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Michael Hudson on How Finance Capital Leads to Debt Servitude

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This edited transcript is expanded from a live phone interview with Michael Hudson by Dimitris Yannopoulos for Athens News. It summarizes some of the major themes from Hudson’s new book, The Bubble and Beyond: Fictitious Capital, Debt Deflation and Global Crisis, which is available on Amazon.

Q: How has the financial system evolved into the form of economic servitude that you call “debt peonage” in your book, implying a negation of democracy as well as free-market capitalism as classically understood?

A: The original hope of banking and finance capitalism in the 19th century was that banks would make productive loans to finance industry. The aim was for banks to do something new, that no economy had done in the past: make loans not merely to ship and market goods once they were produced, but to finance new capital investment by manufacturers and producers, as well as by the public sector to build infrastructure. The idea was for these investments to create profits out of which to pay the interest and the principal back to the lenders.

This was defined as productive lending. Nothing like it occurred in antiquity or in the post-feudal period. Investment always had been self-financed out of savings. Banks only entered the picture when it came to shipping and trading what had been produced.

As matters have turned out, banking has allied itself with real estate, mineral extraction, oil, gas and monopolies instead of with industry. So instead of getting a share of the profits, it has focused on lending against economic rent. This technical term is defined as unearned income. It is obtained by charging prices in excess of cost value. Economic rent has no counterpart in the cost of putting means of production in place. And land has no cost; it is provided by nature. The only “cost” is the price of buying the right to charge rent on it. This economic rent is created by special legal privilege or ownership rights to install tollbooths on roads, education systems and other basic needs. Owners aim to charge as they can, without regard for how this affects overall growth and balance.

Banks have the privilege of creating credit and charging for access to it. Most bank credit is extended to buy property or rent-seeking privileges already in place. Banks rarely are set up to evaluate new capital investment. Their time frame is notoriously short-term. It takes time to develop production facilities, mount a sales campaign and develop markets for new goods. It is easier simply to buy a privilege to extract charges without producing anything at all. This is what property rights are, along with special privileges such as charging interest without making a tangible investment. So banks back the kind of economy that makes money without new capital investment. The easiest way to do this is to make loans for real estate at increasingly debt-leveraged, bank-inflated prices. They call this a post-industrial “service” economy. It is simply a rentier tollbooth economy.

Classical economists from the Physiocrats down through the Progressive Era a century ago explained why land rent, subsoil natural resource rent and monopoly rent should have been the source of tax for cities, states and nations. That is the essence of classical economics. But instead of supporting productive industry by extending credit to increase tangible capital investment, the banking system has extended credit mainly (about 80 percent in the United States and most English-speaking countries) to buy real estate and load it down with debt. The result is that rental income is used to pay interest to the banks rather than to pay taxes. This forces governments to tax wages, profits and sales. That increases the cost of living and doing business, on top of the interest charge.

In search of this loan market, banks have come to back untaxing real estate and deregulating monopolies, so that their economic rent can be paid to the banks as interest by customers eager buy these rights – and charge even higher rents or raise prices even further without making a new capital investment of their own. Instead of financing industry, U.S. banks don’t make loans for what can be produced in the future. They make loans against collateral already in place – including entire companies with high-interest “junk” bonds. The target company is obliged to pay the debt that the corporate raider takes on. The raider then is “free” to downsize and outsource the work force, squeeze the budget and hope to come out with a capital gain after paying off the banks and bondholders. The process is more extractive than productive.

This is the basic problem with the Anglo-American-Dutch banking system. Instead of extending loans to create new factories to employ people, new means of production, bankers look at what can be pledged as collateral on which they can foreclose.

Stock markets were supposed to supply “equity investment” capital. But they have been turned into a vehicle for debt-financed leverage buyouts (LBOs). Raiders borrow money much like landlords borrow to buy a rental property and bleed it. This turns corporate cash flow into interest. Governments permit this to be tax-deductible, so this encouragement of debt financing over equity worsens their fiscal position. It forces them into debt to bondholders. So the process becomes a deteriorating financial spiral.

Q: When did this process get out of hand?

A: The turning point was in 1980, when the Reagan Administration was elected in the United States, right after Margaret Thatcher led Britain’s Conservatives into office and began the big privatization sell-offs at enormous, unprecedented commissions that made the financial sector richer than ever before. Drexel Burnham led the practice of turning the stock market into a vehicle for banks to emulate their real estate loan departments by creating credit for corporate raiders to take over companies, load them down with debt and extract profits to pay out as interest. This was done by downsizing the labor force, shifting over to non-union labor, and where possible, renegotiating employee pensions downward or simply grabbing the pension funds or Employee Stock Ownership Plans (ESOPs) to pay creditors. So corporate finance became destructive instead of productive.

This sort of banking has concentrated wealth, and used it to privatize and buy control of governments and their regulatory agencies. Banks have lobbied to keep interest tax-deductible so as to favor corporate financing by issuing bonds and taking out loans instead of issuing stocks. Bank lobbyists back the political campaigns of lawmakers committed to deregulating the banking industry and its major clients (real estate, natural resources and monopolies). It even has taken over the Justice Department and the courts, so that financial fraud in America has been decriminalized, as there is no regulation of outright criminal behavior. This is especially true of the largest banks such as Citibank and Bank of America where the fraud tends to be concentrated, as my colleague William Black at the University of Missouri at Kansas City has shown.

Q: How do they get off the hook?

A: Nearly every large Wall Street bank has paid large sums of money to settle criminal fraud cases with the U.S. legal authorities, without admitting criminal liability for their huge gains. So no banker has gone to jail. The banks have paid the fines, not the managers who have paid themselves enormous salaries, bonuses and stock options for writing junk mortgages and operating in a manner that would have sent them to jail back in the 1980s. That’s when S&L fraudsters were sent to jail for doing what commercial bankers much higher up on the social pyramid have done over the past decade.

The top executives know that if they are convicted of billions of dollars of fraud, their banks will pay a fraction of this amount, not themselves. They know that the jig is nearly up, so they are giving themselves enormous bonuses and running. The Treasury argues that if it fines the banks to recover the full amount of the fraud, they’ll be driven under – and the government will have to bail them out. In effect it would be paying the fine to itself. So it does nothing, except receive more campaign contributions from Wall Street for being so passive.

Q: Is the so-called “financialization” of the economy an outcome of deregulating banking and finance?

A: Financialization is an appropriate term because it means the surplus is used for financial purposes and not spent on the real economy. It began by taking over the real estate and insurance sectors, prompting national income economists to lump together what they call the FIRE sectors (Finance, Insurance, Real Estate). It also should include the legal sector, because most law these days is corporate law that condones, protects or even facilitates financial fraud and monopolies. Finance has expanded to absorb the entire economic surplus in the form of debt service to the banks. This leaves it unavailable for capital investment to increase output or consumption.

Q: Isn’t this also because the profits for financial investment in asset bubbles are much higher than profits in manufacturing?

A: There’s a problem in terminology here, between technical economic jargon and popular understanding. Classical economists were careful to define the term “profit” to mean an economic gain made by investing in plant and equipment (capital) and employing labor to produce goods and services to sell at a markup. Profits were a return on tangible capital investment and current expenses on labor, raw materials and other inputs.

This is not how the financial sector makes its gains. Its interest, fees, commissions and penalties are the result of built-in, standardized legal privileges. Economists call these returns “economic rents.” Unlike profits, they are independent of the cost of production. Their “cost” consists of buying privileges, not of making tangible capital investment. The same is true of the other major element financial returns: asset-price (“capital”) gains.

A privilege is literally a “private law” (from the Latin legis, law), a monopoly right. The main privilege is to create bank credit and take deposits that are insured by governments, ultimately by public debt and the right to tax. These financial returns have an entirely different dynamic from commercial and industrial profits. They are made off the economy, not part of the economy’s physical and technological growth and capital formation. They are an overhead charge paid out of profits and wages.

In these respects, financial returns and profits are quite different dynamics. When a company is bought out on credit, the profits end up being paid out as interest rather than reinvested to expand production and employment. Financialized companies are treated much as absentee-owned commercial real estate: Buyers pledge the rent (in this case, the corporate profits) to the creditor who lends the credit for the purchase. Buyers may even pay depreciation (tax-deductible cash flow) to the banks and bondholders – hoping to squeeze out a capital gain or sell of the company’s parts for more than the whole is worth. Low-return divisions are closed down or sold off. The basic dynamic is shrinkage.

Paying out profit as interest leaves no reportable earnings. Interest is deemed a “cost of doing business.” But it is not a cost of production. It is financial overhead. And since the 1980s, growth in this overhead has absorbed and even outstripped the rise in productivity. Instead of living standards rising, the economic surplus has taken the form of a return to the FIRE sector, mainly the financial sector – commercial banks, investment banks, mortgage packagers and brokers, and so forth. Real estate owners gained during the bubble years as property prices rose faster than the bank debt that was inflating them. But the reckless junk mortgage lending and outright fraud led to a collapse of new lending after September 2008, leaving a residue of negative equity, bankruptcy, foreclosures and abandonments in its wake.

Companies that pay out all their cash flow as interest do not pay income taxes on this diversion of revenue, because interest is a tax-deductible expense. As for the financial engineers at the top – the class that has replaced industrial engineers – they aim to get rich not by earning profits, but by capital gains. These are taxed at much lower rates. So the financialized tax system encourages speculation rather than profit-making direct investment.

Suppose that a company earns $1 million dollars of profit in a year. About $400,000 must be paid in income tax. A corporate raider will buy the company’s stockholders (equity owners), for $10 million in junk bonds. The entire $1 million dollars of profit will now be paid to the banker or the bondholder in the form of interest. The company won’t report a profit, so there is no tax payment. The financial manager will hope to increase the company’s price (to re-sell it on the stock exchange) by cutting costs or selling off its pieces to make a capital gain. This is how Republican presidential candidate Mitt Romney’s Bain Capital made money. It is “balance sheet” engineering, not aimed at raising production or living standards.

Q: What makes capital gains so different from business profits?

