Michael Hudson on Obama’s “Catfood” Social Security Reform

Michael Hudson, in a Real News Network interview, puts paid some of the key ideas used to sell catfood futures, um, Social Security and Medicare cuts, such as if we don’t Do Something, interest on government bonds will eat the economy. He also gives a good explanation of what “chained CPI” is really all about.

More at The Real News

He asked us to post this transcript, which is a bit cleaner than the Real News Network version:

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay.

President Obama released his budget, and the most controversial piece of it is he wants to make some cuts to Social Security. Now here’s a little bit of what he said: “Most economists agree that the chained CPI provides a more accurate measure of the average change in the cost of living.” This chained CPI is at the heart of the controversy, because critics are saying this is in fact a cut to Social Security benefits in the future.
Why is President Obama doing all this? Well, the logic for it is given more or less by The New York Times in their report on the budget. Here’s what they wrote:

Social Security benefits would increase from $860 billion next year, less than the projected $743 billion in payroll tax revenues for the program, to$1.4 trillion in 2023 fiscal year, about equal to the entire amount ofdiscretionary spending, Medicare and Medicaid, which would total $504 billion and $267 billion, respectively, next year. Each would be nearly double those amounts in 2023, and interest on the federal debt, projected to be $222 billion next year, would be four times that in 2023.

Now joining us to talk about all of this is Michael Hudson. He’s a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents.

Thanks very much for joining us, Michael.


JAY: So first of all let’s start with the New York Times quote, where they give a fairly apocalyptic sense of where we’re heading in terms of debt and Social Security and Medicare, Medicaid not being able to be paid for. What do you make of that?

HUDSON: It reminds me of The Hound of the Baskervilles [YS; actually The Silver Blaze], where Sherlock Holmes said the important thing is that the dog didn’t bark. When the government printed $13 trillion to give to the banks after the 2008 breakdown, nobody complained at all about the fact that the government can simply print the money and pour it into the economy. Nobody is complaining about the increased war spending that we’re doing, the waste that the Pentagon itself is complaining to congress about.

Why is it that these complaints focus on one particular small part of the budget, Social Security and medical care and health care? And the reason is this is pure, naked class war. There’s no other word for it. You can’t believe that people are being honest when theydon’t talk about the whole budget or the overall economy when they’re singlemindedly tunnel-visioned, focused only on how do we pay retirees less, so that we can give the bankers more when President Obama continues the bank deregulation he’s sponsoring. The idea is to cut back Social Security in order to gear up for the next big bank bailout that’s going to result from current policies.

JAY: So what do you make of the prediction that deficit spending will lead to interest on the debt becoming four times what it is now? Isn’t that some kind of danger?

HUDSON: Not necessarily, for a number of reasons that the Obama administration is doing its best to obscure. First of all, when advocates of cutting back Social Security lobbyists use scare tactics to talk about the debt, they talk about a $16 trillion super-total. But of this, about $4 trillion, is owed by the government to the Federal Reserve, and another $2.5 trillion is owed to the Social Security fund. So for the $6.5 trillion the government pays interest to itself. This interest credit is a bookkeeping accounting fiction. This is not really paying a penny interest than the government receives as revenue on another part of its budget. It is not paying interest to bondholders or into the economy. When people start by talking about $16 trillion, you know that they’re not being honest.

JAY: Is the argument they would give that when the Fed gives money to the banks, as you were talking about in the bailout, they do eventually get paid back, don’t they? And in a sense it doesn’t create more debt. That’s the argument they give, whereas these payments on Social Security …

HUDSON: That brings up the second point I want to make. Every government’s debt tends to grow steadily over time. The Federal Reserve has rarely reduced its debt to the United States Government apart from the World War I and II debt. The debt it holds does not involve banks, you’re quite right. The Federal Reserve and the Treasury can simply create money on their own computer keyboards, just like banks can do electronically. It doesn’t cost a penny for them to create the money to pay Social Security recipients. They could simply print greenbacks, to make a long story short.

The debt is never paid back, but becomes in effect part of the money supply. Over two hundred years ago, already in 1776, Adam Smith wrote that no government ever has repaid its debt. So the debt doesn’t have to be repaid. It’s not like a private-sector account book where, if you run into debt, you have to keep paying the banks more on your creditcard and your bank loan. This is zero-interest money. You’ve had Bill Black and my other University of Missouri-Kansas City colleagues on your show explaining this.

When people refuse to acknowledge what universities teach in their money and banking courses, you know that they’re pulling a con job on you.

JAY: There’s two sides to this. There’s the side of the money the Fed just simply creates. And then there’s the part where the government borrows money from outside sources. They borrow money by selling T-bills. At the moment this borrowed money is costing the government practically nothing, but that could change at a point.

HUDSON: It could, in which case there would probably be a shift away from borrowing from the public to simply monetizing it, which iswhat the U.S. government has always done in a pinch, as have the British government and the Chinese government. Any government that has a central bank has the option of doing that. So this to pretend that the debts to the banks and the bondholders are the whole thing just avoids looking at the real overall budget situation.

But to pick up your point, it also assumes that, “Okay, we’re going to be paying the rich much more interest.” Remember, the bondholders – the 1% – own maybe 75 percent of all the bonds. So if the government pays them a lot more interest and doesn’t tax them more, this is a pure giveaway to the 1%.

So what they’re really saying, The New York Times and the others, is that we’re running a probability of giving a huge amount of money to the wealthiest 1% in the future. In case we indeed do have to pay them more, we have to screw the Social Security recipients, screw the Medicare recipients, screw Medicaid. We have to squeeze the 99 percent more to pay higher interest to the 1% that are the bondholders.

