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Michael Hudson: Banks Weren’t Meant to Be Like This

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By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

A shorter version of this article in German will run in the Frankfurter Algemeine Zeitung on January 28. 2012

The inherently symbiotic relationship between banks and governments recently has been reversed. In medieval times, wealthy bankers lent to kings and princes as their major customers. But now it is the banks that are needy, relying on governments for funding – capped by the post-2008 bailouts to save them from going bankrupt from their bad private-sector loans and gambles.

Yet the banks now browbeat governments – not by having ready cash but by threatening to go bust and drag the economy down with them if they are not given control of public tax policy, spending and planning. The process has gone furthest in the United States. Joseph Stiglitz characterizes the Obama administration’s vast transfer of money and pubic debt to the banks as a “privatizing of gains and the socializing of losses. It is a ‘partnership’ in which one partner robs the other.” Prof. Bill Black describes banks as becoming criminogenic and innovating “control fraud.” High finance has corrupted regulatory agencies, falsified account-keeping by “mark to model” trickery, and financed the campaigns of its supporters to disable public oversight. The effect is to leave banks in control of how the economy’s allocates its credit and resources.

If there is any silver lining to today’s debt crisis, it is that the present situation and trends cannot continue. So this is not only an opportunity to restructure banking; we have little choice. The urgent issue is who will control the economy: governments, or the financial sector and monopolies with which it has made an alliance.

Fortunately, it is not necessary to re-invent the wheel. Already a century ago the outlines of a productive industrial banking system were well understood. But recent bank lobbying has been remarkably successful in distracting attention away from classical analyses of how to shape the financial and tax system to best promote economic growth – by public checks on bank privileges.

How Banks Broke The Social Compact, Promoting Their Own Special Interests

People used to know what banks did. Bankers took deposits and lent them out, paying short-term depositors less than they charged for risky or less liquid loans. The risk was borne by bankers, not depositors or the government. But today, bank loans are made increasingly to speculators in recklessly large amounts for quick in-and-out trading. Financial crashes have become deeper and affect a wider swath of the population as debt pyramiding has soared and credit quality plunged into the toxic category of “liars’ loans.”

The first step toward today’s mutual interdependence between high finance and government was for central banks to act as lenders of last resort to mitigate the liquidity crises that periodically resulted from the banks’ privilege of credit creation. In due course governments also provided public deposit insurance, recognizing the need to mobilize and recycle savings into capital investment as the Industrial Revolution gained momentum. In exchange for this support, they regulated banks as public utilities.

Over time, banks have sought to disable this regulatory oversight, even to the point of decriminalizing fraud. Sponsoring an ideological attack on government, they accuse public bureaucracies of “distorting” free markets (by which they mean markets free for predatory behavior). The financial sector is now making its move to concentrate planning in its own hands.

The problem is that the financial time frame is notoriously short-term and often self-destructive. And inasmuch as the banking system’s product is debt, its business plan tends to be extractive and predatory, leaving economies high-cost. This is why checks and balances are needed, along with regulatory oversight to ensure fair dealing. Dismantling public attempts to steer banking to promote economic growth (rather than merely to make bankers rich) has permitted banks to turn into something nobody anticipated. Their major customers are other financial institutions, insurance and real estate – the FIRE sector, not industrial firms. Debt leveraging by real estate and monopolies, arbitrage speculators, hedge funds and corporate raiders inflates asset prices on credit. The effect of creating “balance sheet wealth” in this way is to load down the “real” production-and-consumption economy with debt and related rentier charges, adding more to the cost of living and doing business than rising productivity reduces production costs.

Since 2008, public bailouts have taken bad loans off the banks’ balance sheet at enormous taxpayer expense – some $13 trillion in the United States, and proportionally higher in Ireland and other economies now being subjected to austerity to pay for “free market” deregulation. Bankers are holding economies hostage, threatening a monetary crash if they do not get more bailouts and nearly free central bank credit, and more mortgage and other loan guarantees for their casino-like game. The resulting “too big to fail” policy means making governments too weak to fight back.

The process that began with central bank support thus has turned into broad government guarantees against bank insolvency. The largest banks have made so many reckless loans that they have become wards of the state. Yet they have become powerful enough to capture lawmakers to act as their facilitators. The popular media and even academic economic theorists have been mobilized to pose as experts in an attempt to convince the public that financial policy is best left to technocrats – of the banks’ own choosing, as if there is no alternative policy but for governments to subsidize a financial free lunch and crown bankers as society’s rulers.

The Bubble Economy and its austerity aftermath could not have occurred without the banking sector’s success in weakening public regulation, capturing national treasuries and even disabling law enforcement. Must governments surrender to this power grab? If not, who should bear the losses run up by a financial system that has become dysfunctional? If taxpayers have to pay, their economy will become high-cost and uncompetitive – and a financial oligarchy will rule.

The Present Debt Quandary

The endgame in times past was to write down bad debts. That meant losses for banks and investors. But today’s debt overhead is being kept in place – shifting bad loans off bank balance sheets to become public debts owed by taxpayers to save banks and their creditors from loss. Governments have given banks newly minted bonds or central bank credit in exchange for junk mortgages and bad gambles – without re-structuring the financial system to create a more stable, less debt-ridden economy. The pretense is that these bailouts will enable banks to lend enough to revive the economy by enough to pay its debts.

Seeing the handwriting on the wall, bankers are taking as much bailout money as they can get, and running, using the money to buy as much tangible property and ownership rights as they can while their lobbyists keep the public subsidy faucet running.

The pretense is that debt-strapped economies can resume business-as-usual growth by borrowing their way out of debt. But a quarter of U.S. real estate already is in negative equity – worth less than the mortgages attached to it – and the property market is still shrinking, so banks are not lending except with public Federal Housing Administration guarantees to cover whatever losses they may suffer. In any event, it already is mathematically impossible to carry today’s debt overhead without imposing austerity, debt deflation and depression.

This is not how banking was supposed to evolve. If governments are to underwrite bank loans, they may as well be doing the lending in the first place – and receiving the gains. Indeed, since 2008 the over-indebted economy’s crash led governments to become the major shareholders of the largest and most troubled banks – Citibank in the United States, Anglo-Irish Bank in Ireland, and Britain’s Royal Bank of Scotland. Yet rather than taking this opportunity to run these banks as public utilities and lower their charges for credit-card services – or most important of all, to stop their lending to speculators and gamblers – governments left these banks operating as part of the “casino capitalism” that has become their business plan.

There is no natural reason for matters to be like this. Relations between banks and government used to be the reverse. In 1307, France’s Philip IV (“The Fair”) set the tone by seizing the Knights Templars’ wealth, arresting them and putting many to death – not on financial charges, but on the accusation of devil-worshipping and satanic sexual practices. In 1344 the Peruzzi bank went broke, followed by the Bardi by making unsecured loans to Edward III of England and other monarchs who died or defaulted. Many subsequent banks had to suffer losses on loans gone bad to real estate or financial speculators.

By contrast, now the U.S., British, Irish and Latvian governments have taken bad bank loans onto their national balance sheets, imposing a heavy burden on taxpayers – while letting bankers cash out with immense wealth. These “cash for trash” swaps have turned the mortgage crisis and general debt collapse into a fiscal problem. Shifting the new public bailout debts onto the non-financial economy threaten to increase the cost of living and doing business. This is the result of the economy’s failure to distinguish productive from unproductive loans and debts. It helps explain why nations now are facing financial austerity and debt peonage instead of the leisure economy promised so eagerly by technological optimists a century ago.

So we are brought back to the question of what the proper role of banks should be. This issue was discussed exhaustively prior to World War I. It is even more urgent today.

How Classical Economists Hoped to Modernize Banks as Agents of Industrial Capitalism

Britain was the home of the Industrial Revolution, but there was little long-term lending to finance investment in factories or other means of production. British and Dutch merchant banking was to extend short-term credit on the basis of collateral such as real property or sales contracts for merchandise shipped (“receivables”). Buoyed by this trade financing, merchant bankers were successful enough to maintain long-established short-term funding practices. This meant that James Watt and other innovators were obliged to raise investment money from their families and friends rather than from banks.

It was the French and Germans who moved banking into the industrial stage to help their nations catch up. In France, the Saint-Simonians described the need to create an industrial credit system aimed at funding means of production. In effect, the Saint-Simonians proposed to restructure banks along lines akin to a mutual fund. A start was made with the Crédit Mobilier, founded by the Péreire Brothers in 1852. Their aim was to shift the banking and financial system away from debt financing at interest toward equity lending, taking returns in the form of dividends that would rise or decline in keeping with the debtor’s business fortunes. By giving businesses leeway to cut back dividends when sales and profits decline, profit-sharing agreements avoid the problem that interest must be paid willy-nilly. If an interest payment is missed, the debtor may be forced into bankruptcy and creditors can foreclose. It was to avoid this favoritism for creditors regardless of the debtor’s ability to pay that prompted Mohammed to ban interest under Islamic law.

Attracting reformers ranging from socialists to investment bankers, the Saint-Simonians won government backing for their policies under France’s Third Empire. Their approach inspired Marx as well as industrialists in Germany and protectionists in the United States and England. The common denominator of this broad spectrum was recognition that an efficient banking system was needed to finance the industry on which a strong national state and military power depended.

Germany Develops an Industrial Banking System

It was above all in Germany that long-term financing found its expression in the Reichsbank and other large industrial banks as part of the “holy trinity” of banking, industry and government planning under Bismarck’s “state socialism.” German banks made a virtue of necessity. British banks “derived the greater part of their funds from the depositors,” and steered these savings and business deposits into mercantile trade financing. This forced domestic firms to finance most new investment out of their own earnings. By contrast, Germany’s “lack of capital … forced industry to turn to the banks for assistance,” noted the financial historian George Edwards. “A considerable proportion of the funds of the German banks came not from the deposits of customers but from the capital subscribed by the proprietors themselves. As a result, German banks “stressed investment operations and were formed not so much for receiving deposits and granting loans but rather for supplying the investment requirements of industry.”

When the Great War broke out in 1914, Germany’s rapid victories were widely viewed as reflecting the superior efficiency of its financial system. To some observers the war appeared as a struggle between rival forms of financial organization. At issue was not only who would rule Europe, but whether the continent would have laissez faire or a more state-socialist economy.

