Bill Bonner

The debt-slave rebellion! Get ready; it’s coming…the uprising of the popolo minuto…the revolt of the masses…the Jacquerie!

Bloomberg reports:

The Occupy Wall Street demonstrations that began last month in Lower Manhattan migrated uptown on Oct. 15, as about 6,000 people gathered in Times Square during what organizers called a “global day of action against Wall Street greed.” There were 92 arrests, according to the New York City Police Department. More than 100 people were injured in Rome, where as many as 200,000 amassed, the Corriere della Sera newspaper reported.

Chicago police arrested about 175 protesters in Grant Park around 1 a.m. local time yesterday after they refused to disperse, the Chicago Tribune reported. Eight were arrested in London a day earlier after demonstrators were barred from entering Paternoster Square, home to the London Stock Exchange. Six were charged, the Metropolitan Police said in a statement.

London protestors were camped out for a third day in front of St. Paul’s Cathedral near the financial district. Banners attached to the tents included signs reading “People Before Profit” and “The People are Too Big to Fail,” while protesters made speeches from the steps of the cathedral using megaphones.

Protesters and local politicians had gathered 300,000 signatures, flooded the city’s 311 information line and drew more than 3,000 people to the park to oppose the cleanup, according to Patrick Bruner, an Occupy Wall Street spokesman.

“The world will rise up as one and say, ‘We have had enough,’” Bruner said in an e-mail. A news release from the organization said there were demonstrations in 1,500 cities worldwide, including 100 in the U.S.

We read reports on the worldwide demonstrations in The Washington Post, Bloomberg and The Wall Street Journal. Nowhere was there the slightest hint at the real problem. Nobody’s interested in the real problem.

There are two aspects to humans, said the ancient Greeks. There is the “appetite” — which is the rational mind figuring out how to get what it wants. And there is the “spirit” — concerned with intangible things, like honor, status, religion and so forth.

It may be the appetite that builds wealth…but it’s the spirit that fuels revolutions. People have an innate sense of what’s right and what’s wrong…what’s fair and what’s not fair. When they feel they are being cheated…they join the revolution.

The press talks about how the rich got richer. Here’s The Washington Post:

From 1973 through 1985, as Simon Johnson, former chief economist of the International Monetary Fund, documented in 2009, American banks never earned more than 16 percent of domestic corporate profits. By the mid-2000s, that figure rose to 41 percent. As with profits, so with pay: For more than three decades, from 1948 to 1982, pay levels in finance ranged from 99 to 108 percent of the average of private-sector pay. By 2007 they had reached 181 percent.

But why? How?

“Wall Street greed” is the reply given by both the protestors and the press. But wait. Wall Street was just as greedy back when it made 10% of corporate profits. Wall Street is always greedy. So is everyone else.

But it wasn’t Wall Street’s greed that tilted the world’s playing field in the direction of the rich. Nope. It was the feds. You’ve heard our explanation before. We’ll give it again…below…and at where this popular revolt might lead.

But first, let’s look at the news…

Friday, the Dow rose 166 points. Stock market investors are ahead for the year. And look at this: oil is trading at $87 a barrel. And gold is moving up too. Is the correction in the gold market over? Looks like it.

How about stocks and oil? Are they going back up? Looks like it.

But who knows? According to our way of looking at things, they all should be going down. We’re in a period of de-leveraging, which is on the verge of tipping into a worldwide depression. This is not the time for oil, gold and stocks to be going up.

But Mr. Market doesn’t listen to us. He doesn’t care what we think. He has plans of his own!

Want to know how the rich got richer? Want to know how Wall Street made so much money?

We didn’t think so.

But we’ll tell you anyway. The post-1971 US dollar-based monetary system permitted an explosion of credit, which naturally favored the credit industry directly, and the entire financial asset-holding investoriat, indirectly. At the expense of the middle and lower classes. In other words, the expansion of credit, caused by a flexible, expandable money regime, set the whole economy ablaze. The middle and lower classes went deeply into debt to buy things. The “rich” — or at least those who owned stocks and bonds — got richer, as consumer spending lit up the business world, and particularly the financial industry itself. Profits from the financial industry were only about 10% of the total profits on Wall Street in 1970. By the time the credit bubble blew up in 2007 they had grown to 40%.

Wages for working stiffs were flat for 40 years. But earnings on Wall Street soared. In 1970, the typical salary in the financial industry was about the same as for equivalent positions in the rest of the economy. But, by the 21st century, Wall Street salaries were nearly twice as high.

People who complain about “greedy” executives and rich people miss the point. People — rich and poor — are always greedy. But they don’t always have a monetary system that encourages debt and favors investors over working people. This money system was created in 1971 by the Nixon Administration, which probably didn’t know what it was doing…and it was later perfected by subsequent Federal Reserve chairmen.

In addition to stretching the gap between rich and poor, the non-gold monetary system had one other notable consequence. It undermined the working classes’ ability to compete in the modern world. This it did by moving more and more production to the emerging markets. In pre-1971 days, nations had to settle up on their trade balances. That is, when one nation sold more to a neighboring nation than it spent with it, the nation in surplus ended up with an excess of the neighbor’s currency. This surplus currency was then presented to the deficit country. The accounts were settled by transferring gold — the monetary system’s reserve at the time — from the deficit country to the surplus country.

