Joshua Wojnilower — The Rise of Debt, Interest, and Inequality

Charts flesh out the previous post.

Most interesting: "The effects of these transactions can also be seen in the transfer of net interest payments from households, and later businesses, to the financial sector. Apart from adding to inequality, these transfers reduce aggregate demand since, as Michael Hudson notes in The Bubble and Beyond, “financial institutions tend to save all their income.” (2012: Kindle Locations 6814-6815)"

“Financial institutions tend to save all their income” means that the business of finance is portfolio management, so that their investment is financial rather than productive. That is to say, enterprises involved in production draw on retained earnings for further investment in capital goods and inventory, while financial institutions deal in financial instruments that are used for saving, which is what an "investment portfolio" is. As the role of finance grows as a percentage of GDP, so too does saving in the form of financial investment instead of going to productive investment, i.e., firm spending.

Bubbles and Busts
The Rise of Debt, Interest, and Inequality
Joshua Wojnilower