In 1915, shortly after fighting broke out, the Christian Socialist priest-politician Friedrich Naumann published Mitteleuropa, describing how Germany recognized more than any other nation that industrial technology needed long term financing and government support. His book inspired Prof. H. S. Foxwell in England to draw on his arguments in two remarkable essays published in the Economic Journal in September and December 1917: “The Nature of the Industrial Struggle,” and “The Financing of Industry and Trade.” He endorsed Naumann’s contention that “the old individualistic capitalism, of what he calls the English type, is giving way to the new, more impersonal, group form; to the disciplined scientific capitalism he claims as German.”

This was necessarily a group undertaking, with the emerging tripartite integration of industry, banking and government, with finance being “undoubtedly the main cause of the success of modern German enterprise,” Foxwell concluded (p. 514). German bank staffs included industrial experts who were forging industrial policy into a science. And in America, Thorstein Veblen’s The Engineers and the Price System (1921) voiced the new industrial philosophy calling for bankers and government planners to become engineers in shaping credit markets.

Foxwell warned that British steel, automotive, capital equipment and other heavy industry was becoming obsolete largely because its bankers failed to perceive the need to promote equity investment and extend long term credit. They based their loan decisions not on the new production and revenue their lending might create, but simply on what collateral they could liquidate in the event of default: inventories of unsold goods, real estate, and money due on bills for goods sold and awaiting payment from customers. And rather than investing in the shares of the companies that their loans supposedly were building up, they paid out most of their earnings as dividends – and urged companies to do the same. This short time horizon forced business to remain liquid rather than having leeway to pursue long term strategy.

German banks, by contrast, paid out dividends (and expected such dividends from their clients) at only half the rate of British banks, choosing to retain earnings as capital reserves and invest them largely in the stocks of their industrial clients. Viewing these companies as allies rather than merely as customers from whom to make as large a profit as quickly as possible, German bank officials sat on their boards, and helped expand their business by extending loans to foreign governments on condition that their clients be named the chief suppliers in major public investments. Germany viewed the laws of history as favoring national planning to organize the financing of heavy industry, and gave its bankers a voice in formulating international diplomacy, making them “the principal instrument in the extension of her foreign trade and political power.”

A similar contrast existed in the stock market. British brokers were no more up to the task of financing manufacturing in its early stages than were its banks. The nation had taken an early lead by forming Crown corporations such as the East India Company, the Bank of England and even the South Sea Company. Despite the collapse of the South Sea Bubble in 1720, the run-up of share prices from 1715 to 1720 in these joint-stock monopolies established London’s stock market as a popular investment vehicle, for Dutch and other foreigners as well as for British investors. But the market was dominated by railroads, canals and large public utilities. Industrial firms were not major issuers of stock.

In any case, after earning their commissions on one issue, British stockbrokers were notorious for moving on to the next without much concern for what happened to the investors who had bought the earlier securities. “As soon as he has contrived to get his issue quoted at a premium and his underwriters have unloaded at a profit,” complained Foxwell, “his enterprise ceases. ‘To him,’ as the Times says, ‘a successful flotation is of more importance than a sound venture.’”

Much the same was true in the United States. Its merchant heroes were individualistic traders and political insiders often operating on the edge of the law to gain their fortunes by stock-market manipulation, railroad politicking for land giveaways, and insurance companies, mining and natural resource extraction. America’s wealth-seeking spirit found its epitome in Thomas Edison’s hit-or-miss method of invention, coupled with a high degree of litigiousness to obtain patent and monopoly rights.

In sum, neither British nor American banking or stock markets planned for the future. Their time frame was short, and they preferred rent-extracting projects to industrial innovation. Most banks favored large real estate borrowers, railroads and public utilities whose income streams easily could be forecast. Only after manufacturing companies grew fairly large did they obtain significant bank and stock market credit.

What is remarkable is that this is the tradition of banking and high finance that has emerged victorious throughout the world. The explanation is primarily the military victory of the United States, Britain and their Allies in the Great War and a generation later, in World War II.

The Regression Toward Burdensome Unproductive Debts After World War I

The development of industrial credit led economists to distinguish between productive and unproductive lending. A productive loan provides borrowers with resources to trade or invest at a profit sufficient to pay back the loan and its interest charge. An unproductive loan must be paid out of income earned elsewhere. Governments must pay war loans out of tax revenues. Consumers must pay loans out of income they earn at a job – or by selling assets. These debt payments divert revenue away from being spent on consumption and investment, so the economy shrinks. This traditionally has led to crises that wipe out debts, above all those that are unproductive.

In the aftermath of World War I the economies of Europe’s victorious and defeated nations alike were dominated by postwar arms and reparations debts. These inter-governmental debts were to pay for weapons (by the Allies when the United States unexpectedly demanded that they pay for the arms they had bought before America’s entry into the war), and for the destruction of property (by the Central Powers), not new means of production. Yet to the extent that they were inter-governmental, these debts were more intractable than debts to private bankers and bondholders. Despite the fact that governments in principle are sovereign and hence can annul debts owed to private creditors, the defeated Central Powers governments were in no position to do this.

And among the Allies, Britain led the capitulation to U.S. arms billing, captive to the creditor ideology that “a debt is a debt” and must be paid regardless of what this entails in practice or even whether the debt in fact can be paid. Confronted with America’s demand for payment, the Allies turned to Germany to make them whole. After taking its liquid assets and major natural resources, they insisted that it squeeze out payments by taxing its economy. No attempt was made to calculate just how Germany was to do this – or most important, how it was to convert this domestic revenue (the “budgetary problem”) into hard currency or gold. Despite the fact that banking had focused on international credit and currency transfers since the 12th century, there was a broad denial of what John Maynard Keynes identified as a foreign exchange transfer problem.

Never before had there been an obligation of such enormous magnitude. Nevertheless, all of Germany’s political parties and government agencies sought to devise ways to tax the economy to raise the sums being demanded. Taxes, however, are levied in a nation’s own currency. The only way to pay the Allies was for the Reichsbank to take this fiscal revenue and throw it onto the foreign exchange markets to obtain the sterling and other hard currency to pay. Britain, France and the other recipients then paid this money on their Inter-Ally debts to the United States.

Adam Smith pointed out that no government ever had paid down its public debt. But creditors always have been reluctant to acknowledge that debtors are unable to pay. Ever since David Ricardo’s lobbying for their perspective in Britain’s Bullion debates, creditors have found it their self-interest to promote a doctrinaire blind spot, insisting that debts of any magnitude could be paid. They resist acknowledging a distinction between raising funds domestically (by running a budget surplus) and obtaining the foreign exchange to pay foreign-currency debt. Furthermore, despite the evident fact that austerity cutbacks on consumption and investment can only be extractive, creditor-oriented economists refused to recognize that debts cannot be paid by shrinking the economy. Or that foreign debts and other international payments cannot be paid in domestic currency without lowering the exchange rate.

The more domestic currency Germany sought to convert, the further its exchange rate was driven down against the dollar and other gold-based currencies. This obliged Germans to pay much more for imports. The collapse of the exchange rate was the source of hyperinflation, not an increase in domestic money creation as today’s creditor-sponsored monetarist economists insist. In vain Keynes pointed to the specific structure of Germany’s balance of payments and asked creditors to specify just how many German exports they were willing to take, and to explain how domestic currency could be converted into foreign exchange without collapsing the exchange rate and causing price inflation.

Tragically, Ricardian tunnel vision won Allied government backing. Bertil Ohlin and Jacques Rueff claimed that economies receiving German payments would recycle their inflows to Germany and other debt-paying countries by buying their imports. If income adjustments did not keep exchange rates and prices stable, then Germany’s falling exchange rate would make its exports sufficiently more attractive to enable it to earn the revenue to pay.

This is the logic that the International Monetary Fund followed half a century later in insisting that Third World countries remit foreign earnings and even permit flight capital as well as pay their foreign debts. It is the neoliberal stance now demanding austerity for Greece, Ireland, Italy and other Eurozone economies.

Bank lobbyists claim that the European Central Bank will risk spurring domestic wage and price inflation of it does what central banks were founded to do: finance budget deficits. Europe’s financial institutions are given a monopoly right to perform this electronic task – and to receive interest for what a real central bank could create on its own computer keyboard.

But why it is less inflationary for commercial banks to finance budget deficits than for central banks to do this? The bank lending that has inflated a global financial bubble since the 1980s has left as its legacy a debt overhead that can no more be supported today than Germany was able to carry its reparations debt in the 1920s. Would government credit have so recklessly inflated asset prices?

How Debt Creation Has Fueled Asset-Price Inflation Since The 1980s

Banking in recent decades has not followed the productive lines that early economic futurists expected. As noted above, instead of financing tangible investment to expand production and innovation, most loans are made against collateral, with interest to be paid out of what borrowers can make elsewhere. Despite being unproductive in the classical sense, it was remunerative for debtors from 1980 until 2008 – not by investing the loan proceeds to expand economic activity, but by riding the wave of asset-price inflation. Mortgage credit enabled borrowers to bid up property prices, drawing speculators and new customers into the market in the expectation that prices would continue to rise. But hothouse credit infusions meant additional debt service, which ended up shrinking the market for goods and services.

Under normal conditions the effect would have been for rents to decline, with property prices following suit, leading to mortgage defaults. But banks postponed the collapse into negative equity by lowering their lending standards, providing enough new credit to keep on inflating prices. This averted a collapse of their speculative mortgage and stock market lending. It was inflationary – but it was inflating asset prices, not commodity prices or wages. Two decades of asset price inflation enabled speculators, homeowners and commercial investors to borrow the interest falling due and still make a capital gain.

This hope for a price gain made winning bidders willing to pay lenders all the current income – making banks the ultimate and major rentier income recipients. The process of inflating asset prices by easing credit terms and lowering the interest rate was self-feeding. But it also was self-terminating, because raising the multiple by which a given real estate rent or business income can be “capitalized” into bank loans increased the economy’s debt overhead.

