In economics, "rentiers" are people who get their money from, in effect, renting out something they own, as opposed to those who make things to sell. Some take a dim view of economies and states where rentier capitalism dominates:
The beneficiaries of [rentier] income are a property-owning social class who, it is argued, play no productive role in the economy themselves but who monopolise the access to physical assets, financial assets and technologies. They make money not from producing anything new themselves, but purely from their ownership of property (which provides a claim to a revenue stream) and dealing in that property.You don't have to moralize to see the point. Rentiers make money by charging a toll for access to some form of property they control.
Often the term rentier capitalism is used with the connotation that it is a form of parasitism[.]
This bring us to the point that Paul Krugman has been making for a while — that the jobs vs. debt-repayment debate is really a discussion between two social classes, creditors and debtors.
Krugman makes the point again in his column this morning (my emphasis throughout):
What lies behind this trans-Atlantic policy paralysis? I’m increasingly convinced that it’s a response to interest-group pressure. Consciously or not, policy makers are catering almost exclusively to the interests of rentiers — those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense.And he points the finger directly at the big-time bondholders:
Who are these creditors I’m talking about? Not hard-working, thrifty small business owners and workers, although it serves the interests of the big players to pretend that it’s all about protecting little guys who play by the rules. The reality is that both small businesses and workers are hurt far more by the weak economy than they would be by, say, modest inflation that helps promote recovery.And now it comes clear. Remember, bonds are an asset with a price that fluctuates. Bonds are expensive when interest rates are low, and cheaper when interest rates are high. (If this confuses you, just trust it. This is like the law of gravity; hard-coded and built in. Interest rates and bond prices are two sides of a teeter-totter, literally.)
No, the only real beneficiaries of Pain Caucus policies (aside from the Chinese government) are the rentiers: bankers and wealthy individuals with lots of bonds in their portfolios.
Remember 2008, when almost all of the Global Pool of Money went into U.S. Treasuries, as a flight to safety? Those people bought at the top of the market, when Treasury bond prices were peaking and demand was through the roof. No wonder they fear-fear-fear inflation and will fight desperately against anything that looks sideways at increasing interest rates.
It's not just that they want the revenue stream to continue until all debts (bonds) are paid. They also don't want the capital losses that will occur if bond prices fall. And capital losses are a greater near-term threat than bond defaults right now.
What do bondholders fear this minute? They think, wrongly in my opinion, that if the Fed increases the supply of bonds (by borrowing more to finance increased debt), the new supply of Treasuries will drive down the price of Treasuries they already own.
As I said, it won't happen:
[H]ow could you have a clearer test of liquidity preference versus loanable funds than having the US government borrow almost $3 trillion with zero, absolutely no, effect on interest rates?But modern rentiers (bondholders) won't even let us take that chance. Thus economic stimulus, unemployment relief, and mortgage assistance are off the table.
It's people vs. property one more time; isn't that always the way? Welcome to the next downturn, just in time for 2012.
GP
