Debt: America’s Industry for the 21st Century

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“Plunge Protectors on the job,” begins an article in the NY Post. Fortune Magazine describes Wall Street as “Bailout City.” “Did Countrywide get a hand from the Fed?” asks another headline.

Some financial commentators – including our old friend Marc Faber – are beginning to see the U.S. Federal Reserve’s emergency rate cut last Friday as “Bernanke’s first big mistake.” He panicked, they say, and took the Fed in a direction it shouldn’t go. Instead of holding the line against inflation, the Fed is now bailing out Wall Street financiers and speculators.

Where the Fed is headed is the direction Wall Street wanted it to go. Cutting rates suddenly, the Fed has come to the aid of speculators and the financial industry. Doing so, it signaled that it offers what used to be called the ‘Greenspan Put’ to investors – the assurance that it will always provide money on easy terms, when it is needed.

When do speculators need a helping hand from the Fed? When they are losing money, of course. And when do they lose money? When their bets turn out to be not as good as they thought they were. Why would the Fed want to protect speculators from their own mistakes?

Ah, dear reader, you must be either naïve…or a true capitalist. Otherwise, you wouldn’t ask such a question.

There was a time when the business of America was business. Americans made things and sold them at home and on the world market. General Motors (NYSE: GM) was the most important industry. So, what was good for GM was good for America.

Now the industry of America is debt. Americans buy things they don’t need with money they don’t have. Financing debt – corporate, hedge fund, subprime, prime, mortgage, LBO, government – is the most important industry. So what is good for Wall Street, the reasoning goes, is good for America.

But there’s a big difference between the real business of America in the ’50s and the monkey business of America in the ’00s. The New York Times carried the story yesterday…and then, predictably, missed the importance of it.

“Average incomes fell for most in 2000-5,” comes the headline.

The story is a familiar one to Daily Reckoning readers. But here’s the latest: Average incomes in the United States have fallen every year from 2000-2005. At the turn of the millennium, the average person earned US $55,714 (inflation adjusted to current figures). Today, he earns US $55,238.

Naturally, the TIMES then distracted readers by whining about who pays the most taxes…and how the rich are getting richer. More than 300,000 people now earn more than $1 million per year – up sharply from the number in 2000. Well, bully for them. But envy is a strong emotion…it keeps the mob stirred up. And the mob buys newspapers. (Incidentally, this ‘mob mentality’ is precisely what our latest book, Mobs, Messiahs, and Markets, is about. It will be available for preorder soon – stay tuned…)

But the important story is the decline in incomes themselves. How is it possible? In the entire second half of the 20th century, incomes fell only in one single year. But they fell every one of the first five years of the present century – during the biggest housing boom ever. And, oh yes, this was also the period when all those marvelous other trends were supposed to be paying off – globalisation, computerisation, industrialisation of Asia…and most important, the spread of the Theology of Capitalism.

By the time you wade through the economic doublespeak and disinformation, you think:

Wait a minute…if we’re all becoming capitalists…how come we’re not getting rich?

Ha ha ha…the joke’s on us…find out who’s not telling you the truth…

This is not real capitalism, dear reader. This is the Theology of Capitalism…and it is a fraud.

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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