Securities markets became part of this problem. Rising stock and bond prices made pension funds pay more to purchase a retirement income – so “pension fund capitalism” was coming undone. So was the industrial economy itself. Instead of raising new equity financing for companies, the stock market became a vehicle for corporate buyouts. Raiders borrowed to buy out stockholders, loading down companies with debt. The most successful looters left them bankrupt shells. And when creditors turned their economic gains from this process into political power to shift the tax burden onto wage earners and industry, this raised the cost of living and doing business – by more than technology was able to lower prices.

The EU Rejects Central Bank Money Creation, Leaving Deficit Financing to the Banks

Article 123 of the Lisbon Treaty forbids the ECB or other central banks to lend to government. But central banks were created specifically – to finance government deficits. The EU has rolled back history to the way things were three hundred years ago, before the Bank of England was created. Reserving the task of credit creation for commercial banks, it leaves governments without a central bank to finance the public spending needed to avert depression and widespread financial collapse.

So the plan has backfired. When “hard money” policy makers limited central bank power, they assumed that public debts would be risk-free. Obliging budget deficits to be financed by private creditors seemed to offer a bonanza: being able to collect interest for creating electronic credit that governments can create themselves. But now, European governments need credit to balance their budget or face default. So banks now want a central bank to create the money to bail them out for the bad loans they have made.

For starters, the ECB’s €489 billion in three-year loans at 1% interest gives banks a free lunch arbitrage opportunity (the “carry trade”) to buy Greek and Spanish bonds yielding a higher rate. The policy of buying government bonds in the open market – after banks first have bought them at a lower issue price – gives the banks a quick and easy trading gain.

How are these giveaways less inflationary than for central banks to directly finance budget deficits and roll over government debts? Is the aim of giving banks easy gains simply to provide them with resources to resume the Bubble Economy lending that led to today’s debt overhead in the first place?

Conclusion

Governments can create new credit electronically on their own computer keyboards as easily as commercial banks can. And unlike banks, their spending is expected to serve a broad social purpose, to be determined democratically. When commercial banks gain policy control over governments and central banks, they tend to support their own remunerative policy of creating asset-inflationary credit – leaving the clean-up costs to be solved by a post-bubble austerity. This makes the debt overhead even harder to pay – indeed, impossible.

So we are brought back to the policy issue of how public money creation to finance budget deficits differs from issuing government bonds for banks to buy. Is not the latter option a convoluted way to finance such deficits – at a needless interest charge? When governments monetize their budget deficits, they do not have to pay bondholders.

I have heard bankers argue that governments need an honest broker to decide whether a loan or public spending policy is responsible. To date their advice has not promoted productive credit. Yet they now are attempting to compensate for the financial crisis by telling debtor governments to sell off property in their public domain. This “solution” relies on the myth that privatization is more efficient and will lower the cost of basic infrastructure services. Yet it involves paying interest to the buyers of rent-extraction rights, higher executive salaries, stock options and other financial fees.

Most cost savings are achieved by shifting to non-unionized labor, and typically end up being paid to the privatizers, their bankers and bondholders, not passed on to the public. And bankers back price deregulation, enabling privatizers to raise access charges. This makes the economy higher cost and hence less competitive – just the opposite of what is promised.

Banking has moved so far away from funding industrial growth and economic development that it now benefits primarily at the economy’s expense in a predator and extractive way, not by making productive loans. This is now the great problem confronting our time. Banks now lend mainly to other financial institutions, hedge funds, corporate raiders, insurance companies and real estate, and engage in their own speculation in foreign currency, interest-rate arbitrage, and computer-driven trading programs. Industrial firms bypass the banking system by financing new capital investment out of their own retained earnings, and meet their liquidity needs by issuing their own commercial paper directly. Yet to keep the bank casino winning, global bankers now want governments not only to bail them out but to enable them to renew their failed business plan – and to keep the present debts in place so that creditors will not have to take a loss.

This wish means that society should lose, and even suffer depression. We are dealing here not only with greed, but with outright antisocial behavior and hostility.

Europe thus has reached a critical point in having to decide whose interest to put first: that of banks, or the “real” economy. History provides a wealth of examples illustrating the dangers of capitulating to bankers, and also for how to restructure banking along more productive lines. The underlying questions are clear enough:
* Have banks outlived their historical role, or can they be restructured to finance productive capital investment rather than simply inflate asset prices?
* Would a public option provide less costly and better directed credit?
* Why not promote economic recovery by writing down debts to reflect the ability to pay, rather than relinquishing more wealth to an increasingly aggressive creditor class?
Solving the Eurozone’s financial problem can be made much easier by the tax reforms that classical economists advocated to complement their financial reforms. To free consumers and employers from taxation, they proposed to levy the burden on the “unearned increment” of land and natural resource rent, monopoly rent and financial privilege. The guiding principle was that property rights in the earth, monopolies and other ownership privileges have no direct cost of production, and hence can be taxed without reducing their supply or raising their price, which is set in the market. Removing the tax deductibility for interest is the other key reform that is needed.
A rent tax holds down housing prices and those of basic infrastructure services, whose untaxed revenue tends to be capitalized into bank loans and paid out in the form of interest charges. Additionally, land and natural resource rents – along with interest – are the easiest to tax, because they are highly visible and their value is easy to assess.
Pressure to narrow existing budget deficits offers a timely opportunity to rationalize the tax systems of Greece and other PIIGS countries in which the wealthy avoid paying their fair share of taxes. The political problem blocking this classical fiscal policy is that it “interferes” with the rent-extracting free lunches that banks seek to lend against. So they act as lobbyists for untaxing real estate and monopolies (and themselves as well). Despite the financial sector’s desire to see governments remain sufficiently solvent to pay bondholders, it has subsidized an enormous public relations apparatus and academic junk economics to oppose the tax policies that can close the fiscal gap in the fairest way.

It is too early to forecast whether banks or governments will emerge victorious from today’s crisis. As economies polarize between debtors and creditors, planning is shifting out of public hands into those of bankers. The easiest way for them to keep this power is to block a true central bank or strong public sector from interfering with their monopoly of credit creation. The counter is for central banks and governments to act as they were intended to, by providing a public option for credit creation.

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105 comments

  1. Richard Kline

    Who will bell the cat?

    We live in a world of 500 lb. government mice who want to be left alone to eat cheese and 50 lb. rabid fatcats who want to eat anything that doesn’t eat them first. Mostly those cats eat us, because the mice just want to stay comfy and eat their cheese. Baseball bats and guns would solve much of the problem but that’s *cough* against the law. So again, who will bell the cats? They’ll keep winning this game until we answer that question.

    1. Piano Racer

      “It is too early to forecast whether banks or governments will emerge victorious from today’s crisis”

      Well at least we can all agree who will NOT emerge victorious:

      We The People.

      Time to get out, folks. The governments are corrupt to their cores, the banks are corrupt to their cores, get as far away from both as possible or they will dominate your lives more and more, until you are a slave.

      They are not fumbling, bumbling politicians, or misguided monetarists ultimately trying to help people. They are liars and thieves, and they have stolen the world.

      1. F. Beard

        They are liars and thieves, and they have stolen the world. Piano Racer

        Disagree. The system itself is corrupt and supported in essence even by many here. We are in an idealogical struggle, not a personal one.

        1. Angela

          How can a system be corrupt?
          It’s the people who act within the rules they agree upon, still, and nothing and no-one else. It IS personal. The rules can be changed. Anytime. SOMEONE has to start. The ‘system’ cannot change itself, as it is just a term..;-p

          1. Aquifer

            Thanx, Angela, I do indeed agree, it is all “personal”, it is/was made by persons, and it can be changed by persons ….

            That is, IMO, what politics are, or should be, about – a process whereby folks get together and decide what kind of “system” they want.

            Maybe that was the “genius” of the economists of various schools – they pulled out their slide rules/computers and managed to convince us that none of this is “personal”…..

          2. nonclassical

            Angela,

            Those Socrates-Lao-Tzu proponents among us agree…it is LIES and a willingness to tell-act upon-profit from that are the destructive process…

            no accountability guarantees ever worse…
            if we are to Bushbama “look ahead”, Bushbama will have no argument with those who NOW pillage the Wall $treet banksters who have pillaged the American people…

            NOW when do “we” begin to look back and demand accountability??

      2. Nathanael

        Piano Racer, *there is no out*. This is the whole world.

        Hence the revolutions occuring in many countries. If you give large numbers of people no options and nothing to lose, the people will fight. And they will win. For a few years anyway.

  2. G man

    Banks haven’t outlived their value. They have become judge and executioner. We must seperate banks from government and government from Wall Street.

    Bank debt was lowered on everyone’s back, but the vulture was allowed to live. A ravenous vulture can’t be changed only destroyed.

  3. David

    “This wish means that society should lose, and even suffer depression. We are dealing here not only with greed, but with outright antisocial behavior and hostility.”

    Perhaps it’s time to consider using the phrase “crimes against humanity”.

    1. digi_owl

      As it is supposedly claimed, there are as many sociopaths on Wall Street as there are in US prisons.

  4. Daniel Hewitt

    “Bankers took deposits and lent them out, paying short-term depositors less than they charged for risky or less liquid loans. The risk was borne by bankers, not depositors or the government.”

    We could always go back to this system, instead of trying to counterbalance the banks’ arbitrage with regulatory oversight. To worry about the lack of economic stability under the old system seems kind of silly, in light of what’s happened over the last few years.

    1. F. Beard

      To worry about the lack of economic stability under the old system seems kind of silly, in light of what’s happened over the last few years. Daniel Hewitt

      Agreed except even the old system had implicit government support (Federal borrowing being the chief). At worst, with truly private banks, we would suffer local, desynchronized boom-bust cycles (ASSUMING that banks could survive in a true free market of private money creation) instead of a dangerous, world-wide boom-bust cycle.

      1. Nathanael

        Actually, we have experience with this — what would happen with NOTHING but truly private banks is that they would link together into bigger and bigger cartels until they eventually formed large monopolies, thus causing the boom-bust cycle to go global.

        This is a recurrent problem. All businessmen want to be monopolists and work as hard as they can to do so. But unregulated monopolies soon cause utter disaster. So….

    2. freedomny

      “Bankers took deposits and lent them out, paying short-term depositors less than they charged for risky or less liquid loans. The risk was borne by bankers, not depositors or the government”

      The bank that I work for actually operates like this and it is very successful.

