At some time in the future, when the world looks back on the beginning of the 21st century, on the list of trivia will be the television series Games of Thrones. And from this will come a phrase that has entered the global language: “You know nothing, Jon Snow”.
Considering that the series is now seen in 170 countries, you can imagine how many languages that phrase has been dubbed or subtitled into. It is probably a good motto for our times.
Looking back, the future will see that we had one particular concern during this early 21st-century world: Wealth and income inequality. When the “Developed Nations” looked in the mirror and saw that their own countries seemed to be divided into “First” and “Third”, it became a front-page issue.
Unfortunately, because most people know nothing from an historical viewpoint, bankers, governments and the fallback “blame for everything” capitalist system were singled out for scorn. That is partially accurate. However, there happens to have been a turning point.
The rules of the economic ballgame changed in 1971, when the US would no longer convert dollars to gold or silver. A new phrase—the “one percenters”—entered common language in the past decade. Used to describe the top income and wealth bracket, recent economic policies and events are blamed. But here is the reality.
In the US the share of income accruing to the bottom 50 percent of income earners peaked at 21 percent of total national income in 1968. At that time, the top 1 percent of income earners was at 11 percent of the total. In 2016 the bottom 50 percent received 12 percent of total income and the “one percenters” now account for 21 percent of total income.
Through more than 40 years of US presidential administrations, Federal Reserve interest-rate changes, recessions and economic boom periods and countless government economic policies, the income-share trend has been one way since 1971: The rich got richer and the poor got poorer.
Another interesting correlation with that decision in 1971 is that US debt has gone from about $1 trillion—a level that it had been at for 20 years—to the current $50 trillion, both public and private. Global debt has increased from 30 percent of global GDP to nearly 100 percent, even as total global economic output has increased from $3.8 trillion to over $80 trillion. The reality is that when the US dollar became a completely fiat currency—money not backed by a physical commodity—everything changed.
Imagine playing a game of “Monopoly” and, every 30 minutes, the bank gives you new money equal to your cash and properties. If you were a little behind the leader, suddenly you are far behind. An hour later after two more bank giveaways, you are so far behind there is no way you can ever catch up. The rich get richer and the poor get poorer in comparison.
In the next 12 to 18 months, the economic game is going to fundamentally change again. Funding to pay both private and public debt comes not from the “one percenters” but from everybody else on the economic ladder and they are broke and broken. US corporate debt defaults in 2016 were the highest since 2007. Household debt is the highest in history.
Governments—like the Monopoly banker—bailed out the Western banking system in 2008 with their quantitative easing, but the “Monopoly money” is running out. The game changer will be an important country of the size of Spain or Italy defaulting on its sovereign debt. Watch for it.
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