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“Plutonomy” Update

The Atlantic  – Sept. 2011

Can the Middle Class Be Saved?

The Great Recession has accelerated the hollowing-out of the American middle class. And it has illuminated the widening divide between most ofAmericaand the super-rich. Both developments herald grave consequences. Here is how we can bridge the gap between us.

In October 2005, three Citigroup analysts released a report describing the pattern of growth in the U.S.economy. To really understand the future of the economy and the stock market, they wrote, you first needed to recognize that there was “no such animal as the U.S.consumer,” and that concepts such as “average” consumer debt and “average” consumer spending were highly misleading.  …..  

http://www.theatlantic.com/magazine/print/2011/09/can-the-middle-class-be-saved/8600/

 

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http://www.cps-news.com/2011/06/15/citigroup-plutonomy-reports-no-longer-available-at-cps-news/

June 15, 2011
Citigroup Plutonomy Reports No Longer Available at CPS News

In January of this year I wrote a third post on Citigroup’s Plutonomy reports which they wrote in 2005 and 2006. Copies of those reports were on several sites across the Internet. I also provide a copy atCPS News. In my post I said that Citigroup was going to great efforts to remove those two reports from the Internet, and that I would not be surprised if we were threatened with legal action if the reports were not removed. Today I received such notice.

Instead of notifying me directly, Citigroup contacted my web host. My host notified me via email with a copy of the letter they had received from Citigroup, and had no option except to require me to take the reports down. I have complied with the directive; therefore the reports are no longer available atCPSNews.

With the financial crash of 2008 of which Citigroup was a big part of and required a taxpayer bailout to the tune of $45 billion-plus in order to survive, you can understand why Citigroup wants them off the Internet. It’s all about trying to rewrite their history.

If you’re not familiar with the reports, they are easily summed up. One was called “Revisiting Plutonomy: The Rich Getting Richer” and the other was “Plutonomy: Buying Luxury, Explaining Global Imbalances”. From other reports it appears that Citigroup wrote those two documents for their investors, bragging about how well things were going and implying that the US was no longer a Democracy but a Plutonomy.

“Economic growth that is powered and consumed by the wealthiest upper class of society. Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.”

From the definition you can see why Citigroup doesn’t want those documents read by the general public. When they wrote them the country had already made the transition to Plutonomy. That was common knowledge and the industry felt free to not only brag about it but felt comfortable in knowing there was nothing anyone could do about it: until they went broke and needed the common taxpayers to bail them out.

 

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14 August 2011

@wonkmonk_ – 2 Citigroup reports on #plutonomy from ’05&’06 that Citigroups is trying to take down from the web: http://is.gd/1OESDJ http://is.gd/daQYtP

 
@wonkmonk_:2 Citigroup reports on #plutonomy from ’05&’06 that Citigroups is trying to take down from the web: http://is.gd/1OESDJ http://is.gd/daQYtP

 
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http://www.marketoracle.co.uk/Article29317.html
Who Benefits from the Greek Bailout? 
July 17, 2011 
By: Andrew_G_Marshall

Excerpt

The Plutonomy

A 2005 report from Citigroup coined the term “plutonomy,” to describe countries “where economic growth is powered by and largely consumed by the wealthy few,” and specifically identified theU.K.,Canada,Australia, and theUnited Statesas plutonomies. Keeping in mind that the report was published three years before the onset of the financial crisis in 2008, the Citigroup report stated that, “asset booms, a rising profit share and favourable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries,” and that, “the rich are in great shape, financially.”[140] As the Federal Reserve reported, “the nation’s top 1% of households own more than half the nation’s stocks,” and “they also control more than $16 trillion in wealth — more than the bottom 90%.” The term ‘Plutonomy’ is specifically used to “describe a country that is defined by massive income and wealth inequality,” and that they have three basic characteristics, according to the Citigroup report:

1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants… the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”

2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” [Citigroup strategist Ajay] Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.

3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.[141]

Kapur, who authored the Citigroup report, stated that there were also risks to the Plutonomy, “including war, inflation, financial crises, the end of the technological revolution and populist political pressure,” yet, “the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years.”[142]

More recently, Moody’s Analytics reported that, “the top 5 percent of American earners are responsible for 35 percent of consumer spending, while the bottom 80 percent engage in only 39.5 percent of consumer outlays,” while “the top 10 percent of earners received 50 percent of all income, while they accounted for only 22 percent of spending.” Much of their money disappeared into the speculative booms, especially the housing boom.[143]

In February of 2011, Ajay Kapur, the author of the Citigroup report who is now with Deutsche Bank, gave an interview in which he explained that, “the world economy is even more dependent on the spending and consumption of the rich,” and that, “Plutonomist consumption is almost 10 times as volatile that of the average consumer.” He further explained that increased debt levels are a sign of plutonomies:

We have an economy today where a large fraction of the population doesn’t pay federal income taxes and, because of demand for entitlements, we have a system of massive representation without taxation. On the other hand, you have plutonomists who protect their turf and the taxation amounts are not enough to pay for everyone’s demand. So I’ve come to the conclusion that budget deficits are biased toward getting bigger and bigger. Budget deficits are going to become a manifestation of a plutonomy.[144]

The plutonomy is largely characterized by a lack of a consuming and vibrant middle class. This is a trend that has been accelerating for several decades, particularly inNorth AmericaandBritain, where the middle class population is heavily indebted. The middle class has existed as a consumer class, keeping the lower class submissive, and keeping the upper class secure and wealthy by consuming their products, produced with the labour of the lower class. As a Bank of America-Merrill report noted in 2009, the middle class “is over-leveraged.” The report stated, “the consumer debt problem in the economy really is a debt problem for the middle class. The need to work off a chunk of that debt will sap middle-class families’ spending power for perhaps years to come.” Further:

By contrast, the upper 10% of income earners face a much smaller debt burden relative to income and net worth. Those people should have ample spending power to help fuel an economic recovery.