A: This is best understood in real estate. The motto of new buyers is that “Rent is for paying interest.” The parallel for a corporate raider is that “Company profits are for paying interest.” A real estate buyer will look at a building to see how much rent it pays off, and bid against other prospective buyers for a loan. The winner usually is whoever will anticipate earning the most rent from tenants to pay the interest – and promise to pay this to the bank. What the speculator or long-term investor wants is the capital gain.

Yet this does not appear on the National Income and Product Accounts (NIPA), despite the fact that bubble economies are all about orchestrating such gains. That is how the banks got people to borrow larger and larger debts – hoping to buy homes that would rise in price. The larger the home they bought – with the largest mortgage loan – the more money they would make in the bubble economy. They thought they could get rich by becoming bigger bank customers.

The NIPA were not designed to analyze this kind of an economy making gains by inflating asset prices rather than investing directly to create tangible assets. They were designed to track direct investment, profits and wages (along with government spending and taxes), not monetary and financial phenomena that affect balance-sheet assets and debts. But financial engineering of balance sheets is what all about, and that is what makes today’s finance capitalism so different from the industrial capitalism that classical economists analyzed.

The result is that property investors on credit appear not to be making any income. They “expense” their revenue as an interest charge, while their capital gains are invisible in the National Income and Product Accounts (NIPA). These “capital” gains in asset prices are taxed at much lower rates than taxes on wage income and profits. In fact, they typically are not taxed at all, if the gain is spent on buying yet more property. By making capital gains tax exempt, the tax code diverts investment away from tangible capital formation into financial speculation.

Q: Were derivatives and structured bonds the final stage in pumping up the financial bubble that burst in 2008?

A: Well, at least it was the stage before austerity and debt deflation. I call it Casino Capitalism. Large Wall Street banks made money by betting which way the economy would go, much like betting on a horse race. As in other forms of gambling, the casino always wins – and crime is rife. Credit default swaps are the easiest to manipulate in ways that were illegal in the past. So the cards are stacked in favor of banks against their customers and counterparties.

Investment banks that deal in these derivatives don’t count their capital gains as profits. They are not part of the production process, unlike profits made by employing labor to work with capital equipment to produce output. Derivatives and the financial system don’t have much to do with production and employment – except to shrink markets. They have to do with buying and selling assets to make a capital gain. This is the increasingly dominant speculative part of the FIRE sector, not part of the production and consumption economy. We’ve turned Industrial Capitalism inside out and made gambling the most important market, not production and consumption.

Q: Is this why derivatives don’t appear on the balance sheets of banks? And does this make it difficult to know whether or not they are solvent?

A: Derivatives are bets on the price of assets and on which way interest rates – and hence, bond prices – will go. Banks bet on stocks, currencies or anything they want to. But they don’t use money for this, so the bet is a “contingent liability” with an elusive statistical appearance, sort of like the Higgs boson in physics. The result is a casino economy betting which way prices will go rather than actually producing goods and services.

The problem is that for every winner there is a loser. So on balance it’s a zero-sum game. The economy as a whole doesn’t gain. In fact, large losers who can’t afford to pay the winners receive public bailouts. The government says that the economy needs to keep the casino’s big players solvent or the game will end and there will be a crisis. So the central bank and Treasury print more public debt to make bad debts good. All the big players are made winners leaving the government with more debt. This debt is not a result of spending more current income into the economy. It is purely a balance sheet phenomenon.

Q: Hasn’t this system collapsed since 2008?

A: Just the opposite. The 2008 aftermath was used by Wall Street as an opportunity to panic Congress into taking the losses of big banks onto the public balance sheet, incurring $13 trillion of added debt. In effect the Obama administration told the real economy to drop dead. The crisis became an opportunity to turn democracy into an oligarchy. The same thing happened in Ireland. After its banks made enormous insider loans, reckless loans and fraudulent loans, the government pledged to make the gamblers whole. The non-financial economy must now pay the bad bank debts, because the European Central Bank (ECB) now rules the eurozone economies.

Q: Isn’t the ECB taking over the function of bailing out EU governments, having done so with eurozone banks?

A: The ECB is not bailing out the existing status quo as much as acting to change it. The aim is aggressive, not passive. It is to replace democratically elected governments in Greece and Italy (and ultimately, everywhere) with oligarchy. German Chancellor Merkel and other neoliberals claim that democracy would put the interest of people first. And there’s not enough to maintain their living standards and sustain a growth in wealth at the top at existing rates. So something has to give – and it is living standards, not the debt overhead. This is the social revolution in which Europe and the entire Western world is in today.

The ECB puts commercial banks first. That’s what central banks do. That’s why the Federal Reserve Bank was made independent from the U.S. Treasury in 1913. They are there to promote bank interests, increasingly at odds with the rest of the economy. The first ploy is to place technocrats (a scientific sounding euphemism for bank lobbyists) in place of elected governments in Greece and Italy.

The anti-democratic transformation occurring in Europe today resembles what occurred in Rome in 133 BC to inaugurate a century of financial war, which historians called a Social War. It was waged by the creditor oligarchy (which had enriched itself largely by privatizing public land after the Punic Wars with Carthage, much as today’s financial oligarchy has grown rich by privatization and corrupt public-private financial “cooperation”). At issue was whether the economy should be run to enforce creditor “rights” by depriving the population of its liberty from debt servitude, or should help the citizenry prosper.

The patrician creditor class used violence and murder of political leaders, as in Chile in 1973. Advocates of debt cancellation (such as supporters of Catiline’s “conspiracy”) were killed. The Social War ended with much of the population falling into bondage. Today’s creditors are winning not to put individuals into bondage, but to let them be free to work and live anywhere they want – as long as they pay taxes to government to subsidize high finance, and buy goods and prices from privatized infrastructure squeezing out extortionate economic rent. This is the ECB’s idea of a free market financial-style. That is the essence of neoliberal ideology, and explains why its politicians are so well subsidized by the banking sector.

Q: Wasn’t the case of Greece unique in allowing creditors to shift the burden of the financial and fiscal crisis onto eurozone governments, by turning it into a sovereign debt crisis?

A: Neither Greece nor other eurozone countries have a central bank monetize their budget deficits. So they need to borrow from bankers and bondholders, at interest rates that rise as the dysfunctional system grows more untenable. Governments have been directed to shift taxes off property and the wealthy onto labor and industry, and to finance the resulting budget deficits by raising taxes, cutting wages, axing social welfare and selling off the public domain. Financial neoliberals are using Greece’s debt crisis as an opportunity to pry away whatever its government owns: real estate and public buildings, mineral wealth, oil and gas rights in the Aegean, port facilities, electric utilities and roads. The eurozone banking sector is to benefit, not the Greek people.

In times past, what the ECB is achieving in Greece would have taken an army to carry out by invading the country and taking over its land and infrastructure. The ECB is doing this without military force, just by appointing technocratic proconsuls of high finance. A lame attempt is made to frighten voters into believing that There Is No Alternative (TINA, as Margaret Thatcher liked to express her diktat). Propaganda sites blare out that all this is for the best. It is as if writing down debts will bring about poverty, not liberate economies from debt.

The situation is reminiscent of what occurred in Sparta at the end of the 3rd century BC. Sparta’s kings Agis IV and Cleomenes III sought to cancel the citizenry’s debts, as a creditor oligarchy had taken over. Neighboring oligarchies called in Rome, which waged a war (ultimately against Nabis, the last old Spartan leader), ending the democracy with Rome’s Empire. It established “peace” by imposing martial creditor rules that ended up driving the population to emigrate and shrink.

If Greece goes along with this, it will be surrendering without even a fight. That is the political aim of the oligarchy: to win by conquest of the brain and ideology rather than the more expensive physical oppression of an outright police state.

Q: Why has there been so much emphasis on austerity and internal devaluation to drastically reduce wages and pensions?

A: Financialization escalates the class war in a new way. For the last hundred years people thought the war was between employers and employees over workplace conditions, wage levels and benefits. But the debt overhead adds a new dimension in class war. Finance controls governments, especially in the public sector where unions typically are strongest. Most of all, financial lobbyists and the academic advisors they corrupt promote austerity and unemployment so as to drive down wages to a degree that could not occur in the company-by-company clash between industrial employers and their workers.

In the United States, Federal Reserve Chairman Alan Greenspan explained triumphantly to Congress that what was so remarkable since 1980 was that labor productivity rose by about 83 percent, but real wages didn’t rise. The Maestro found the explanation to be that workers had been obliged to take on enormous mortgage debts, education debts, auto loans, and live on credit-card debt in order to keep up with their neighbors. Their precarious financial situation made them afraid to go on strike or even to complain about working conditions, because if they are fired and miss a payment in their electric utility bill, the interest rate on their credit card jumps to 29 percent. And in America if you miss a few mortgage payments, you can lose your home. So many workers fear that they are “one paycheck away from being homeless.” That’s what the debt overhead has achieved for relations between labor and capital. The two-thirds of Americans who own their homes are afraid to complain and lose their job, because this would threaten their economic solvency and hence their social status.

What’s happening in Greece is similar. And for a dress rehearsal, look at Latvia, where neoliberals had a free hand. Two years ago, internal devaluation reduced its public sector wages by 30 percent. This helped drag down wages in the private sector. Cutbacks in public spending shrank the domestic market and hence employment – and spurred emigration of young labor. Workplace rights are being rolled back in a way 19th-century industrialists never dreamed they could achieve under democratic government.

Nearly everyone expected that democratic government would act to promote rising living standards and expanding markets, not to act on behalf of the wealthy to shortsightedly shrink them. It seemed logical that technology would increase the economic surplus and hence make it less necessary for families, companies or governments to run up debt, not sink into it even more rapidly than the tangible surplus was growing.

Q: But if neither Greek banks nor local industrialists are gaining from this, what do international creditors expect to receive from borrowers that can’t pay their debts, mortgages or taxes? How does a jobless workforce help them?

A: The financial sector always has been so short-term as to be self-destructive. There’s been a race to the bottom – who can extract the surplus for themselves before anyone else does? Creditors treat the economy like an oil well, to be depleted, ignoring the long-term environmental consequences.

