The Corporatocracy: A New Economic System for the Connected Banking Sector and Political Elites. Providing the new Serfdom Massive Debt Servitude.
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The typical American family is struggling with the current recession and is having a hard time pinpointing the nexus of the problem. Some try to argue the failures of capitalism but our current system is more of a corporatocracy. A system designed for the few by the few. Even Adam Smith argued that society would need to be vigilant against monopolies and charlatans. Yet somehow we arrive at our current time with gigantic investment banks pulling on political strings and operating under Darwinian economics where the overall health of the economy is only an afterthought. We are a very long way from the capitalism Adam Smith advocated.
The too big to fail banks are a case and point of the corporatocracy. If we truly had a capitalistic system in place many of these gigantic banks would have failed. And in large part, they have failed. The banking system has and is, failing the American public. How is it that the FDIC, the seal of protection, backs $5.3 trillion in deposits and has an insurance fund that is now negative? If you are wondering why the U.S. dollar is being crushed like a bug it is because of these oxymoronic situations. How can it be called an “insurance fund” when it is insolvent? Of course, we have the benefit of being the world reserve currency for the moment but our punishment is a dollar that is being slowly devalued. Would you lend money to a country that is backing its deposits with no funds and is bailing out their entire financial sector that is largely the nucleus of the current crisis?
The true evil of the corporatocracy is that it has preached a religion that believed for many decades that producing goods was second to paper pushing and believed in praying at the altar of debt:
It is stunning that we have as many manufacturing jobs today as we did in the 1940s. That is because half a century ago one-third of all workers were part of the manufacturing sector in the U.S. Today, it is under 10 percent. Yet this is the idealized model. Somehow there is nothing wrong with a Wall Street banker making tens of millions a year not because he beat the market or is producing a good product, but simply for his connections to Washington D.C. This is not capitalism at all. This is selling our country to the financial industry. I mean how can you argue that a subprime mortgage or a collateralized debt obligation is something the market demanded? The hidden costs are now being dealt with and if this was factored in, they would have never occurred in the first place. Short term profits at the expense of long term profits.
And if we look at the chart above closely, all this was possible by getting the American public addicted to debt. Look at the exponential growth in credit card debt above. At the peak, Americans were carrying nearly $1 trillion in credit card debt. In other words, people spent $1 trillion they did not have. Even today, nearly $900 billion in credit card debt is still outstanding. Given current Black Friday trends people once again pulled out the plastic to spend. Show me another country that has the luxury to spend $1 trillion in money it doesn’t have.
And credit card debt is only one aspect of the debt induced binge that started in the 1970s. Mortgage debt has exploded since that time as well:
The above chart sums up our current situation well. Early in this decade we had the distinct pleasure of having household debt outstanding match up with our annual GDP. The chart above is rather clear. From the 1950s to the early 1970s we had a nice cushion. Didn’t seem to be a problem that we were producing things during this time. Also, the recession lines indicated by the gray area didn’t seem to be that prolonged. All that shifted in the 1970s. What you see is deeper and more prolonged recessions while the solution out of each economic funk was more and more debt. It is not a coincidence that this occurred as the financial sector took a bigger role in our economy. All this reached a climax with our current recession that is the deepest and longest since the Great Depression. The notion that the financial sector was somehow going to save our economy was a perverted ideology pushed by the corporatocracy. Clearly that has failed.
Capitalism hasn’t failed but the toxic form we are living in will destroy our country. Communism in the form of the U.S.S.R. or North Korea is clearly not the answer either. But we did something right in the 1950s. And what we did was produce and also spent within our means. Our entire culture wasn’t dominated by this hamster consumerism that tries to keep people numb by massive marketing, Big Macs, and credit card addictions. Even the reverse psychology is fascinating. Don’t let anyone touch your 2,000 calorie milk shake because that is capitalism! How dare someone tell you that you don’t deserve a $500,000 mortgage if a broker is willing to give it to you! The problem of course is these short-term gains have long-term consequences. Health care isn’t cheap and we are now collectively paying for massive holes in the system. That broker that gave you the loan? Now the U.S. taxpayer is bailing out the entire housing industry and crushing the U.S. dollar. The housing market is merely a reflection of a produce nothing and get something for free culture. Why even save for any down payment when you can over extend on a mortgage for the price of a trip to Disneyland?
The corporatocracy would like to convince you that it is fantastic that we are now a service oriented society. The demonizing of work is something deep in our culture. Even Mike Rowe, the host from Dirty Jobs does a great job explaining this in a subtle way:
There has to be a balance in any economy. At one point in the bubble 40 percent of profits were coming from the financial sector and as the bubble popped right in our faces, we realized just like Bernard Madoff’s clients did, that pushing paper and flipping houses really wasn’t such a productive venture. It is stunning to think that prominent MBA programs like Harvard were grooming students to be the future leaders of the corporatocracy (i.e., Geithner, Paulson, Rubin, Summers, etc). Everyone aspired for the brass ring at one of the big five investment banks on The Street. What do these people know about engineering or producing actual goods in the economy? If it were up to them we’d all be working at a bank and off shoring every productive part of our economy overseas. They would see no problem with that. Yet they fail to see that eventually you shift all your resources out and inflation kicks in and makes you poorer because ultimately your lifestyle is only as good as what you can buy. If you made $1,000 a year but a home cost $500, a car $200, and a month of food $50 then you are sitting pretty. But if you make $50,000 with homes costing $400,000 and cars going for $30,000 then there is pricing problems. Housing is correcting and so is the auto sector. Yet the banking sector is raking in profits even though unemployment is still rising. Credit card fees are soaring even though banks can borrow from the Fed for zero percent. This is no accident or conspiracy. This is all out in the open because this is the apex of the corporatocracy.
At a certain point the American psyche will shift and see the multi-decade long fleecing into the corporatocracy:
“(NY Times) He tried to fill up on cereal and eggs. He ate a lot of Spam. Then he went to work with a grumbling stomach to shine lights on food he could not afford. When an outreach worker appeared at his son’s Head Start program, Mr. Dawson gave in.
“It’s embarrassing,” said Mr. Dawson, 29, a taciturn man with a wispy goatee who is so uneasy about the monthly benefit of $300 that he has not told his parents. “I always thought it was people trying to milk the system. But we just felt like we really needed the help right now.”
The outreach worker is a telltale sign. Like many states, Ohio has campaigned hard to raise the share of eligible people collecting benefits, which are financed entirely by the federal government and brought the state about $2.2 billion last year.”
You think Mr. Dawson doesn’t want to work? Of course he wants to work but the manufacturing sector has been gutted. The system is being turned on its head. 36 million Americans are on some form of food stamps, the largest percentage in the program’s history. This while the connected banking elite on Wall Street would like to convince you that somehow companies firing thousands of workers is good for the bottom line and the long-term prosperity of the country. These cronies have no allegiance to one country. They have accounts offshore and travel freely between boarders. What’s it to them that you lose your job? Do you think they care about the long term vitality of this nation? They are too focused on their bottom line. Welcome to the economic system known as corporatocracy. It has infiltrated both the Democratic and Republican parties.