The miracle potion for creating above-average growth over the past 30 years has been add more leverage(debt) and stir. As interest rates moved through a 30 year secular downturn, more things became affordable every year without pay increases for the masses. Lower interest payments meant that workers could buy more and service larger debt levels from stagnant or even lower wages.
Since financial firms, brokers and investment bankers collect fees and commissions as a percentage of the asset values they move about, they have enjoyed an incredible run over this period as higher and higher asset prices generated higher and higher payouts for them. The pecuniary interests of the financial community have been perfectly aligned with getting the world to take on higher and higher leverage to goose higher and higher asset prices at all cost.
This chart captures the magnifying effect on banker pay in New York (the world’s finance capital after all) versus other non-financial workers since 1861. In 1990 the ratio was that New York finance types made 2x the average non-finance worker’s pay. In 2007 at the peak of the housing/consumer credit/stock/commodities bubbles the ratio peaked at 7.2X the average non-finance worker’s pay. Today thanks to the propping power of QE on asset markets, the ratio has been holding at 6x. See: The securities industry in New York for a full report.
Largely over-looked of course is that bubbling prices and higher leverage equate to higher and higher capital risk for the masses: governments, companies, households and individuals–the risk is all ours to bear. The bankers on the other hand? Well they have so far had the best of times: big commissions and bonuses on the levering up and bailouts far and wide when the pistons inevitably and repeatedly blow. Until at least, the virus kills the host.
For more see: Marc Faber: The world is in gigantic asset bubble. Again.
;