JAY: Now, President Obama in this budget proposal wants to raise taxes on the wealthy, he says. Anyone over making more than $1 million he wants to pay, I think, a minimum of 30 percent tax. Is that something?

HUDSON: Yes. It’s a fraud. It’s doubletalk. Rich people don’t make income if they help it. To paraphrase Leona Helmsley, income is for the little people. Rich people make capital gains.

So they fill out your tax returns, they don’t say that they’re earning income. They report capital gains, taxed at a much lower rate. So what Obama is doing is flimflam. The Congressional Budget Office has shown that the wealthy people get most of their rise in net worth by capital gains, not income. He’s not making a peep about that.

JAY: The other argument I guess you hear from Obama supporters is that he’s dealing with a Republican-controlled House. I think the New York Times headline of the coverage of this was President Obama’s budget meant to engage the Republicans. So this is more about the politics than about the economics.

HUDSON: When they say “engage the Republicans,” this means that Mr. Obama realizes that as a follower of Rubinomics – Robert Rubin at Citibank – that he’s going to do something that most Democrats don’t like, He’s advocating a policy that most voters don’t like. So he’s trying to blame it on the Republicans. He’s “engaging” them simply in order to put the blame on them.

JAY: Just quickly dig into this CPI chained cost of living. Why are people criticizing this, and what does it mean?

HUDSON: It’s not really a cost of living index. It’s a “cost of lower living standards” index. Yves Smith calls it the catfood index.

Here’s what it does. Suppose that you have to switch away from eating steak or eating meat or eating fish to eating canned tuna fish or canned beans. That’s considered a price reduction.

If the chained index is done “properly,” anti-labor economists can cut Social Security by 50 percent. Here’s how. If people stop taking cabs and begin to take buses, that’s considered a lower cost of living. Well, what if they buy a bicycle? All Obama has to say is, “Look, folks! If you really want to save money, get a bike.” That’s what Margaret Thatcher said. That was one of her campaign slogans: “Get a bike!” So all of a sudden, the transportation in the cost of living goes down to zero.

People pay between 25 percent and 40 percent of their income on rent. Let them live out on the street. Let them live in a homeless shelter [crosstalk]

JAY: Because the point of this chained ….

HUDSON: … about 15 percent of their income is spent on medical care. Let them do what George Bush said: Go to the emergency ward. That’s free. So the cost of living goes down!

If living standards are ground down and down because people are poor, then the government can say, “Because you’re getting poorer and poorer, your living standards have declined, so we don’thave to pay you so much to live.” This is no longer a price index. This is an index of declining living standards. Poverty will cascade downward, and so will the chained CPI. This gives new means to the working class being put in chains.

JAY: And that’s because the concept behind this chained CPI is that people are finding cheaper ways to do things, ways that supposedly are not being reflected in the current system.

HUDSON: That’s right. People are having to walk to work instead of taking buses. They’re having to eat tuna fish and canned beans instead of buying fresh food on the table. Of course they’re finding cheaper ways. We call that declining living standards.

The starting point for Obama’s budget “reform” is to find the path of least resistance in screwing Social Security recipients, how can we pay them less to pay our campaign contributors, the 1%, more? They start by putting the class war back in business. They sugar-coat it by calling it a price index instead of a catfood index or declining living standards index. This is the politics of deception.

JAY: All right. Thanks for joining us, Michael.


JAY: And thank you for joining us on The Real News Netw

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  1. Julie B

    If the left has learned anything, it’s that arguments have to be reduced to a catchphrase to get people’s attention. The Republicans do this constantly with phrases like “death panels”.

    I do like the cat food reference, but we also need to point out – and keep hammering – on the arrogance and greed of the filthy rich. My nomination is to say something to the effect: “When the richest are down to their last yacht, then we’ll start insisting that grandma has to eat cat food for dinner.” Okay, maybe that’s too long, and I’m not particularly creative in creating catchwords.

    The left has to pull out the stops on and hammer, hammer, hammer the greed of the rich home, and shame them endlessly, or we will lose yet again.

    1. Mark P.

      Julie B wrote: ‘arguments have to be reduced to a catchphrase to get people’s attention.’

      I like some of Hudson’s lines here:

      ‘To paraphrase Leona Helmsley, income is for the little people. Rich people make capital gains.’

      ‘It reminds me of when … Sherlock Holmes said the important thing is that the dog didn’t bark. When the government printed $13 trillion to give to the banks after the 2008 breakdown, nobody complained at all… that the government can simply print the money and pour it into the economy…Why is it that these complaints focus on one particular small part of the budget, Social Security and medical care and health care? And the reason is … pure, naked class war.’

      1. jrs

        For the powers that be, it’s class war. For the people, even if they may think we need to cut the budget, and entitlements are a problem, it really is because almost noone understands all the banking shenanigans that have gone on, that yes they are just given money, it’s all too obscure, and mainstream pundits (ie bought and paid for by the D and R parties ultimately I think) don’t make that point.

      2. taunger

        You know, I understand the dog that doesn’t bark point, but I don’t think it’s correct or accurate. IIRC, when Paulson asked for TARP, Congress didn’t go right along. there was at least some initial noise. And when the population finally realized they weren’t getting theirs, some 3 years later, there was a little thing called Occupy. Ignoring the dogs that did bark doesn’t help.

    2. SóloSéQuéNoSéNada

      Even with effective slogans, who would finance the left? Historically that was the role of unions. With private sector union density at 7%, freedom of speech means freedom to stand on the corner of the street with a sign.