  5. Psychoanalystus

    Gosh, that’s a long ass article :)

    Bottom line is that Germany as well as the European Commission are highly neo-liberal entities, so we should not be surprised that their actions are driven by this incessant greed and desire to plunder. Solution is simple: disband the EU, and boycott all German products. Simple.

  6. James

    Banks would be well advised to remember that money itself is ultimately a confidence game. When enough people opt out of the system, either of their own accord, or, increasingly, because the system opts them out against their wishes (no job, no pension, no social safety net, no bank account, NO PROBLEM!), then the whole shell game is going to be recognized for what it is. All this railing about riches for the 1%, austerity for the rest behind a smoke screen of furrowed brows by the DC policy elite (I’ve gotta say, my personal favorite is lil’ Eddy Munster (R,IL)) is meant only to provide the illusion that someone responsible’s minding the store, when in fact, the only game in town is to perpetuate the current debt bubble so that the ongoing wealth suction can continue unabated. Digging out of the wreckage after the train wreck will be an epic journey for most of us, but one we’re going to have to make either way. Might as well get on with it sooner rather than later as far as I’m concerned. Any TRUE capitalist worth their salt out to relish the opportunity of starting over with a level playing field again anyway.

  7. Pokey

    How many people are making money owning bank stock? Not me. Any means of injecting credit in the system is better than letting parasites like Jamie Dimon have it all.

  8. F. Beard

    Their aim was to shift the banking and financial system away from debt financing at interest toward equity lending, taking returns in the form of dividends that would rise or decline in keeping with the debtor’s business fortunes. By giving businesses leeway to cut back dividends when sales and profits decline, profit-sharing agreements avoid the problem that interest must be paid willy-nilly. Michael Hudson [bold added]

    This approaches a “common stock as money” solution EXCEPT for the one remaining problem – dividends. Variable interest (dividends) is still interest and removes capital from a business concern. Why would anyone wish to do remove capital from a business? Further, it ignores the Bible’s censure of “taking profits” (Ezekiel 22:12).

    Common stock as money would pay no dividends. All capital appreciation would accrue in the value and quantity of the stock. Some other advantages of common stock as money:

    1) Common stock as money requires no borrowing or lending. Assets and labor would simply be bought with new stock issue. Thus no PMs, usury, or fractional reserves are required. This is a huge benefit since PMs, usury (see Deuteronomy 23:19-20) and fractional reserves are all problematic.
    2) All price inflation is born by the owners of the corporation since every receiver of the new common stock money is by definition a part owner of the corporation. This is an important moral consideration.
    3) Without fractional reserves or even lending, then deflation is not a serious threat.
    4) Since all money holders are part owners of the corporation then they could vote on how much new money is issued and for what purposes. Thus price inflation is under the control of only those affected by it.
    5) The assets of a corporation are typically performing assets though PMs could easily be accommodated too.
    6) Common stock as money shares wealth at the same times as it consolidates it for purposes of economies of scale. Labor problems should be non-existent since the workers would be paid in common stock and thus be part owners. The number of those with a stake in capitalism would increase. The need and desire for socialism should decrease.

    Let’s move toward “sharing” wealth, eh?

    1. FaustCarton

      Mr.Beard,I always respect your contributions to NC. I hope very much for true sharing with true effort.Is your suggestion here along the lines of the Mondregon corportation in the Basque country?

      1. F. Beard

        It could be. I reckon that without the counterfeiting cartel, the banking system, to borrow from that businesses would have to be far more accommodative to the workers.

        It’s really this simple: Banking is a fascist institution that steals the workers’ own purchasing power to oppress them. Abolish banking* and the oppression should cease.

        *including restitution for the previous thefts.

      2. F. Beard

        .Is your suggestion here along the lines of the Mondregon corportation in the Basque country? FaustCarton

        After reading more about the Mondragon Corporation, I very much approve. I suppose it made use of the counterfeiting cartel itself but how else can one compete so long as the counterfeiting cartel exists (“Tragedy of the Commons”)?

        1. LeonovaBalletRusse

          “Mondragon Corporation” – “in harmony with Catholic Social Teaching.”

          The names of the Principals in Finance?

          1. F. Beard

            I see nothing inherently wrong with corporations so long as they are not privileged by government such as the banks are.

    2. Nathanael

      Why would anyone wish to remove capital from a business?

      OFTEN you want to remove capital from a business. When the business is an old, declining, dying business and you want to move the capital to a new, rising, improving business.

      Removing capital from whaling and sending it to oil drilling was an old example. Today, we want to remove capital from oil drilling/refining/transportation and move capital into renewable energy.

      Get it?

      We practically ALWAYS want to remove capital from some businesses.

      Don’t suggest that the business can diversify — that doesn’t work, hardly every. The management is expert at what it does, not at something else, and generally causes massive waste and destruction when they try to diversify. Capital needs to be taken OUT of declining businesses.

      This is an odd error for you to make — you usually are on top of things. Perhaps you hadn’t thought this one through?

      1. Nathanael

        If you want, you can call the process of draining capital from a declining company an “orderly wind-down” or “slow liquidation” — the process of shrinking a declining business in a slow, orderly way while taking the capital out of it. It’s a valuable thing to do, and absurdly rare these days.

  9. bmeisen

    Re Casino Capitalism: one-arm bandits are almost everywhere in Germany, and there are a few elegant, small, state-owed casinos. But there’s nothing like Las Vegas or AC because private casinos are heavily regulated in size, operating hours, advertising, and more. Compulsive gambling cannot be eliminated – Germans tolerate and aggressively control it. In the US, compulsive gamblers are running the show.

  10. F. Beard

    If governments are to underwrite bank loans, they may as well be doing the lending in the first place – and receiving the gains. Michael Hudson

    Not a good idea since government credit extension (temporary money creation) or even genuine lending of existing money is unavoidably discriminatory just as government backed banking is.

    Government’s role in money should be to merely create, spend and tax as needed to control price inflation its own inexpensive fiat. Nothing else. No borrowing, no lending and no recognition of any other monies or money forms (too bad gold-bugs!). However, government money should have no special privileges wrt the payment of private debts. Why should it? To tax via inflation instead of honesty going to the voters for new taxes?

    1. davidgmills

      Amen. Except there would really be any need for taxation except to control the money supply and that should be minimal given population growth. We didn’t have income tax before 1913 and we got by without it.

    2. Nathanael

      Ah. But although government money creation is discriminatory, what’s the problem? We want discriminatory money creation, to some extent — we want to drive money towards socially useful activities and away from socially destructive activities.

      The problem is to keep the discriminatory money creation under the control of the people, surely? Perhaps every act of government money creation should be subject to a referendum?

  11. F. Beard

    So we are brought back to the policy issue of how public money creation to finance budget deficits differs from issuing government bonds for banks to buy. Is not the latter option a convoluted way to finance such deficits – at a needless interest charge? When governments monetize their budget deficits, they do not have to pay bondholders. Michael Hudson [bold added]

    What Thomas Edison said.

    1. LeonovaBalletRusse

      F. Beard, anent Edison quotation, take your time to see proof in detail AGAIN:

      Garet Garrett: “THE BUBBLE THAT BROKE THE WORLD (Boston, Little, Brown, and Company, 1932, 1931) — at LINK:

      http://mises.org/books/bubbleworld.pdf

      As then, so now. Michael Hudson is on to them, and he’s saying it loud and clear.

    1. LeonovaBalletRusse

      JR, thanks for the link, a *tell*.

      Why are the *usual suspects* of the Old Regime still at Davos, allegedly working things out for the Euro and EU: Geithner, Zoellick, LaGarde at IMF?

      Compare with Old Regime tactics in Nigeria, now that Louisiana is *done*:

      http://www.TRNN.com — “The Geopolitical Stakes in Nigeria” by F. William Engdahl, his blog dated 27 January 2012.

      What they’re doing in Nigeria is what BigOil/BigChem and War Profiteers did in Third World Louisiana, from Standard Oil’s Baton Rouge down the Mississippi, across the Atchafalaya Basin, down Bayou Lafourche to the Mob’s Grand Isle to the Gulf; and through New Orleans, down the Mississippi River through the formerly French Parishes prepared for BigAnglo-AmericanOil by the U.S. Army Corps of Engineers, down the Delta unto the Gulf of Mexico and beyond.

      George W. Bush’s Anglo-American Imperial FIX for BP in the Gulf was the coup de grace for Louisiana. Nigeria here we come! Empire uber alles.

  12. F. Beard

    Banks Weren’t Meant to Be Like This Michael Hudson

    Who says that an institution historically rooted in fraud, based on counterfeiting, usury, government privilege and secrecy and which killed 50-86 million in WW II alone is meant to exist at all?

  13. Susan the other

    Thank you Yves. This was such a good piece of history and cogent analysis of what is wrong. I wish you would leave this article up for a week so everyone can find it immediately. The history of German banking was especially interesting: industrial banks operating like mutual funds v. the extractive corporate raider model of Britain and then the US. I’m glad to see this article is being translated and published in Germany.

    Its interesting that this model of asset price inflation credit creation “began” in 1980 by most accounts. That is definitely when asset inflation took off like a rocket. But I’d bet it really began off the books in 1945 when the cold war began. It was a military-banking partnership from the get go. All that private finance just got rolled up into the present. It’s doubtful anyone will ever tease out the accounting.

    I can imagine that the new cold war will be a brutal technology race; much of which will be relatively useless. Better to invest as a government in good social technology like stem cell research, pollution mitigation, education. Etc. Things that ordinary capitalists can take on.

    1. WorldisMorphing

      I would have written something similar…I appreciated the article the same way…
      Have a nice day, …I will pour myself another cup of coffee and drink it to your health and prosperity !

    2. LeonovaBalletRusse

      Susan, a young Economics Professor in Germany is researching the “empirical evidence” of the accounting back to at least 1896, you”ll be happy to know:

      Look for the video interview at http://ineteconomics.org

  14. Doctor_K

    Ii is extremely surprising for me why the works of Charles P Kindleberger are not cited extensively in these debates.

