Record US Stocks Drive Wealth Inequality

According to a recent poll, US stocks at record levels seems like a nonevent for the average Americans.

From Bloomberg: (bold mine)

More than three-quarters of Americans say the five-year bull market in U.S. stocks has had little or no effect on their financial well-being, according to a Bloomberg National Poll.

Seventy-seven percent of respondents dismissed the 176 percent rise in the Standard & Poor’s 500 Index (SPX) since its March 9, 2009 financial crisis low, according to the poll, taken March 7-10. Barely one in five -- 21 percent -- said the market’s gains have made them “feel more financially” secure.

Divergent distribution of equity ownership equals asset based wealth inequality, from the same article.

The poll’s findings reflect the concentration of financial assets among better-off Americans. About half of Americans own stock, either directly or through retirement accounts, according to the Fed’s 2010 Survey of Consumer Finances.

Stock ownership that year fell to levels not seen “since the late-1990s,” the Fed said. Even those who participate in financial markets through 401(k) retirement plans often have only modest sums invested. Half of Fidelity Investments customers have less than $25,600 in their 401(k) accounts, according to Michael Shamrell, a spokesman…

The wealthiest 10 percent of families earn 11 percent of their annual income from capital gains, interest and dividends, according to the Fed. The poorest three-quarters get less than 0.5 percent of their income from such sources.

“Many moderate- and middle-income households have seen little benefit from recent stock market gains and are still grappling with the implications of home prices that, despite recent progress, remain well below their previous highs,” the White House economic team wrote in a March 10 blog post.

Main street sentiment versus Wall Street:

The poll also found continuing unhappiness with the direction of the country and ebbing optimism about the recovery’s staying power. By 62 percent to 30 percent, respondents say the nation is headed in the wrong direction.

Wow. The above dynamics, from the redistributive “inequality” effects from a central bank engineered stock market-real estate boom to the gaping divergence of public sentiment (main street sees little economic benefit as against Philippine version of Wall Street’ worship of bubbles) loudly resonates on the Philippines. 

Yet booming stocks in the US has led to a record rise in household assets. 

Austrian economist Joseph Salerno at the Mises blog remarked “total net worth of U.S. households has set an all time record in 2013 in terms of both nominal and constant dollars. In 2013 alone , total net worth climbed by $10 trillion from $70.86 to $80.66 trillion, the largest annual increase in household wealth in U.S history. More to the point, in 4Q 2013 household wealth adjusted for inflation — i.e., the constant-dollar value of financial assets plus the value of residential real estate net of all debt owned by U.S households–shattered the old record set in 1Q 2007 at the height of Greenspan’s bubble economy.”

As noted in poll, only about half of US households have exposure on US stocks, yet level of ownership has inequitably distributed. Based on US census data as of 2007, the bigger the income bracket the larger the scale of stock market ownership (red arrow). The lowest 3 percentile, with about 35-39% in stock ownership echoes on the Bloomberg poll where “stocks has had little or no effect” on them .  

Yet record stocks have not only has “failed abysmally to stimulate consumer spending, job creation, and economic growth via the “wealth effect” beloved by Greenspan and Bernanke. Ironically, what Fed policy under Bernanke has done is to put the U.S. economy in the improbable position where another financial crisis appears likely to occur without first producing even the illusion of prosperity and economic growth among the average American” according to Professor Salerno, but also driven the wedge of the wealth gap even wider, “Last week it was reported that the 167,669 ultra-high net worth individuals (UNHWI), a category covering those people who have accumulated over $30 million in net assets excluding their principal residence, experienced an increase in their combined net worth to $20.1 trillion in 2013, up from $19.5 trillion in 2012. In 2013, the UHNWI, most of whom are from Asia or the Middle East, were busy plowing their wealth into global commercial real estate. They spent a combined $11.2 billion on hotels, office buildings, warehouses, and shops, up from $7 billion in 2012. The average price of an office property rose from $63.9 million in 2012 to $162.7 million in 2013. The latter price is more than double the price of an office property at the height of the bubble in 2007.”

And not only has the Fed subsidy benefited the wealthy asset holding class, this has supported Wall Street through above average pay and fat bonuses, where the latter has reached 2007 levels. 

'Fat Bonuses" from Reuters:

The average bonus on Wall Street jumped 15 percent last year to the highest level since the 2008 financial crisis and was the third largest on record, New York State's budget watchdog said on Wednesday.

The cash bonus pool swelled to $26.7 billion in 2013, pushing the average cash bonus to $164,530, a post-2008 high in a industry shrunk by the financial crisis, according to the New York state comptroller's annual estimate.

The Zero Hedge notes (bold mine) that the “Average compensation for securities industry professionals in New York City ($360,700) were 5.2 times greater than the rest of the private sector ($69,200).” [bold original]

So Fed policies have been funneling money from the main street into the asset markets and Wall Street which underscores the redistributive wealth effects from the non-asset holders (debased currency holders and savers) to the asset holders, the latter financed by debt.