As the gold left, it had a chilling effect on the deficit nation’s economy — either because investors caused interest rates to rise or because the central bank pushed them up. This resulted in slower economic growth and less spending, thereby correcting the outflow of funds to the neighbor.

It was precisely this self-correcting mechanism that the feds were determined to stop when the Nixon Administration “closed the gold window” at the Treasury department in August of 1971. The US had spent too much on the Vietnam War. French banks, which were still very active in Vietnam, tended to be the recipients of the money…which flowed to the Bank of France. The French, anticipating a problem with the dollar, wanted to exchange dollars for gold. This was the proximate cause of the Nixon Administration’s reaction — an actual default on its financial obligations. It was also the cause of the subsequent run up of the price of gold…which was followed by a bust in gold…and thereafter, a huge boom, in which ordinary Americans were lured into debt and coaxed towards poverty.

The rich got richer; the poor got poorer. The middle classes got poorer too. Between 1975 and 1992, the wealth of the richest 1% rose from 22% of total national household wealth to 42%. Why? Were the richest more productive? Had they become smarter? Of course not…the playing field had been tilted in their direction!

The “ciompi” revolted in the 14th century. They were wool carders in Florence…the “popolo minuto” — the little people — without power or money. They rose up in June 1378, attacked government buildings and by July they were in control of the government.

But then, other trade groups got jealous. In August, the butchers attacked them at the Piazza della Signoria. After that, the power of the ciompi declined…until things were back to normal.

This was just one of many uprisings of the lower orders in Europe. In France, a peasant named Jacques led a revolt against the authorities in the 14th century. That was just the beginning of a long list of uprisings — Jacqueries — that didn’t end until the 18th century.

One of the most wrongheaded ideas of the entire 20th century came from Francis Fukayama, who asked — apparently in earnest — if we had reached “The End of History?” He thought modern democracy and modern capitalism had reached such a point of perfection, after the fall of the Berlin Wall, that no improvement was possible. History had come to an end.

Jacqueries — he believed — were no longer necessary. Because modern democracy adapted naturally to the challenges it met. If the people had a grievance, all they had to do was to put in a call to their elected representatives. The politicians would discuss the matter and come to a solution, right?

Ha, ha, ha….Fukayama misunderstood everything. Democracy. Capitalism. History. Politics. Everything. As an institution matures, little by little it shifts from serving its original purpose to serving the ends of those who control it. It becomes rigid — digging in its heels and resisting any change that would diminish the power and wealth of the controlling groups. The longer the institution remains unchanged, the more parasitic and arthritic it becomes. It drains resources away from honest production and redirects them towards favored groups of leeches.

Then…history returns. Then cometh the revolution.


Bill Bonner,
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • Andrew B.

    I wouldn’t bet on the gold correction being over. Actually, in these crazy markets I would even dismiss the notion of a correction. When Greece/Portugal default, a flight to USD might cause the price of gold in USD to fall… a lot. And then I wouldn’t bet on gold NOT being $5000 in 1-2 years just because. Because we live in crazy times. At the beginning of the year, gold was a safe haven, but now it is a risky asset. I expect in 3-24 months it will become a safe haven again. Just because we live in crazy times.

  • CommonCents

    Bring it on, the score needs settled.

  • Scott

    I think it’s true people should be honest about their own greed.

  • Tim

    We have been cracked down the middle as the puppet masters intended. Now they exert maximum economic pressure and we break into pieces. Our society shattered and in the confusion the puppet masters install their overlords to “restore order”.
    Are we so dumb to fall for this? Is our money more precious than our freedom?

  • phelps

    Huntington was mocked for his book Clash of Civilizations and Remaking of World Order, which directly refuted FF’s book. Huntington’s being vindicated and that doesn’t look good for the world. “Can’t we all just get along”. No we can’t.

  • Scott Peters

    Bill you have a keen insight of the human mind and economic events – well thought out, and well written and this comes from one who doles out compliments sparingly.

    May I suggest you ponder and write on Plato “The world cannot be fair free and equal because if it is fair those that are smarter and work harder will earn more and then if it is free they will give it to their children and then it cannot be equal.” This one sentence underlies all human history. When the needle leans strongly toward the Fair/Free party economic growth is rapid but this is accompanied by the rise of the Equal which inevitably causes economic decline (i.e. we can be fair and free and on average rich or equally poor). When it leans toward the Equal party, it often slips into dictatorship (e.g. Hitler). The whole cycle just repeats and repeats.

  • Tybz

    In one article you have explained so cogently what most 4 year degrees in economics (these days)could never come close to touching.

    Thanks for the education.

  • et2cetera

    Well, I wouldn’t be so pessimistic as Huntington that people can’t get along. They go through cycles of conflict, cooperation and collaboration.

    Given that the dynamics within any group is fluid, having two groups meet each other is like bringing two unstable elements where there will be a fair amount of uncertainty as to how they will react.

