Credit Boom: Rich Enjoy ‘Gilded Age’ While US Economy Suffers

One man’s Crack-Up Boom is to another man “The Greatest Economic Boom Ever”. That is what Fortune magazine calls it on the current cover.

Now everyone is coming to see that we are in the midst of a huge, worldwide credit boom. And most recognise its prominent features:

– Rapid economic growth in Asia. News yesterday told us that China is set to overtake Germany as the world’s third largest economy by the end of the year – thanks to Chinese GDP growth rates in the double digits.

– Globalisation of trade and finance. Asia is growing so fast largely because its exports are sizzling. Ships are backing up in ports all over the world, trying to keep up with it. Large financial deals typically include players from several different countries.

– Financialisation of the world economy. Almost everything can now be packaged and sold as a financial asset – including works of art, collectibles, farms…you name it.

– And behind it all – a rising tide of liquidity. The United States emits dollars. Other countries emit their own currencies, attempting to keep up with the greenback. Everywhere, the liquidity level increases – pushing up asset prices.

Our old friend Steve Chapman writes in the Chicago Tribune that the US economy is in great shape. The stock market is near record levels; unemployment is down to 4.5%; inflation is running below 3%. “Recessions used to come along every four to five years, but since 1991 we’ve only had one mild downturn, back in 2001.” Americans have grown so accustomed to prosperity that we take it for granted,” says Steve.

Ah, that’s the trouble with prosperity. It is like a mistress; as soon as you take her for granted, she begins to pout and flirt with strangers.

And that is the fundamental difference between a Crack-Up Boom…and The Greatest Economic Boom Ever. Here at Markets and Money we don’t think you can take mistresses or prosperity for granted. Instead, they need to be handled carefully, given proper respect, shown appropriate appreciation…and, occasionally, allowed a tantrum.

That the US economy has had only one minor recession since 1991 we take as cause for alarm…like a teenager who is unusually polite; we figure he’s up to something. But most economists, and sensible people too, regard the lack of a major correction as a good sign; they believe it signals that the economy is so healthy it needs no correction.

The economy is not really healthy at all – especially not in America.

The latest report from the New York Times tells us that the rich are doing better than ever. It’s a new “Gilded Age”, says the grey lady. Wealth is once again being concentrated at the top – just as it was before the Great Depression. Then, it was the great men of industry – the Vanderbilts, the Rockefellers, Carnegies and Fords – who controlled vast wealth. Now, it is the great men of finance – the Schwarzmans, the Petersons, the Kravises, and the Kolhbergs – who get the dough. According to the TIMES, only 15,000 American families now collect 5% of total national income – equivalent to US$9.5 million per year each.

Hey, good for them. But while the Carnegies and Fords boosted real incomes for the whole population, the Schwarzmans and Kravises seem to keep it to themselves. The average American is increasingly trapped between the Scylla of stagnant income…and the Charybdis of increased expenses. He has a bigger house, a bigger mortgage, more cars and a more expensive living standard. But he has no more money to pay for it.


Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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1 Comment on "Credit Boom: Rich Enjoy ‘Gilded Age’ While US Economy Suffers"

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Hi, I’m watching the current economic situation and sharing your intense discomfort. I’ve been wishing this boom would end for years and have now started to believe it’s time to get on board. I think what is happening is the globe once split into two economies – east and west, developing and developed, rich and poor. Now globalisation is shifting the boundaries of this divide so that you have rich and poor, developed and undeveloped, east and west inside the old boundaries. So sure the boom doesn’t exist for the poor – inflation in Australia for the basics is running… Read more »
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