In this case the economic environment consists of tangible capital and technology, including the education and culture of the citizenry, capped by the debt overhead and rising concentration of property ownership, along with the political corruption that accompanies the polarization of wealth by giving government power to the most avaricious, shortsighted and vicious members of society. So political economy turns into the asocial and anti-social economics of Ayn Rand and the Chicago School, and financial predators find their Alan Greenspans and Tim Geithners to act as their factotums. They dismantle the power of government (kings in the Bronze Age, democratic governments today) to write down debts or regulate credit. Government becomes a board of directors of the financial wreckers.

You are quite right to notice that if such a government imposes such extreme austerity that families and companies cannot pay their debts, the banks will lose and the government can’t collect the taxes it needs to reduce the deficit. This is what the International Monetary Fund’s austerity programs imposed on Latin America of the 1970s and ‘80s. That required military dictatorships backed by U.S. armed force and covert destruction of the left – mass murder of intellectuals, labor leaders and school teachers on a continent-wide scale. Greece is now being treated economically the way that Latin American countries were treated by the IMF back then. It has not been necessary for U.S. state Department to send in the usual assassination teams to impose financial “equilibrium” creditor style, as under the Chicago Boys in Chile and Operation Condor in the Americas. The absence of covert and overt military force simply reflects the absence of serious opposition to the creditor plan.

Now that U.S.-backed dictatorships are being thrown off in Latin America and elsewhere, these countries are taking off economically. It shows the power of growth, once the financial oligarchy is checked from imposing its self-destructive economic policies. On the other hand, there is still a bonanza to be squeezed out of Greece and the rest of Europe by worsening the crisis – to the point where hapless governments there do what Latin American governments did: privatize the public domain, turning it over to buyers on credit, that is, on terms laid down by the banks, while deregulating the privatized monopolies.

Of course many banks will go under and many governments will be driven into insolvency. That’s the objective. The idea is for big fish to eat little fish. Banks that go under will sell off their debt claims on the cheap to major financiers in other countries. The vultures will have a field day, as they did in taking over Iceland’s banks. (That story has not been widely told.)

Financialization leads to the bankruptcy of local banking systems so that outsiders can come in and make a huge property grab. So the banks become casualties, just as the most highly criminalized U.S. banks deepest into fraud, Countrywide Washington Mutual (WaMu) and their cohorts in recent years were absorbed by the five large U.S. “too big to fail” giants. Many countries have pension systems that can be looted after the manner perfected under Pinochet in Chile in the late 1970s. This in fact remains the U.S. plan today.

Of course it will impoverish the economy. But the big banks and bondholders hope to be able get out fast enough to take their money and run, and repeat the process somewhere else. The problem ultimately is that which Alexander the Great faced: He cried when he felt there were no more worlds to conquer. So finance capital will end in tears – first for the debtors, then for the creditors themselves. The parasite will die with the host. That is what caused the decline and fall of the Roman Empire.

Q: How has finance capitalism shaped economic theory to change the idea of a “free market” and treat social spending and investment as deadweight overhead instead of treating rentier income and property claims as overhead as in the classical economics of industrial capitalism?

A: Rhetoric plays a key role here. The essence of a “free market” financial style is to take planning out of the hands of government – democratically elected political representatives – and centralize it in Wall Street and other financial centers. Relinquishing the allocation of credit and untaxing property and finance transforms the mode of planning into the diametric opposite of what it meant to the Enlightenment and to the classical economists who sought to steer the drives of industrial capitalism to serve society’s long-term growth and raise living standards.

A free market financial-style means disabling government regulation (which Hayek called the Road to Serfdom), to give rentiers the unchecked freedom to exploit, not protect society by ensuring it freedom from exploitation. So this isn’t really a “free market” as people discussed this in the 19th and 20th centuries. It is a market of unchecked fraud and exploitation, with wealth and power being untaxed as well as deregulated. This is the economics of General Pinochet elaborated along the lines that Margaret Thatcher in England and Ronald Reagan’s “crazies” in the United States pushed under the slogan of the “Washington Consensus.” As Grover Norquist expressed matters, the aim is to “shrink government to a size so small that it can be drowned in the bathtub.” Of course, it is the citizenry that ends up being drowned in debt.

In practice a financialized “free market” simply shifts planning out of the hands of government and centralizes it in those of Wall Street and other banking centers. Financial dirigisme aims to endow a rentier oligarchy, not uplift the citizenry and the “real” production-and-consumption economy. So what ends up being reduced is not government debt, but public spending on goods and services, especially on Social Security and medical care – along with taxes on wealth and debt-leveraged “capital” gains. In contrast to public purchases of goods and services employing labor, new government debt is created mainly to bail the banks out of the losses that result from their self-destructive over-lending and outright gambling. The effect is to increase the government’s deadweight overhead under oligarchy, in contrast to democracy.

What is important to recognize in analyzing this shift in the locus of centralized planning is that the financial sector’s objectives are the opposite of those in the public sector. Democratic governments seek to increase employment, output and living standards. But relinquishing central planning to the banks, as the ECB and Washington Consensus wants to do, replaces democracy with oligarchy. Under these conditions financial planning takes the form of austerity, lowering wages and living standards. The ensuing economic crisis is used as an opportunity to grab whatever property is in the public domain – infrastructure, real estate and mineral rights, and even the creation of new monopolies to sell off and use the proceeds to pay the debts. (Chicago, for instance, sold the right of Wall Street investors to install parking meters on its sidewalks – increasing the cost of driving and doing business.)

This is how the South Sea Bubble was orchestrated: Sale of the asiento monopoly on the slave trade with the Americas that Britain’s government had won from Spain. Stock in the company was sold to the public – with insiders making early gains and then selling out before sticking the public with the crash. This is basically the plan to privatize Social Security. It is Pinochet’s and Thatcher’s “pension fund capitalism” expanded to orchestrate bubbles by inflating asset prices on credit, and then letting the economy collapse as it becomes high-cost and insolvent. The process is capped by the government creating debt to bail out the banks, but to help the tangible production-and-consumption economy recover. So financial planning under oligarchic government is all about the FIRE sector.

Unfortunately, economic history no longer is taught as part of the neoliberalized economics curriculum, at least here in the United States. So people are not aware of how destructive financialized management and planning has been ever since the fall of Rome.

Q: What would be a progressive solution to this crisis? Should the central bank simply monetize the deficits and consequent increase in public debt?

A: The technocratic solution is indeed for the central bank to create new government IOUs – money – to bail out bankers at home and abroad. If they the existing debts are paid in this way (or by letting banks foreclose), it would make the financial sector by far the most powerful economic and political actor. The economy would polarize between creditors and debtors, government insider rentiers while the rest of society falls into poverty.

My alternative is to anticipate that the end game must be a Clean Slate in any event. It’s simply a mathematical fact that debts that can’t be repaid, won’t be. So trying to collect them threatens to tear the economy apart. A lot of pain will be saved by cancelling the debts. Greece should tell its fellow Europeans that every government has a prime mandate to protect its people from catastrophe. To carry this policy out, Greece should annul all its debts and begin again with a Clean Slate, like Germany did in 1948. This would make it a low-cost competitive economy – as long as it taxes the free lunch of the land’s site-value rent that has been freed from debt, as well as natural resource and monopoly rents as a basis for its post-Clean Slate fiscal policy. So fiscal and financial reform need to go together.

Q: Do we need a central bank to monetize and coordinate such a policy?

A: You need a central bank or Treasury to create money to finance budget deficits without recourse to commercial banks and bondholders charging interest for credit that they create electronically on their own computer keyboards. The central bank’s role should be to regulate commercial banks and their lending policies, not serve as their lobbyist as presently is the case. The problem is that Europe doesn’t have a real central bank to finance government deficits, unlike the Bank of England or the Federal Reserve. This is crazy! The ECB won’t lend to governments – which is what central banks were founded to do. The ECB only buys from commercial banks, buying government bonds at a much higher price than the “free market” would set. So here again, neoliberal “free market” policy financial-style is antithetical to what most people think of as free markets.

It also runs against what voters expected when they joined the eurozone. Greece joined Europe because it wanted to increase its prosperity. To do this, it needs a real central bank. Either this needs to be created within the eurozone, or else Greece and the European periphery should start afresh with the kind of Clean Slate that fueled Germany’s Economic Miracle. All Europe needs a debt cancellation to bring debts back within the ability to pay.

Germany and its creditor allies would be welcome to join in the South’s effort to restructure eurozone finances, escaping from the craziness of a currency area of governments without central banks. The important thing is to avert an epoch of debt peonage resulting simply from being denied the right to have a proper central bank to do what every central bank in every civilized country of the world will do, namely finance the public deficit.

Q: Could a re-nationalized Greek central bank create enough money to pay off the debt in euros before the ECB has the chance to pull the plug on it?

A: The eurodebt shouldn’t be paid at all. In any case, it can’t be paid without selling off the country’s public domain. It is true that debts can be paid off by printing the amount of money that’s needed. That happened in the United States when the Federal Reserve created $13 trillion to cover the bad debts held by the banking system before it could stick Europeans, pension funds and other gullible buyers with junk mortgages and impossibly convoluted derivatives.

The problem is that the Fed’s act rescued the banks, not the economy. It kept the bad debts on the books instead of writing them down. The banks created a recklessly and unpayably high debt overhead that is subjecting the national economy to debt deflation as debtors try to pay by drastically reducing their consumption and tangible new investment. The opposite policy should be pursued: Mortgage debt should be written down to the ability to pay instead of the Federal Reserve and Treasury financing bank losses and bad gambles. Bondholders should lose, and only FDIC-insured depositors be rescued.

Greece should learn from America’s folly and refuse to borrow from the ECB to pay bondholders on debts that have been run up by lacking a central bank and by not taxing the wealthy – and by letting them avoid taxes by accounting tricks such as taking their profits in tax-avoidance centers such as Switzerland. Greek banks have acted as enablers in capital flight and corruption. So let eurozone creditors pursue this flight capital while Greece builds a more rational financial and fiscal system with a Clean Slate. It may find allies in Southern Europe (Italy, Spain, Portugal), the BRICS or neighboring countries in the Baltics and Far East.