And more signs of déjà vu in the context of pre-crisis mania, as IPOs with negative earnings soar to its highest since Feb 2000, again from Zero Hedge.

And like all mania anchored on “this time is different” as I pointed out last week, add to this the record levels of penny stocks traded.

And this as leverage loans flies to the moon (from Acting Man). Phenomenal.

Record credit used to push up stocks to record levels. 

Unfortunately phony booms that has inspired by policies that has driven a massive wealth divide will eventually morph into a bust. 

The boom bust cycle as described by the great the dean of the Austrian school of economics, Murray N. Rothbard:

bank credit expansion under fractional-reserve banking (or "creation of counterfeit warehouse receipts") creates price inflation, loss of purchasing power of the currency unit, and redistribution of wealth and income. Euphoria caused by a pouring of new money into the economy is followed by grumbling as price inflation sets in, and some people benefit while others lose. But inflationary booms are not the only consequence of fractional-reserve counterfeiting. For at some point in the process, a reaction sets in. An actual bank run might set in, sweeping across the banking system; or banks, in fear of such a run, might suddenly contract their credit, call in and not renew their loans, and sell securities they own, in order to stay solvent. This sudden contraction will also swiftly contract the amount of warehouse receipts, or money, in circulation. In short, as the fractional-reserve system is either found out or in danger of being found out, swift credit contraction leads to a financial and business crisis and recession. There is no space here to go into a full analysis of business cycles, but it is clear that the credit-creation process by the banks habitually generates destructive boom-bust cycles

Since the bank credit fueled asset bubbles has been globalized, we should expect a periphery to core dynamic where the reversal of emerging market bubble cycles will eventually land in the shores of the US.

But again in a bust, the wealthiest will most likely be bailed out. This implies of a furthering of the wealth divide which may fuel unrest via the deepening of political polarization.

HOT: Charges of Corruption in the Vatican

Even the Vatican has not been spared from charges of corruption and from internal political power struggles.

From the Daily Mail,

Vatican police have arrested Pope Benedict XVI's personal butler following an investigation into the leaking of sensitive church documents, it emerged today.

In a scenes worthy of a Dan Brown thriller, the butler identified as Paolo Gabriele, 46, was held by gendarmes after a special commission of three top senior cardinals had been appointed by a furious Pope Benedict to identify the source of the leaks which have caused severe embarrassment.

Gabriele, who has been at the Pope's side for six years, is one of the German born pontiff's closest members of his inner circle which totals just four lay people and four nuns and he is always at his side - he is so close that he and the nuns who look after him are described as the 'pontiff's family'…

The arrest of Gabriele comes just days after author Gianluigi Nuzzi published a book on the leaked documents called Sua Santita (His Holiness).

The Vatican had condemned the book as 'criminal' and the printing of the documents were a violation of the Pope's privacy it said.

Nuzzi hit back and said that the files were not private and were documents between states and he added they had been given to him by people who work inside the Vatican and in a reference to the Bible, he said the sources wanted to 'get the moneylenders out of the temple'.

Today's arrest came just a month after Pope Benedict turned detective and appointed a special commission to investigate the series of damning and embarrassing leaks of sensitive Catholic Church documents from the Vatican as it still tries to recover from the priest sex abuse scandal.

Dozens of documents including private letters to the Pope have found themselves into the hands of the Italian media in what has been dubbed, unsurprisingly, Vatileaks.

The documents show how contracts were awarded to favoured companies and individuals and also highlight allegations of internal power struggles with the Vatican's bank known as the Institute for Religious Works.

By coincidence on Thursday the head of the bank, Ettore Gotti Tedeschi, who is already under investigation for money laundering resigned after a vote of no confidence and initially there were rumours that he was the person responsible for the leak of documents.

The scandal began in January with the publication of leaked letters from the former deputy governor of the Vatican City archbishop Carlo Maria Vigano, in which he pleaded not to be transferred after he had exposed what he said was corruption over the awarding of contracts.

Earlier the Vatican supported Occupy Wall Street over so-called “corporate greed” and even called for "sweeping reforms".

It had been apparent that the Vatican hardly considered the real political economic conditions (that led to the present juncture) from which impulsive judgment had been passed.

The Vatican hardly realized that they fell for deceptive moral trap laid out by the socialists.

And surprisingly, even the Vatican economist endorsed ECB’s inflationist policies.

I guess with the above report, the idiom “what comes around goes around” applies.

Vatican Banker Endorses ECB’s Inflationism

Not even the pious seem to be exempt from the temptations of inflationism

From Wall Street Journal,

The European Central Bank should act as the euro zone’s lender of last resort and the implementation of the euro-zone bonds proposal are both necessary in the bloc’s efforts to rein in the debt crisis, the head of the Vatican’s bank said Wednesday.

The signal that these measures would send to investors would be so strong as to abate speculative attacks on some euro-zone countries, Ettore Gotti Tedeschi, chairman of the Vatican bank, known as the Institute of Religious Works, said at a conference in Rome on the debt crisis.

