Bill Bonner

Societies become more complex as they age. Each challenge…or opportunity…is met with a new rig of some sort. A tax. A regulation. An organizational fix.

As time goes by, these fixes act like friction…they slow the machine. They make it hard to move…inflexible and unresponsive. And over time, more people gain access to a fix — each lobbying group and special interest, each with his own bailout or subsidy…and each desperate to hold onto it.

Output is thus shifted to unproductive activities. The real producers are punished — with taxes and regulations — while unproductive activities are rewarded, with bailouts, handouts and sweetheart deals.

The financial industry was 2.5% of the economy when WWII ended. Now, it is 8.5%. How did it get so big? What does it do for all the money?

The answer to the first question is that it grew as the economy became ‘financialized.’ More and more laws were passed granting more and more special favors and protections to the financial industry. Just read the tax code. Go ahead, we dare you! You will find special allowances and deals for the insurance industry on almost every page. And there are rules and regulations for pension funds. And pensions themselves. ERISA. 401k. 501C3. SEC. FDIC. Dodd-Frank. CFPB. Everything is regulated…controlled…protected…

And all of this happened on the back of the biggest expansion of financial instruments in world history. The feds transformed the economy from one that made things…at a profit…to one that just made money. The money supply in the US increased by 1,300% in the 40 years after Richard Nixon ‘shut the gold window’ at the Treasury. That ‘wealth’ did not take the form of new factories in New England or new tractors in the Old South. It went mostly into money instruments…funneled through the financial industry to the rich people who owned financial assets.

Every potential new competitor had to comply with such a mountain of rules and regulations that he quickly gave up. Even if approved, he could not hope to provide a new product. Instead, he could only provide the same approved services and products that the big, entrenched players already had in stock.

John Kay, writing in The Financial Times, explains what would have happened had the computer industry been tied in the same knots.

“If you needed a licence to enter the US computer business, you can imagine the Computer Regulation Agency interviewing Bill Gates and Steve Jobs in the 1970s. What dutiful regulator would allow someone who had not even completed his Harvard degree to sell software to the public?”

Protected. Coddled. The financial industry went rogue. It was supposed to match investors with worthy investments, helping to bring genuine growth and prosperity to the US. Instead, it matched up most of the new money with itself.

The typical American was impoverished. Forty years after America’s money went rogue, he has not a dime’s more earning power per hour. And 4.5 times more debt, adjusted for inflation.


Bill Bonner,
for The Daily Reckoning

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 The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • Green Chiles

    I wonder if the financial industry didn’t also grow as a percentage of the total US economy for the previous 200 years prior to closing the gold window. Is there any evidence that the past 40 years saw spectacular growth in that area as compared to prior decades? Certainly it is true of the past 1-2 decades. Just curious.

  • Tee

    For that matter, there will soon be a fresh launch in the product group called ‘National currencies’ – it will happen in Greece and the new brand is ‘Melodrachma’

  • gman

    “The financial industry went rogue. It was supposed to match investors with worthy investments, helping to bring genuine growth and prosperity to the US. Instead, it matched up most of the new money with itself.”

    pardon me – “went rogue”? they did no such thing. they did exactly precisely as they were supposed to. they did exactly precisely what they said they were going to do. “make money”. they followed the capitalist dream – make money, no matter how, no matter where, no matter the cost, no matter the consequences. anyone who said anything to them at all about anything else at all was howlingly branded a communist or gaist or a whatever. the pursuit of profits, defined uber alles as “money in
    bank account”, was the sole and solitary goal from the beginning until now.

    “went rogue”. that’s funny.

  • The InvestorsPal
  • Woody in Florida

    gman I am trying to decide your take on this. Sarcasm can be hard to detect sometimes. Everyone should understand that banks can provide a valuable service, all the while otherwise acting as a parasite on the economy. An almost symbiotic relationship, almost. But a parasite that causes serious harm to the host needs to be addressed. What Goldman did to Greece and Europe is reprehensible, and then to cover their actions with the old “someone was going to do it, so why not us?” story is an example of a parasite gone rogue.