Q: Haven’t Germany and the major Eurozone countries shifted the bulk of Greek public debt out of the hands of private bondholders (mainly EU banks and hedge funds) onto the official sector (EU states via the ECB and IMF), ultimately to be paid by Greek and other EU taxpayers?

A: That’s right. As matters stand, the eurozone has been waging warfare against Greece. Greece has a right to respond by taking back control of its property by taxing its economic rent or windfall gains. This is why the financial sector a century ago sought to deny that there was any such thing as economic rent, that is, unearned income.

Remember that Henry VIII nationalized the monasteries and church lands in England. Northern Europe responded to the papacy in Rome draining tribute by elevating national interest to the highest religious plane as the only way to break the financial bond. Protestantism was largely a financial response against papal bankers, the Lombards, Florentines and their brethren described by Dante in his Inferno. To achieve financial independence, Northern Europe needed a new ideology capped by religious independence – and indeed, civil independence from religion. That came finally in the form of the Protestant Reformation. Greece needs to do the same thing politically today. This requires an ideological alternative to neoliberal pro-creditor doctrine insisting that paying debts is part of “free markets” and denying that any income or wealth is unearned.

Q: How can Greece counter the terror propaganda warning about the horrors and calamities that threaten to befall the nation if it defies its troika conquerors and tries to go it alone?

A: The real terror is what would happen if Greece surrenders to the financial aggressors behind the ECB. Throughout most of history, populations and governments have fought back. Creditors know this, which is why it really is the banks that are afraid, because they’re paper tigers in a fight with a government that uses its sovereign legal powers. Greece can do whatever it wants with regard to which debts get paid or are written down or written off altogether. It can re-denominate debts in its own currency and then devalue. Or it can simply repudiate the debt as being unpayably high.

In the first place, Greece wouldn’t have to act alone. It has options. Its diplomats can pursue agreements with other countries that are in the same sinking debt boat. They may reject that the eurozone model of austerity and debt deflation. In America, for instance, Donald Rumsfeld has referred contemptuously to “old Europe.” This reflects a feeling that the eurozone is a Dead Zone. Greece can say that it has no intention of being sucked financially and fiscally into this dead zone. It can approach the BRIC countries, and even ask for U.S. support to become a new potential growth area.

Q: What are the options available to the rest of the world to resolve the debt crisis and avoid global depression?

A: A shrinking economy tends to fall further into arrears in a debt spiral. The question today is whether a new ideology and political program of reform will emerge to complete the task of classical political economy by freeing markets from unproductive debt overhead and unearned rentier income. The alternative is a Counter-Enlightenment that would roll back the democratic era that industrial capitalism promised to inaugurate.

Rentier interests have escalated their fight against Progressive Era reforms to defend financial interests. They have gained control of the mass media and universities, the courts and now the government itself under the U.S. “Citizens United” ruling that relinquishes election campaign financing to whomever has the most money – which is turned into TV commercials and a massive ideological propaganda machine to convince voters that There Is No Alternative to debt peonage. This bold ideological inversion of Enlightenment values even celebrates asset-price inflation and debt peonage as the workings of the “free market” as if it were a natural evolution, not a hijacking and derailing of economic development.

At issue is how society will liberate itself from the buildup of debts that can’t be paid. If governments let the financial sector foreclose, they will end up being forced to privatize the public domain under duress conditions at distress prices. They will have to dismantle public administration and welfare services. The problem is capped by having to turn tax policy over to financial lobbyists who claim to be objective technocrats. The result must be economic polarization between creditors and debtors ushering in a new Dark Age of poverty and deepening debt peonage. Wages, profits and property rents will be earmarked to pay interest – on loans that can’t be paid in a shrinking economy.

This is the point at which the financial sector uses its political clout to demand bailouts from the government, adding to public debt. The new credit given to the banks is sent abroad as banks jump ship. This is what happened to the U.S. Federal Reserve’s $800 billion Quantitative Easing #2 in 2011.

The alternative to this nightmare scenario is write down debts to what can be paid, within the framework of a mixed public/private economy geared to distribute wealth and income more equitably. This involves not only monetary and financial reform but tax reform as well. It needs to be highlighted in the public consciousness by placing at the heart of the academic curriculum and media discussion the history of how societies have dealt politically with their debt overhead throughout history.

A new set of key measures needs to be reported and kept in the forefront of political discussion. Monetary theory needs to distinguish between asset-price inflation (the bubble economy’s debt-leveraged real estate, stock and bond market boom) and consumer price inflation. The National Income and Product Accounts need to recognize the magnitude of the FIRE sector and treat its revenue as eating into the economic surplus, not increasing it. And asset-price (“capital”) gains need to be tracked as part of “total returns” to explain the economic polarization between rentiers and wage earners.

But I realize that all this is another story.

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83 comments

  1. David Lentini

    Great piece. Given the ample history of the destruction and misery caused by rentier economies, I’m still trying to understand whether this “neo-classical” financialization push (or putsch) was all part of a grand scheme to return the financial elites to full power by dismantling the New Deal and post-war social democracies using debt peonage; or whether the likes of Friedmand and Hayek were just morons, leading everyone down the garden path?

    1. Benedict@Large

      They were morons. Both believed passionately that they were openning the gates to Nirvana. The piles of dead bodies along the way were regretable, but were worth the price of the eventual goal. Economists who are assured they will never actual be one of those bodies often feel this way.

    2. nonclassical

      David,

      those of us who lived Poly-Sci 70′s-80′s have been reading tea leaves for decades..having watched south-central american “chicago boys” (milton friedman) economics there..Naomi Klein does a proper job of describing, (“The Shock Doctrine”), as does William Blum, (“Killing Hope”) and Perkins’ (“Confessions of An Economic Hit Man”).

      What is surprising to those of us aware of said history, is americans completely
      willing to accept in ignorance, greenspan=”free market should regulate itself”
      economic disaster perpetrated by Wall $treet…

      It’s not all that difficult to follow the $$$$, regardless of fact mainstream media
      has no intention of informing-telling truth..

      and when one challenges this ignorance on “opinion” forum, fundamentalists complain when we document=Orwellian “double-think”…

    1. Carla

      Let me suggest that while “The Bubble and Beyond” may be available at Amazon, those who wish to purchase it could commit a revolutionary act and ask their local, independent bookstore to order it for them.

  2. YouDon'tSay?

    Absolutely the most clear and concise description of current events that I’ve seen yet. Absolutely NAILS IT, right down to the prescription for alleviating the current crisis. Now then, can such radical thinking possibly get through in the current environment of fateful dumbed down lethargy and hopelessness among the masses and an utter Cossack raiding mentality among the rentiers? Let’s just say the odds are stacked against it.

  3. Robin Hood

    Things were simpler in my day.

    The King handed out Earldoms and they rentiered the land to the peasants. They gave farms to knights, but knights could be drafted at a moments notice to protect the Earldom or Kingdom. Or just loot France, which was always popular.

    The King also bequeathed land to bishops, churches and monasteries. The monasteries particularly liked real estate because they could rentier it to peasants.

    We did not have this thing called banks. If you needed money to have a ship or something built, you talked to a Jew or a mercantile guild. But you had to eventually pay it back, plus a Tally Stick.

    1. NotTimothyGeithner

      The Jews weren’t the only bankers in Medieval society. They were just the honest ones and would attract business because you would get a fair and transparent deal. This pissed off the aristocrats and the church who lose their renting business, and then they would round up the serfs with stories of Jews killing baby Jesus to drive up their prices.

      Part of the reason Jews did so well in the Holy Roman-Empire/Austrian-Hungarian Empire was the Archduke/Emperor (whatever title he held) was the ruler wasn’t necessarily a genuine aristocrat and was seen as a position others could seize through violent and non-violent means. A Jew couldn’t take power, but Jews could support the emperor/archduke. They were protected versus areas in Western Europe where the local prince was supreme from a birthright.

      At the same time, Jews were restricted from many opportunities because of general prejudice and societal pressure kept those Austrian-Hungarian Jews from being too rich and never achieving asshole status. They still had to make deals which were lucrative for both sides in the arrangement.

      It wasn’t perfect, but when the old system broke in the wake of World War I, the new powers that be wanted to keep their wealth and blame it on someone. Jews were prominent and prosperous in cities, and foreign to the rural population.

  4. Jim A.

    Even though investment banks normally only lend against current estimates of proven revenues, that does NOT imply that none of the money lent is isn’t used for new or improved plant and equipment. Rather than waiting for actual profits to stack up, companies issue bonds to borrow against future profits to invest in plant and equipment. This leaves the decision about whether an investment is likely to be profitable in the hands of the management of the company who presumably knows more than the banks. The problem is that there is more money looking for a place to go than there seem to be profitable investments. And the fact that many managers are more interested in the stock price and their own compensation than actually running the company effectivey.

  5. Warren Celli

    “The alternative to this nightmare scenario is write down debts to what can be paid, within the framework of a mixed public/private economy geared to distribute wealth and income more equitably. This involves not only monetary and financial reform but tax reform as well. It needs to be highlighted in the public consciousness by placing at the heart of the academic curriculum and media discussion the history of how societies have dealt politically with their debt overhead throughout history.”

    This is a Vanilla Greed for Profit Evilism lament that fails to see the depth of the problem and it is too accepting of usury. There is NO responsive to the will of the people government to effect the ‘back to the good old days’ changes called for.

    The bankers own the dream machine,
    The bankers own Moody’s,
    The bankers own the crooked pols,
    On strings like Howdy Doodys,

    Bankers make you what you are,
    Then bankers take you down,
    While you wallow in their deceptions,
    Like a frightened ass hat clown…

    No balls! No brains! No freedom!

    Speaking of freedom, what date in the year does Banker Freedom Day fall on?

    Deception is the strongest political force on the planet.

    1. nonclassical

      …don’t forget that bushit family friends McGraw and Hill own S & P 500 ratings
      agency..(Kevin Phillips-”American Dynasty”)…they also were rewarded with contract for printing textbooks-tests for “no child left behind”…

  6. Thingumbob

    While much of the analysis her is unobjectionable, what was not said was telling.