The aforementioned Vatican banker advocates on the GREED which the Vatican recently vehemently censured. This also implies that he endorses the rescue of the politically privileged banking class and the political class at the expense of the average citizens.

The left hand does not know what the right hand is doing.

Inflationism is evil, Henry Hazlitt explained why…

The real evil of inflation is that it redistributes wealth and income in a wanton fashion often unrelated to the contribution of different groups and individuals to production. All those who gain through inflation on net balance necessarily do so at the expense of others who lose through it on net balance. And it is often the biggest gainers by inflation who cry the loudest that they are its chief victims. Inflation is a twisted magnifying lens through which everything is confused, distorted, and out of focus, so that few men are any longer able to see realities in their true proportions.

More…

An inflation tends to demoralize those who gain by it even more than those who lose by it. The gainers become used to an "unearned increment." They want to keep their relative gains. Those who have made money from speculation prefer to continue this way of making money instead of working for it. I remember once, early in 1929, a conversation between two friends, both of whom held prominent posts as book reviewers but both of whom were heavily in the stock market. They were exchanging stories about their profits. "Today your salary," they agreed, "is just a tip." People do not like to work full time just for a tip.

The long-term trend in an inflation is toward less work and production, and more speculation and gambling. The profiteers from inflation tend to spend freely, frivolously, and ostentatiously. This increases the resentment of those who have been less favored. The incentive to ordinary saving, in the form of savings accounts, insurance, bonds, or other fixed-income obligations, tends to disappear. The spectacle of quick and easy returns increases the temptations to corruption and crime.

It is not merely that inflation breeds the gambling spirit and corruption and dishonesty in a nation. Inflation is itself an immoral act on the part of government. When modern governments inflate by increasing the paper-money supply, directly or indirectly, they do in principle what kings once did when they clipped the coins. Diluting the money supply with paper is the moral equivalent of diluting the milk supply with water. Notwithstanding all the pious pretenses of governments that inflation is some evil visitation from without, inflation is practically always the result of deliberate governmental policy.

‘Heavenly’ noble sounding policies applied to reality ‘earth’ doesn’t work. Inflationism is the work of the devil in disguise.

The Economist’s Marxist Fallacies on Corporations and Profits

The Economist eulogizes Karl Marx (bold emphasis mine)

WRITING in "Das Kapital" in 1867, Karl Marx observed that in the capitalist system competition "ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors". This way, he posited, capital would become increasingly concentrated in the hands of a few. Out of the 6,000 or so companies whose primary listing is on an American stock exchange, the top 5% accounted for 70% ($10.6 trillion) of the market value and 90% ($765 billion) of the total profit in 2010. In 2000, the profit from the top 5% of companies was greater than 100%, offsetting the huge losses by the bottom 50%. The figures are remarkably similar for listed companies in Western Europe. Confounding the view of the "Occupy" protests taking place across the globe that the world is run by increasingly rapacious corporations, those proportions have declined since 2000 (the earliest year for which robust data are available). At the very top, the largest 1% of listed companies in America and Western Europe accounted for 53% and 48% of market value in 2000. In 2010, those proportions had declined to 40% and 28% respectively.

The Economist, if they are not engaged in a pun, has been guilty of logical sophism.

“Capital would become increasingly concentrated in the hands of a few” represents a post hoc fallacy; capital does not mechanically or automatically gravitate into the hands of a few. The Economist does not elaborate on the process except to irresponsibly and uncritically adhere to the Marxian creed.

Next, it would be a monumental folly to imagine that the world today as operating on a laissez faire ‘capitalist system’ considering the countless regulations, legal proscriptions, market manipulations and other forms of interventionisms in almost every social activity that one is engaged in, everywhere around the world.

Also by also engaging in reductio ad absurdum the article attempts to oversimplify correlations and the causation nexus between corporations and profit concentrations.

Such preposterous assertions assume away the influences, contributions and the effects of specific political policies on affected groups, the periphery and the rest of society, as well as, the impact of the incumbent legal environment and political institutions to the marketplace...which ultimately shapes the variable scale of interrelationships and degree of complicity between corporations and their respective governments (where they operate on).

As earlier pointed out, many of these huge companies has been beneficiaries of government concessions or political privileges as subsidies, cartels, monopolies, licensing, behest loans, tariffs, bailouts, private-public partnerships, tax credits, and sundry regulations that are essentially anti-competition based that has led to their current heft and widespread global reach.

In short, 'rapacious corporations' are the outcome of policies from political leaderships aimed at sustaining welfare-warfare based crony capitalist governance and not of the deceptive and logically bereft Marxist premises.

