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Richard Duncan Says Capitalism Is Dead, Find Out What Replaced It

TUE, AUG 6, 2019 - 11:08AM

By Financial Sense

Is capitalism dead?

According to Richard Duncan of Macro Watch, capitalism died decades ago and has been replaced by a system based entirely on credit, which he calls creditism. On a recent FS Insider podcast, Duncan explained his theory and how it developed in the U.S.

What Is Creditism?

Classical economic theory was built on the premise that money is gold—thus creating a natural limit on credit growth. When President Nixon removed the ability to exchange US dollars for gold, effectively erasing the gold backing of the US dollar, the global financial system rapidly shifted.

From that point on, the economy began to function in ways classical economic theory cannot explain. This is a direct result of removing constraints on how much credit can be created, Duncan explained. At that point, credit growth began accelerating at such a rapid pace that it became the main driver of economic growth. The Fed was suddenly free to create as many dollars as it wanted.

The amount of reserves the banking system was required to hold relative to deposits was steadily reduced. This is the required reserve ratio and it is the only limiting force on how much money banks can lend. As banks can hold less in deposits to cover outstanding debt, they can increase the amount they lend. This causes credit to explode, Duncan said. By 2007, the effective required reserve ratio was barely above zero, meaning the money multiplier was practically infinite, Duncan noted.

“After all the constraints on credit creation were removed,” Duncan explained, “the U.S. economy didn't have to rely on savings anymore. And that was when our economic system evolved from capitalism—where the growth dynamic is fueled by investment and savings… into what I call ‘creditism,’ which is not driven by investment in savings, but instead is driven by credit creation and consumption,” Duncan said.

Creditism Crossroads

As long as credit keeps growing rapidly, Duncan stated, the economy grows rapidly. But problems emerge when debt levels are so high that debtors’ ability to repay is curtailed. We saw this play out in 2007 when the private sector was so heavily indebted it couldn't continue paying interest on debt, triggering defaults. At that point, Duncan said, we would have collapsed into a new Great Depression, except that the Fed and world governments stepped in and began injecting credit back into the system.

This led to swelling budget deficits. Since 2007 the government debt—that is, public debt—has increased from $6 trillion to $18 trillion. This is what has fueled further credit expansion, and thus economic growth. Creditism was kept on life support through aggressive government intervention and credit creation, Duncan stated. As a result, our system relies on credit growth to continue.

“However you choose to look at it, there is no longer any difference between money and credit,” Duncan said. “You can think of what the Fed did as either creating money or creating credit. They're the same thing now that money is no longer backed by gold.”

Recipe for Recession

Since 1950, anytime total credit growth is below two percent—defined as total credit adjusted for inflation—the U.S. goes into recession. Furthermore, Duncan noted, recession doesn't end until credit expansion begins. Since 2007 and the aggressive expansion of government debt, credit has been expanding, but just above two percent, which Duncan refers to as the ‘recession threshold.’

It’s not enough to drive economic growth; asset price inflation is needed as a supplement. Essentially, the Fed established a policy to inflate stock and property prices to stoke a wealth effect, subsidizing the U.S. economy and fueling growth. This made the Fed rapidly shift policy after the December 2018 stock market correction. Instead of raising rates, as it had said it was going to do in 2019, the Fed put increases on hold. Now, the U.S. central bank is cutting rates again.

This is keeping total net worth at all-time highs, but it is also forcing the Fed to continue cutting rates to protect asset prices.

“There will be more than one cut in interest rates,” Duncan predicted. “The Fed in a sense is a hostage of the stock market. If the Fed doesn't cut rates now, the stock market will fall very sharply. That will destroy wealth, reduce consumption and cause the economy to go into recession. … The Fed must make the stock market keep going higher, and ideally the property market as well, in order to keep the economy out of recession, or something worse.”

[antekythera]

[antekythera]

The true bad guys of the world, the ones who truly want to kill, will never ever be deterred by any gun laws.

The American government is adamant about making sure you are scared of your neighbor, even though statistically by the Numbers you're more likely to be intentionally killed by a cop or the American Military with a gun than you will ever be intentionally killed by your neighbor with anything. These numbers are factual. Don't just breeze by them because it's uncomfortable. Because you know will be more uncomfortable? When they start arresting anybody they want and killing anybody they want because they're a threat to the rich. It's not like Snowden or Assange are in trouble because they did bad things. It's because true threats are neutralized before theyre ever a threat. What do you think these gun laws are for? They're not going to stop the Psychopaths who really want to kill you. They'll just create a homemade bomb or a 3D printed gun or go to the dark web. Not to mention as I said earlier, the American government is more likely to kill you. And the gun laws don't stop them. These gun laws are to make sure we don't form militias to take on the fucking rich. Period. Or did you forget that the cops let the murderer in Texas go in and stop parents from stopping him? Clearly the government being the only ones with guns will not save your fucking children. They will knowingly openly let your kids be murdered. Hard goddamn stop.