  • gman

    “a parasite gone rogue.”

    well I ain’t nobody. but ….

    with fiat ponzi debt currency what jpmorgan and goldman sachs did is not going rogue. it is simply natural consequence. it is end-game. if these houses had been populated by the most virtuous traders ever born they would have wound up doing exactly what the “rogue parasites” did because that is how the system is set up – to constantly foist off increasing risk and increasing cost onto someone else, while they try do the same to someone else, while they try to do the same to someone else, while they try to do the same to someone else. eventually there is no-one else left. but before this happens thousands of desperate traders are moving around hundreds of billions of debt dollars trying to find one more sucker, the last sucker, the biggest fool of all, to take the risk and pay the costs of everyone who came before, because if they can’t find that sucker then they themselves have to pay it all. that’s not “going rogue”, it’s merely the natural limit to what they’ve been doing all along.

    the “valuable service” the banks provide is to start this ball rolling.

  • Woody in Florida

    So maybe what Bill meant was that before Nixon closed the gold window, the banks were constrained and forced to be “good” parasites, but since then Pandora’s box has been opened and the banks are now like some dogs that don’t know when to stop eating until they end up obese and in bad health?
    BTW I am not in a position to argue with you so please do not confuse my discussion as argument. I have only recently become interested in economics even though I am nearly 50. But I do have an ability to detect when something feels “wrong”, and what the banks are doing now feels that way to me.

  • *Sparkie*

    Hey BB,now ur firein on all 8 cylinders! U got everybody all reiled up. Wooo… Now if U,RP,JR,& a few others can win the Presidency? Well that would b just gr8. Change we truley can blive in!!! *S*

  • CT

    “the last sucker,” “the biggest fool,” the greater fool theory certainly works with banking system.

  • Larry Bernard

    Pension funds needed to make money (when we still had those)
    Banks needed to make money

    and their were oppertunities abroad (as other countries got exploded during WWII).

    And US companies were getting US government money to rebuild some of those countries. So companies needed loans to be able to expand to get access.

    Finance grew after WWII because of what all was going on after wwII

  • Ian

    Bill, after reading so many sides, I am sad for people who fall for errors, and yet thrilled with the view of how it could work with true individual freedom. Yet given the Counterfeit and the counterfeit incursions into the economy, all we can hope for is some accountability.
    Ownership exacts accoutability. Ownership of our lives, our state and our property are all under attack.

  • gman

    “like some dogs that don’t know when to stop eating until they end up obese and in bad health?”

    no, rather like people who make their living off of the work of others and who thus recognize no limits to their income and spending requirements. (to hear infestors talk disparagingly about welfare recipients is so cute!) when they encountered the limits imposed by a gold standard they blew right through it, because the alternative to living off of the work of others was to work themselves. couldn’t have that. when they encounter any kind of currency limitations they blow right through them, because the alternative to living off of the work of others is to work themselves. can’t have that.

    the problem now is that they are up against not guidelines or laws but rather real productivity limits. workers are retiring or running away. dead-weight (including infestors!) is multiplying like crazy. there are no more debt workers to coral and harness. everything real is maxed out. more and more currency is chasing less and less work and productivity. and that interest is still due!

    free access to goods and services is more addictive than heroin. the people who make their living off of the work of others – excessive government, tribal bankers, infestors – will now become desperate. towards the end of the western roman empire the government (and all those attached to it!) sought to force people to work simply to pay taxes, and their laws laid the foundations for mediaeval serfdom and land-slavery. manor lords (think infestors) owned everything from horizon to horizon and required everyone in sight to expend their lives working for the priviledge of existing on their endlessly inherited unchanging property. at this time we see baby steps towards a similar soft slavery again.

  • Tee

    Change you can believe in

  • Parr

    About ten years ago when doing research at the university library I was bored and hit the peer reviewed journals search engine for annuities. I had just purchased one and wondered what the “high brow” journals had to say about them. There was article after article about there being so much debt it could not be paid off (ten years ago).

    A lot of articles from European economic authors were about the need to do what Argentina did IE confiscate all the 401K/ IRA funds and replace with government bonds. When I tried to tell others about what I had read folks had a good laugh and reminded me my field was not economics. No one wanted to hear about it or even read the articles I had printed off. Most people do not care and that is why the banks can do as they please.

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