Income inequality increases during good times and decreases during bad times, as the CBO noted:(emphasis mine)[T]he distribution of market income became more unequal almost continuously between 1979 and 2007 except during the recessions in 1990–1991 and 2001.
This pattern is seen during every recession. It is a good thing for the federal government, too, that incomes have increased at the higher end since 1979, as this has resulted in a huge inflow of tax revenues. One of the reasons for Washington’s current deficits is that upper incomes are depressed, so that a relatively low share of GDP is being paid in income taxes.
Stories about the “richest” 1%, 5%, 20%, or whatever are inherently misleading because they implicitly assume that those groups are static. Of course, they are not. The two biggest reasons why families are in one quintile or another are 1) age and 2) the number of jobs held by members of the household. At any given moment, by definition, only 20% of households are in the top quintile, but probably more than half of all households are in that quintile at some point. It is a great thing for incomes in the top quintiles to be much higher than those in lower quintiles. That means that workers are not stuck in dead-end jobs that pay the same at age 50 as at age 20, but rather are able to take advantage of training, education and a growing economy to move up the ladder. “Income inequality” is another term for opportunity.
The CBO noted another interesting trend–membership in the top 1% is more meritocratic than ever:The composition of income for the 1 percent of the population with the highest income changed significantly from 1979 to 2007, as the shares from labor and business income increased and the share of income represented by capital income decreased. That pattern is consistent with a longer-term trend: Over the entire 20th century, labor income has become a larger share of income for high-income taxpayers, while capital income has declined as a share of their income.
In other words, the top 1% earn their money, they don’t clip coupons.
India's widening fiscal deficit has triggered fresh worries about the possibility of a ratings downgrade of the nation by a leading ratings agency.
Though no ratings agency has officially hinted at this outcome yet, the market is rife with speculation that India is vulnerable to a ratings downgrade amid the slowdown in the economy.
A section of the market feels such a move could happen if the RBI raises policy rates on Tuesday for the thirteenth time since February 2010.
Economists see fiscal deficit widening up to 5.6% of GDP in the current fiscal against government's target of 4.6%.
Average yields on government bonds have firmed up further of late on worries about higher borrowing and rising policy rates. A ratings downgrade could trigger the next bout of correction in stocks, brokers said.
No one disputes the importance of inflation control. If the government has failed in fiscal control, should ordinary people be punished for it. Housing loan EMI has become unbearable. In addtion to increased prices for all consumer items from cooking gas to vegetables, we have to pay high EMIs. Should we sell our houses, repay the loans and shift to some unauthorised slum! There is a saying in my language'if you lose in the market, go and blame your mother for it'. Should government's failure be blamed on people.
The single currency is close to collapse
Despite the recent spate of concerns about moderating growth, the Reserve Bank of India came out with guns blazing against inflation. The higher than expected 50 basis points hike caught the pundits and markets wrong footed.
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The bank is not overly concerned about growth moderating. It says that it will “manage the risk of growth falling significantly below trend.”
The bank also noted the possibility that commodity prices may still go up because of abundant liquidity even if demand is subdued.they are clueless.
Yet the plain truth is that our political leaders have brought on inflation by their own money and fiscal policies. They are promising to fight with their right hand the conditions brought on with their left.
Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit.
It is August. In a small town on the South Coast of France, holiday season is in full swing, but it is raining so there is not too much business happening. Everyone is heavily in debt.
Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a €100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.
The hotel owner takes the banknote in hurry and rushes to his meat supplier to whom he owes €100.
The butcher takes the money and races to his supplier to pay his debt.
The wholesaler rushes to the farmer to pay €100 for pigs he purchased some time ago.
The farmer triumphantly gives the €100 note to a local prostitute who gave him her services on credit.
The prostitute goes quickly to the hotel, as she owed the hotel for her hourly room use to entertain clients.
At that moment, the rich Russian is coming down to reception and informs the hotel owner that the proposed room is unsatisfactory and takes his €100 back and departs.
There was no profit or income. But everyone no longer has any debt and the small town people look optimistically towards their future.
COULD THIS BE THE SOLUTION TO THE Global Financial Crisis?