As Ludwig von Mises wrote of Marxism,

The incomparable success of Marxism is due to the prospect it offers of fulfilling those dream-aspirations and dreams of vengeance which have been so deeply imbedded in the human soul from time immemorial. It promises a Paradise on earth, a Land of Hearts Desire full of happiness and enjoyment, and — sweeter still to the losers in life's game — humiliation of all who are stronger and better than the multitude. Logic and reasoning, which might show the absurdity of such dreams of bliss and revenge, are to be thrust aside

The Morality of the Keynesian Monetary Dogma: The Euthanasia of the Savers

The US Federal Reserve and central bankers around the world have conjointly been applying artificially low interest policies (Zero Bound Interest Rates-ZIRP) pretty much in adherence to John Maynard Keynes’ dogma of the “euthanasia of the rentiers”—the idea where capital can be made plentiful by merely tinkering with interest rates.

Since every political decision entails a moral dimension, Professor Robert Higgs eloquently explains how the Keynesian prescription, which in reality signifies a nostrum that resembles the Philosopher’s stone—the alchemy of turning lead into gold—hurts the average citizens. (bold emphasis mine)

In short, the highest yield available to ordinary investors who seek a simple, low-risk investment of their funds is, at best, roughly equal to the rate of inflation—and then, with a 30-year term to maturity, only with substantial risk of capital loss if interest rates should rise. To put the matter another way, all ordinary investors are now being progressively impoverished because the nominal return on their investments falls short of the loss of purchasing power of the dollar during the term of the investment. Getting a positive real rate of return is effectively impossible for the proverbial widows and orphans. Only investors with the knowledge of how to invest in gold, crude commodities, and other such esoteric assets stand any chance of earning positive real returns, and then only with great risk of substantial capital losses.

Given that the Fed’s official policy is to drive all interest rates to near zero, one may conclude that the Fed seeks to impoverish the widows, orphans, retired people, and all other financially untutored people who rely on interest earnings to support themselves in their old age or adversity. Can a crueller official policy be imagined, short of grinding up these unfortunate souls to make pet food or fertilizer?

The politicians constantly bark about their solicitude for those who are helpless and in difficulty through no fault of their own. Yet, the scores of millions of people who saved money to support themselves in old age now find themselves progressively robbed by the very officials who purport to be their protectors. There are many reasons to oppose the Fed’s policy. The reason brought to mind by the official enthanasia of the nation’s small savers deserves far more attention than it has received to date.

Bottom line:

Keynesian policies have been designed at propping up the privileges of the INSIDERS (the central banking-banking-political elites) all at the expense of the outsiders or the ordinary people of the world (this includes me).

Although such policies are camouflaged by rationalizations from academic gibberish as ‘aggregate demand’ and ‘liquidity trap’, the mantra “privatize profits and socialize losses” represents as its implicit ethical framework.

Despite coordinated actions to attain such an environment, which instead has led to higher consumer prices, and that has been explicitly expressive of the policymakers’ intents that deserves the public’s reprobation, ironically there has hardly been a popular uproar.

Instead protestations today have been misdirected at the effects—financial sector deliberately being sustained by the political class.

No wonder politicians and their bureaucrats can afford to keep bamboozling us. Nevertheless, eventually or at the fullness of time, there is no escaping the laws of scarcity.

Cartoon of the Day: The Greedy 1%

From Bob Gorrell (hat tip Mark Perry)

Poll: Occupy Wall Street versus Tea Party, Cut Between Partisan Party Lines

Each day that passes, my theory about Occupy Wall Street as a re-election campaign strategy for President Obama has been generating more confirmations.

From Pew Research (bold emphasis mine)

About four-in-ten Americans say they support the Occupy Wall Street movement (39%), while nearly as many (35%) say they oppose the movement launched last month in New York’s financial district.

By contrast, more say they oppose the Tea Party movement than support it (44% vs. 32%), according to the latest survey by the Pew Research Center for the People & the Press and The Washington Post, conducted Oct. 20-23 among 1,009 adults. One-in-ten (10%) say they support both, while 14% say they oppose both.

Partisanship plays a strong role in attitudes about the two movements. About six-in-ten Republicans (63%) say they support the Tea Party. That jumps to 77% among Republicans who describe themselves as conservative. Just 13% of Democrats support the Tea Party movement, while 64% are opposed.

About half of Democrats (52%) – and 62% of liberal Democrats – say they support the Occupy Wall Street movement. Among Republicans, 19% say they support the anti-Wall Street protests, while more than half (55%) oppose them.

Independents have mixed opinions of the Occupy Wall Street movement: 43% support the movement and 35% are opposed. By contrast, the balance of opinion among independents toward the Tea Party is much more negative: Just 30% support the Tea Party movement while 49% are opposed.

Pew Research essentially confirms the Gallup survey who also showed earlier that only a segment of the American population has been in favor of Occupy Wall Street.

We must remember that the Tea Party has served as a critical influence in turning the tide to favor Republicans during the 2010 Congressional elections.

In the realization that election season nears and that the approval ratings for both Congress and the President are at record lows, which in essence diminishes the odds of the re-election of the Democrat incumbents, thus the seeming urgency for the beleaguered Democrats (through their allies) to organize, mobilize, finance and expand a populist movement that could neutralize the Tea Party forces.

So the Occupy Wall Street movement basically rests on the political gimmickry of class warfare which advocates the expansion of government control in the delusional belief that the ends will justify the means.

Importantly, the Pew survey above has been exhibiting how Occupy Wall Street and the Tea party movement appear to be galvanizing across partisan party lines, which essentially has been confirming my theory.

So far on this account, the survey suggests that Occupy Wall Street as rather a new movement that rides on fancy noble but unattainable abstract goals has been achieving their objective as a prominent counterbalance to the Tea Party movement.

But this has yet to spillover to President Obama’s approval ratings or to his re-election odds.

The Intrade prediction market says that as of this writing Obama’s re-election odds is at 48.7%.

It is interesting and fascinating to witness how people have been so gullible as to be unwittingly used and manipulated to support political causes whose benefits only accrues to politicians seeking office. This also clearly shows how politics can strip or rob people of their common sense.

Occupy Wall Street: More Signs of President Obama’s Re-election Campaign Strategy

From Washington Post (bold emphasis mine)

Labor groups are mobilizing to provide office space, meeting rooms, photocopying services, legal help, food and other necessities to the protesters. The support is lending some institutional heft to a movement that has prided itself on its freewheeling, non-
institutional character.

And in return, Occupy activists are pitching in to help unions ratchet up action against several New York firms involved in labor disputes with workers…

The coordination represents a new chapter for the anti-Wall Street activists, who have expressed anger at establishment forces in both major political parties and eschewed the traditional grass-roots organizing tactics long deployed by labor unions.

It also suggests an evolution for organized labor, which retains close ties to President Obama and the Democratic Party but sees the Occupy protests as a galvanizing moment. Some union officials concede that their efforts to highlight income inequality and other economic concerns have fallen short, scoring few victories with a White House that many on the left see as too close with Wall Street.

President Obama’s job approval rating hits NEW record lows

From Gallup

This seems to validate polls which shows that the theme espoused by the ‘noisy minority’ have not been supported by the general public.

Such gimmickry seem as telltale signs that for the Obama administration, desperate times calls for desperate measures

Vatican supports Occupy Wall Street

From the Reuters

The Vatican called on Monday for sweeping reforms of the world economy and the creation of a ethical, global authority to regulate financial markets as demonstrations against corporate greed continued to spring up in major cities across the globe.

An 18-page document from the Vatican's Justice and Peace department said the financial downturn had revealed behaviours like "selfishness, collective greed and hoarding of goods on a great scale," adding that world economics needed an "ethic of solidarity" among rich and poor nations.

Urging Wall Street powerbrokers to examine the impact of their decisions on humanity, the Vatican called on those who wanted to change economic structures to "not be afraid to propose new ideas, even if they might destabilise pre-existing balances of power that prevail over the weakest."

The document was released as "Occupy Wall Street" protests this month sparked similar anti-capitalist movements around the world with demonstrators angry over government bailouts of big banks, corporate bonuses, and economic inequality.

Vatican wants the governments to impose “heaven on earth” policies in the delusional belief that governments are essentially ‘immaculate’ and has the power to repeal the law of economics by the use of force. This only shows how Vatican has NO idea of the origins of the evil she decries of, and the complicit role of governments in the current political order.

The Pope needs to know that the Governments has been masterminding the current “collective greed” political arrangements. The Vatican needs to answer who has been conducting bailout policies and most importantly WHY this are being done?

Second, Vatican prefers the use of more violence through the “creation of a ethical, global authority” to discipline or “to regulate” the markets.

It is ironic that the Vatican has been proposing actions which runs contrary to what she preaches.

Just how can love or ‘ethic of solidarity’ be attained through the enforcement of redistributionist policies that have been anchored on violence?

Heaven on Earth.

Gallup: Occupy Wall Street Not Supported by Most Americans

From Gallup,

Americans are more than twice as likely to blame the federal government in Washington (64%) for the economic problems facing the United States as they are the financial institutions on Wall Street (30%).

Both of these large entities have been the target of protest groups this year. The Occupy Wall Street movement has focused on large financial institutions on Wall Street, while the Tea Party movement continues to focus mainly on the federal government.

Class warfare has been typically used as an election stratagem. And most likely this movement may have also been a maneuver used by the beleaguered and seemingly desperate incumbents to preserve their fragile hold on power which will be contested during the coming elections.

Lew Rockwell on the REAL Evil 1%

Mises Institute Founder and Chairman Llewellyn H. Rockwell, Jr. eloquently writes,

In the end, we end up with about 3 million people who constitute what is commonly called the State. For short, we can just call these people the 1%.

The 1% do not generate any wealth of their own. Everything they have they get by taking from others under the cover of law. They live at our expense. Without us, the State as an institution would die….

The State is the institution that essentially redefines criminal wrongdoing to make itself exempt from the law that governs everyone else.