[antekythera]

[antekythera]

[antekythera]

"taxes are the price we pay to live in a civilized society" would be true if they didn't need a roaming armed gang with qualified immunity to enforce them backed by thieving war criminals stealing from your retirement every damn month locking up journalists and drone striking school buses and hospitals for foreign governments. I know I say this shit on repeat, but really in what way is our society civilized when the people in control of it refuse to act civilized at all and are backing corrupt monsters? How is blatant theft of the working class' income at all civilized? And when the state has to continuously print money to fund itself causing skyrocketing inflation and jacked up prices making regular people fall into poverty while those same politicians retire filthy rich or die in office, what in the hell is civilized about that?

Nothing about the state is civilized, absolutely nothing at all. That's the illusion it forces to make you think it's authority is legitimate.

[antekythera]

[antekythera]

And now, my traditional New Year’s benediction: If you have a boot on your neck, throw it off. Even if you love the boot. Even if the boot is your own.

[antekythera]

Wall Street's landlord business is turning every rental into a slum

Shelter is a human right and a necessity for human thriving. The choice to turn speculation on our homes into a path to social mobility inevitably led to the crash of 2008 and 3.7 million US foreclosures.

https://gen.medium.com/the-rents-too-damned-high-520f958d5ec5

In the Great Financial Crisis, the Obama administration chose to bail out banks, rather than borrowers, giving them the capital they needed to start buying those foreclosed homes in bulk. This was only accelerated by the Trump covid bailot, which sent trillions into the finance industry.

https://pluralistic.net/2022/01/27/extraordinary-popular-delusions/#wall-street-slumlords

Wall Street landlords are the worst landlords. For years, the press has been documenting the Wall Street landlord playbook: deep cuts to maintenance that leave homes all but uninhabitable; scorching rent-hikes; and mass evictions any time a tenant balks at either measure.

https://memex.craphound.com/2018/07/30/wall-street-landlords-are-slumlords/

Wall Street landlords are extracting never-seen levels of profit from their “investments” in our homes; some of that money is being laundered into policy that makes it possible for them to extract even higher profits. That’s the “political” in “political economy”: profits are turned into policy, policy increases profits.

https://pluralistic.net/2022/02/03/liquidation-preference/#sweet-sweet-corruption

The Wall Street landlord lobby has spent many of the millions it extracted from tenants to make those tenants’ lives worse — making eviction easier, getting rid of rent controls. All this in addition to the existing landlord’s leverage: “Do as I say, or live in a cardboard box.”

https://pluralistic.net/2021/04/02/innovation-unlocks-markets/#digital-arm-breakers

Much of the reporting on Wall Street landlords has focused on single-family homes (including my own). But today on Propublica, Heather Vogell gives us a deeply reported, enraging look at how private equity slumlords are using public money to buy up and destroy apartment buildings, at great profit.

https://www.propublica.org/article/when-private-equity-becomes-your-landlord

There are many kinds of Wall Street landlord; the sector is dominated by Real-Estate Investment Trusts (REITs), a favored vehicle for offshore money-laundering, especially popular among foreign kleptocrats who smuggle their loot out of their homelands:

https://memex.craphound.com/2020/01/06/everything-you-wanted-to-know-about-money-laundering-but-were-afraid-to-ask/

But as bad as REITs are, they still make better landlords than private equity companies. Unlike REITs, which are an ongoing concern, PE funds close out every ten years or so and have to realize all their profits before they do. This turns PE into industrial-scale house-flippers, obsessed by short-term gains without any regard for the long-term consequences.

PE giants aren’t just buying up single-family homes; they’re buying apartment buildings at an incredible rate, in deals that involve both individual buildings and taking over REITs and their entire portfolios. These are wildly profitable investments: while REITs generate 4.33% annually on their residential properties, PE companies squeeze 20% profits out of those same buildings.

That’s a great deal, if you’re part of the investor class with a share in the PE company. But if you’re a tenant, those excessive profits are coming at your expense — at the cost of your living conditions and your pocketbook.

Start with your living conditions. Vogell uses San Francisco’s Olume building — transferred from Monogram — an REIT — to Greystar in 2017. Under Greystar’s management, the Olume went from a delightful place to live to a dangerous slum, even as rents skyrocketed.

Tenants whose appliances broke down were given replacements scrounged from empty units. Their broken units were never repaired, and when the replacements broke down they were replaced with the broken units the tenants had previously phoned in.

Eventually, Greystar stopped fixing appliances altogether. As the washing machines in Olume’s apartments failed, Greystar directed tenants to wander the hallways, checking for unlocked, empty apartments with working machines.