Using 2007 data from the Federal Reserve, BofA Merrill defines the middle class as people in the 40%-to-90% income percentiles. It defines lower-income folks as those in the zero to 40% income percentiles, and the wealthy as those in the top 10%.

Lower-income families account for 40% of the population but just 12% of total consumption, BofA Merrill estimates. The middle class is 50% of the population and nearly as large a share of consumption, at 46%.

That leaves the wealthy to account for a hefty 42% of consumption.

In terms of their debt burdens, neither lower-income families nor the wealthy are constrained the way the middle class is constrained, the report asserts.[145]

The report further asserted that, “the middle-class has suffered more than the wealthy from the housing crash because middle-class families tended to rely more on their homes to build savings through rising equity. Also, the wealthy naturally had a much larger and more diverse portfolio of assets — stocks, bonds, etc.”[146]

In short, when the day comes where the rest of the industrialized world falls into the same trap asGreece, the middle class will be pushed down into the lower class, and a global socio-economic plutonomy will emerge. The middle class cannot survive the perfect storm of fiscal austerity, increased interest rates, inflation and ‘Structural Adjustment.’ We are entering a global age of austerity, where our political leaders commit social genocide for the benefit of the global banks, and at the behest of the institutions that represent them. The IMF and other supranational institutions increase their own powers and authority in order to punish and impoverish large populations. What has been done to the ‘Third World’ – the ‘Global South’ – over the past several decades is now being done to us, in the industrialized North.
http://www.marketoracle.co.uk/Article29317.html

  1. Keith Wilde
    August 14, 2011 at 12:17 pm

    Someone on this list must have made a copy of the Plutonomy reports and can therefore conduct a mini-industry by discreetly offering to print and sell them by surface mail? Or even by e-mail???? I would very much like to read them and have them for reference.

    • rgb
      August 15, 2011 at 9:49 am

      I have copies of the reports.

  2. August 14, 2011 at 2:54 pm

    The middle class as a compliant subservient animal for the rich may disappear.
    The same animal, as an aggressive, non-compliant former servant will appear.
    It’s the mindset, stupid!

  3. wasabi
    August 15, 2011 at 6:01 am

    Keith, surely the author of the post has a pdf copy.

  4. Alice
    August 16, 2011 at 10:17 am

    I had the reports – they say nothing we dont already know. There is no “average consumer” in the US because consumption (what is left of it) is being entirely driven by the rich who account for most of it and the majority accounts for falling consumption. Hence the great divude wherein there is no real consumption growth exceot in things like Tiffany jewellry and Louis Vuiton luggage.
    Hey guess what? It seems to be working. Down here in Oz in the centre of the city retail strips – the only shops left that can afford the rents are …you guessed it “Louise Vutton luggage” etc

    The rich are still spending and no-one much else and thats all the plutonomy reports said… so for people that like the stock market, the wealthy consumption stocks have good growth. Plus citigroup has just the pultonomy fund for you all to invest in, making double sure those wealth consumption stocks do well.

    Citigroup cant be blamed for trying to make money on reality. So why are they trying to bury it? (the plutonomy reports) They dont want their fund to lose, thats all. Neg publicity etc

    You dont need the plutonomy reports. Neither do the majority. Only the rich and Citgroup benefit from the facts contained inside.

  5. August 17, 2011 at 8:53 pm

    The rich pay much in taxes, but overall they get it back with plutocratic redistribution, i.e. from the poor to the rich. Since this is implicit rather than cash-visible, most people, and even most economists, including “progressive” ones, miss it. See the tax clawback video

    • Alice
      August 18, 2011 at 1:40 am

      Fred

      Warren Buffet doesnt seem to agree with you. According to Warren Buffet the “billionaires have been mollycoddled” by government tax breaks over twenty years or more. Per Buffet

      “Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

      I didn’t refuse, nor did others.”

      So higher taxes didnt stop entrepreneurs from trickling down did it? Not in history and not now. I n fact if they actually had to pay higher tax on profits they might see more of a reason to trickle it down, than the situation we have now where companies are sitting on piles of cash and not spending it. We have the situation in the US where the government is attempting to “balance a budget” by only concentrating on reducing spending. Do households do that? No they dont. They would also examine income (for the government that is tax income).

      It seems obvious the tea partiers and the low tax “always” tribe in republicans are missing half the equation…but that is nothing new. At least some of the wealthy are now starting to state the obvious things, that will help repair the budget problem and reduce inequality as well.

      http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=1

      It is about shared sacrifice. We have tried the low tax on the wealthy and business experiment long enough to know its not working (and not working on a global scale – they have been mollycoddled by successive governments when there was never any need).

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