    3. different clue

      Well . . . words and phrases like Catfood Plan, the BS Obama Catfood Plan, Grand Catfood Bargain, Grand Theft Bargain, etc.; do make good hammers if used right. So might other words and phrases which other people might think up.

      And even if the BS Obama Catfood Plan passes, should we retreat into a posture of helpless despair? Or might we hope that a huge enough violent enough mass backlash hatred and rage movement throughout society might lead to parties and movements to repeal the Catfood Cuts?

      ” Can the Catfood. Cancel the Cuts.”

  2. Ned Ludd

    Ryan Grim at the Huffington Post is sometimes able to post a top, front-page story critical of Obama. As of 4:30am EST, this is the lead story on the front page, complete with a large unflattering picture of two Obamas:

    O NO HE DIDN’T — Obama Flips On 2008 Social Security Promise


    “John McCain’s campaign has gone even further, suggesting that the best answer for the growing pressures on Social Security might be to cut cost-of-living adjustments or raise the retirement age. Let me be clear: I will not do either,” Obama said in a rarely viewed video that was posted online.

    The story was written late yesterday afternoon, but I have no idea when it became the top story. Did anyone check Huffington Post last night and see it on the front page? A month or two ago, Ryan Grim posted a story slamming Obama and Pelosi on Social Security, which became the lead story at the Huffington Post just before midnight. As soon as morning rolled around in New York City, Grim’s article was replaced with an earlier piece by Sam Stein, which not surprisingly ran interference for Obama.

    Bully for Grim for doing this. After his earlier piece was posted and made the top story, I started to see liberals around the net discussing Obama’s plans for Social Security.

    1. Ned Ludd

      I just checked the Huffington Post front page; it’s morning in New York City (where their headquarters are located), and many of their editors and reporters are probably having their first cup of coffee and checking the news. Sure enough, the link to Grim’s article has been pushed down the front page, and the picture accompanying the link is now one of Obama looking contemplative.

    2. Jackrabbit

      I just looked into the article. Now…

      1) There is no video
      Note: The headline in the post is: Obama Vowed Never To Cut “Social Security Cost-Of-Living Before Chained CPI Move (VIDEO)”

      2) Instead, there is a pro-Obama image slider
      Entitled: “11 Paranoid Obama Conspiracy Theories”

      1. Ned Ludd

        Try turning off Firefox extensions that block content, such as RequestPolicy. I just checked and was able to play the video on both a Windows 7 system and an Ubuntu system. The video appears before the text of the article, and the slideshow (I got the same one) appears after the text.

  3. Klassy!

    “The debt is never paid back, but becomes in effect part of the money supply. Over two hundred years ago, already in 1776, Adam Smith wrote that no government ever has repaid its debt. So the debt doesn’t have to be repaid. It’s not like a private-sector account book where, if you run into debt, you have to keep paying the banks more on your creditcard and your bank loan.”
    True enough, but how in God’s name do you sell this to the American people? (Not to mention the MSM is quite happy to conflate private and public debt.)

      1. Klassy!

        Shoot, we’ll never get there. Or past this idea of endless growth.
        But what I was thinking was more on the lines of this: http://www.cjr.org/the_audit/populism_and_financial_crises.php
        (Critique of http://blogs.wsj.com/economics/2013/04/09/why-canada-can-avoid-banking-crises-and-u-s-cant/?mod=e2tw)
        If this lie won’t die, then what possible hope is there that people will buy the idea that the debt does not have to be repaid.
        Actually, what I’m really saying is that nobody in the mainstream media will explain this to us.

    1. joe bongiovanni

      Agreed on the messaging problem with a narrative that says a debt is, in fact, not a debt, and thus need not be repaid. I can never understand ptogressives cozying up to unnecessary increases in public debt.
      Not so sure about this part, K!.
      ‘True enough’.
      When related to Dr. Hudson saying:
      “The debt is never paid back, but becomes in effect part of the money supply.”

      Does the debt become the money supply, or does the money supply become the debt? It only matter for the concentrating effects from the siphoning of the upwardly mobile wealth to the very top. Otherwise, who cares?

      Government debt is always funded by the existing money supply. That is the nature of debt. So the government is not issuing the money supply, it is rather using the existing money supply, by borrowing it to fund its debt, necessitating these interest payments from taxpayers to, as Dr. Hudson explained, mostly the One Percent.

      So, we have a sovereign government empowered by its sovereign peoples in its Constitution to ISSUE the nation’s money, but instead that government has become the user of our money system, and a debtor to its private, One-Percent issuers.

      It’s time to take back the issuing power to the people’s government, and for the bankers to get back to banking.
      For the Money System Common.

      1. Klassy!

        “So the government is not issuing the money supply, it is rather using the existing money supply, by borrowing it to fund its debt, necessitating these interest payments from taxpayers to, as Dr. Hudson explained, mostly the One Percent.”
        Yes– but I am not nearly fluent enough in these matters to explain it as thus!

  4. working class nero

    Am I the only one seeing the obvious link between Hudson’s descriptions of CPI chained cost of living and the environmental movement? Hasn’t the liberal wealthy elite been preaching for generations that in order to save the planet we have to consume less? We have to stop eating beef due to the carbon omissions of cows? We have to get out of our cars and onto public transport or bikes? Get out of urban sprawl and single families homes and into apartments clustered around public transport nodes? Otherwise the planet will overheat due to all those greedy white people over consuming?

    And didn’t working class critics respond that what the liberal intelligentsia were really preaching was a lower standard of living? And that any lowering of consumption the Western world would be quickly nullified by increasing consumption in the developing world; where Chinese workers are switching from rice and tofu to beef, where cars are being replaced by bikes, etc, etc?