    He elaborated doctrine about all the issues that are now under discussion, such as when and how help banks (and when do not do and why not in certain ways), the role of the supervisor, the management of the amount of money in circulation, etc…

    Some basic concepts such as that the financial system let to itself tends to increase the volume of credit (so the money present in the system); that banks must be not very big so you can allow time to time some to bankrupt (“pour encourager les autres” as to say); that the real markets that work efficiently are artificial constructions purposely built to follow the Platonic model described by classics and not spontaneous structures (so “free market” is an oximoron); etc.. are clearly written there, but surprisingly are not common knowledge of the mainstream people as it should for the benefit of the debate.

    I do not doubt that the present generation can elaborate successfully but I do not see the point to start from scratch when most part of the job is already done and easily available.

  15. AccruedDisinterest

    “The collapse of the exchange rate was the source of hyperinflation, not an increase in domestic money creation as today’s creditor-sponsored monetarist economists insist.”

    Wow, this is an eye-opener. How often has this concept be hijacked?

  16. Mel

    “It is too early to forecast whether banks or governments will emerge victorious from today’s crisis.”

    There’s a great little book that you can hardly find anymore (for reasons that are explained in the book): _Systemantics_ by John Gall.

    It contains this:

    Example 1. The Pyramid of Snofru.
    [ ... ] Why did Snofru’s pyramid fall down when that of his grandfather Zoser, which had the form of a stepped tower, did not? The answer (provided by our visiting physicist) is that Snofru tried to face his tower with stone blocks to create a true pyramid with smoothly sloping sides. Unknown to Snofru, the crucial factor was just this: a stepped tower of those gigantic dimensions is stable, a true pyramid is not. It fell down

    Example2. The Pyramid of Cheops.
    Cheops, son of Snofru, vowed not to make the same mistake. With great care he constructed his pyramid of finely dressed limestone blocks, mathematically placed to distribute the stresses. His pyramid did not fall down, nor did those of his immediate successors, which were built in the same way. But the Egyptian state, subjected to unbearable stresses by the building of those monsters of pride, collapsed into anarchy. Egypt fell down.

    Truly, the only thing that’s really Too Big To Fail is society. Anybody who tries to tell you it’s something smaller is trying to con you, probably using extortion.

    1. Nathanael

      Actually, even society isn’t too big to fail.

      The ecology is even bigger — and even it isn’t too big to fail. Failure of the ecology is perhaps the biggest disaster which is actually possible in our lifetimes.

      Life is the only thing too big to fail, and the only part of life I trust to survive are the archaea and bacteria — ironically the smallest.

  17. Jim

    In his essay Michael Hudson argues that”the first step toward today’s mutual independence between high finance and government was for central banks to act as lenders of last resort….”

    He argues a few paragraphs later that “…the process that began with central bank support thus has turned into a broad government guarantee against bank insolvency.”

    Near the end of his essay he then posits that it is too early to forecast whether banks or government will emerge victorious from today’s crisis.

    But I would maintain, contrary to Hudson, that private banks and public government (especially the Federal Reserve, Treasury and the Executive branch) working in concert, have already emerged victorious from today’s crisis.

    The urgent issue as articulated by Hudson is not “…who will control the economy: governments or the financial sector and monopolies” but rather how can the already collusive control of Big Government, Big Capital and Big Bank be dismantled and a new democratic structure including a democratically managed currency) be created.

  18. Chunga's Revenge

    The banksters have so fouled their nest that I can’t shake the notion that anything done to reign them in now will only serve to perpetuate their reign. Something along the “never interupt your enemy when he’s making a mistake” meme. So greedy, so errant, so shortsighted, left to their own devices they’ll certainly ruin themselves faster and more certainly than any current court of law could reasonably be expected to do.

    1. Nathanael

      You’re absolutely right. The reason people are worried is the amount of damage they can do while destroying themselves.

      Hitler and the Japanese Imperial Government were also destroying themselves quite inevitably in the 1930s, but they made one hell of a mess while doing so.

  19. Bam_Man

    Don’t kid yourself.

    The banks and the government are still in a symbiotic relationship thanks to the Fed’s perpetual ZIRP.

    The zombie banks are now repositories for government debt thanks to the Fed-engineered riskless carry-trade.

    The federal government can continue to run $trillion+ deficits for as long as the banks are willing buyers of the resulting debt.

    With ZIRP now in “perpetual mode”, that means the deficits can continue for a LONG time.

    1. F. Beard

      The federal government can continue to run $trillion+ deficits for as long as the banks are willing buyers of the resulting debt. Bam_Man

      Actually, the Federal Government does not need the banks or anyone else to deficit spend since it is monetarily sovereign.

      With ZIRP now in “perpetual mode”, that means the deficits can continue for a LONG time. Bam_Man

      Why shouldn’t we have perpetual deficit spending? How else is new money to enter the economy once the Fed is abolished?

      1. Bam_Man

        Good luck remaining the global reserve currency once the government begins to exercise its “monetary sovereignty” by printing money to pay its bills.

        At least the current arrangement preserves some semblance of propriety by using the zombie banks as its de facto fiscal agents.

        1. F. Beard

          At least the current arrangement preserves some semblance of propriety … Bam_Man

          It is 100% proper for government to create its own money. Whoever else should do so?

          That said, government money should have no special privilege wrt paying private debts over potential private currencies. If that restriction was honored then government itself would have strong incentives to maintain the purchasing power of its money since it would not have access to the “stealth inflation tax”.

        2. F. Beard

          Good luck remaining the global reserve currency once the government begins to exercise its “monetary sovereignty” by printing money to pay its bills. Bam_Man

          Though it is not my favorite, abolishing “credit creation” and letting the Federal Government create all money (no private currencies) might work reasonably well since it can be argued that without credit driving the boom-bust cycle that the need for government social spending should decline over time.

          1. Skippy

            You make economists look good beard!

            Skippy… more unfounded arm chair axioms than than a few century’s combined. Self evident

            PS. really like *good guy persona* umm lets see:

            Jesus is criticized by the Pharisees for not washing his hands before eating. He defends himself by attacking them for not killing disobedient children according to the commandment: “He that curseth father or mother, let him die the death.” (See Ex.21:15, Lev.20:9, Dt.21:18-21) So, does Jesus think that children who curse their parents should be killed? It sure sounds like it. 15:4-7

            (21:33-41) God is like a rich man who owns a vineyard and rents it to poor farmers. When he sends servants to collect the rent, the tenants beat or kill them. So he sent his son to collect the rent, and they kill him too. Then the owner comes and kills the farmers and rents the vineyard to others.

            21:33 Hear another parable: There was a certain householder, which planted a vineyard, and hedged it round about, and digged a winepress in it, and built a tower, and let it out to husbandmen, and went into a far country: (21:33) “There was a certain householder, which planted a vineyard … and let it out to husbandmen, and went into a far country:”

            (21:34) “When the time of the fruit drew near, he sent his servants to the husbandmen, that they might receive the fruits of it.”

            (21:35) “And the husbandmen took his servants, and beat one, and killed another, and stoned another.”

            (21:36) “He sent other servants … and they did unto them likewise.”

            (21:37) “Last of all he sent unto them his son.”

            (21:38-39) “But when the husbandmen saw the son … they slew him.”
            21:34 And when the time of the fruit drew near, he sent his servants to the husbandmen, that they might receive the fruits of it.
            21:35 And the husbandmen took his servants, and beat one, and killed another, and stoned another.
            21:36 Again, he sent other servants more than the first: and they did unto them likewise.
            21:37 But last of all he sent unto them his son, saying, They will reverence my son.
            21:38 But when the husbandmen saw the son, they said among themselves, This is the heir; come, let us kill him, and let us seize on his inheritance.
            21:39 And they caught him, and cast him out of the vineyard, and slew him.
            21:40 When the lord therefore of the vineyard cometh, what will he do unto those husbandmen? (21:40-41) “The lord therefore of the vineyard … will miserably destroy those wicked men, and will let out his vineyard unto other husbandmen, which shall render him the fruits in their seasons.”

            PS. duplicitous is a word that comes to mind.

          2. F. Beard

            PS. duplicitous is a word that comes to mind. skippy

            Glad to see you reading the Bible, skippy!

            Yes, the Lord does get wrathful after much long suffering and patience. Tough love and all that.

            So, does Jesus think that children who curse their parents should be killed? skippy

            I had great difficulty with my own father. I once raised my fist to him but I have never cursed him.

            But here’s the problem for you skippy. God get wrathful for reasons you should approve of such as oppression of widows, orphans, the poor and aliens. He commands justice, kindness and humility.

            But you get all upset that the wicked need punishment. Well, good for you. DON’T YOU THINK GOD DOES TOO?

          3. Skippy

            “Glad to see you reading the Bible, skippy!” – beard.

            No, I’m not. Wasted to many good years on trying to decipher the endless contradictions, hypocrisy and historical inaccuracy’s. Just informing readers of your baseline philosophy – ideology and the resulting output evident in your solution/s ie. private domination of citizens lives or gawd chooses the winners and losers.

            Um… if you did not *notice*, the chapter and verse was about rentiers. Whom owed the land and whom worked it and the disparity’s in the tween and their outcomes. Gawd gifted thingy, like the Koch brothers et al. This condition preceded the formation of the US and has traveled with us though out history. As you say, its the system that needs overhauling… eh.

            Dilute the medium/$ of exchange, remove interest bearing aspect, change the contractual relationship between citizens and government and private sector. Yet, at the end of the day… you will repeat the exorcise all over again. Endless 7 year jubilee’s is not a sign of a successful system, more like hitting ones self in the head with a hammer and missing once every 7 years ( probability math lol ).

            We have done the past beard. Every single societal ideology fails sooner or later (see history), if they fail to change. Now with our backs to the wall, a full world and planetary burn rate doing a hockey stick trajectory. Yours and others plan is to increase consumption, fiddle with mediums of exchange, privatize the world more? Hell even with only 20ish million downunder, we have the highest extinction rate globally. You can’t undo that.

            Skippy… an old comedian once said… have you ever put your key in the front door of your house… and it started up? Well, I took it for a drive. Around the block and through the CBD, then out on the highway. Parked it on the off ramp and told everyone to get off my fooking yard…

          4. F. Beard

            Yours and others plan is to increase consumption, fiddle with mediums of exchange, privatize the world more? Skippy

            No. My aim is to de-fascisize the world.