It is the same with every tax, every regulation, every mandate, and every single word of the federal code. It all represents coercion. Even in the area of money and banking, it is the State that created and sustains the Fed and the dollar because it forcibly limits competition in money and banking, preventing people from making gold or silver money, or innovating in other ways. And in some ways, this is the most dreadful intervention of all, because it allows the State to destroy our money on a whim.

The State is everybody’s enemy. Why don’t the protesters get this? Because they are victims of propaganda by the State, doled out in public school, that attempts to blame all human suffering on private parties and free enterprise. They do not comprehend that the real enemy is the institution that brainwashes them to think they way they do.

They are right that society is rife with conflicts, and that the contest is wildly lopsided. It is indeed the 99% vs. the 1%. They’re just wrong about the identity of the enemy.

Parasites thrive on hosts and at the latter's expense. That’s how the causal relationship works (even in biology).

Greed and the ONE Percent

Greed.

One way to win voters during an election period is to bash a minority group and appeal to the majority for the use of institutional or organized political force to achieve social goals as ‘equality’.

This Wall Street Journal article spares me precious time to parse on the newly released 2011 Wealth report from Credit Suisse, but nevertheless reflects on the du jour political theme: Greed is evil.

Wall Street the Wealth Report Blog’s Robert Frank writes,

Here’s another stat that the Occupy Wall Streeters can hoist on their placards: The world’s millionaires and billionaires now control 38.5% of the world’s wealth

According to the latest Global Wealth Report from Credit Suisse, the 29.7 million people in the world with household net worths of $1 million (representing less than 1% of the world’s population) control about $89 trillion of the world’s wealth. That’s up from a share of 35.6% in 2010, and their wealth increased by about $20 trillion, according Credit Suisse.

The wealth of the millionaires grew 29% — about twice as fast as the wealth in the world as a whole, which now has $231 trillion in wealth.

The U.S. has been the largest wealth generator over the past 18 months, according to the report, adding $4.6 trillion to global wealth. China ranked second with $4 trillion, followed by Japan ($3.8 trillion), Brazil ($1.87 trillion) and Australia ($1.85 trillion).

There are now 84,700 people in the world worth $50 million or more — with 35,400 of them living in the U.S.. There are 29,000 people world-wide worth $100 million or more and 2,700 worth $500 million or more.

The fastest growth in the coming years will be in China, India and Brazil. China now has a million millionaires. Wealth in China and Africa is expected to grow 90%, to $39 trillion and $5.8 trillion respectively, by 2016. Wealth in India and Brazil is expected to more than double to $8.9 trillion and $9.2 trillion respectively.

The article does not specify ‘greed’ or what form of greed constitutes evil. Nevertheless, the article already suggests that the statistics presented by the study could serve as an emotional fodder for the current movement of global protests.

Yet to broaden the perspective let me add more charts from the same study

Worldwide wealth in dollar terms has been expanding

The degree of growth varies from nation to nation

Or even seen from the perspective of region to region. The point is that wealth is relative.

Alternatively, this also means that wealth creation basically reflects on the idiosyncratic structure of a nation’s political economy.

Bottom line: Wealth is NOT created equally and will never be equal.

This runs contrary to socialist utopian abstractions which tries to project ‘equality’ where everyone should not only have same degree of income and wealth or access to public goods, but also perhaps the impossibility of us having to look alike, think alike, share the same value, share similar space for our presence and spouse, etc...

A Wall Street Journal editorial expounds on Asia’s newfound wealth (bold emphasis mine),

Rising net worth ought to be a sign that a growing number of individuals are spotting productive economic opportunities and profiting handsomely in return for the big entrepreneurial risks they've taken. That's certainly how the likes of Steve Jobs or Richard Branson made their billions in the West. There's also a fair share of that in Asia.

But it's also true—and troubling—that so much wealth-creation in the region is related to various forms of government patronage. There are the Hong Kong tycoons who benefit from favorable government land-sale rules, or the Korean chaebol executives who gain from lenient treatment "for the national economic interest" when corporate fraud allegations pop up. China is especially notable for being an environment where friendly connections with government officials can pave the way through a bureaucratic labyrinth, even easing access to capital that's scarce for purely private-sector enterprises.

In a modern free economy it's false to suggest that the wealth of one entrepreneur impoverishes others—the pie can grow for everyone even if it grows faster for some. But wealth amassed through collecting government favors often does impoverish others: those who don't enjoy similar benefits. This fact, and the cynicism it breeds, is a greater threat to social stability than unequal wealth distribution.

In short, wealth is achieved either by political means or by market (economic) means.

The other way to say this is that ‘greed’ as a human trait influences BOTH the market and politics. And the process undertaken to achieve an end (‘equality’) extrapolates to a TRADEOFF between these two means.

For example if society aims to attain ‘equality’ through the markets then the tradeoff equates to lesser political interventions. Yet if society opts to distribute resources ‘equally’ via the political means then market influences will diminish.

The $231 trillion question is which of these two means will function as the more efficient way to arrive at social prosperity.

