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.
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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."
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