          5. Skippy

            “No. My aim is to de-fascisize the world” – beard.

            Again, the private sector owns the government. Pssst… its the ownership society beard, did you not get the memo? Yet you want more private sector influence (printing)?

            Skippy… beard it’s like yelling at the under payed schlub at the front counter about company policy. Banks and large corporations run the government through undo influence (SCOTUS) and years of infiltration (revolving door, hand picked candidates ( political $$$$$$$$).

            PS. hows Greabers book coming and did you even read Yves?

          6. F. Beard

            Again, the private sector owns the government. Skippy

            No, the banks own the Federal Government and hold the economy hostage. Any meaningful attack on that situation requires re-thinking money.

            As for Graeber, Steve Keen’s book has higher priority on my reading list since Keen has actually offered a practical solution (in rough) of the problem.

          7. Skippy

            With out all the data taken into consideration ( false axioms, etc ), there can be no long term solution. So Greabers book is important, along with a huge amount of forensic archeology IMO.

            Keen is an observer *within* the machine, in my opinion, his solution amounts to financial gimmickry. It does not view events out side the machine or address the over all fundamental issues.

            Skippy… banks have private bond holders… duh, their owned too. Rethink money, yeah, as an incentive tool, manufactured desire thingy. Although your brand of manufactured desire (biblical) is actually the grandaddy of it all. We can do better.

          8. Skippy

            The origins of the term carrying capacity are uncertain with researchers variously stating that it was used “in the context of international shipping”[2] or that it was first used during 19th Century laboratory experiments with micro-organisms.[3] A recent review finds the first use of the term in an 1845 report by the US Secretary of State to the Senate.[4]

            http://en.wikipedia.org/wiki/Carrying_capacity

            (The relation has an “inverted-U” shape.)
            One explanation of this finding is that
            people in poor countries cannot afford to
            emphasize amenities over material well-being.
            Consequently, in the earlier stages of
            economic development, increased pollution
            is regarded as an acceptable side effect of
            economic growth. However, when a country
            has attained a sufficiently high standard of
            living, people give greater attention to environmental
            amenities. This leads to environmental
            legislation, new institutions for the
            protection of the environment, and so forth.
            The above argument does not, however,
            pertain to the environmental resource basis
            of material well-being, a matter we shall
            return to subsequently.
            So far the inverted U-shaped curve has
            been shown to apply to a selected set of
            pollutants only (2, 3). However, because it
            is consistent with the notion that people
            spend proportionately more on environmental
            quality as their income rises, economists
            have conjectured that the curve applies
            to environmental quality generally
            (4). But it is important to be clear about the
            conclusions that can be drawn from these
            empirical findings. While they do indicate
            that economic growth may be associated
            with improvements in some environmental
            indicators, they imply neither that economic
            growth is sufficient to induce environmental
            improvement in general, nor that
            the environmental effects of growth may be
            ignored, nor, indeed, that the Earth’s resource
            base is capable of supporting indefinite
            economic growth. In fact, if this base
            were to be irreversibly degraded, economic
            activity itself could be at risk (5).
            There are other reasons for caution in
            interpreting these inverted U-shaped
            curves. First, the relation has been shown to
            be valid for pollutants involving local shortterm
            costs (for example sulfur, particulates,
            and fecal coliforms), not for the accumulation
            of stocks of waste or for pollutants
            involving long-term and more dispersed
            costs (such as COJ, which are often increasing
            functions of income (6).

            http://www.precaution.org/lib/06/econ_growth_and_carrying_capacity.pdf

            Conventional wisdom suggests that because of technology and trade, human carrying capacity is infinitely expandable and therefore virtually irrelevant to demography and development planning. By contrast, this article argues that ecological carrying capacity remains the fundamental basis for demographic accounting. A fundamental question for ecological economics is whether remaining stocks of natural capital are adequate to sustain the anticipated load of the human economy into the next century. Since mainstream (neoclassical) models are blind to ecological structure and function, they cannot even properly address this question. The present article therefore assesses the capital stocks, physical flows, and corresponding ecosystems areas required to support the economy using “ecological footprint” analysis. This approach shows that most so-called “advanced” countries are running massive unaccounted ecological deficits with the rest of the planet. Since not all countries can be net importers of carrying capacity, the material standards of the wealthy cannot be extended sustainably to even the present world population using prevailing technology. In this light, sustainability may well depend on such measures as greater emphasis on equity in international relationships, significant adjustments to prevailing terms of trade, increasing regional self-reliance, and policies to stimulate a massive increase in the material and energy efficiency of economic activity.

            http://dieoff.org/page110.htm

            Skippy… private sector kryptonite methinks.

          9. Skippy

            This model would truly take into ACCOUNT the *actual deficits* being pasted onto future.

            Skippy… the electrons of price are just fiction[s any ways. Mathematically Leveraged Derivative Hog Wash MLD-HW, it only works if you – believe – in it.

          10. F. Beard

            The application of the concept of carrying capacity for the human population has been criticized for not successfully capturing the multi-layered processes between humans and the environment, which have a nature of fluidity and non-equilibrium, and that it often has a blame-the-victim framework.[9] from http://en.wikipedia.org/wiki/Carrying_capacity [emphasis added]

            Exactly.

            Supporters of the concept argue that the idea of a finite carrying capacity is just as valid when applied to humans as when applied to any other species. from http://en.wikipedia.org/wiki/Carrying_capacity

            What other specie comes close to man in problem solving capability? Only bacteria, to my knowledge, and that maybe by sheer force of numbers.

            Skippy, You reject God only to wish for that unenviable job yourself?

            And if your wrong? How many corpses will you be responsible for?

            It’s far safer to stick to matters of justice, mercy AND humility. Let’s prove we can handle “Thou shalt not steal” wrt money creation and leave population control to God, eh?

          11. F. Beard

            Also, I would add that present environmental destruction is funded with counterfeit money (so-called “credit”) and driven by the need to pay compound interest.

          12. skippy

            History is clear on human activity’s and the resulting consequence.

            http://www.globalchange.gov/publications/reports/scientific-assessments/us-impacts/full-report/global-climate-change

            Would you store all the negative output under your bed, your kids beds or do you prefer to ship it to the less empowered. Let them suffer for your actions, a very elitist attitude methinks, much like the banksters or the morally – ethically corrupt.

            For all your supposed well meaning it rings hollow.

            *Fluidity and non-equilibrium* indeed.

            Agricultural capability on Earth expanded in the last quarter of the 20th century. But now there are many projections of a continuation of the decline in world agricultural capability (and hence carrying capacity) which began in the 1990s. Most conspicuously, China’s food production is forecast to decline by 37% by the last half of the 21st century, placing a strain on the entire carrying capacity of the world, as China’s population could expand to about 1.5 billion people by the year 2050.[11] This reduction in China’s agricultural capability (as in other world regions) is largely due to the world water crisis and especially due to mining groundwater beyond sustainable yield, which has been happening in China since the mid-20th century.[12]

            See beard, see how it works. You sprint a head without proper long term studies – observations and a reckoning awaits. Potable water, arable land, poisoning the biosphere are the real issues. Your efforts are like watching someone observe the end of a stick, in flight, the surface is all you see. Your optics are century’s old and unprovable, yet you cling to them in search of comfort. This state of affairs with your mental process does not acknowledge the size – mass or trajectory of the arrow. Recognition will be when it penetrates your head.

            Seemingly the only people that argue about human reduction of the biosphere are Gawd heads and looters, one in the same in my book.

            Skippy… At the end of the day, gawd heads only wish one thing… rapture. Evangelicals are the worst of the lot, can’t wait to see bad people burn and bad being everyone save them. Crazy club that.

          13. F. Beard

            Seemingly the only people that argue about human reduction of the biosphere are Gawd heads Skippy

            I won’t be guilty of murder is all. Doing it for supposed economic or ecological reasons is no excuse.

            Skippy… At the end of the day, gawd heads only wish one thing… rapture. Skippy

            Shallow projection? But certainly shallow.

            And if you knew the Bible like you claim to there is Judgment Seat Of Christ for Christians to be concerned about.

            But hey, keep fighting me so you can divert attention from the counterfeiting cartel?

          14. skippy

            I keep informing you of your fallacy’s, spreading sky’s et al, your beliefs are warm and fuzzy, etc. Your inability to acknowledge empiric fact is a case of cognitive bias writ large, and not my problem. So stop trying to get something to stick on me, like adding and abetting counterfeiters… its intellectually dishonest. In my book your both a bunch of criminally insane whack jobs.

            Blakenfiend doing gwads work, your doing gwads work, it confusing… will the real truthy gwad head please stand up… eh. 38 thousand brands of Christianity alone. The osmosis of that fact is frightening, inability of believers to agree on one book, does not encourage.

            Look at all of them.

            http://en.wikipedia.org/wiki/List_of_Christian_denominations_by_number_of_members

            Lawyers and Bankers started out as priests, look in the historical mirror beard, this is your world.

            Skippy… shallow, no, first hand experience and can back it up.

            But the least understood, and probably most important, reason has been missed by most secular analysts. Evangelicals support Israel because of biblical prophecy, including passages that tie the survival of Israel to the Second Coming of Jesus.

            Read more: http://www.beliefnet.com/Faiths/Christianity/2002/06/The-Rapture-Factor.aspx#ixzz1kqRTovhd

            August 14, 2006
            cross.gif Former House Majority Leader Dick Armey Says He (And the Prez) Believe Book Of Revelation ‘Prophesies’ Are Real

            http://www.evangelicalright.com/the_rapture/

            I like this guy as he refutes one whack job but, then has a dogs breakfast himself.

            “I think I would be surprised if Christ doesn’t come back soon. By that I mean perhaps in my lifetime, perhaps in my children’s lifetime, and certainly in my grandchildren’s lifetime. But of course we don’t know the day or the hour.”

            On the rapture:

            “We can say definitively that the rapture will take place. That’s 1 Thessalonians 4, the lord himself shall descend from heaven with the cry of command, with the voice of the archangel, and with the trump of God: and the dead in Christ shall rise. We who are alive and who are left until his coming shall be caught up with him in the clouds to meet the Lord in the air.