Thus such tradeoffs suggests that there will either be market inequality or political inequality. The reality is that there will be no equality in whatever sense.

In the real world operating on scarce resources, then equality is no more than a utopian fantasy or mental self-abuse.

To give you an idea how some of the world’s wealth have been politically derived, the following excerpt is from the New Scientist (bold emphasis mine)

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company's operating revenues, to map the structure of economic power.

The work, to be published in PloS One, revealed a core of 1318 companies with interlocking ownerships. Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What's more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world's large blue chip and manufacturing firms - the "real" economy - representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a "super-entity" of 147 even more tightly knit companies - all of their ownership was held by other members of the super-entity - that controlled 40 per cent of the total wealth in the network. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

The list of the biggest interlocking companies

Focusing on the financial behemoths, the above serves as example of crony capitalism or corporatism, where politically privileged private companies benefit from political concessions, regulations, monopolies, subsidies, private-public partnerships or other anti-market policies premised on “privatizing profits and socializing losses” that SHOULD BE differentiated from wealth derived from entrepreneurial or capitalist functions, whose gains are derived from pleasing consumers.

Political wealth (pelf) is mainly extracted from the looting of the taxpayer.

In fact the above only underscores the Austrian economic school’s thesis of a central-bank-cartel based [banking-and-financial sector cronyism] whom has lately been living off tremendous amounts of government subsides, bailouts, central bank QEs and massive interventions in the marketplace all of which has been designed to preserve the current cartel based welfare-warfare state.

Of course not all of the abovestated interlocking companies represent cronyism or politically generated wealth.

Cato’s Dr. Tom Palmer explains the differences of wealth in the video below

Cato’s Dan Mitchell also expounds on differences of entrepreneurship from political privileges in this Fox interview

Finally a good reminder comes from this classic video interview of the illustrious Milton Friedman on Greed, as I earlier posted

The magnificent Milton Friedman quote:

Well, first of all, tell me is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy; its only the other fellow who’s greedy.

The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear: that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

As said above, greed is a human trait that plagues politicians too.

Here is the list of the richest politicians of the world

Again to re-quote Milton Friedman above

none of us are greedy; its only the other fellow who’s greedy

War on Naked Shorts: EU Bans Short Selling

Politicization of the marketplace has been broadening. Trading curbs are not only applied to commodities but to short-selling as well.

From Bloomberg,

The European Union reached a deal as part of a short-selling law that will pave the way for an optional ban on naked credit-default swaps on sovereign debt.

Poland, which holds the rotating presidency of the EU, and lawmakers from the European Parliament reached the accord at a meeting in Brussels yesterday.

Under the deal, traders may be prevented from buying CDS on government bonds unless they either own the sovereign debt or other assets whose price moves in tandem with it. Nations will have the right to opt out of the measure if they detect signs that it may affect their borrowing costs.

“These balanced measures will ensure that sovereign CDS are used for the purpose for which they were designed, hedging against the risk of sovereign default, without putting at risk the proper functioning of sovereign-debt markets,” EU Financial Services Commissioner Michel Barnier said in a statement.

German Finance Minister Wolfgang Schaeuble and lawmakers in the European Parliament have called for a ban on naked CDS trades on government debt over concerns the practice fueled the euro zone’s debt crisis. Germany already has restrictions on using swaps to bet on sovereign defaults.

Some European governments have also criticized the use of short selling to bet against bank stocks, arguing that the practice has roiled markets. Volatility that sent European bank stocks to two-year lows led France, Spain, Belgium and Italy in August to impose temporary bans on short selling that remain in force.

Opt-Out Clause

Under yesterday’s deal, national regulators will be able to suspend the CDS ban in their territory at the first signs that it may harm their sovereign debt market.

The opt out-clause won over some critics of possible bans.

“I never signed up to the belief that a ban on uncovered sovereign CDS would have any positive impact,” Syed Kamall, who represents London in the EU Parliament, said in an e-mailed statement. “However, I’m reassured that member states will have the ability to opt out of the ban, if they see signals that sovereign debt markets are distressed.”

The European Securities and Markets Authority will give a non-binding opinion on whether a national regulators’ decision to drop the ban makes sense. ESMA coordinates the work of national markets regulators in the 27-nation EU.

Renew Indefinitely

While the suspensions will in theory be temporary, regulators will be able to renew them indefinitely. Under the terms of the agreement, existing CDS positions will be grandfathered until they expire.

CDS are instruments that act as insurance for the buyer against losses on bonds. The practice becomes naked when someone buys swaps on debt that they do not actually own.

The measure forms part of a broader agreement on an EU law that will also curb naked short selling of stocks and government bonds.

All these curbs seem like a 'comprehensive strategy' to preserve the status quo

Global governments want to see LOWER commodity prices because this allows them some space to apply more inflationism to uphold political goals when deemed as expedient by the incumbent authorities. Also this allows them to declare victory against ‘inflation’ or to swagger about the success of their policies.