    This means that both the group dynamics must be in close sync (for cooperation) that both groups will proceed in a relatively stable direction. The term “talking in the same frequency / wavelength” may be more indicative of our thoughts than realised.

    Interactions among nations / civilisations are just these relationships writ large.

  • Shamone

    Shouldn’t people at least be hungry before they start acting all, “Let’s have a revolution!”??

    This ain’t 14th century France for heaven’s sake. At least not yet.

    Also I treat with suspicion those statistics that say we’re poorer than we were in the 80’s and so forth.

    The quality of medicine is WAY higher now. If you wanted to live undr 80’s standards of medicine, you could probably do that very cheaply.

    Same for cars. They are all WAY better than they were in the 80’s.

    People homes are far nicer and in better repair.

    People know so much more about exercise. They know more about nutrition. They dress better.

    We have all of this social network stuff everyone’s crazy about.

    Technolgy and communicatons is better.

    We have the internet!

    Entertainment is better. TV’s are amzingly improved, movies are more spectacular. the talent in the NFL is better than ever. We have all kinds of more interesting foods and coffees and all kinds of stuff of that sort.

    Music is way better now than in the 80’s.

    We live longer. People seem to go on better vacations and on and on and on…

    So until this all stops and reverses, a major grain of salt with all of that “we’re worse off now than 20 years ago” talk.

  • Pfc. Parts

    People who have fiat can’t bury it; if they do it quickly deteriorates, so they keep it with “banks” that promise to at least maintain its value through “interest”.

    The easiest way to rob a bank is to own one. The general population sits cross eyed and painless in front of the tele and accepts “inflation” as if it were a force of nature.

    When the world went off the gold standard every single person lost the ability to preserve wealth and we began breeding a population of thieves– a culture of larceny.

  • kamran

    History ends when there is no one to write about it.

  • kamran

    “Shouldn’t people at least be hungry before they start acting all, “Let’s have a revolution!”??”

    I was watching the news last night on CNN. There are currently 222,000 students who rely on free lunch in Florida everyday subsidized by the government.
    Not sure what they eat for dinner but I think they are lots of hungry people in this rich county. Hunger and finding food to eat also takes away your mental assets.

  • Kevin Halls

    Some of us Owswers know what the root of the problem is. End the FED and let it unwind.

    At Shamone…I could not disagree with you more.

    You would argue that a modern car is improved over say a VW beetle…until you have to pay to have it fixed. The problem with everything you listed is that it is unsustainable. Sure its great while it lasts but we are paying for it by leveraging our future prosperity. In doing so we wont even be able to fix the things we have today.

    Is your flat screen better than the symphony? Shakespere’s Theatre in the Round? Hardly.

    I am a physician and I can tell you that medicine has improved very little in the last 30 years. There are plenty of statistics to back it up. I would argue that we have gone backward where it really counts which is access and preventative medicine. If you are part of the 1% then good for you but please dont speak for everyone.

    I put myself through school as a carpenter and I can tell you that homes are not nicer. They have become disposable “fodder for landfill”. The entire industry disgusts me and anyone who knows what quality is. Along with the auto industry “construction” is perhaps the most wasteful industry on the planet. To compare my 1800’s timberframed childhood home in PA to the 1989 piece of crap stickframe stucco and drywall suburban masterpiece that I live in (and own) today would be a laugh.

    With the exception of us having the Internet which I will admit has its value beyond compare…all you have listed has not improved and/or is not even remotely sustainable or even a value for the dollar invested…(medicine/life expectancy)

    I would implore you and others to re-think this attraction to “better, faster, cheaper” and search for real quality in life, goods and relationships.

  • Kevin Halls

    At Shamone,

    In reading your comment again…I cant help but think that you are being sarcastic. If so then bravo…you had me, I feel silly for taking the bait. If not then wow!

  • kamran

    A CNN stat suggested last night that more than 200,000 students rely on free government subsizide lunches from school in Florida. Not sure what they do for dinner.

    So hunger is very real in this rich country.

  • The Great Zucchini

    College students? HUNGRY?


    Seriously, is that the evidence of hunger in America?

    I went to college 40 years ago and we all survived on grilled-cheese sandwhiches, ramin and beer – mostly beer.

    C’mon, man. That isn’t hunger. That’s being a broke college student having the time of their life.

  • Ted Sirloin


    Some of you guys are soft!

  • fletchhntr

    At Kevin Halls…

    No sycophant here; I simply echo your voice as you call out Shamone.

    I enjoyed both comments…truth be known. I am moved to comment,persuaded by you in the end.

    Did you attend the fray?
    They need your voice!The media reports the events as a parade of “fools”.

    The OWSERS, though sufficient in numbers, are weak in message. “All over the map” is the charge I hear leveled” ,and ” of no consequence will be their end game.”

    You reveal “right thinking” and the magnetism of “true North” when you call us away from “better,faster, cheaper to a real quality in life,goods and relationships.

    Simple,loud in tenor and clear in direction.

    Not surprising to hear diagnosis and remedy from the good doctor.

    And you make claim to be an OWSER yourself…n’est-ce-pas ?

    Hope does spring eternal.

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