            So that word “caught up” is a Greek word rendered by the Latin word rapturo, which we get the word rapture. So rapture is definitely going to happen and Christ is going to take his people home. So we certainly affirm and believe definitively that the rapture will take place.

            The controversy is around the timing of the rapture. Will it take place prior to the tribulation or will it take place in the middle of the tribulation or will it take place after the tribulation. So we have pre-, mid-, and post-trib perspectives within the Christian world and within the evangelical Christian world.

            I could give you scriptural support for pre-trib rapture, but I can also give you scriptural support for post-trib rapture. So I think there is room for discussion and dialogue on a subject like this. We can understand why Christians are not necessarily in agreement on the subject because I don’t think the Bible is that clear as to whether the rapture is pre- or post-trib.

            http://www.christianpost.com/news/what-evangelical-leaders-say-about-the-end-of-the-world-rapture-50343/

            When it comes to teachings about the Second Coming of Jesus, slightly more than half, 52 percent, of respondents believe that Jesus will return in their lifetimes. Eight percent say that the Second Coming of Jesus would definitely occur in their lifetimes and 44 percent say the event would probably happen while they are alive.

            Among evangelical leaders who don’t believe Jesus’ return was imminent, 37 percent say Jesus will probably not return in their lifetimes but only 2 percent say it was definite he will not return in their lifetimes.

            http://www.christianpost.com/news/global-evangelical-leaders-believe-in-rapture-imminent-second-coming-of-jesus-51504/

            PS. For some strange reason I believe counterfeiters are the least of our worry’s. Does OBummer have rapture blues too?

          15. F. Beard

            So stop trying to get something to stick on me, like adding and abetting counterfeiters… Skippy

            But you do. I attack the bankers with everything I have including their own supposed spiritual guide, the Bible, and you attack me.

            Steve Keen, I and others (the movement is growing) advocate a universal bailout but you oppose that too!

            Why don’t you camp out on a religious site to vent your frustration? Believe me, I used to be just as frustrated.

            Your problem is ignorance of the Bible. You know just enough to annoy you but not enough to totally dismiss it. So it bugs you. It is meant to – to goad you on to greater understanding.

            I don’t have the patience for this. Do your own homework. My interest is stopping this Depression before it blights more lives. I’ll use the Bible and anything else that is proper to do so. Like it or lump it.

          16. skippy

            You attack your beliefs offspring (see history), bad hand books will do that, dust bin time.

            We don’t need a reset (7 year biblical merrygoround – boom bust) or handout, we need a total rethink! Carrying capacity takes the most fundamental facts into consideration, you do not. Murder you say, go read your hand book, its full of it, I’ve shown you only a smidgen of what resides in it. You very selectively submit verses out of context or your just ignorant of it, either way your playing fast with the scriptures. I can and have proven it. Your retort is… its gods will… murdering the bad guys.

            40 years of learning and not just bible school, but extensive research, all the bibles ( wheres the book of Judas et al. }, different sects, actual forensic history – archeology – linguistics, face to face time with elders, priests, pastors world wide. I’m being easy on you beard.

            BABYLONIAN ASTRONOMERS envisaged earth as a hollow mountain surrounded by a vast sea. (Pictured above. The sea is shown much smaller, the mountain much larger, in order to fit.) Inside the earth lay the dark, dusty realm of the dead. Arching over earth is the “circle of the earth” (Isa. 40:22) or the solid firmament (Greek: solid body; firm foundation) on which moved sun, moon, planets and stars, somehow. Held above the firmament was water (for rain, to come through “windows”), and the firmament domes were supported by a ring of raised earth set in the midst of the sea. [In later times, astronomy saw the addition of more firmaments to better account for the separate motions of the moon, sun and planets. The firmaments were seen as complex rotating solid concentric domes, one within another.]
            .
            Why was the firmament formed in the “midst” of earth’s “waters”(1:6)? Clearly, this is an image of a dome-like firmament over flat waters of a flat earth. Had earth commonly been known to be round then, the writers wouldn’t need to have God set the domes in the sea, a notion likely conceived to keep seas from draining off over the “edges” or “ends” of the earth.
            The Bible’s scribes exactly copied the ignorant inventions of Babylonian firmament astronomy of that time, including its words and concepts of windows and doors in the firmament for rain!
            “Above the firmament” (Gen. 1:7) is where the huge supply of water needed for the Flood was stored — more than all earth’s clouds could ever provide. As we read in the account of the Flood, God ended the rains using Babylonian astronomy again (Gen. 8:2): “the WINDOWS of heaven were stopped and the rain…restrained.” (My emphasis)
            Did God speak thus, to be understood and not confuse or mentally upset those living then? Could it really upset people then to deal with truthful astronomy — the same people who were ready to believe in a virgin birth or a that a woman could be born from a man’s rib-bone?
            (
            NOTE: Christian scholar Saint Augustine [354-430 A.D.] and Father Lactantius, etc., continued the traditional denial of the earth’s roundness, claiming rain would “fall upward” in places and that even if upside-down people could live on a globe’s bottom, then they couldn’t see the Savior’s return in glory.)

            Hell the Etymologie alone is staggering over a few century. then the classic, cum hoc ergo propter hoc, circulus in probando, reductio ad absurdum, argumentum ad populum, argumentum ad ignorantium, excluded middle/false dichotomy, and your favorite argumentum ad verecundiam.

            Skippy… More Biblical Fallacies:
            1. God is satisfied with his works, Gen 1:31, God is dissatisfied with his works. Gen 6:6
            2. God dwells in chosen temples, 2 Chron 7:12,16, God dwells not in temples, Acts 7:48
            3. God dwells in light, Tim 6:16 God dwells in darkness, 1-Kings 8:12/ Ps 18:11/ Ps 97:2
            4. God is seen and heard, Ex 33:23/ Ex 33:11/ Gen 3:9,10/ Gen 32:30/ Is 6:1/Ex 24:9-11, God is invisible and cannot be heard, John 1:18/ John 5:37/ Ex 33:20/ 1 Tim 6:16
            5. God is tired and rests, Ex 31:17/ Jer 15:6, God is never tired and never rests, Is 40:28
            6. God is everywhere present, sees and knows all things, Prov 15:3/ Ps 139:7-10/ Job 34:22,21, God is not everywhere present, neither sees nor knows all things, Gen 11:5/ Gen 18:20,21/ Gen 3:8
            7. God knows the hearts of men, Acts 1:24/ Ps 139:2,3 God tries men to find out what is in their heart, Deut 13:3/ Deut 8:2/ Gen 22:12
            8. God is all powerful, Jer 32:27/ Matt 19:26, God is not all powerful, Judg 1:19
            9. God is unchangeable, James 1:17/ Mal 3:6/ Ezek 24:14/ Num 23:19, God is changeable, Gen 6:6/ Jonah 3:10/ 1 Sam 2:30,31/ 2 Kings 20:1,4,5,6/ Ex 33:1,3,17,14
            10. God is just and impartial, Ps 92:15/ Gen 18:25/ Deut 32:4/ Rom 2:11/ Ezek 18:25 God is unjust and partial, Gen 9:25/ Ex 20:5/ Rom 9:11-13/ Matt 13:12
            11. God is the author of evil, Lam 3:38/ Jer 18:11/ Is 45:7/ Amos 3:6/ Ezek 20:25, God is not the author of evil, 1 Cor 14:33/ Deut 32:4/ James 1:13
            12. God gives freely to those who ask, James 1:5/ Luke 11:10, God withholds his blessings and prevents men from receiving them, John 12:40/ Josh 11:20/ Is 63:17
            13. God is to be found by those who seek him, Matt 7:8/ Prov 8:17 God is not to be found by those who seek him, Prov 1:28
            14. God is warlike, Ex 15:3/ Is 51:15 God is peaceful, Rom 15:33/ 1 Cor 14:33
            15. God is cruel, unmerciful, destructive, and ferocious, Jer 13:14/ Deut 7:16/ 1 Sam 15:2,3/ 1 Sam 6:19, God is kind, merciful, and good, James 5:11/ Lam 3:33/ 1 Chron 16:34/ Ezek 18:32/ Ps 145:9/ 1 Tim 2:4/ 1 John 4:16/ Ps 25:8
            16. God’s anger is fierce and endures long, Num 32:13/ Num 25:4/ Jer 17:4 God’s anger is slow and endures but for a minute, Ps 103:8/ Ps 30:5
            17. God commands, approves of, and delights in burnt offerings, sacrifices ,and holy days, Ex 29:36/ Lev 23:27/ Ex 29:18/ Lev 1:9 God disapproves of and has no pleasure in burnt offerings, sacrifices, and holy days, Jer 7:22/ Jer 6:20/ Ps 50:13,4/ Is 1:13,11,12
            18. God accepts human sacrifices, 2 Sam 21:8,9,14/ Gen 22:2/ Judg 11:30-32,34,38,39 God forbids human sacrifice, Deut 12:30,31
            19. God tempts men, Gen 22:1/ 2 Sam 24:1/ Jer 20:7/ Matt 6:13 God tempts no man, James 1:13
            20. God cannot lie, Heb 6:18 God lies by proxy; he sends forth lying spirits to deceive, 2 Thes 2:11/ 1 Kings 22:23/ Ezek 14:9
            21. Because of man’s wickedness, God destroys him, Gen 6:5,7 Because of man’s wickedness, God will not destroy him, Gen 8:21
            22. God’s attributes are revealed in his works, Rom 1:20 God’s attributes cannot be discovered, Job 11:7/ Is 40:28
            23. There is but one God, Deut 6:4 There is a plurality of gods, Gen 1:26/ Gen 3:22/ Gen 18:1-3/ 1 John 5:7Moral Precepts
            24. Robbery commanded, Ex 3:21,22/ Ex 12:35,36, Robbery forbidden, Lev 19:13/ Ex 20:15
            25. Lying approved and sanctioned, Josh 2:4-6/ James 2:25/ Ex 1:18-20/ 1 Kings 22:21,22, Lying forbidden, Ex 20:16/ Prov 12:22/ Rev 21:8
            26. Hatred to the Edomite sanctioned, 2 Kings 14:7,3 Hatred to the Edomite forbidden, Deut 23:7
            27. Killing commandedEx 32:27 Killing forbidden, Ex 20:13
            28. The blood-shedder must die, Gen 9:5,6 The blood-shedder must not die, Gen 4:15
            29. The making of images forbidden, Ex 20:4 The making of images commanded, Ex 25:18,20
            30. Slavery and oppression ordained, Gen 9:25/ Lev 25:45,46/ Joel 3:8 Slavery and oppression forbidden, Is 58:6/ Ex 22:21/ Ex 21:16/ Matt 23:10

            PS. this is your favorite: 135. A fool should be answered according to his folly, Prov 26:5 A fool should not be answered according to his folly, Prov 26:4

            People that ride mental marrygorounds should not be consulted.
            .

