remedy of deficit spending to remedy maldidtribution of purchasing power, the new solution is to loan out the increased purchasing power at 20% interest.
Tie it in with the housing bubble, and you’ve got a working population with real wages below 1970s levels, making up the difference by cashing in their home equity at Ditech for consumer purchases.
March 12th, 2008 at 7:19 am
It’s worse than that, Kevin. Inflation is, in itself, a regressive re-distribution tool that disguises itself as a progressive one. While people wrongly *thought* they were making more or treading water, inflation was ravaging their savings and re-distributing them to parasites at the top of the government privilege chain (i.e., bankers, war contractors, etc.).
The housing bubble is only the most visible of the current bubbles at play. The base problem is the credit bubble, which has manifested in housing, hedge funds, private equity (you want to get really fired up about something, this is the scandal that is under the radar), and yes, even the broader stock market. Expect the real market to lose at least 1/3 of its value in real terms (although it will probably increase in nominal terms) over the next few years (as a best case scenario).
March 12th, 2008 at 10:11 am
quasibill,
It’s especially bad when you consider the likelihood that the real inflation rate is two or three times higher than the official stats indicate (a “core index” that doesn’t include most of what people buy, while the Fed is inflating the money supply 10% or more a year). The Dow may actually be a third less, in real terms, than when it peaked seven years ago. And you can imagine what that factor would do to all the stats on income stagnation: “stagnation” would be a considerable improvement.