Greystar cut way back on the Olume’s trash collection and then failed to clean up the inevitable drifts of rotting garbage that collected in the hallways. The common spaces deteriorated due to lack of maintenance. Security was slashed and broken locks weren’t replaced; strangers started to appear in the hallways and parking garage.

The city recorded waves of complaints against the Olume. Inspectors documented broken-down HVAC systems and, ominously, fire suppression systems.

Even as the Olume was rotting under neglect from its new PE owners, the cost of living in the Olume skyrocketed. One tenant’s 535 sqft apartment went from $2,800 to $3,400. But this doesn’t tell the whole story: Greystar followed the PE price-gouging playbook, finding all kinds of ways to squeeze its tenants — for example, the annual fee for keeping a pet in your apartment went up by 25%.

PE companies are notorious for these hidden fees, and for a tactic called “pyramiding,” where fees stack up on fees, so that your effective rent goes up every month.

All of this was great business for Greystar. Within two years, it had increased its annual profits on the Olume to $2,330,407 — a 24% increase over the previous owners’ take.

Greystar is on a buying spree, but it’s mostly not spending its investors’ money. Rather, it is the beneficiary of enormous public subsidies in the form of low-interest loans from Freddie Mac, a company chartered by Congress and backed by the US government.

Freddie Mac has been firehosing money on private equity companies buying up apartment buildings: “Large private equity firms accounted for 85% of Freddie Mac’s 20 biggest deals financing apartment complex purchases by a single borrower.” Just a handful of PE companies are the primary beneficiaries of $16b of Freddie Mac’s largesse: Greystar, Lonestar, Starwood, Brookfield and Harbor Group.

This free money has helped restructure the American landlord industry. In 2015, just under half of America’s apartment buildings were owned by individuals. Today, it’s 41% — and falling.

Freddie Mac’s mission is to promote “liquidity, stability and affordability to the housing market.” But the “liquidity” part has trumped stability and affordability in its daily operations. Rather than, say, giving cheap loans to tenants who want to buy their buildings and turn them into nonprofit co-ops, Freddie Mac uses its government-backed loans to subsidize rent-gouging PE slumlords.

The cycle goes around and around: the profits from slumlording are turned into slumlord-favorable policies. Blackstone — one of the country’s leading Wall Street slumlords — used $6.2m of its tenants’ money to fight a 2018 California ballot rent control initiative. That victory let it continue to raise rents and amass an even larger warchest to fight for even worse conditions for tenants.

Image: Sam valadi (modified) https://www.flickr.com/photos/132084522@N05/17086570218/

Carlos Delgado (modified) https://commons.wikimedia.org/wiki/File:Wall_Street_-_New_York_Stock_Exchange.jpg

CC BY 2.0: https://creativecommons.org/licenses/by/2.0/

[antekythera]

Cop Arrested After Video Showed Him Shoot a Child Multiple Times as He Ate a Burger 

The now-former officer was arrested after trying to murder a teenage couple in a McDonald’s parking lot. Story/Video: https://thefreethoughtproject.com/police-brutality-cop-watch/cop-arrested-after-video-showed-him-shoot-a-child-multiple-times-as-he-ate-a-burger

[antekythera]

There are good people everywhere.

[antekythera]

Amen to that little dude

[antekythera]

In high school one of the common fund raisers was carnation flowers for a dollar during prom season and valentines and a couple other times of year. And you could “order” flowers to be delivered to kids during their homeroom times so it was always a big deal to get flowers and it was super fun

But one of these fundraisers I had a guy friend who commented he never got any because he was always single or his girlfriend always expected flowers but never gave him any

So my senior year valentines I decided I was going to buy all the guys in my homeroom (which he was in) a carnation and said they were from “Anonymous Girl in your homeroom”

So the day came and all the guys started getting flowers and they all realized they were from the same one girl and all got super excited and giddy and protective of their flowers and all day long I saw the guys in my homeroom wear flowers behind their ears or stuffed in their notebooks and they flaunted them around to other guys that didn’t get flowers. One guy tried to see if it would make his girlfriend jealous. A couple of them tried to play detective to figure it out who it was.

Then the next day apparently they all (or at least most of them) got together and bought all the girls in homeroom a carnation as a thank you to whoever it was so every girl in my homeroom got a bouquet of one from every guy (so it was a bouquet of about a dozen) and every single girl was smiling and happy and bouncy as the guys were the day before

And no one ever knew it was me but I was always super proud of that

[antekythera]

going to the hospital in a shirt that says “i sure hope no one commits medical malpractice and/or films a tiktok about my health issues later!”

[antekythera]

[antekythera]

Either you've understand this or not after the last 16 years alone