          17. F. Beard

            Interesting Bible examples! But I am unfazed. Why? Because apparent contradictions and inconsistencies that I have encountered in the past have faded away as I have continued to read the Bible. Example: The Bible implies that profit is good but censors profit taking. That puzzled me for a while till I realized that business profits should not be drained out of a business.

            And don’t quote Augustine to me. The Bible is my spiritual guide and I have no other except hopefully the Holy Spirit.

            It would be interesting to dissect each of your apparent contradictions and inconsistencies and refute them but there are better qualified people for that than me and like I said my interest is ending this Depression and fighting fascism not being your personal spiritual guide.

            I suggest Dr. Hugh Ross (Phd in astrophysics) at http://www.reasons.org. He is a genuinely nice person and very knowledgeable about science, the Bible and history.

            Or is your aim to get me banned here for off-topic discussions?

          18. skippy

            “The Bible is my spiritual guide and I have no other except hopefully the Holy Spirit.” … beard.

            Wow I think you just bent the absurdity meter.

            Paraphrasing you…. I don’t like it ( empirical evidence ), so I refuse to acknowledge it.

            And my only meaningful source of information is an arbitrarily subjective book constructed like a one part at a time Cadillac, parts constructed over vast amounts of time, dubious build quality, does it have all the parts and origin of said parts is exceedingly questionable, all topped of with a drug like induced hoppium.

            “It would be interesting to dissect each of your apparent contradictions and inconsistencies and refute them but there are better qualified people for that than me”… beard.

            “I suggest Dr. Hugh Ross (Phd in astrophysics)” – beard.

            Both are argumentum ad verecundiam. How do you submit information that you can not or will not, personally back up and yet weld it with such occasion.

            Ban? I would submit that our discussions are relevant, as society’s are built on foundation myths. What we observe before us is a continuation of your myths conclusion[s, its values, and their eventual collapse.

            Skippy… long live the Western Empire III.

          19. F. Beard

            Haha!

            The “foundational myths” I extract and use from the Bible are the following:

            1) “Thou shall not steal” particularly from the poor.
            2) Our money should be based on democracy and “sharing”, not counterfeiting, fraud, usury and special privileges.
            3) The victims of 2) deserve restitution.

            And you disagree with all three because you don’t like the source of them?

            Illogical much?

  20. Hugh

    What Michael Hudson is describing is kleptocracy, and yes, this is precisely the way kleptocracy was meant to work.

    First, we are in a fascist environment where the distinction between banks/rich and government is illusory. So setting up some conflict between them is mistaken. They are on the same side. It just doesn’t happen to be our side of the 99%.

    Second, banks/rich don’t fear crashes. They fear revolutions. Crashes leave them with proportionately greater control of the government and ownership of the overall wealth.

  21. Paul Tioxon

    This is the central problem: will the nation state place the market mechanism in the service of the public or private interests? Adam Smith saw the Chinese as having business interests serve the social order and help to maintain it, rather than exploit it to exhaustion. FDR did likewise, but that broke down completely in the 1970′s. The fruits of unchained private interests with unlimited financial power at its disposal is what we see today. It is unsustainable.

  22. Eric L. Prentis

    The free market is touted as a beautiful, incorruptible goddess on a pedestal, because markets know best. Both democrats and republicans worship at the free market alter. The free market is the foundation of “free market fundamentalism,” i.e., reducing the size of government, deregulation and privatization.

    Politicians are happy because they no longer carry the burden of managing the economy and they get a great deal of money from Wall Street. As a result, Wall Street now controls most of the economy’s money and the country. Ninety-nine percent of the people are the only ones who are unhappy. However, the underclass is bought off with bread (food stamps-SNAP) and TV sports/entertainment, while the middleclass is simply ignored.

    However, the stock market is anything but free and is actually a toothless, unfaithful harridan, easy to manipulate and corrupt. Prior to the Securities and Exchange Commission, “investment pools” use company top executives to manipulate earnings and earnings announcements, purchase newspaper reporters to write on businesses favorable to the pools’ stock market positions and speculate with excessive leverage. The same things happen today, in a more sophisticated way. As an example, because of Quantitative Easing II, Chairman Bernanke takes credit for the Russell 2000 Index of small company stocks reaching an all-time high of 868.57, in April 2011.

    Wall Street “Masters of the Universe” laugh at our asinine politicians who actually believe that markets are free and not manipulated.

  23. mmckinl

    The only way forward is a Public Central Bank that creates our currency and credit.

    Finally Hudson flirts with the idea of sovereign money instead of private bank fractional reserve banking.

    Why should banksters have the monopoly of currency and credit creation? We the people should. Why should we borrow our own money?

  24. Ransome

    Historically, boom bust cycles were most often driven by rapacious broker dealers, rather than the regulated banking sector. This changed in the 80′s with the debt fetish, resulting in the current GM Money Centers, the banking Frankensteins.

    With respect to reform: “If anything is proven by the comparison (taxes vs. tariffs), it is that no system of organization and administration does away with human selfishness; whatever the system, the men who have it in their hearts to cheat other fellows, are going to find a way. Regeneration lies deeper than system: it lies in the nature of the men who use the system.” Ida Tarbell – “The Tariff In Our Times”

    The thrill of cheating someone never goes away. In her “History of Standard Oil” someone recalls Rockefeller dancing for joy around the office when one of his agents bought a lot of oil at well below market. It was the only time he appeared animated.

    Tarbell also wrote “New Ideals in Business”. She interviewed workers partially paid in stock and recorded the impact on their lives and work ethic. Of course, they were probably all wiped out in 1929.

    1. LeonovaBalletRusse

      @ Ransome: “The thrill of cheating someone never goes away.”

      How astute and wise Ida Tarbell was. She was onto *their kind* (who always have proudly asserted: “We are Baptists”). George Carlin knew *their kind* –

      “They don’t give a F%$K about you! They don’t care about you at ALL, at all, at all. … and now they’re after your Pension, your Social Security! …”

      Remember George W. Bush doing “God’s work” for Poppy?

  25. LeonovaBalletRusse

    “Our Sin of Our Era: The Massive Misery of People at Bottom of Pyramid” by Anwar Shaikh: Professor: New School for Social Research, who concludes:

    “The crisis is broader than the financial crisis. It’s not about finance. It’s really about PEOPLE across the world today.” [caps mine]

    at http://ineteconomics.org

    Can We the People create a better world than that of “Soylent Green” — where “Soylent is People” according to Charlton Heston’s character?

    Indeed, who are the People?

  26. AccruedDisinterest

    “Furthermore, despite the evident fact that austerity cutbacks on consumption and investment can only be extractive, creditor-oriented economists refused to recognize that debts cannot be paid by shrinking the economy.”

    Is this a “those that forget the past are doomed to repeat it” declaration?

    1. LeonovaBalletRusse

      Accrued, it seems so, if you check out the latest at http://www.nytimes.com anent the goings on at Davos, care of *the usual suspects* — Geithner, Zoellick, LaGarde for IMF.

      Why isn’t Michael Hudson working this out with the Germans? Can’t they see a once-in-a-lifetime opportunity knocking? Where is Soros on this issue?

  27. frank revelo

    Taxes on land? The peasantry will never go for this. They’d much rather tax labor and commerce so as to discourage productive activity while encouraging land hoarding and speculation. Recall Joe the (unlicensed) Plumber, who grew up on welfare, promoting an end to capital gains and corporate income taxes as the solution to our economic woes. I’m sure it was purely an oversight that he neglected include property and death taxes in the list of taxes to be eliminated. The peasantry WANTS to keep the rich rich and themselves poor. They know their place and they will turn violently on anyone who tries to upset the status quo. Listen to them on the right-wing blogs raving about beating the faces of people like Krugman or Michael Hudson to a pulp so as to eliminate, once and for all, the mental illness of liberalism.

  28. James B

    Brilliant, incisive writing. The best article I’ve read on the subject of the GFC (and the state of banking in general).

    You raise the question of whether the banks or the government will triumph. Personally, I think the banks position is unsustainable. Perhaps the people rather than the government will triumph eventually. It’ll probably take years, if not decades of power struggles before that change occurs.

    The current status quo has a great deal of power and momentum. This should buy it time, if not overall victory. Sadly, this means that some if not all of the greedy individuals that contributed most to the crisis will be able to live out their days in wealth; with no consequences for their actions other than awkward senate hearings and critical news articles.

  29. seafarer

    While banks can (rightly) be accused of being foolish failures, they are not at fault for beating up poor little Uncle Sam. Barney Franks’s rampant whining to make loans to people who should not have them, championing Fannie Mae and Freddie Mac, not to mention Dodd-Frank or Sarbanes Oxley – have done more to damage lending in the U.S. than anything else. Congress, the Feds and special interest groups, all gathering money and power, have driven the industry to this pitiful state; helped of course, by their own myopia. No, the federal government is not the victim, here, he is the bully.

  30. Oscar Carbo

    I am sorry to disturb Mr. Hudson’s dream, but banks were (and are) meant to make money. Period.

    1. F. Beard

      but banks were (and are) meant to make money. Oscar Carbo

      Indeed they do. They “make” the money the rest of us have to earn.

  31. Tyler

    Mr. Hudson writes, “Since 2008, public bailouts have taken bad loans off the banks’ balance sheet at enormous taxpayer expense.”

    I thought federal taxes destroy money?

  32. Chris G

    Sensational article. Required reading by every manjack in government. Not that it will make any difference.

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