Rob Johnson on Real News Network on the Fed’s Lifeline to Eurobanks, and the Rationale for Austerity

Rob Johnson brings a wide ranging perspective (from politics, as a former Senate staffer; from markets, as a former hedge fund manager; and an economist, by training and via his current role as head of the Institute for New Economic Thinking) to this interview on the immediate and deeper implications of the central bank intervention on behalf of the Eurozone earlier this week. Johnson is deeply skeptical both of the near and longer-term approaches taken to rescue the Euro. This talk has a particularly clear and layperson friendly discussion of the rationale for and failings of austerity.

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    1. P. Joyce

      People don’t much need to be informed as reminded. I thought he had some good insights. New to me was the lack of threat from communism contributing to declining middle class standards of living.

      1. grayslady

        Yes. I’m not entirely sure, however, that staving off communism was the original reason for instituting social programs that, if anything, resembled worker protections in communist countries. Living in a country that was unaffected by the devastation of no food (winter of 1945), no heat, few services, and probably fewer jobs, I think it’s difficult for us to understand that entire nations had to be lifted up–that no one was spared from the horrendous economic consequences of the war. We’ve never experienced the kind of national mutilation that Europe experienced. Then, too, the idea of caring for each other really disappeared in the late 1960s, early 70s.

        1. SqueakyRat

          I think you’re probably wrong, grayslady — the fear of communism had a lot to do with the social contract in the West, especially in Europe. Certainly the US saw Western European countries as teetering on the edge of a revolutionary precipice after WWII — there was the military threat from the USSR and there were active communist and socialist movements in the Western countries. I think Rob Johnson is probably correct that this situation moved Western economic elites to give grounds to social demands.

          1. grayslady

            I might well be wrong, Squeaky, but I don’t think so in this case. Outside of Great Britain, communists have always been just another political party in most european nations, usually lobbying for more socialistic programs. Northern europeans, generally, have always been more egalitarian in their ideas about social safety nets than we have in this country. Only in Britain do you find a House of Lords, or a society that is still so class conscious; and it was Churchill who traveled to this country after the war whipping up fear of communists, not leaders from other european countries. I grew up during the worst of the communist scare years, so I can see where Johnson may well be viewing events from that perspective, but, I maintain that it is still primarily a British and American fixation.

        2. ann

          Actually, the US did experience that kind of devastation that war brought to Europe, it just occurred in the South, and didn’t appear on the national radar. It was only after WWII almost one hundred years later that the South began to recover sufficiently from a land laid waste by war. The war was fought entirely on southern soil with the exception of that one brief encounter at Gettysburg! With approximately 3 million military casualities and countless other colateral damage, there was no Marshall Plan to counter the effects that war did to that part of the US.

      2. Susan the other

        We anticipated that the disintegration of the USSR would threaten social welfare a little but not this much. This austerity drive is suicidal. I keep wondering why the corporations aren’t against it. They stand to lose their shirts, kimonos, saris and pajamas as bad as the rest of us. I just don’t get the behavior of corporations these days. Have they all gone into finance?

        1. Cullpepper

          It’s baked in. Fiduciary responsibility to shareholders. That precludes long-range investment in social stability.

          1. Procopius

            Now, that’s silly. They don’t have any fiduciary responsibility to shareholders. They despise sharehlders. Shareholders have no power, and unless they’re billionaire “activist shareholders” with more than 20% of a company’s stock they have dam little influence. Corporations nowadays are run for the benefit of management and the directors. Under American (Delaware) law, shareholders don’t even have a say in how much management is paid.

        2. SqueakyRat

          I can only think they prefer plunging middle-class societies into debt feudalism to ceding any of their present privileges. Better to rule in hell than serve in heaven.

  1. LAS

    Rob Johnson does a good job of articulating the fundamental warfare between economic classes in a new age. He says it is intential to shrink the living standard of whole populations. Honestly, it certainly seems that way and whole populations ought to hear about it. Of course, the whole purpose of elites owning and controlling media is so that discussions like this are NOT more widely disseminated.

    With the collapse of the Soviet Union, it was originally believed there would be a cost saving from the shrinking of the military industrial complex and that this would be enjoyed by everyone. What a sad fall-off there has been and in only 20 years, too.

    1. LAS

      I did not add the cost saving link. Some kind of auto advertising software did that. Main stream media advertising is infecting even blogs like this one. What next!

    2. Flying Kiwi

      In 1990, after the collapse of the Soviet Union, I knew the US was going to create another enemy in order to maintain its ‘us and them’ social cohesion needed to support military spending, and had a sinking feeling in the pit of my stomach that the new ‘enemy’ was going to be Islam.

  2. jake chase

    I think Johnson is exactly right. The push for austerity is corporate war on the European middle class. A similar animus motivates the US deficit hysteria. The banks got 21 trillion as a reward for blowing up the financial system, but America can no longer afford a social safety net? Of course, the deficit hysterics are absurd, and the chorus is nothing but corporate propaganda. But an endless array of corporate clowns and media stooges repeating the same lies over and over simply overwhelms intelligent criticism while the ignorant public swallows the bullshit in the same way it swallows mendacity in advertising. The unfortunate truth about propaganda seems to be that it works. Let’s hear more from Rob Johnson. He clearly knows what he’s talking about.

    1. Sufferin' Succotash

      “The unfortunate truth about propaganda seems to be that it works.”

      It works for awhile and then it doesn’t work. The protest movements in Europe and now the US are indications that the dominant narrative(deficits, profligate southern Europeans, lazy and shiftless you-know-whos in America, belt-tightening, austerity, etc.)is getting frayed around the edges. So what happens when the fabric of lies is completely unraveled?
      What happens–picking up from one of yesterday’s threads–is a distraction: war. I’ve argued that the US will pick a war with either China or Iran in 2013 after the “elections” are safely over and done with. One response made a very sound and logical strategic argument that such a war would be a pretty bad idea. Guess what? Strategy in the classical sense of the word has nothing to do with it.

      1. Ransome

        You don’t need actual war, just fear. That is the purpose of overt and covert propaganda, which is sometimes presented as informational disinformation, through Innocent’s Clubs and other times as a false flag ops, straw man attacks or “news” referencing a planted article or edited video.

        1. nonclassical


          There has been SOOOO much of this recently-NPR interview with 17 year old creating his own “company” in San Francisco
          as a “way” of discussing non-necessity of university education available to ever fewer…

          U.S. graduates 20% of Americans from 4 year university or vocational equivalent, as opposed to nearly 70% northern Europeans…

          TRUTH is, if we grad more here, it becomes obvious EMPLOYERS
          (who wish to scapegoat education) and capitalism itself is
          the problem; circa 2001, average wage necessary for family
          of 4, Washington, Oregon, Idaho=$45,000.00 per year. Actual
          number of JOBS paying that “average” wage=20% of jobs available…

      2. Stephen Nightingale

        Sufferin Succotash:
        Reading Guido Giacomo Preparata’s “Conjuring Hitler” has been quite an eye-opener about what shits the British were in precipitating both WWI and WWII, expressly to prevent imperial Germany building strength and combining with imperial Russia to dominate the succeeding century. And indeed they didn’t. But of course the US were greater beneficiaries than the UK, who lost the Empire post WWII anyway.

        I have a sick feeling that similar long range geo-politics are at play, with the ultimate aim of neutralizing China. Hence the U.S. strategy from the Nixon rapprochement on has been to encourage industrial growth in China, while providing a market for their civilian goods. At the same time, building the US military to be larger than that of the whole world combined, and continuing to pour disproportionate capital and creativity into the military industrial complex. Never mind that we’ve created a $1.2T debt to “pay” for the consumer goods, the US still retains the all important munitions factories and military oriented R&D complex. When the point comes where the US stops buying Chinese goods, an enormous depression is created in China, and this can well trigger a revolution there.

        The ongoing encirclement of China is part of this strategy, and having Iran tamed is a useful next step. The fact that increasing discontent is developing here in the US is an unfortunate and bothersome side-effect. Although that does give the militarized ‘homeland security’ forces some useful exercise.

        1. Procopius

          I haven’t read “Conjuring Hitler” yet. Sounds interesting. For a good picture of what was going on prior to World War I, I don’t think you can beat Barbara Tuchman’s “The Proud Tower.” She also covers a lot of the political games, especially the treaties, in “The Guns of August.”

    2. nonclassical’s actually CLASS warfare-yesterday’s Euro news contained U.S.-like scapegoating of those who had nothing to do with economic destruction…

      It seems Portugal, Greece, Italy, Spain workers just aren’t
      as “motivated”-dedicated as those in northern Europe.

      Having lived there=Berlin, we know how the divide and conquer works there, similarly to U.S….

      Flying back from Europe circa 1995 I was surprised to read
      a “Guardian” article defining that the U.S. (after Soviet fall) would now turn back “inward upon itself”, as divisions
      within would reassert themselves..

      911 and Bush-Cheney neocon=John Birch Society new “manifest
      destiny” opportunists brought us terrorism boogeyman, debunked entirely by Adam Curtis’, “The Power of Nightmares”
      and historically linked by “The Trap”, and “The Century of Self”=Adam Curtis’ “Trilogy”…

      The important message from Robert Johnson involved his appearance at request of House of Reps to describe what really happened to the U.S. economy, where he was cut off
      barely into his description: “The American people can’t KNOW
      this”…as Johnson described $600 Trillion derivatives market by 2006, up from $880 Billion 2001-95% owned by 6 U.S. “investment banks”:

  3. Astrolabe

    Naively, it seems that the US is sending its taxpayer’s money to people who can’t pay their debts or convince disinterested parties to lend to them. This might have the effect of keeping asset prices pumped up for a while longer, but, as an ignoramus, it seems to me that they might not get the money back.

  4. jjb

    it is amazing the addiction of this website to debt fueled statism. the idea that germans should bail out other sovereigns, that more “social contracts” should be imposed, that keynesian economics cause economic growth…..etc etc

    every theme and every solution on this website is about more debt. naive idiocy.

        1. rotter

          yeah smart move. dont forget to add the “jess kidin” part, lest they kick your door in and drag you to indefinite detention.

          1. psychohistorian

            NOT KIDDING HERE

            Laugh the global inherited rich out of control of “Western Democracies” and into rooms at the Hague where they can be prosecuted for our social degradation.

            Gladly a martyr for the right cause.

    1. Ransome

      Countries can’t lay-off their citizens. Politicians are bad managers. Neoliberals are increasingly greedy with short term goals and oblivious to long term impact. Ultimately, “money” is pulled out of the air although it requires capital controls. The State represents the citizens and public utilities are the most cost effective. This is increasingly more important as private sector employees are treated as disposable; middle management becomes increasingly inept.

      As Dean Baker notes, Germany is bailing no one out.

      One cannot escape a balanced budget but it is done when the economy is healthy, employment is maximized, the wealth of the nation is distributed, unearned income is minimized. Currently we are mis-managing our resources, austerity cannot correct poor management. Think of a decompensated heart failure patient, the patient is managed with various medications until they are tuned up and compensated. Economies are similar. The private sector will not do this, they pursue returns and speculate on instability.

      1. F. Beard

        One cannot escape a balanced budget … Ransome

        Baloney. Some deficits are good else gold mining should be banned under a gold standard.

    2. reslez

      If it’s debt you object to, debt isn’t necessary. The government is the source of money. The government spends money into existence. There’s no need to match it with debt. Worried about inflation? Then we both agree: debt is irrelevant and we’ll need to monitor inflation if we do this.

      That is, assuming you want economic growth. If not, sure — let’s retreat into deflationary depression and whatever monsters crawl out from political sewers. If the 1930s were any indication the government you have now may be a lot better than what you’ll get if you allow depressionary dynamics to continue.

      1. F. Beard

        If the 1930s were any indication the government you have now may be a lot better than what you’ll get if you allow depressionary dynamics to continue. reslez

        Agreed. Shall we hand a future Hitler an obviously unjust situation for him to exploit?

  5. keninparis

    Thanks for this. Rob Johnson gives a revealing explanation of recent events with a long-term vision and analysis to help frame it. Precise, discrete, concise.

    Keep up your great work, Yves. The site is a treasure.

  6. don

    The contradiction of austerity points to a deeper contradiction, a Catch-22.

    The flip side of austerity is the argument for economic growth, combined with reducing the class divide. Underlying the global economic crisis (the financial crisis being a symptom of the econ. crisis), is a structural limits to growth, due to a multitude of factors, e.g. rising costs of economic and social costs of energy, strains of over development combined with under development (structural imbalances, i.e. class divide), depleted natural environments (pollution, climate warming, reduced access to once plentiful natural resources, etc.), human overpopulation and related loss of biological diversity, and peak capital ( ), and a situation in which overproduction/over capacity results in surplus capital not having investment locations (

    The ever widening gulf between econ. classes (made worse by austerity), is build into the economic system for its self-preservation, but results, as Johnson points out, in worsening econ. conditions, exacerbating the contradictions.

    The ultimate resolution will require international mass movements that bring about radical social change and an alternative economic system. This is the political/social side of the dynamic, one that cannot fall back on perpetual and infinite economic growth as a means to resolve contradictions.

    So whats needed is a real alternative, contrary to Margaret Thatcher who once proclaimed that there “is no alternative” to the political economic system of her day, one in which the neo-liberal policies that started with her set in motion the prevailing austerity right up to today, as a means of system self-preservation.

    1. reslez

      Yes, there are real world limits to production. If we try to grow the economy under the current industrial paradigm — you’re right, we’ll damage the environment more and burn up more fossil fuels for stupid short-term reasons. But we can grow the economy without that. We have millions of people sitting around unemployed while there’s plenty of real, meaningful work for them to do: caring for the sick and aged, reclaiming the environment, building trains instead of cars.

      Private entities have no interest in funding this work because they can’t profit on it. Faced with these problems organizational entities like “the corporation” are becoming increasingly obsolete. We the people will have to do it on our own.

      1. Observer

        Not entirely true, unfortunately: For example, profit is currently being extorted by corporations who purport to “care” for the sick and elderly in the “growing industry of healthcare.” Ironically, the margin is squeezed out through – what else? – austerity measures (such as staff reductions, lower wages, and cheap supplies) while concurrently charging ever higher costs for service.

        But you are correct in that the answer may be neither privatization nor state-run institutions. Perhaps more not-for-profit cooperatives, whereby services are provided by members to one another at cost (credit Unions being one example.)

  7. E D Lowe

    Interesting and a helpful refresher. I am reminded to read Polanyi again, I recommend it to others here as well. I must say that I am increasingly sympathetic with concerns that reflects the over emphasis on state actors to address these global imbalances to the exclusion of any discussion of labor. Isn’t the root of the whole mess tied to globalism and the advancement of financialized first world economies instead of a more localized and regionalized industrial form where wages can be higher for most workers? Such a global financial system is always unsustainable, no matter how many kings horses and kings men try to …. food for thought indeed!

  8. john

    Johnson talks about an ideological assault on safety net programs as if it is a general program. It is a logical conclusion of Classical economics, but less central here than it seems to me because it overlook what may be a more central institutional gap. It misses that the assault is where those nets are already the weakest, the periphery, not the core where those nets are heralded for the stability they’ve maintained thus far. I think with that misses about institutional structures is an essential difference North to South at the center of the problem.

    The post dictatorship democracies in Spain, Portugal, Greece and Italy are all semi-devolved authoritarian systems where part of the deal whereby authoritarian control was devolved to was that “democratic” institutions shielded the retiring elite from the depredations of democracy, primarily taxes. Conservative elites in these countries became free riders, not melting away, but holing up in private enclaves.

    Most clearly in Greece now we see that “austerity” has no reach into this elite precisely because the democratic institutions through which “austerity” is being implemented were set up to shield the elite. So it was in the good times that Greek workers who worked longer hours on average than German workers paid a larger share of the cost of sustaining Greece while receiving weaker social benefits than their German peers. Now in the downturn all of the cost is being born by these same workers even as the authoritarian elite uses the crisis to argue that democratic government does not work as if it had actually ever really existed. The referendum fiasco in Greece tells this story with pointed clarity.

    While it looks to me like the ECB has made a sort of accidental coup de etat against the EU executive, as they impose their bankster rule in the peripheral counties their satraps will quickly run up against the veiled elites of the old authoritarian systems who continue to hold most of the assets but remain shielded behind the institutional screens of their pseudo-democracy.

    This is a point Richard Kline was making in comments yesterday that I think bears repeating: the historical aristocracies have been a break on financial rule for the last 400 or 500 years in the west. The democratization of post war Europe, in the core where the devastation was greatest, has marginalized historical aristocracies and left a large political void between finance and power that the ECB has stumbled into. It will be interesting to see if the retiring aristocracies of the southern nations will remain at ease as bankster policies devastate their dominions and put their assets under pressure as austerity overwhelms workers abilities to pay.

    England, with its monarchy intact embarked early on more aggressive financial reform than anywhere else when political leadership was shamed by Queen Elizabeth II asking how this disaster came to pass. That social backing from actual Royalist Conservatives in the UK has been a much more effective brake on financial power than anything seen anywhere outside Argentina or China’s.

    1. Paul Tioxon

      The landed aristocracy that looks down on the money gubbing bourgeoisie bankers and merchants are the competitors for power and privilege without merit or legitimacy. The money grubbing capitalist seeks to become like the british or any other crown that can just hole up on enclaves, without working, politicking, warring, but just living like kings. This may be their last chance to convert to a status beyond reproach that permanently entitles them to opulent richness of living, beyond the encumbering rule of law, beyond the need for human capital, land or traditional privilege of royalty or church. Capitalism is dying, and capitalists need to cash out so they can cash in to perpetuate their current power and wealth when the means to produce this power and wealth disappears with the system that they can no longer sustain.

      Much like the need for a bill of exchange, they are groping for structural change in their status that will survive into a new social order that has not yet been determined. But whatever that order may provide for, democratic or despotic, they want to provide for themselves an enduring privileged and irrevocable position comparable to the long lasting institutions of church and royalty.

      1. LeonovaBalletRusse

        Paul, your summation is correct. The *nouveau riche* strivers seek to cement their *top out of sight* upper class, pseudoaristocratic/”Noble” status and its privilege to be forever above the laws, looting the world with impunity. Democracy no longer serves them, except as a means to exact tribute from the *masses* through taxes that pay Nobility debts as *rents*, and as a means to make their *legal* land-grabs. The supra-national Corporate CEO’s found their way up the ladder to *Nobility Heaven* via oligarchic collusion; now they are shopping for crests to *seal* their positions “On top of the world, Ma.”

        As many realize, Americans tend to be the most shameless idolators of *royals* – *aristocrats* – and “NOBILITY and Analogous Traditional Elites in the Allocutions of Pius XII” — see book of this name with Foreword by the idolator Morton C. Blackwell, Reagan’s Republican propagandist from *Old Virginie*. The Old Confederacy was re-birthed by the Holy Roman Reich IV: the book was published in 1993 in the Defense-Security stronghold of York, Pennsylvania–home to Roman Catholic boss coverup of the *beloved* coach who sodomized boys with impunity for years.

        Michael Hudson’s piece at NC yesterday told us *How it Works* through the ages; and a timely video on You Tube “explains it all for us” in a delightful way: — Bill Still’s “The Secret of Oz – Winner, Best Docu of 2010 v.1.09.11” uploaded by bstill3 on Feb 2, 1011. LINK:

        1. Paul Tioxon

          Unfortunately, we no longer have Giovanni with us, David Harvey just spoke here this week in Philadelpia, first at Penn, then in front of Police HQ with Occupy Philly. Together, in this lecture, concerning the just published in 2008, ‘ADAM SMITH IN BEIJING’, they discuss the long range development up until now of capitalism, and how it may look with China taken into account. China, as it has during the dynastic period, has placed the market and private capital at the disposal into service for their civilization. Here, our civilization is cannibalized to enrich private capital.

      2. reslez

        Interesting to consider this in light of all the financial billionaires buying up vast landed estates in Montana and the American west.

      3. F. Beard

        But whatever that order may provide for, democratic or despotic, they want to provide for themselves an enduring privileged and irrevocable position comparable to the long lasting institutions of church and royalty. Paul Tioxon

        The laugh is on them then. We are pretty near the End UNLESS there is reform.

    2. LeonovaBalletRusse

      Correct. Ditto Klein. The sham “democracy” putsch is a ruse for *privatizing gains/socializing losses*.

    3. LRT

      It is truly insane to think that the Royal Family in the UK is a brake on finance sector power. That is truly insane. The only way you could think that is if your knowledge of the UK came from US daytime TV.

      1. LeonovaBalletRusse

        Can we say that German Saxe-Coburg and other German lines occupying the “Windsor” throne may have established themselves in the *Royal* seat of power and glory, but that they are NEITHER *Noble* nor *aristocratic*? (heresy)

        “Die Fledermaus” conveys truth about true *Nobility* — vested in manners, in bearing, in grace — similar to the Italian High Renaissance definition of *Nobility*.

        Impostors abound in the world, making extravagant claims for their continual power and enrichment at the expense of their betters.

    4. LRT

      The problem is, failure to define Austerity. What exactly is it? Spending less than last year? The UK is spending more. Spending not enough more? How much more is enough?

      One of the classic marks of lack of thought is to condemn or praise things without knowing what will tell you when you are standing in front of them.

      I do not think there is any Austerity worthy of the name in any country in Europe. Greece is going bust. That is quite different.

      1. F. Beard

        How much more is enough? LRT

        Since bank loans create the principal but not the interest for loans then logically either government must spend that interest into existence or further bank loans are required.

        But the banks aren’t lending so governments must deficit spend.

      2. reslez

        They’re spending “more” because you included the bank bailouts and tax cuts for the wealthy? While you ignore the very real cuts to NHS and education? I see exactly what kind of “more spending” you mean: more for the rich who take from everyone else while cutting jobs.

  9. Mike Sax

    Thanks for the video, and the work of people like you Yves and Ron Johnson who have actually been market particpants in invaluable for us right now.

    To digress that discussion yesterday over the post that Phillip Pilkington wrote has led me to write a post.

    1. LeonovaBalletRusse

      Why honor Pilkington with a serious rebuttal?

      Pilkington’s vicious rant against Krugman outed Pilkington as a blatant rabble-rouser and lynch mob leader. He obviously is a Fourth Reich plant; and being from Ireland, speaking with uber-*catty* style, can he be anything other than an *organ* for the Holy Roman Reich IV?

      He came to NC with his cadre of vicious “Clockwork Orange” type posse to do damage, and he did damage: to the decency that formerly reigned at Yves’s NC, and to himself.

      Pilkington is not worthy of serious attention, except as a potential Gauleiter of Ireland for *Mother Church*.

      Isn’t it time the Irish Bards led a revolt against the Tyranny of the Holy Roman Reich IV, which is married to the Victorian (“Windsor”) Global Imperium? Pilkington should be hoist on his own … well, Bards, you tell me.

      Honor William Butler Yeats. Slam the traitor Pilkington.

      1. Mike Sax

        Thing is Leonova-you make me laugh-it’s not about Pilkington for me now so much as this whole MMT-Modern Monetary Theory.

        I’ve heard about it before-uusally Scott Sumner making some pejforative comment about it-but wondered what it was about. When I read Pilkington yesterday I had no idea what his point was. What I do agree with is Dean Baker who says that we as liberals need to understand monetary theory and how important it is to things like growth and employment.

        So I’ve looked into the whole MMT thing. And it is sort of itneresting if not that easy to fully grasp. The whole point for MMT is the idea that because we are no longer on the gold standard but fiat money monetary policy has wholly changed and that everyone else-be they market monetarist or New Keynesians- are therefore working under models that assume the gold standard. The government is more important in todays monetary system as currency comes directly through it.

        1. LeonovaBalletRusse

          You seem to be promoting the *gold-backed currency* agenda. Is this so?

          Although hearing Schiff toward the beginning of the YouTube video: “The Secret of Oz – Winner, Best Docu of 2010 v.1.09.11” might lead one to suppose the documentary will defend this agenda, it does not.

          It shows how the *goldbug* agenda is fallacious also. The video treats of the real Fall of the Roman Empire–as Michael Hudson did yesterday–and carries its argument plausible up to the present day. It should be seen in entirety.

          As is often the case, the answer lies *in between* what is offered by the two major camps today: *Goldbugs* and *the Fed*. Gold-backed monopoly reserve currency, like Kissinger’s Petroleum-backed “Petro-dollar” monopoly reserve currency, must lead to failure. We must go beyond 19th Century and 20th Century *solutions*.

          What must NOT continue is the *Bank of England*’s tyranny over the money supply of the United States. We must throw off the British Imperial yoke, which wreaks ruin. For parallel to today, see:
          “THE [A] BUBBLE THAT BROKE THE WORLD” by Garet Garrett (Boston, Little, Brown and Company, June 1932)–available online at:
          DON’T let the “mises” label deter you. Alabama’s Austrian “Nobility” today would likely destroy this book.

          1. F. Beard


            Not so interesting:

            And lest it should sound unreasonable, the conclusion is annexed that if the standard of living be raised by credit,
            as of course it may be for a while, then people will be better creditors, better customers, better to live with and able at last to pay their debts willingly.
            Garret Garrett [bold added]

            Mr. Garrett seems to think one can really borrow goods and services from the future and that when one arrives at that future date then alas the goods are not there! But really, all that is lacking is the ability to purchase those goods and services because of the nature of our money system.

          2. EconCCX

            F. Beard, here’s one I think you’ll like. Service-backed money such as Forever Stamps and bridge tolls. Digitized and exchangeable parcels of value. Achievable through federalism.


            (Obviously in need of better designers and more efficient writers.)

      2. JTFaraday


        “When I read Pilkington yesterday I had no idea what his point was.”

        No worries. Most of the time he doesn’t know either.

  10. Hugh

    It is all about the looting. Austerity is just a way to dismantle safety nets to make more resources available to looting.

    Btw Thatcher became Prime Minister in 1979. The Berlin Wall didn’t come down until 1990. So the forces bent on taking down the social safety nets had been around for a while before the fall of the USSR.

    It is much easier to fit attacks on social programs within the frame of the extension and consolidation of kleptocracy than within that of the fall of communism.

    As for MMT, I have many problems with its practitioners, but it is the only post-gold standard monetary theory out there. Others purport to be but remain mired in gold standard thinking.

    As for Krugman, he is an Establishment liberal, that is he makes liberal noises but is a card-carrying member of the same elites that are looting us.

    1. F. Beard

      As for MMT, I have many problems with its practitioners, … Hugh

      MMT practitioners need to dump the banks and the national debt. There is no need for either.

      1. reslez

        MMT practitioners need to dump the banks and the national debt. There is no need for either.

        A lot of MMTers could go along with that.

        The real problem is our government is locked in a terrifying Siamese-twin embrace with finance. As long as this remains true it’s useless to try to implement MMT policies. If we tried the results would be as horrifying as what we have now. Instead of bailing out the population we’d have MMT funded wars and industry bailouts. The MMT job guarantee becomes Dickens-style workhouses and subcontracted prison labor.

        So where do we start?

        1. F. Beard

          So where do we start? reslez

          1) Ban any further credit creation; this is essentially counterfeiting and is the source of our woes.
          2) Bailout the entire population, including savers, equally at a rate AT LEAST equal to the repayment of existing credit. Continue till all private debt is paid off.
          3) After the bailout is complete, then drain the reserves from the banking system by setting up a risk-free fiat storage and transaction service run by the US Treasury and abolish deposit insurance and the Fed. Then set the banks free again to extend credit but bearing all the risk themselves.
          4) At the same time, remove all legal impediments to genuine private currencies, especially common stock since it shares wealth rather than reaps it.

          As for the national debt, pay it off with new fiat as it comes again and never borrow again. A Constitutional Amendment is appropriate.

          1. LeonovaBalletRusse

            F.Beard, the stimulation of legitimate dialogue among the NC commentariat has served you well, you have come up with a cogent plan. Tell how to implement it concretely, and send it to Michael Hudson and William K. Black for review.

          2. LeonovaBalletRusse

            Also, my focus on the Garrett bubbleworld.pdf book is on We the People’s slavery to the Bank of England via its agents in the Fed, banking, brokerage, insurance, and in government. It’s this tyranny of a *foreign power* over us that I’m concentrating on, the power extracting profits out of everything we do (our labor, our investing) or hold (collateral in all forms, esp. real estate today).

            Good luck with your project.

          3. LeonovaBalletRusse

            Not how to express it concretely, but how to IMPLEMENT it concretely. Maybe Henry Kissinger will do it for a fee?

          4. F. Beard

            but how to IMPLEMENT it concretely.

            Other people are better qualified to do that. I am not a lawyer or an accountant.

          5. mansoor h. khan

            F. Beard,

            I would like you to clarify what you mean by “Continue till all private debt is paid off.”?

            Private Debt =

            1. Credit Money Borrowed from Regular Commercial Banks (FED member banks)

            2. Credit Money Borrowed from Shadow Banks (i.e., money market funds)

            3. Other non-deposit type borrowings (e.g., bonds)

            4. Debt between private individuals

            I think you mean until number 1 and number 2 are paid off?

            Mansoor H. Khan

          6. F. Beard

            I think you mean until number 1 and number 2 are paid off? mansoor h. khan

            Yes, but I reckon that most debt is credit debt.

      2. Sy Krass

        Yeah, in truth the FED practices MMT, it’s just that its only beneficiaries are 6 large banks in the US, and a handfull of others around the world.

        1. psychohistorian

          This sort of speaks to the problem I have with MMT folks.

          How can you posit a financial system that says nothing about the starting point of it in relation to current society.

          If you don’t deal with the global inherited rich that own most capital and property as well as the rules of inheritance that keep letting them accumulate more and more, the constructs of MMT are totally worthless to humanistic social organization going forward.

          1. F. Beard

            MMT is definitely part of the answer. Some other parts are a universal bailout ala Steve Keen and the abolition of the counterfeiting cartel.

    2. LeonovaBalletRusse

      Hugh, the *framing* by the experts makes it tricky to know what’s really going on, doesn’t it? Don’t forget: Since the “British East India” (become the British Empire) began to advertise, the agents of *Rule Britannia* have been the keenest masters of propaganda through non-stop *Marketing* via framing and strategic positioning for their profits *uber alles*.

      I perceive that the *Painted Veil* has been lifted from your eyes. Carry on.

    3. rotter

      They have been around since The Pahrisees, and since before that. That they have made such noble progress since “the evil empire” “satan himself” “the enemy above all other enemies”, that is, a nuclear armed leftist economy, collapsed, is in NO WAY coincidence.It is pretty conventional history.

  11. rotter

    I think the ( heavily propagandized Americans and Brits mostly) who still cant imagine that Liberalism was ever anything but spontaneous enlightenment, have a hard time understanding that Soviet Communism forced rapacious capitalists in thier own contries to bargain. The lack of any REAL threat from the left is what we are suffering.

  12. Dan G

    The pyramid (presently crony capitalism) needs to be restructured. The liquidity pumps inserted at the top should have been inserted at the bottom. This bifurcated the fractal micro machine leaving the top pyramiders with excess, and the middle and bottom fractal structures grinding to a friction induced stop. The complex nature of the pyramid machine has caused an inflection point to be imminent. The top needs the middle and bottom, and vice versa. They are all codependent on each other, the friction fighting liquidity, and the energy to run the pyramid machine.
    The present lubricant is a pseudo friction fighter, which ultimately adds to the structures problems by flooding the microstructures with low-grade lubricant. The bio aspect of the machine adds the dimension of emotion that cause apparent fluctuations in the machine health like the good and bad days of a cancer patient. These fluctuations in the pyramidal monitors are sending false signals. The machine is broke. Long live creative destruction

  13. Mike Sax

    Some of the stuff that some of the MMTers say I just can’t but scratch my head. I mean, Beard when you say this:

    “Bailout the entire population, including savers, equally at a rate AT LEAST equal to the repayment of existing credit. Continue till all private debt is paid off.”

    I don’t know what you’re saying even. Not that your wrong,necessarily, just don’t get it. I can’t say if you’re wrong or right because I can’t make any sense of it. Why would a “saver” need “bailing out?” That sounds like anti-Keynesianism, indeed it almost sounds like Hayek in Prices and Production. I may well be misunderstanding but when I hear about “savers” I “get my gun” because the savers are the banks hoarding cash and the wealthy guys who aren’t spending. That’s what “saver” means to me. What we want is money to be spent we have too much saving right now. Keynes certainly didn’t have an elevated feeling about savers. The Right wing is always crying about the need not to “punish savers.”

    On other hand I’ve read some interesting stuff about MMT over

    Krugman himself actually left this link. What Hugh says though makes sense: ” it is the only post-gold standard monetary theory out there. Others purport to be but remain mired in gold standard thinking”

    I didn’t really think about the idea that a new type of monetary system was called for post gold standard before coming across this, but now that I have I find it very intriguing.

    1. F. Beard

      I don’t know what you’re saying even. Mike Sax

      Sorry. “Everyone” means all adults. I added “including savers” because almost invariably those who are not in debt think they would not be included.

      1. Mike Sax

        Beard I figured you meant adults. Let’s try it this way, what kind of “bailout” are you really talking about? You mean a debt restructuring? A true saver has no need. If by saver you mean someone who spends all their money paying debts that’s not a saver.

        1. F. Beard

          What part of every adult (citizen) don’t you get? Rich, poor, borrower, saver would all receive equal bailout checks. No one could complain they were left out. Only the true pricks, those who desire to profit from misery, would complain.

          1. mansoor h. khan

            Mike Sax,

            Let me try to explain:

            Currency (Money Supply) = Deposit Balances = Gov Money + Bank Money

            Bank Money = Credit Money = Loans Outstanding = Temporarily in Existence

            Any money (bank deposit) used to pay a principle or interest back to a depository institution (like a commercial bank) will remove that bank deposit from circulation thus reducing the currency supply.

            F. Beard is saying that we would calculate the amount of principle and interest expected to be paid back lets say in January 2012 and send a check to each Social Security Number (like the Bush stimulus payment) where the total of all checks will equal the amount of principle and interest expected to paid back to depository institutions. During this time depository institutions would not be able to create (issue) credit. However, they can lend any extra reserves they have.

            Continue this process until credit money (bank issued money) goes to zero. Thereby, at the end of the process all money will be gov money (100% reserve banking system).

            Mansoor H. Khan

          2. JTFaraday

            I think it’s a terrible idea. All it does is bailout the current highly corrupt financial system and sends the populace shopping. Whether they shop at or TDAmeritrade when they’re done paying off Citibank and the Student Loan Corp makes no difference to me.

            I want each and every legal and policy issue addressed in painful detail, not another mindless punchbowl that will end up who only knows where.

          3. mansoor h. khan


            Please understand the total money supply will not change.

            Also, when 100% reserve situation is reached. A gov bank will be setup to provide safe-risk-free currency storage in a bank deposit form (ledger form) and check clearing will be performed by the treasury department. At that point all customer deposits from the commercial banking system will move to the new gov bank.

            Deposit insurance will end. The FED will be disbanded. The banks will then be set free (Free Banking) and the free market will crush these goons (due to no gov deposit insurance and no lender of last resort). What could be better than that?

            mansoor h. khan

          4. JTFaraday

            Or say I’m a conservative spending person with no assets, whose income barely covers their rent and food bill.

            Your lump sum payment keeps me out of debt for a few years (which, in all likelihood, Auerbach’s austerian minimum wage job guarantee wouldn’t do, so that much is a plus).

            Then what?

          5. mansoor h. khan


            Ok. One major point F. Beard keeps making is that the current monetary system (bankers issuing currency via the fractional reserves process) steals purchasing power from all of us and gives it to the “credit worthy”.

            This “stealing of purchasing power” will end and this means your income will be able to buy more goods and services.

            Also, if you are a wage earner in a corporation. Post reform Corporations will be much more likely to offer you stock (in addition to cash) as part of your compensation because borrowing money post money reform will be very expensive (much higher interest rates will be demanded by banks).

            If you are not a wage earner or don’t work for a corp (a small business or don’t make much). Well, as I explained earlier money will be able to buy more due to cessation of counterfeiting by the banks.

            Beyond that if productivity increased the government can issue more currency without creating inflation and lower taxes and/or give money to each citizen (social dividend).

            Beyond that if productivity did not increase and/or there was scarcity of energy supplies (due to peak oil or global warming response) then we as a “society” will have to have a serious discussion about how to “re-allocate” some of the output allocated by the market. This partial re-allocation will require increased taxation on high earners and a social dividend to low earners.

            Mansoor H. khan

          6. JTFaraday

            All of which just goes to my point that a bailout (whether it includes the population or not) and REFORM (regardless of the specific form it takes) are not the same thing.

            As far as I’m concerned, no one has made the case that sticking a check in the mail to every income strata in the US is a necessary element of reform or that it is good policy given a range of domestic crises and varied means of addressing them.

          7. mansoor h. khan


            Do you have any specific ideas what needs to be done?

            Do you agree that the money system needs to be reformed?

            In your mind what are our major problems (in order of priority)?

            mansoor h. khan

          8. F. Beard

            As far as I’m concerned, no one has made the case that sticking a check in the mail to every income strata in the US is a necessary element of reform JTFaraday

            1) The banking system cheats everyone, both savers and borrowers. How else shall both be compensated?

            2) True reform would be massively deflationary as the counterfeiting by the banks was halted. Think that would be good? Even more unemployment?

            As for your desire for justice, then revoke the statue of limitations for financial crime and boost funding for the FBI’s financial crime division. Put Bill Black in charge.

  14. EconCCX

    >>On other hand I’ve read some interesting stuff about MMT over

    MMT is delusional. It’s founded on the premise that, because new bank money is created against a mortgage, it represents a zero net creation of new financial assets. In fact, the bank creates two or more such instruments: a negotiable medium of exchange, and thus a claim on real assets, PLUS a salable mortgage that can collateralize more money creation. These don’t net to zero; each has a financial life of its own. For each new dollar of exchange media, 1.x dollars of compounding debt.

    Since the repeal of Glass-Steagall, banks can use that newly-created “deposit” money to buy investment properties on their own account; they thus have every incentive to book fraudulent loans.

    MMT proponents argue as if we’d chosen the Chicago Plan of 100% money. Would that we had.

    1. F. Beard

      It’s founded on the premise that, because new bank money is created against a mortgage, it represents a zero net creation of new financial assets. EconCCX

      Yep. That bugs me too. While the new money exists, it exists. Just because it is temporary does not lessen the damage it does while it exists. And when it goes away, it does even more damage. And then there is the problem of non-existent interest …

      Still, MMT has valuable insights. Also, MMT implies that neither banks (horizontal money creation) nor national debt are needed.

  15. JTFaraday

    “Please understand the total money supply will not change.”

    Don’t spout this garbage at me.

    Also, I think you fantasized the dispersal of the Fed. I almost never hear the bailout queens discuss changes in the financial system or accountability for bad actors within it.

    1. mansoor h. khan


      “Also, I think you fantasized the dispersal of the Fed. I almost never hear the bailout queens discuss changes in the financial system or accountability for bad actors within it.”

      That is just a matter of educating the public about how the economy/monetary system really works.

      Mansoor H. Khan

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