    Firstly, the notion that some ineffable northern European Enlightenment promoted manufacturing is untrue. Alexander Hamilton’s National Bank explicitly did so in open opposition to Adam Smith’s doctrine of free trade. (Which doctrine was used as an apology for the opium trade of the East India Company, the oligarchical scheme that created the British Empire.) See his report on Manufactures. Hamilton’s solution to the Revolutionary War debt was the unique protectionist response that was later to be called the American System by the American economist Henry Carey. Friedrich List then advocated this same policy in Germany. Abraham Lincoln used this system to defeat the confederacy in the civil war. FDR through rural electrification, social security, Glass-Steagall, Bretton Woods etc. revived it.

    Secondly, the derivative securities “bucket shop” morass was the outcome of the Nixon’s end to Bretton Woods which led to a bubble of currency arbitrage and then Gramm-Leach-Bliley takedown of Glass-Steagall. Without its reinstatement the so called investment banking will continue its corrosive looting…

    1. Mark P.

      [1] Thingumbob wrote: ‘Firstly, the notion that some ineffable northern European Enlightenment promoted manufacturing is untrue. ‘

      The Industrial Revolution began in Britain — no ineffable Enlightenment required, though dark satanic mills were — and is seen as running there from 1750 to 1850, spreading to Western Europe and only finally to the US, which was by comparison largely an agrarian backwater till the second half of the 19th century.

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

      During the Napoleonic Wars, which ended in 1815, the British operated closely with the Rothschilds: the Duke of Wellington used them as his paymasters for the British armies in the field and for their then-unparalleled information gathering and transmission capabilities. Once the Napoleonic Wars ended, the Rothschilds — alongside Barings bank (which Nicholas Leeson finally ran into the ground a few years back) — played a primary role in underwriting the mass rollout of the new technologies, like railways, steamships, engine-powered manufacturing, etcetera. That’s how the Rothschilds got to be the Rothschilds, essentially.

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

      Hudson is correct and you’re wrong

      [2] Thingumbob: “Alexander Hamilton’s National Bank explicitly did so (promoted manufacturing) in open opposition to Adam Smith’s doctrine of free trade.”

      Alexander Hamilton lived from 1755-1804, and helped found the First National Bank in 1791, at a time when the U.S. remained a provincial continent run by gentleman-farmers and slave-holders. So Hamilton’s efforts were essentially irrelevant to the Industrial Revolution already proceeding in the U.K and gaining force in Europe

      [3] Thingumbob: Adam Smith’s doctrine of free trade …Which doctrine was used as an apology for the opium trade of the East India Company, the oligarchical scheme that created the British Empire.’

      It could sound like you’re claiming that the opium trade of the East India Company was the oligarchical scheme that created the British Empire. If so, no.

      The First Opium War ran from 1839 to 1842 and the Second Opium War from 1856 to 1860. The British Empire was long-established by that time, and the East India Company (EIC) was founded as far back as 1600, when it was granted a Royal Charter making it the oldest among several similarly formed European East India Companies.

      The EIC was focused on extracting wealth from the Indian subcontinent, first of all; the British Empire itself saw India as the ‘jewel in the crown.’ The British and the EIC were interested in China only as a source of tea, and to a lesser extent of silks and porcelain. Since the Chinese would initially accept only silver as payment for these goods, the British solved that problem by creating a demand for opium among the Chinese population.

      In the context of such utterly rapacious mercantilism, the doctrines of Adam Smith — while they may have been drafted to serve as a notional justification during contemporary debates about the Opium Wars in the British Parliament — are about as relevant as the doctrines of Jesus Christ were to the behavior of the Spanish conquistadors.

      1. alex

        “The Industrial Revolution … from 1750 to 1850, spreading to Western Europe and only finally to the US, which was by comparison largely an agrarian backwater till the second half of the 19th century.”

        “Alexander Hamilton lived from 1755-1804, and helped found the First National Bank in 1791, at a time when the U.S. remained a provincial continent run by gentleman-farmers and slave-holders. So Hamilton’s efforts were essentially irrelevant to the Industrial Revolution already proceeding in the U.K and gaining force in Europe”

        That’s a gross exaggeration of how far behind the UK the US was in the Industrial Revolution. If anything the US was ahead of many European countries in the Industrial Revolution.

        For example, the Beverly Cotton Manufactory was created in 1787 and was the first cotton mill in the US and the largest in the world. What later were named the Lowell mills were established in 1813. In the early 19th century a number of machine tools were invented in the US which made interchangeable parts and the “American System” of manufacturing possible. Much early steamboats development (by Robert Fulton, et al) and use also took place in the US in the first decades of the 19th century. Railroad expansion was well underway in the 1830′s and only lagged Britain by a few years. We started building our own locomotives in 1830.

    2. JamesW

      While your points on Alexander Hamilton are spot on, your first point,

      Firstly, the notion that some ineffable northern European Enlightenment promoted manufacturing is untrue..

      Doesn’t sound right, as the French and Brits were far, far ahead of America early on with regard to manufacturing, including replaceable parts manufacturing, etc.

      Meritocracy in America began and ended with Alexander Hamilton, and Forrest McDonald’s biography on Hamilton is outstanding.

      http://www.amazon.com/Alexander-Hamilton-Biography-Forrest-Mcdonald/dp/039330048X

      1. alex

        As often happens with the history of technology, it’s more complicated than that. France was a pioneer in interchangeable parts, but the parts were initially made by hand to tight tolerances instead of by machine tools. As a result the guns they made were more expensive, but it simplified military logistics. The British also did some early work with interchangeable parts, but it was mostly Americans that made it a system for reducing costs by inventing machine tools that could inexpensively manufacture to the required tolerances. As such it became an integral part of what the British called the “American System”.

  7. PhilJoMar

    @Thingumbob
    I get a little uneasy when the Brit Empire gets blamed for everything under the sun. I agree a lot of it was absolutely terrible and Britain has not in ANY way come to terms with the havoc it created but remember what a cool thing opium is. Think about all those people in the past with untreatable disease, rotting teeth, etc. and how effective laudanum would have been for these poor people( then you get even more economic complexity when a laxative industry has to arise to deal with all those bloated bowels!!!). Plus Adam Smith did not invent the concept of free trade and his Wealth of Nations is a much more complex book for any of you out there who haven’t read it. I am not sure but I think the term laissez-faire came first and was used by the Physiocrats as a handy term for freeing up the trade in grain (which was a disaster as soon as it occurred). I could have Wiki-ed this but I reached into my memory (wow, what’s that?!!!) for what I think is a ‘correct’ correction of what you’ve written.
    Well, I did the wiki and it seems to go back to Colbert, d’Argenson, and Gournay. So I was wrong there.
    However, I should also say, it is only oligarchs who create Empires and the hisotiographical consensus seems to be that there were two main phases of the BEmpire: the earlier one that encompassed North America in the C18 and the second which was focussed mainly on India in the C19.
    However, there does seem to have been a worldwide worry about British domination of manufacturing and eastern Europe becoming an agricultural hinterland for the british centre. So with my ignorance of US financial history, what you say about Hamilton would make a lot of historical sense to me.
    Please for give my Aspie ramble.

    1. JamesW

      Excellent and outstanding points on Adam Smith — and certainly Smith was against the modern definition of “free trade” — he was against speculation, foreign investment (and would have been staunchly against the offshoring of jobs from countries), and stood for equitable distribution of wages and ownership — completely unlike the monopolistic predatory capitalism of today.

      Excellent column by Taibbi in Rolling Stone today:

      http://www.rollingstone.com/politics/blogs/taibblog/a-rare-look-at-why-the-government-wont-fight-wall-street-20120918

      1. banger

        Thank you for that. Smith is usually radically misunderstood and his ideas are tortured into justifying neo=feudalism which Smith would not have favored.

  8. Mickey Marzick in Akron, Ohio

    “The Maestro [Greenspan] found the explanation to be that workers had been obliged to take on enormous mortgage debts, education debts, auto loans, and live on credit-card debt in order to keep up with their neighbors.”

    At the risk of sounding like I’m defending the financial oligarchs, I don’t recall anyone being compelled to borrow to keep up with their neighbors. I’m old enough [61] to remember the deluge of credit cards, home equity loans, etc., but nowhere do I remember anyone being forced to borrow.

    The “credit spigot” was merely the means whereby working stiffs and their fellow travelers mortgaged their future for living in the material world of the eternal present. Materialism beyond a certain point. much like power, tends to corrupt. Easy credit is for easy living and the good times in perpetuity promised US by elites – business, political, and academic. But it masked the decline in living standards of the average American recounted on NC too many times. Was it a trap? Of course it was. But too many Americans fell for the swill.

    Was it greed or stupidity? BOTH! But this dumb-ass from the working class didn’t fall for it or believe it could last forever. Even forked out $50K last year to bail out a family member drowning in debt. Will have to work a little longer now. My attorney told me that I should have had this individual declare bankruptcy like everyone else… Yeah, rational behavior and the logic of collective action – a FREE RIDE – but it is not my way. Just stupidity of another kind! Lest you think I’m a reclusive monk without any toys, I’m not! Indeed, I will likely burn in hell for what I do have. But I’m debt free with a savings account to see me through the long cold winter coming our way. No regrets for simply living within my means…

    Explaining the why or the how of the “Fall” is equally important, perhaps even more so than the author’s account of its financing and historical precedents. It could not have happened without our consent even if it was manufactured. But making excuses in lieu of an explanation just doesn’t cut it with me anymore. Any of you feel the same? Blame the oligarchs, blame the … blame the … blah, blah. It’s always somebody else’s fault. Blame me and others like me who opted not to wallow in debt if you want.

    But somewhere I recall that eternal vigilance is the price of liberty. For everything else, there’s MASTERCARD!

    1. jake chase

      Right you are Mickey, and about all those mortgages which so many saps eagerly signed on to and now complain that they were misled about the exploding interest rates, etc. Easy credit is the catnip of the sucker class. Those who refuse to be suckers will wait (as I did) to age 66 to buy a single family house in a decent neighborhood. They will not breed and the smart ones will not marry either, which resolves the population explosion rather neatly. Of course, since most people are suckers, those who are prudent will be forced to overpay for that house and their comfort in not owing a dime on it may be small comfort. Being lonely in a large house isn’t much more fun than being lonely in an apartment. We’re pretty much damned if we do and damned if we don’t.

      1. David Lentini

        I don’t think it was quite that simple. There is a lot of evidence of widespread pressure, misrepresentation, and outright fraud in the mortgages themselves. The banks have put on a full court press to keep the courts from reviewing the enforceability of many home loan contracts. And isn’t it the responsibility of the lender to judge the quality of the risk it makes when giving a loan? Didn’t the bankers have access to the financial information of the borrowers?

        And didn’t the banks and even the Clinton and Bush administrations push the idea of the “ownership” society, where everyone “had” to get a piece of property to be considered truly American?

        And wasn’t the real magnitude of the 2008 disaster built on the bundling of the mortgages–both good and rotten–into derivatives that were repeatedly packaged and repackaged into new investment “products” that were traded between banks and other lending institutions?

        Sure, there’s blame to go around–But it’s not in equal portions by any stretch of the imagination.

        I can’t buy the argument that somehow all those moron mortgages holders put one over on the business school-trained bankers.

        1. Eric377

          I challenge that there is a lot of evidence of “pressure, misrepresentation and fraud” in mortgage loans. The first of that triumvirate is nearly nonsensical: if you don’t borrow this money, I won’t lend it to you or such? The second two are anecdotally popular but have serious credibility problems with them in that in nearly all states a standardized and quite complete representation of any loan secured by a property lien must be made to the borrower in order to close. Even on something like a “liar loan”, even if the borrower was not a deliberate party to the lies, they come to closing and are starkly presented with the facts of their loan. As for fraud, there is a stronger argument that the securitization of bad, but not fraudulent, mortgages has been where the biggest abuses have been made. There have been well-documented and pervasive abuses in the servicing of mortgages, but that does not make the loan itself fraudulent. Mortgage “complaints” come in two general flavors: ‘My available income to pay the mortgage has cratered (job loss or maybe divorce or medical bills)’. The second is ‘I thought this property was going to appreciate wildly and it didn’t and now this mortgage is killing me with no hope of it being a good use of my resources.’ Both are very regrettable and such borrowers should get our compassion (there but for the grace of God), but neither are cases of fraud.

          1. hermanas

            In Greek mythology, the Sirens were dangerous and devious creatures, portrayed as femmes fatales who lured nearby sailors with their enchanting music and voices to shipwreck on the rocky coast of their island.

          2. Thorstein

            In my personal experience, which is evidence enough for me, there is ample bank fraud out there to go around. In the early 90s I was offered an ARM refi (in Virginia) which I almost signed. Fortunately, I took it home and read it over before signing. I found buried on page 5 the 3-point rate increase clause that saved me from signing. Someone without a PhD could easily have missed that.

            True, for the condo I just bought in Florida, there were *lots* of boldfaced clauses and big red warning signs about the mortgage I had to take out while I unloaded my distressed property in Ohio, but that was all *new* language, mandated by Dodd-Frank. Seven years ago, the poor sucker who was the previous owner of my Florida condo got a no down payment mortgage. I doubt anybody waved red flags before his eyes. And was it responsible for the banks to offer a no-down-payment mortgage to a construction worker?? I think not.

            Like other damn-the-debtors voices, I am proud to have quickly paid off the bridge mortgage for my condo and to now own my home outright, but I don’t feel that makes me holier-than-thou — mostly I just feel luckier.

          3. Paul P

            There is plenty of evidence of fraud in mortgage origination. The book “The Monster” detailed the massive fraud from whistle blowers, court cases, and from political campaigns and efforts to pass legislation to combat it. The movie, Casino,gives a close up of people caught by the fraud machine. What do you think the FBI was referring to when it reported massive fraud in the mortgage industry?

          4. Mark P.

            Eric377 wrote: ‘I challenge that there is a lot of evidence of “pressure, misrepresentation and fraud” in mortgage loans.’

            Heard of MERS? Why not start there, since it’s a continent-wide fraud carried out by the mortgage and banking industries in every state of the U.S. and potentially effecting the title on 60,000-some real estate properties. Effecting as in invalidating –

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

            And MERS is only one facet, of what has effectively been the largest white-collar crime in history. Are you refusing to acknowledge that?

      2. Mel

        Real value of aggregate wages has been shrinking since 1970. The credit that was offered was increasingly the only way to stay in the game. And, anybody who drew a wage from the construction industry over the last 30 years was living off that credit, whether they knew to admit it or not.

    2. F. Beard

      but nowhere do I remember anyone being forced to borrow. Mickey Marzick in Akron, Ohio

      When a counterfeiter is lending, the option is borrow from him or be priced out of the market by those who do borrow.

      1. Mickey Marzick in Akron, Ohio

        Frank,

        In other words, “keeping up with your neighbors”. Don’t be left behind…

        I’m sure there is an appropriate biblical quote with which to respond but, forgive me, I can’t think of one. And I’m not being sarcastic or trying to offend your religious beliefs. I respect them, if not always agreeing.

        But let me throw out something from Joni Mitchell that comes to mind:

        Got to be a winner-trophy winner
        Get to hold your head up high up!
        Number one!

        Got to be a winner-trophy winner
        Get to hold your head up high up!
        Number one!

        Number one
        Number one
        Honey tell me-
        When your working day is done-
        Were you reaching for the high rung-
        Reaching to be number one?

        You get a car
        You want a boat
        You want an eenie-meenie-miney miney-moe
        Oh there must be more to living
        Than a mortgage and a lawn to mow

        Sweaty work
        And lucky breaks
        And blood and tears is all it takes
        To be a winner!
        People cheer
        And people gasp
        People want your autograph
        When you’re a winner!

        Run, run, run, run
        Let’s see you run
        We’ll be betting by the starting gun!
        Shall we shower you with flowers
        Or shall we shun ya
        When your race is run?
        Will we shower you with flowers
        Or will we shun ya
        When your race is run?
        Will they shower you with flowers
        Or will they shun ya
        When your race is run?

        Got to be a winner-trophy winner
        Get to hold your head up high up!
        Number one!

      2. Warren Celli

        F. Beard said in reply to Mickey Marzick in Akron, Ohio; “When a counterfeiter is lending, the option is borrow from him or be priced out of the market by those who do borrow.”

        True, and it is one of many reasons that creates the conditions that Jake Chase correctly laments and is worth repeating;

        “Of course, since most people are suckers, those who are prudent will be forced to overpay for that house and their comfort in not owing a dime on it may be small comfort. Being lonely in a large house isn’t much more fun than being lonely in an apartment. We’re pretty much damned if we do and damned if we don’t.”

        That is the strategy behind the herd thinning and pitting one citizen against another in perpetual conflict.

        Mickey forgets that some pigs are more equal then others and therefore have more responsibility than others. Yes, individuals must be responsible for their own actions, but those who appeal to their weaknesses and supply them with easy money — as if it were cheap heroin — are far more responsible. If your neighbors foolishly borrow and drive up the prices Mickey then in order to survive, some people, even though they may be prudently inclined, do have to borrow to hang on…

        The bankers own the media, the culture shaping machine, and the puppet politicians that sell the enslaving debt 24/7 like the Bernanke is doing right now with his disingenuous continued pump job. Back up a few short years and remember how sociopathic evildoer Xtrevilist George Bush, with a straight face, put baby Jesus on his sleeve, got elected President, lied the country into invasive, unjust, and immoral war and at the same time urged people to go shop at the malls to strengthen Scamerica. Many of them did so at his urging on home equity loans based in the your “Your home is your bank.” philosophy promoted by the same complicit and equally corrupt corporate media that put Bush in office.

        The fraud in banking is global, systemic, and based in aggregate generational corruption that has ‘legitimized’ graft and corruption and allowed the parasitic few fat ass banker pigs to control the global pie. These people are self anointed elite sociopathic Noble Liar sickos. They need to be institutionalized.

        Speaking of fat ass banker pigs, what date in the year does Banker Freedom Day fall on?

        Deception is the strongest political force on the planet.

        1. jake chase

          Warren, The society is rotten, corrupt, unfair, etc. Sooner or later individuals must learn to ignore propaganda, lies, turn away from cons, comeons and so forth. The purpose of intelligence is to distinguish fact from fiction, truth from lies. An intelligent person arranges his own life to keep the chaos created by others away. People generally want comfort, entertainment, security, acceptance. They are encouraged to believe they are entitled to these things, but there has never been and never will be a government or politician or businessman or banker stepping up to provide any of them. All those great deals being offered on TV one after the other are snares, traps and black holes. I never stop being amused by those who think that the answer is electing some Democrat, or (even worse), some Republican. It doesn’t matter how many times those politicians f**k them, they just keep pulling that lever and think they are doing either themselves or, in the case of sentimental altruists, the downtrodden a favor.

          1. Mickey Marzick in Akron, Ohio

            Jake,

            I’m glad I amuse you. But your point is well taken! And I must admit that a rethink is in order…

          2. banger

            Not quite. Governments have existed that were able to balance the needs of the public for all the things you mentioned plus insure that civilization continue, science and the art flourished. For better or worse American pretty much delivered to its people a better way of life than the Europeans had. Corruption was always a factor–rip-offs were routine and so on. But Americans were able to develop a fairly prosperous and secure economy by 1960 that kept going until the mid-seventies. My point is that this happened because there was a balance between oligarchs/conservatives and progressive forces. This has ended now because, in my view, the left gave up the struggle by the mid-seventies as labor gradually was lost to the left due to the Civil Rights movement such that the oligarchs realized that they could manipulate racial hatred and envy to create the “culture wars.” The left, in turn, decided that it would attempt to gain power by sermonizing and political correctness ignoring the down-and-dirty political work that kept left and right balanced during the preceding decades. The right, in contrast pulled out all the Machiavellian stops and cashed and went all out to take over the society. The right succeeded and the left is, effectively dead today. The left lacks a theoretical framework because it has accepted the neo-liberal assumptions that Hudson speaks of. Without a militant and bare-knuckled left (the pathetic Occupy movement is an example of what not to do) we will live in a neo-feudal society–I see it as pretty much inevitable since I see absolutely no evidence that the left has learned anything about what caused its demise.

    3. Lloyd C. Bankster

      But we’ve got the Wall Street propaganda machine with hundreds of billions of dollars and thousands of media professionals streaming false information 24/7 to brainwash the population with a pro-Wall Street message.

      And we’ve got the corporate media streaming anti-teacher, anti-Union, anti-working class, anti-OWS messages all day long.

      And we’ve got NPR, the NY Times, WaPo, ABC, NBC, CBS, CNBC, MSNBC, FoxNews,etc, on our side.

      But okay, we’re still getting a few anti-banker comments on one or two blogs like Naked Capitalism and The Big Picture, maybe one or two others, although even here there’s no consensus.

      Personally I’m not too worried about it.

      For every anti banker comment on NC, I can go to a place like Yahoo finance where there are thousands of commenters and something like a nine to one ratio defending Wall Street and the bailouts and attacking anyone who is not rich, such as the homeless, people facing foreclosure, Chicago teachers, Occupy Wall Street protestors, the unemployed or under-employed, etc

      You have to admit the Wall Street propaganda machine is definitely getting its message out there and it’s working, it already has 99 percent of the public completely brainwashed.

      So we missed a half dozen or so commenters on one or two of the blogs where the propaganda doesn’t seem to be having the desired effect.

      What should be done about this? 12 anti-banker commenters out of a population of 300 million isn’t too bad.

      I’m not too worried about it, I say let them have their fun.

      1. Warren Celli

        All it takes is for one or two good ideas to go viral.

        Speaking of fat ass parasitic evildoer banker pigs, what date in the year does Banker Freedom Day fall on?

        deception is the strongest political force on the planet.

      2. Lloyd C. Bankster

        Warren Celli: “Speaking of fat ass parasitic evildoer banker pigs…”

        Hey, I resemble that remark!

      3. banger

        What to do about it? Fist thing is to admit the truth which dissenters on the right and left don’t want to do. The armies have marched into the city and they are looting it–it’s too late to find a good strategy on how to defeat the oligarchs. They’ve won–and that is why there is this plethora or right-wing propaganda on the message boards. Part of this is funded by right-wing PR firms (they pay a ton of money to debt-burdened young people to write drivel–I know because I’ve seen it with my own eyes) but most of it is genuine because most people like to back a winner. That’s why there are so many Yankee fans!

        So let me further answer your question by saying that we now live in an emergent neo-feudal situation and that, for the most party, the Constitutional Republic is over. Sermons by leftists that “it isn’t fair!” aren’t going to cut it anymore. Political power is gained by creating disciplined and committed communities that can, through collective action, reward friends and punish enemies. Until that is grasped it’s pointless to talk about solutions. And I have seen no evidence that the left or even the libertarian right has grasped this notion. You create or enhance social bonds, stop working for the oligarchs, stop borrowing money, turn off the media unless you are trained to properly interpret what is being said, i.e., the techniques used affect the unconscious and you can argue with the screen all you want ant the message will still get through. We have to understand we are in an all out war to colonize not only our wallets but our psyches–and the latter is more important. Start from there and the rest will develop.

        1. SR6719

          Excellent comment, banger!

          Especially this line: “…we are in an all out war to colonize not only our wallets but our psyches..”

          If you had to summarize the situation we’re facing in one sentence, it would be hard to do better than this.

    4. alex

      Mickey Marzick in Akron, Ohio: I don’t recall anyone being compelled to borrow to keep up with their neighbors.

      You’re confusing people putting frills and luxuries on their credit cards with those who had to overpay for things like houses and a college education. I’ve no sympathy with the former, but the latter is a different story.

      I’m eight years younger than you, and hence no spring chicken. I got a BS and MS without have to incur a dime in debt, and without getting any financial assistance from my parents (who couldn’t afford it) other than very low rent when I went to college. Can anyone do that today?

      And even though I bought a house much later in life than most people, I was able to do so at a reasonable price that didn’t leave me in hock up to my eyeballs. Even with the recent drops in housing prices and interest rates, people today can’t get the sort of deal I got.

      Both the insane bubble in housing prices and the absurd tuitions were caused in large part by extending excessive credit to unqualified borrowers. Why shouldn’t banks take risks when the government will bail them out?

      In short, things are harder than when we were younger.

      1. Mickey Marzick in Akron, Ohio

        Alex,

        Having worked my way through school, I cannot dispute that it is much harder now than it was when both of us grew up. But I never owned a new car until I was in my 40s. I still have it – 1997 F150 Pickup. And paying for school forced me to choose between education or toys. But with tuition costs what they are today, it is more difficult.

        Moreover, the last thing I worried about was where I was going to work. The worst that could happen was a job in one of the rubbershops. But the writing was on the wall… and many failed to heed the warning signs.

        Bad news, even if the truth, just isn’t received well. When we might have been able to do something about it, many simply didn’t want to hear it. The good times were here to stay… even if on borrowed time.

    5. JTFaraday

      All this talk of credit cards and mortgages and student loans and hoarding the wife’s pin money is all very interesting and a useful course in Home Economics.

      But, it has almost nothing to do with Michael Hudson’s post which is, ultimately, about the more or less deliberate collapse of the State.

      Or did we miss that part?

  9. charles 2

    This is a really long post, but I didn’t have to courage to pursue after reading the “land is free” enormity. A casual look at any agricultural land shows that there is significant human work embedded in it (cutting trees, removing stones, leveling the field, etc…), and I am not even talking at the infrastructure allowing to move the products of the land toward the consumers, or soil management.

    It is too bad, I am sure there are excellent ideas out there…

    1. scraping_by

      “Land is free” as in land was a community asset, and the right to use it was determined by traditional community values rather than legally enforced sequester. The upkeep and upgrade you mention was, again, individual obligation to the community. It was work for the community that rewarded the individual. It’s improvement on something that was found, not manufactured.

      The major point you didn’t get to was the banks’ habit of extracting rewards without putting in work. Part of this was denying that any profits can be unearned, part of it was turning commercial arrangements into moral code, and other verbal sleight of hand.

      One thing that could be added, is the conflation of buying and making something. Financial propaganda uses these interchangeably, indeed, has replaced the concept of making with the concept of buying in many ways. Not the same process at all.

  10. jake chase

    Mr. Hudson has an excellent grasp of economic reality. Why is his 500 page book priced at $32.95? Does he think his progressive message is so powerful that it justifies a demand for economic rent?

    I would gladly pay $12 for the book, but most of his ideas are derivative of Veblen and Henry George, who said nearly all of this first and better too.

    1. David Lentini

      You should first learn the concept of “rent”–Selling your book, a product made by the author, is not a rent, it’s earned income from your labor.

      And arguing against a rentier economy isn’t anti-capitalist; in fact, as explained so well in the article, the rentiers are not capitalistists, they’re shakedown artists.

      So if you don’t like the price of the book, go and read Veblen and George; but try to learn something this time.

    2. JEHR

      That’s a very mean thing to say, Mr. Chase. If you had spent the time and energy in obtaining this useful information, then you might say that the price is too high. But the author’s intellectual expression is worth the price. Besides, the writer gives us a very good accounting of his information here, for free. Quit belly aching!

    3. matt

      Way to play the econ hipster: “…but most of his ideas are derivative of Veblen and Henry George, who said nearly all of this first and better too.”

      Maybe, but how many of us ordinary folk want to take the time to read Veblen or Henry George? Hudson does an excellent job of conveying his ideas. As for the price, soon there will be used copies for cheap, plus interviews like this one that give a good overview of the book.

      1. jake chase

        You all misunderstood my point. I’ll make it easier: Hudson’s analysis is very good. He is more worth reading than just about anyone writing today on economics. But his book is too expensive for him to expect enough people to read it to make any difference. The same is true of his other books. You can look them up.

        Economic hipster. I like that.

        1. Mark P.

          Hudson’s SUPERIMPERIALISM: THE ECONOMIC STRATEGY OF AMERICAN EMPIRE can be found as a free PDF, which you can put on your kindle and read.

    4. Carla

      As someone pointed out above, there’s always “the people’s university” — the as-yet still free to use public library.

  11. F. Beard

    Who needs banks?

    Monetarily sovereign governments like the US don’t.

    As for for the private sector, is it so stupid and unimaginative that it cannot think of at least one way to finance enterprise without stealing purchasing power from the poor? And which does not require:

    1) Government deposit insurance?
    2) A legal tender lender of last resort?
    3) Legal tender laws for private debts?
    4) The debt of the monetary sovereign (Bill Mitchell calls this “corporate welfare”)?

  12. Tom

    In spite of the ingenious methods devised by statesmen and financiers to get more revenue from large fortunes, and regardless of whether the maximum sur tax remains at 25% or is raised or lowered, it is still true that it would be better to stop the speculative incomes at the source, rather than attempt to recover them after they have passed into the hands of profiteers.
    If a man earns his income by producing wealth, nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption? To cripple or burden such a man means that he is necessarily forced to employ fewer men, and to make less goods, which tends to decrease wages, unemployment, and increased cost of living.
    If, however, a man’s income is not made in producing wealth and employing labor, but is due to speculation, the case is altogether different. The speculator as a speculator, whether his holdings be mineral lands, forests, power sites, agricultural lands, or city lots, employs no labor and produces no wealth. He adds nothing to the riches of the country, but merely takes toll from those who do employ labor and produce wealth.
    If part of the speculator’s income – no matter how large a part – be taken in taxation, it will not decrease employment or lessen the production of wealth. Whereas, if the producer’s income be taxed it will tend to limit employment and stop the production of wealth.
    Our lawmakers will do well, therefore, to pay less attention to the rate on incomes, and more to the source from whence they are drawn.

    Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
    It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
    But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
    Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
    Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.