    So while Obama’s plan may be a “cat food” proposal, it could equally be branded as a “green” proposal to save our planet by forcing Seniors to “voluntarily on purpose” fight global warming and the rising seas by lowering consumption.

    So once again Obama is attempting to divide his liberal base in order to jam through his proposal. First in order to obtain black leadership support (it wouldn’t look good on the news if Al and Jesse were denouncing his SS cuts) he graciously granted “low income recipients” a pardon from these cuts. He also proposed a means tested free day-care proposal that whites will shun more fiercely than a Section 8 apartment building. The early signs are that the black leadership are supporting this deal. Only time will tell if black leaders will turn into attack dogs when white liberals start getting too vocal in opposition to the Obama cuts. Traditionally two slaps of white privilege along a round house kick of white guilt is normally enough to shut up most white liberals and get them to accept they are racists if they don’t eat their cat food quietly.

    And now it’s clear that Obama has a second weapon to throw in. If the white liberals against all the odds manage to somehow get past the onslaught of white privilege and white guilt accusations and live to fight the SS cuts another day, the next attack they will face, this time from privileged environmentalists, is of being climate criminals, anti-green, and selfish over-consumers who will cause the seas to flood the rest of the world’s shorelines just because they won’t accept their cat food graciously.

    Of course the order of battle could be reversed or Obama could even send both groups (blacks and environmentalists) in together in a glorious D-Day frontal assault to wipe out the mostly white liberal opposition to his SS cuts.

    People who are planning to fight this SS cut should be well aware of the internal contradictions within the liberal coalition and be prepared to overcome them.

    1. from Mexico

      Interesting observations.

      Carter tried the sort of frankness and honesty you speak of in his crisis of confidence speech, which he delivered on July 15, 1979. “In a nation that was proud of hard work, strong families, close-knit communities, and our faith in God,” he admonished the country, “too many of us now tend to worship self-indulgence and consumption.” Carter warned that “there [was] simply no way to avoid sacrifice.”

      Concomitantly, Carter appointed Paul Volcker to the Fed in August of 1979, and Volcker immediately unleashed his jihad on the American working-class, aka “The Great Monetarist Experiment.” Volcker told the New York Times: “The standard of living of the average American has to decline… I don’t think you can escape that.”

      Carter’s frankness in his crisis of confidence speech cost him any chance he had of winning the 1980 election. Ronald Reagan beguiled his his fellow citizens with his “morning in America” vision, ostensibly giving license to the empire of consumption.

      But it was bait and switch. The destruction of the American working-class proceeded as planned. As Christian Parenti explains in Lockdown America:

      In 1981 as the recession was reaching new depths and many in Congress were calling for relief, Volcker again explained the utility of his artificial economic disaster: “in an economy like ours with wages and salaries accounting for two-thirds of all costs, sustaining progress [in price reduction] will need to be reflected in moderation of growth of nominal wages. The general indexes of worker compensation still show relatively little improvement, and prices of many services with high labor content continue to show high rates of increase.” The chairman’s goal was labor discipline. The recession — though had on many businesses, particularly small firms — had not yet achieved its purpose: wages were still rising.

      Not until the behmoth First Illinois Bank collapsed under the weight of its bad loans and Mexico seriously threatened a defaul on its $90 billion foreign debt did Volcker relent and open the Fed’s spigots, easing interest rates and making credit available throughout the economy, thus stimulating economic activity. But according to Harrison and Bluestone:

      the deep recession did precisely what it was designed to. With more than ten million people unemployed in 1982 it was impossible for organized labor to maintain wage standards let alone raise them. Reductions in wages rippled from one industry to the next and from the center of the country outward. The real average weekly wage fell more than 8 percent between 1979 and 1982, and failed to recover at all in the next five years. Essentially, with wage growth arrested by unemployment, what growth occurred during the Reagan period rebounded mostly to the profits side of the capital-labor leger.

    2. NotTimothyGeithner

      The Obots are becoming deranged. Obama has done jack for the environment as well, and encouraging old people to work longer means more congestion on the roads which means…wait for it…more pollution.

    3. jrs

      Um no I don’t think pretty much any environmentalists think that way, and while you don’t have to be a leftist or even on the left to be an environmentalist, most people ultimately come to the conclusion that it’s more compatible with having a safety net than dog eat dog (although yes it’s troubling at this point that most systems are dependent on growth – ie not enough growth governments cut back on social services etc.). But I don’t know any environmentalist that are against the safety net as such for resource conservation reasons.

      1. taunger

        Well, I’m one. I’m not rooting for a “lower standard of living”, but the above criticisms of the US lifestyle involving large amounts of meat, lots of cars, etc. should go. That should not happen through a program to accept austerity, but a program that builds communities with good public transit, walking, biking, local farms, denser, cluster housing, etc. Orientation toward profit =/= high standard of living .

    4. jrs

      Mind you in some hypothetical world in which we were given proposed SS cuts and in unrelated news the U.S. had decided to implement the economics of Herman Daly, I might have to give the whole thing pause, and think over whether I supported it. But of course in actual reality we have proposed SS cuts and Keystone XL, and fracking and going for complete destruction the natural world (which humans kind of need to live btw). And 70 year olds working two jobs to survive and eating catfood is in no way compatable to building a coalition to fight for the environment (because they are operating too much on day to day survival, even though species survival on earth is still kinda important). Really, you won’t even be able to convince them to “buy organic” because conventional agriculture really is unsustainble and won’t work in 100 years anyway, they don’t care, they can’t afford it.

      But it’s akin to what Hudson says above where 75% of bond interests go to the 1%, yea and the rest probably go to many of the same people collecting SS looking for a safe return. Old people have been hurt by that. And what we will probably get is not save SS, or get rid of ZIRP but both, where there is little social safety net, and even those who are able to save and accumulate some assets (not talking 1% – talking professional class and so on), don’t have any return they can rely on in their old age or any safe way to invest it (ie even those more lucky they can’t even “take care of number 1” because the system screws them coming and going).

    5. taunger

      Some decent rebuttals above, but I think this is the key:

      the average US consumer will have less purchasing power, but production will not decrease. The delta created will be exported to a global kleptocracy. Don’t conflate distribution of money with distribution of resources.

    6. different clue

      Well, if the Black Elite Leadership plays its various slanderous and libelous race cards that egregiously, then should we in response be prepared to start using phrases like Black Racist Pig Elites agains these people? We certainly should not use such phrases first. I take Lambert Strether’s caution about that stuff on board to just that extent.

      But if the Black Leadership uses the Race Cards to manipulate guilty white liberals into supporting the Catfood Cuts, should we fail to respond in kind when responding in kind is the only hope we have to save our old age survival benefits?

      1. Lambert Strether

        It’s just the same as Obots smearing all their opponents as racists in 2008. The proper response is and was that (a) Obots seem to think that no black candidate can be opposed on policy, which would (b) make opposing Clarence Thomas or Alan Keyes racist, which is absurd. In addition, and to me this is the most important, Obots took what is in essence the “original sin” of the American body politic, which is racism (and the Slave State that racism was an ideological prop for) and used it as fodder for an election campaign. The tactic demeans everyone whoever fought for civil rights.

        So I think that “when responging in kind is the only hope” is a case of petitio elenchi.

    7. different clue

      No. The science-based wing of the environmental movement never once said we have to stop eating beef “because cows emit carbon dioxide.” The mysticism-based wing of the environmental movement might have said that, but the science-based wing never has, and won’t unless emerging science compels them to say it. And right now it is looking as if the cows-on-range/pasture system biosequesters more net CO2 than what the cows themselves emit. More science is needed, to be sure. But in the meantime, I think the science based environmentalists would say “boycott feelot beef, eat grassfed beef.”

      1. Yves Smith Post author

        You are really misrepresenting the state of play.

        Cows emit methane, which is estimated as 20 to 72 times more potent than CO2.

        The debate is over whether grass fed or grains fed cattle is “more green” which is a marvelous sleight of hand, since eating beef is most assuredly bad for the environment. Beef is one of the most inefficient animal proteins, based on how much grain it takes to produce meat (Chicken are very efficient).


        Notice the implicit positioning of cattle as green? YOU’VE BEEN HAD!

        Basically, the jury is out as to whether grain feed beef are worse than grass fed beef, since grass fed cattle makes MORE methane. The defenders are trying to argue the pasture is an offset.

        Cattle produce 16% of the world’s methane. From the New York Times in 2009:

        More broadly, with worldwide production of milk and beef expected to double in the next 30 years, the United Nations has called livestock one of the most serious near-term threats to the global climate. In a 2006 report that looked at the environmental impact of cows worldwide, including forest-clearing activity to create pasture land, it estimated that cows might be more dangerous to Earth’s atmosphere than trucks and cars combined.


  5. from Mexico

    Michael Hudson occupies a prominent place in my pantheon of living economists. Other notables inlude Samir Amin, Steve Keen and Stephanie Kelton.

    Hudson is like a honey bee. He goes around to the different flowers — classical, Marxist, MMT, post-Keynesian, etc. — and gathers the sweetest nectar from each. Then he blends it all together to get a mixture that somehow works, and works very well.

    I think the thing that allows Hudson to do this is his great command of history. In order to corrupt an ideology, it is necessry to forget the historical context which engendered it, either that or, as Hudson has written elsewhere, create “a travesty of history” or an “implanted memory” in which to place it, which is done through the use of propaganda. http://michael-hudson.com/2012/08/financial-predators-v-labor-industry-and-democracy/

    No one has put this more beautifully than Milan Kundera, as quoted in this video by John Pilger:

    The struggle of people against power is the struggle of memory against forgetting.


  6. Bruce Krasting

    Hudson makes the point that governments don’t pay off debt, they just pay interest. This is important, and Hudson is right. Governments should not be paying off debt.

    But Social Security is now in the process of running down its surplus (federal debt). It’s big money, $75b this year, it will total 1.2T over ten-years and over $3T in 18 years.

    About 20% of the federal debt is to be paid off in this manner. I don’t see how this is possible. It will surely cause problems.

    If the Debt to SS is “paid off” it must result in more borrowing from the public. So future SS benefit checks are in part coming from debt sold to China?

    How can Hudson look at this picture and not see the inconsistancy of his position?

    1. Bill Smith

      The same way he make claims like this:

      “When the government printed $13 trillion to give to the banks after the 2008 breakdown…”

      1. Bill Smith

        Imposter! I am the real Bill Smith. I had it first!

        I also don’t like half truths from Hudson or anyone else. The 13 trillion was mostly Fed emergency “special lending programs” and discount window borrowings (lender of last resort). They are all short term LOANS to banks, less than a year, and collateralized – altho the special programs appeared to bend the AAA US backed collateral rules perhaps.

        Using this as a reason that the “government” can just print all the money it wants on a long term bases is ridiculous hyperbole – which we get far too much of out of the MMT crowd.

