A rational for the poor proformance of the economy over the past 30 or so years.
From the World Economic Reveue
"Incorporating the Rentier Sectors into a Financial Model"
Authors: Michael Hudson and Dirk Bezemer
(the underlining is that of the poster)
Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda:
earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. As creditors recycle their receipts of interest and amortization (and capital gains) into new lending to buyers of real estate, stocks and bonds, a rising share of employee income, real estate rent, business revenue and even government tax revenue is diverted to pay debt service. By leaving less to spend on goods and services, the effect is to reduce new investment and employment. Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector’s productivity growth (Stockhammer 2004, pp. 719-41) and more generally that ‘financialization’ (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy’s money flows are diverted to circulation in the financial sector. So wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy.