If you thought that the siren-call from the sell-side for more QE, more credit, and more monetization was lowest-common-denominator thinking on how to fix the Keynesian end-game, think again. As Morgan Stanley shows, it is much more about self-preservation (bonuses) as the extreme correlation of banker's relative pay to Debt/GDP clearly shows the reliance on the perpetuation of the credit super-cycle if 'lifestyles' are to be maintained. As MS notes, the rise of relative pay in the finance sector was highly correlated with the expansion in economy-wide leverage. A similar rise had occurred in the credit boom that culminated in the Great Depression. The deleveraging phase that followed that bust went hand-in-hand with declining relative compensation in finance, as the clearest beneficiaries of the credit super-cycle, credit providers (and implicitly their employees) clearly face the biggest structural problems in a deleveraging phase.
As Morgan Stanley's Gerard Minack goes on to note, "the rising relative pay of finance has been
correlated with the growing income inequality, at least in the US (Exhibit below). I am not implying that the finance sector was the sole reason why inequality increased – several factors were at play – but likewise it did contribute to this trend."