        And money and credit are not the same thing. A 30 year Treasury bond is not a dollar bill. You may want to think about why we have M0, M1, M2, M3 as different measures of money supply, and that the price of bonds traded in the bond market can change when measured in dollar bills.

        1. Calgacus

          Using this as a reason that the “government” can just print all the money it wants on a long term bases is ridiculous hyperbole – which we get far too much of out of the MMT crowd.

          Yes, adducing reasons that the government can print all it wants is silly. It is perfectly obvious to a child that it can. It is like using complex differential geometry to show that 2+2=4. Unfortunately, enough adults have been brainwashed into crazy ideas that they actually think that governments can’t print all the money they want, i.e. that 2+2= – 5, and then call 2+2=4 “ridiculous hyperbole”.

          And money and credit are not the same thing.
          They most certainly are. Money is a type of credit = debt. A social relation, not a thing, a commodity. That’s all there is to it. People passionately, ardently want to make things more complicated than they really are. And they usually do satisfy their own desire to confuse themselves. If you want to really understand money, the only problem is convincing yourself that it really is that simple.

          A 30 year Treasury bond is not a dollar bill.
          True, but the sole difference is that a 30 year bond is a bankroll of dollar bills with dates in the future printed on them. A bunch of little interest coupons and then a big one, the “principal” at the end.
          That’s all. That is the only difference. Bonds and dollars are the same thing, except future dates are printed on bonds. As FDR said “..government credit and government currency are one and the same thing” (second fireside chat). A dollar is just a matured bond. Pretending there is a fundamental distinction between the two, thinking that government currency is mystically different from government debt, thinking that a debt is paid off when a government exchanges one of its bonds for some of its dollars, or that a government is borrowing when it issues bonds to suck up dollars it had issued is perfectly crazy. Government debts are only paid off when individuals use government debt, for example currency, to buy something from the government – like release from their tax liabilities.

          You may want to think about why we have M0, M1, M2, M3 as different measures of money supply, Those measures didn’t really exist until around 1960; they weren’t published, nobody took note of them. Because people understood money and finance much better, having lived through the Great Depression, having had some understanding of even watered down Keynesian / Institutional monetary “New” economics. The beginning of numerological obsessions coincided with the decay of economic understanding, in academia, and much worse, in the general public.

          and that the price of bonds traded in the bond market can change when measured in dollar bills. The price of yen can change in the foreign exchange market when measured in dollars. That doesn’t make yen or dollars not money.Governments used to “cry up” or “cry down” some of their monetary instruments – their coinage – in terms of others (their units of account, tally sticks). Just the same as having a “bond market” – where government pretend that markets set their interest rates.

          We could have an almighty monkey set interest rates by throwing darts. Much the same thing as an almighty “bond market”. Except that people would see more easily that it was the government decision to have the monkey throw darts that was the real decision, and it was made by the government, not the monkey. But if we dress up greedier primates in suits and have them flail about trading, perhaps with less thought than the monkey, various government-determined quantities of bonds at various government determined maturities and interest coupons – somehow it is the expensively dressed primates deciding, controlling, the rates, not the government.Ha!

          1. Bill Smith

            You should probably disclose whatever alternative universe you’re posting from.

            I imagine you probably think your old socks and underware are money if your pawn shop will give you a quote on them?

          2. Calgacus

            Bill, I’m from an alternative universe where I hope that people at any age, having received any amount of crazy indoctrination, could actually read some genuine economics. And realize that beliefs such as you have been espousing are sheer nonsense. If governments (and banks) don’t print money out of thin air — then where on earth does money come from?

      2. Don Levit

        Yes, Bill, he seems to be linking the two types of loans.
        I would appreciate if someone could briefly explain in ways I (we) can understand how it is posible to print $13 trillion, spend it, let’s say, at least a portion, for government expenses, and not have to pay it back
        in effect, as Hudson states, one is loaning money to himself. But why would someone or some entity do this? Of what profit is it to loan money to oneself… unless it was a sham loan used to make it look like a real transaction occurred between 2 parties. By the way, what kind of loan has its interest paid with debt, and its principal rolled over, with no penalty for the use of the principal for all these years?
        Don Levit

        1. Bill Smith

          maturity transformation
          liquidate stock portfolios for cash
          one does not loan money to oneself
          revolving credit card debt
          the government

    2. from Mexico

      More neoclassical fairy tales from Bruce Krasting.

      Really Bruce, when are you going to give up on this loanable funds fiction?

      The United States has fiat money with monetary sovereignty, as Hudson makes clarion:

      JAY: There’s two sides to this. There’s the side of the money the Fed just simply creates. And then there’s the part where the government borrows money from outside sources. They borrow money by selling T-bills. At the moment this borrowed money is costing the government practically nothing, but that could change at a point.

      HUDSON: It could, in which case there would probably be a shift away from borrowing from the public to simply monetizing it, which iswhat the U.S. government has always done in a pinch, as have the British government and the Chinese government. Any government that has a central bank has the option of doing that. So this to pretend that the debts to the banks and the bondholders are the whole thing just avoids looking at the real overall budget situation.

      1. weinerdog43

        Krasting’s arguments always boil down to: “I’ve got mine, let the poor and middle class starve in the dark.” He’s had his ass handed to him countless times by Dean Baker and invariably shows up with his Gliblitarian nonsense.

        Left unsaid is that removing the $113,700 cap on earnings will fully fund Social Security well beyond all of our lifetimes. But we can’t have that. Got to protect his bankster buddies.

      2. joe bongiovanni

        I agree about the error of equating the social security balance picture with what is a real public debt, but I don’t agree that Dr. Hudson correctly relates why we have no need to repay existing public debt – that the government merely ‘monetizes’ the debt.
        The ‘monetize’ term of art today relates to the opposite of monetization. It implies the open-market purchases of the public debt by the private Fed, to hold in order to re-channel some of the interest payments back to Treasury.
        The net-result is not monetization at all.
        With real monetization, debt would become money.
        Like, as if the government issued money, rather than issuing debt.
        At the end of the Fed’s finnegling its balance sheet, all of the public debt still exists – awaiting a reversal of OM operations – and the money supply does not change at all.
        The only real reform proposal that solves the problem of ‘public’ debt saturation, and private as well to a lesser degree, is the NEED Act proposed by Congressman Kucinich in the last two Congressional Assemblies.

        It monetizes all exiting commercial bank-credit in one fell swoop, reducing the need for borrowing the money supply into existence, and repays existing public debt at maturity.
        For the Money System Common.

        1. Myshkin

          With our fiat currency and strong economy should the US forget about taxation and fund the budget by monetizing revenue/expenditure as a range of percentage of GDP depending on the historical moment and needs?

          Would this result in inflation and essentially a regressive flat tax?

          The struggle would then be over the percentage of GDP used and the usual struggle over allocation to programs, discretionary and non-discretionary, etc, a debate over societal priorities.

          1. joe bongiovanni

            The government needs taxation for revenues.
            Despite our historic need for public economic intervention, if the government funded ALL its budgeted expenditures by creating new money, THAT would cause inflation – because the economy would not grow equivalent to the present $4Trillion in annual spending.
            Even though right now the economy is in need of a multi-year, multi-trillion investment to spur demand and to fix what’s wrong, the government should not eliminate taxation.
            In normal times, the government should be using it’s money creation powers strictly for achieving economic growth potential, based on a number of economic metrics that inform potential GDP.
            But arriving at normal times will take a slog through the remnants of generational monetary mismanagement and our recent austerity-psychosis.

            Yes, with government creating and managing the money without issuing debts, we will be very much in a national debate about the real spending priorities of society.
            As we should be.

          2. Myshkin

            A moderate rate of inlation is normal and stimulative the problem is maintaining at acceptable levels. By foregoing taxation and just calculating budgetary resources as a percentage of GDP with an eye to inflationary excesses all those who have the resources to hire stables of accountants,off shore or loophole their tax burden onto others, are suddenly impacted.

            My concern would be whether there would be an overly regressive nature to what would be a flat tax levied by inflationary pressure. How much more regressive would it actually be compared to the system we have now of loopholes, avoidance by the rich and corporations?

            That could be mitigated by instituting a guaranteed basic income, proposed by an odd collection of public figures over the years including Milton Friedman and George McGovern.

          3. Bill Smith

            We’ll get regressive taxes PLUS the gubmint telling us what the inflation rate is – in all it’s chained glory!

          4. Myshkin

            It’s a thing of beauty. A perpetual motion machine. For you bookepers out there, the debt could be zeroed out with the contributed value of the gubmint’s services provided.

            Bound to fail only where all government fails, with the ability of TPTB to subvert the commons and divert resources away from the general welfare into their own coffers.

          5. Yves Smith Post author


            No, the Fed has been saying the reverse for decades. Lambert is correct. From a post by Bill Mitchell, Taxes Do Not Fund Anything!

            In the last year of World War II, the then Chairman of the Federal Reserve Bank of New York, one Beardsley Ruml addressed the American Bar Association.

            You can access Guide to the Beardsley Ruml Papers 1917-1960 at the University of Chicago Library…..

            The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government….Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity.

            The United States is a national state which has a central banking system, the Federal Reserve System, and whose currency, for domestic purposes, is not convertible into any commodity. It follows that our Federal Government has final freedom from the money market in meeting its financial requirements. Accordingly, the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes. In general, it may be said that since all taxes have consequences of a social and economic character, the government should look to these consequences in formulating its tax policy. All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.

            So that statement is as clear as you will get and totally consistent with the fundamental insights offered by MMT. When there is no currency convertibility and exchange rates are flexible, then the central bank has total liberty to create financial assets (money) and the federal government is totally free from any financing constraints.

            Please read my blog – Who is in charge? – for more discussion on this point.

            So this raises the question: if the government is not financially constrained then why does it impose taxes (especially if they are bad for growth etc)?

            Ruml offers four insights into the purpose of taxation:

            Federal taxes can be made to serve four principal purposes of a social and economic character. These purposes are:

            1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;

            2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;

            3. To express public policy in subsidizing or in penalizing various industries and economic groups;

            4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.


      3. Don Levit

        So borrowing money from the public is one way to pay expenses.
        The other way is what… having the fed print the money, and what…buy Treasury bonds?
        Seems like the latter option is a slam dunk. It would be helpful for someone to explain how one can successfully achieve option 2 , AND the public believes it is a real, instead of a virtual, transaction.
        How does someone have sex with himself?
        Don Levit

    3. Bill Smith

      Debt is rolled over. The trust fund debt get gets rolled over same as the debt that funds our military. In the future we have unfunded military spending at a rate of 600B+ per year.

      Sure we can try and keep selling to China. I would.

      PS- No country has ever paid off their debt – but plenty have failed and defaulted and/or hyperinflated.

      1. Don Levit

        The continuous rolling over of debt suggests strongly to me either the unwillingness or inability to pay off the principal. This fact , in itself, strongly suggests that the loans are sham loans. Certainly, the IRS would see it that way.
        Don Levit

        1. Bill Smith

          Treasury bond A get paid for with the proceeds of selling Treasury bond B

          The IRS is a department of the treasury – and they say that’s ok

        2. Calgacus

          The continuous rolling over of debt suggests strongly to me either the unwillingness or inability to pay off the principal. This fact , in itself, strongly suggests that the loans are sham loans.