Governments do not want see the public go SHORT on sovereign debt because the welfare state based governments badly desire to maintain their spendthrift -borrow and spend-ways, whose benefits accrue to the political class, their voting constituent groups and their cronies.

Instead governments want HIGHER stock markets, particularly the banking and financial sectors as these institutions hold much of sovereign debt in their balance sheets as Basel mandated ‘risk free’ assets. Remember, banks serve as the PRINCIPAL conduits in the financing of the welfare state.

That’s why a ban on naked shorts, a form of price control, has been designed NOT only to preserve the access to funding by the welfare state, they are meant to keep banking and financial stocks AFLOAT.

Besides for central bankers higher stock markets PROMOTE aggregate demand via more spending (regardless of what kind of spending).

Yet these policies are directed to benefit holders financial assets at the expense of the productive sectors of the economy. Wealth/Income inequality and political inequality anyone?

To add it up: The overall direction of global market interventions has been to promote Bernanke’s doctrine of the wealth effect worldwide and to preserve the welfare state.

The caveat is that all these cumulative actions presumes that market interventions will effectively skew the law of demand supply in their favor—a utopian scenario.

Occupy Wall Street guys, have you been listening?

Occupy Washington, the US Federal Reserve and the Princeton University

Investing savant Dr. Marc Faber says that demonstrators against Wall Street should instead occupy Washington and the US Federal Reserve.

The Business Intelligence Middle East quotes Dr. Faber (bold emphasis mine)

On the US Federal Reserve’s preference to support the banking and financial class through bubble policies:

We cannot blame Wall Street and well-to-do people for the mishap, for this ratio to have exploded on the upside. We have to blame essentially expansionary monetary policies that favor assets. So you have low consumer price inflation, you have no wage inflation."

In fact, the problem in America is that real wages, real compensation has been down since the 1970s. But at the same time, asset prices, equities, real estate and so forth have gone up dramatically, and that favors people who have these assets. And so the ratio expanded and you have now a record wealth inequality, and income inequality…

On Washington’s bribery of Americans in order to expand welfare state for the benefit of the political class and their cronies.

The problem with government is that the original intention of, especially a democracy, is very good.

Everybody has a say in how societies should be structured, but over time, it becomes very polarized and it moves into the hands of powerful business interests, and also interest groups like the military complex, or say the welfare recipients and so forth…

So you end up with kind of on the one hand a tyranny of the masses where you distribute all kinds of goodies to people. Like in America roughly 50% of the population gets a handout one way or the other from the government. So by continuing to support these people, you get their votes.

The protestors should focus on the root of the problem

Wall Street is a minority, anyone else would have done the same, they use the system but they didn't create the system. The system was created by the lobbyists and by Washington. So they [the protesters] should actually go to Washington and also occupy the Federal Reserve on the way

Professor William L. Anderson further suggests for an Occupy Princeton University movement (highlights mine)

That's right, I am calling for an immediate occupation of...Princeton University, and specifically, its economics department. There is no other place on earth that has given us more players and more enablers of the financial madness that has gripped this economy for many years.

Reason: Because of the notoriety of some of the academic alumnus towards interventionist and inflationist policies: Ben Bernanke, Alan Blinder, Alan Krueger and Paul Krugman

Continue reading Professor Anderson’s explanations here

The European Central Bank as Symbol of Capitalism?

Today’s headlines reads “Rallies vs. Corporate Greed Sweep World” (Inquirer, Agence France-Presse, Associated Press) [emphasis added]

Other than Rome’s, the demonstrations across Europe were largely peaceful, with thousands of people marching past ancient monuments and gathering in front of capitalist symbols like the European Central Bank in Frankfurt.

My auto impulse response: WTFAYTA??!!

To save you precious seconds from searching, the acronym is the internet slang of "What The F*** Are You Talking About?"

Don’t these media guys know that…

Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.

…is the 5^th of the 10 measures of Marx-Engels Communist manifesto????

So how the heck does a ‘communist’ institution metamorphose into a symbol of capitalism???

Mises Institute’s Jonathan M.F. Catalán has a nice apropos cartoon depicting a past protest against the Aldrich Plan in 1912 or the proposed formation of the US central bank

The parody presciently portrays what has been happening today: a political economy based on Too big to Fail Banks-central banking-welfare/warfare state or a central bank-led cartel.

The ECB as a symbol of capitalism serves as telling evidence of how media has either been totally ignorant or complicit to the political propaganda aimed at shifting the culpability away from the government to everyone else.

The snowballing populist protest has rightly been directed at central banks, but media and many people and even some protestors don't get it: Corporate greed exists because of the symbiotic political relations with Political greed.

The lyrics below from Depeche Mode’s 1983 song ‘Everything Counts in Large Amounts’ seems event relevant

The graph on the wall
Tells the story of it all
Picture it now see just how
The lies and deceit gained a little more power
Confidence - taken in
By a suntan and a grin

The grabbing hands grab all they can
All for themselves - after all
The grabbing hands grab all they can
All for themselves - after all
It's a competitive world