    1. kevinearick

      Ultimately, labor employs nature in a symbiotic relationship to become what economists call capital. you are betting that jpm, fedex, cat, apple, and bernanke can deploy capital, nature, better than i can, and you have all of history on your side, yet i continue to bet on labor. we are all in now. we shall see…

    2. jake chase

      Henry George got this right in 1878. Speculation withheld land from productive use and generated rent for those who had grabbed it. His solution was a tax on unimproved land values, which would have made speculation unprofitable. In 1904 Veblen explained that business is the sabotage of industry through speculation and recapitalization of earning power. Both land speculation and “business” are fueled by bank credit. Banks collect rent in the form of interest and speculators cash in on capital gains. Together they impoverish labor and real capital, which is past labor stored beyond the needs of consumption. All of classical and neoclassical economics is so much rubbish dedicated to obscruing and obviscating these truths. Economic Hipster My Ass!

  13. JEHR

    Every time I read about the rentier society that is forming, I get more and more depressed. I will probably not live to see the outcome and maybe that is fortuitous.

  14. kevinearick

    Bernanke is all out of rough adjustment, but has all kinds of fine adjustment remaining. he told you that. you know the remainder is all on behavioral auto-pilot.

    trade union, the real university, is critical to economic performance,and the explicit university system is on the other end of the pipeline, but finance, empire tv, broadcasts exactly in reverse, extending increasing credit to consumption of the status quo, best business certification, which cuts off the leading tail in iterations.

    the turning point was FDR appointing all those justices, destroying an entire generation of labor and delivering its product to capital, through goverent, which then replaced trade unions with public unions and recast trade unions in their image, forcing the goverment entitlement system down their throat, to create the necessary economy of scale to implement supply side economics, practical socialism. the obomny frankenstein is just a downstream symptom, as is complete union destruction.

    you’ll have that with an aging economy. the life cycle exists for a reason. of course consumers will line up for free pie, but what happens when there are no more pie makers?

    Look at the physical infrastructure. you can’t see the digital infrastructure, but it is far more leveraged, and how many of you can fix its symptoms, let alone modernize it? do you really want to go back to the dark ages?

    The economy is now running on nothing but future promises, and those kids are bearing the brunt of its stupidity. come february, when the entire load falls on the digital system, and the kids do not show up to participate in the war economy, you might want to have your house in order.

  15. kevinearick

    The root pavlov switch is “capital” for nature, and we are going to reverse the polarity, with or without the middle class. how many of its bloodlines, which are now synched with capital, depends upon where they place their faith.

  16. Tom

    As Simon Patten, the first economics professor at the nation’s first business school (the Wharton School) explained, public infrastructure investment is a “fourth factor of production.” It takes its return not in the form of profits, but in the degree to which it lowers the economy’s cost of doing business and living. Public investment does not need to generate profits or pay high salaries, bonuses and stock options, or operate via offshore banking centers.
    From previous article on this site – sorry about not proper attribution.
    Some Humor
    He isn’t really a big time crook unless you must let him alone to prevent the loss of public confidence.

    There is a bright side, after watching great minds combat the recession you should be rid of your inferiority complex.

    However, the evolutionary process by which monkeys made men of themselves was considerably slower than the reverse process.

    Civilization is the condition in which one generation pays the last generation’s debts by issuing bonds for the next generation to pay.

    1. F. Beard

      Civilization is the condition in which one generation pays the last generation’s debts by issuing bonds for the next generation to pay. Tom

      Bulls**t, at least partially. Monetary sovereigns have no need to issue bonds and indeed should not since they constitute “corporate welfare” according to Professor Bill Mitchell.

  17. Susan the other

    Has anybody else noted this confluence: The EU just bought time, 3 years, in which to come to a political/fiscal consensus. And Bernanke just said ZIRP will be extended another 3 years, to mid 2015. Right now this system which we have been brainwashed to believe is capitalist free markets has totally collapsed. But it’s on life support because it is the only system we have. Three years. So we will continue to support debt extraction income for the financiers at the lowest possible cost to us, even though it has nothing at all to do with economics. It is pure politics. Yesterday’s rant about the price of risk is moot. The real risk is one of destruction to and by financializers and bond vigilantes pretending they are part of a functioning economy.

    About Hudson’s advice to Greece. The Greeks, by a small margin, voted to stay in the EU. Germany has softened its position. The ECB thusly. It would be impossible for Greece to shift to the drachma without more self-destruction than being a member in the EU is causing. Besides there is always the hope that the financiers understand the destruction very clearly and know they are destroying themselves. And when politics and fiscal policy converge, the ECB can create a genuine money commons and repudiate or resolve debt on a EU-wide basis; and create a clean slate, as Hudson recommends. And that is what we should do too. If we can hang on that long. I’m thinking there is another tributary to the confluence: the time it will take to end the war in the Middle East.

  18. kevinearick

    So, i’m in front of the plumbers and pipefitters board, and the journeymen have quite dutifully told me to tell them how important the pension and healthcare benefits are to me(supply side industy demand/infrastructure positive feedback), and instead i give them a little history lesson, as gently as possible, but, naturally, it goes over like a ton of bricks, and they deny my application, despite a perfect test score and overflowing recommendations from my union job supervisors…

    you had to be there, i was walking to work in blizzards(iowa)…crack me up.

    1. kevinearick

      Capital and middle class talk about labor like they know something about it, which they don’t, like hunting, belonging to a union, or studying yesterday’s regression qualifies them.

    2. scraping_by

      You mean history about the good old days when benign employers looked after their workers out of deep personal decency? Or the one about upright pioneers building the nation with only their own two hands? Or the one about being happy living on a soupbone and a box of crackers a week?

      Benefits are real, unless they disappear in a government-sponsored corporate takeover.

  19. Enslavedlikeme

    1. Vote OBAMA OUT this November. (He fooled everyone)

    2. Vote ROMNEY OUT in four years. (He’s fooling no one)

    3. Get your friends, brothers, sisters, even your enemies up and away from the Boobtube, and actively fight for 8 year maximum term limits for ALL local and nationally elected officials.

    Get rid of these enablers or you’ll surely be despised for doing nothing and forcing generations to be.. Enslavedlikeme

    A simple effective Non-Violent plan for all levels of “We the People” and the only way to make an immediate impact …unless of coarse, you’re pissed off enough and have the balls to SHORT your lender/originator/broker and their bottom feeding lawyers.

    1. Lambert Strether

      I don’t do the 11-dimensional chess thing any more (rotisserie baseball) but it has occurred to me that (a) if the Ds win the Senate, then the Supreme Court argument is moot, and if (b) Romney ends up holding the bag, the Ds in opposition will prevent Social Security from being cut, as they did under Bush, but in power will cheerfully slash it. Just a thought. Basically, I’m happy with a crippled gridlocked system that doesn’t make things worse for now, and waiting for one of the two legacy parties to crack (looks like the Republicans, now, pass the popcorn!)

      1. JamesW

        Basically, I’m happy with a crippled gridlocked system that doesn’t make things worse…

        Negative, you serously don’t understand Prof. Hudson’s article nor what the current bizarre status is with the fantasy-finance system extant in America.

        April, May, June of 2013 are very odd months, when the indicators of Jul-2012 to Dec-2012 become obvious.

  20. steve from virginia

    Michael Hudson has done a terrific job of putting forward to the public his argument for finance sector reform.

    Unfortunately, I disagree with almost all of it: our crisis is not a problematic finance sector, rather it is an unproductive physical economy that requires finance debt to simply get out of bed in the morning.

    Ours is a crisis of exhausted capital rather than defective finance balance sheets. Finance has gained ascendency because it has a natural monopoly: without debt there is no industry, period.

    Waste-based economy depletes the capital it requires. Adjusting the waste-based economy to operate at greater efficiency depletes capital more thoroughly at a higher rate (Jevons).

    On a cash-flow basis the consumption economy is continually ‘underwater’, the gap between capital cost and system return is financed. When input prices are low, the amount to be financed is affordable. Scarcity reprices resource capital, it becomes more costly than what can be affordably financed. At some point both capital and necessary credit are priced out of reach. The resulting ‘demand destruction’ is currently underway around the world.

    That the industrial economy cannot afford itself is self-evident: if the enterprise was productive it would retire its own debts. Industrial productivity is a myth … promoted by industrialists themselves who use credit to effect economies of scale … to continually take on greater amounts of debt.”

    http://www.economic-undertow.com/2012/08/06/1000-words/

    Moderns are compromised: they cannot imagine a world without flat-screen TVs, luxury performance sedans, ‘smart’ appliances, office towers, tract houses, shopping malls, hip-hop, freeways, air travel, jobs that do not require hard labor … all of these enterprises cannibalize irreplaceable capital, debt is foundationally necessary for these things as oxygen.

    As such there is no future with modernity. It goes or we go …

    1. alex

      “Moderns are compromised: they cannot imagine a world without .. hip-hop … all of these enterprises cannibalize irreplaceable capital”

      That’s a fascinating thesis that hip-hop cannibalizes capital. Is that different from say jazz?

      1. skippy

        Hip Hop – a popular distracting dance engaged in whilst irreplaceable carrying capacity is destroyed.

        In addtion, Moderns could be described as Infinite’s ie there is – always – more… more energy, more fiat, more of everything. Its all just a matter of distribution and not a matter of conservation of capital.

        skippy… moderns are not subject to the same laws all that came before, they are better. Peak People!

  21. Hugh

    Excellent. The one place where I would disagree is that the banksters are self-destructive. They are destructive of us. Individually, they may act against each other, but as a class they only act against us.

    As the events of 2008 showed, the financial class, the kleptocratic rich and their servant elites, will loot to a collapse, and then use that collapse to expand their looting into new areas. This is not a weakness but a feature of the kleptocratic system.

    It is important too to recognize that class war is not about the looting (that’s kleptocracy) but about distracting and keeping we the lootees divided and at war with each other, because the only thing kleptocrats have to fear is a popular, authentique revolutionary response to their depredations.

  22. Virginia Tax Preparation

    The benefit you create on the purchase of an resource is termed as a Financial commitment Obtain while the reduction you create on promoting an resource is a Financial commitment Loss. According to the IRS, an resource is any product that you own whether for investment or personal use and that maintains value over time. It contains such products as your car, your vessel, your home, property or home, furnishings, shares, ties or common resources.

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