          No, the ease of rolling over, the desirability of a firm’s liabilities indicates the strength of the firm and its debt. Ability, not weakness. Only very strong firms and basically all countries can finance themselves this way; their liabilities are money(ish).

          From the 1965 Understanding Macroeconomics, p.124-125 of Robert Heilbroner (teacher of UMKC MMTer Mathew Forstater):

          “Yes, highly stable businesses like Consolidated Edison or AT&T do, in fact, continuously “refund” their bond issues, paying off old bonds with new ones, and never “paying back” their indebtedness as a whole.”

          The same is true of a country, as he goes on to say. His treatment is not entirely right according to MMT, but basically translatable into good sense. Better treatment of finance, imho, than his later popular books with Lester Thurow, showing that the rising tide of stupidity about finance and money swept almost all of even the best minds of that time.

    4. bluntobj

      Bruce, I thought I was going to have to scroll all they way down before someone mentioned the fact that the SSA’s “lockbox” is nothing more than special treasury paper that can’t be sold on the open market, and must in fact be returned and converted to actual treasury debt.

      Thumbs up.

    5. Losers

      What a gig, spew sociopathy as if it’s common sense. With disk jockeys like Rick Santelli leading the common form of antisocial behavior, hate becomes a comforting old friend.

  7. rur

    People who continue to use the term “catfood” as an index of one’s penury have not purchased any catfood lately. Catfood (cost per oz.) is more expensive than a lot of human food. Even the cheap catfood, which my damned picky cats will not eat. & the older the cat the worse it gets, not just special catfood for various cat diseases of aging, but then there are the vet bills, cats, you know, not being eligible for medicare. Dogfood isn’t much better. i’ve got geriatric animals, an 18-20 year old mutt and a 21 yr old cat and I’m kind of like running an animal hospice, without the opiates.

    1. Charles LeSeau

      I keep thinking of what Viktor Belenko said whenever I hear cat food mentioned. He defected to the US in the 1970s in a then state-of-the-art Soviet interceptor plane (MiG-25). He lived pretty awkwardly in American society and ended up mistaking cat food for human food once.

      “…but later, when I discovered super-market was real one, I had real fun exploring new products. I would buy, every day, a new thing and try to figure out its function. In Russia at that time (and even today) it’s hard to find canned food, good one. But everyday I would buy new cans with different food. Once I bought a can which said “dinner.” I cooked it with potatoes, onions, and garlic – it was delicious. Next morning my friends ask me, “Viktor, did you buy a cat?” It was a can of chicken-based cat food. But it was delicious! It was better than canned food for people in Russia today. And I did test it. Last year I brought four people from Russia for commercial project, and I set them up. I bought nibble-sized human food. I installed a pâté, and it was cat food. I put it on crackers. And they did consume it, and they liked it. So the taste has not changed. By the way, for those who are not familiar with American cat food. It’s very safe; it’s delicious, and sometimes it’s better than human food, because of the Humane Society.”

    2. different clue

      Its a legacy term from decades ago before SS got “COLA’d”. In the popular mind catfood says poverty. Its an easy word to convey meaning with. I won’t stop using it unless someone comes up with an equally compelling word which won’t require precious time we don’t have to explain it to people who need a verbal tire iron right now.
      Maybe now is not a good time to look for a new word that says old-age poverty. Maybe we need to focus on winning the battles and the war first with the weapons we have. One of those weapons is the word “catfood”.

      1. JTFaraday

        I don’t have a problem with the catfood meme, but the public is also clearly incensed when the political and pundit class isn’t familiar with the price of milk or, like former Pres Bush, even the grocery scanner itself.

        This reminds me of another, related point.

        Call me crazy, but sometimes when millions of people use a word–like “inflation”– in a certain way and a relative, comparative handful of professionals use it in a way that is virtually the opposite of the way the public uses it, it is incumbent on the professionals to learn to speak in a new way that is more expressive of the point they are trying to make.

        There has been plenty of inflation in people’s grocery bills since 2008, to say nothing of their commuting costs, but economists, especially certain economists, insist there is “no inflation.”

        Now we have legislation proposed that Michael Hudson says is designed to lower the cost of living increases paid out to those who have earned social security benefits.

        Would-be “progressive” economists have been yelling at the stooopid public– not to mention the stooopid mainstream press– that “there is no inflation,” contradicting what the public thinks it knows, instead of recognizing that there may be something problematic about the way they use words.

        Didn’t they stop to think their specialist–not to say neoliberal– definition of “inflation” was leading them into making an argument that would help undermine the public’s attempts to maintain its income levels?

        It’s not like people didn’t see this coming. Obama’s Catfood Commission was appointed a long time ago already.

  8. LillithMc

    Obama is doing the Clinton triangulation or a form of treason compared to his speech during his election. His cabinets are revolving doors from either Wall Street or the “defense” industry. Dept. of Energy Moniz supports fracking and the Canadian pipeline. “Entitlements” get cut. When 2/3rd of the money and power are under the control of 2% of the population, democracy is a cute word. I am a senior living on $700/mo social security. I don’t eat cat food or beef. I am a vegetarian out of necessity.

    1. Me

      Or simply a modern Democrat. The Democrats have given working people tons of gifts the last few decades. NAFTA, the WTO, the gutting of the New Deal financial regulations, the privatization of education, the three new free trade deals, the coming TPP, this austerity, amongst many other things. Obama isn’t really outside the mainstream within his party and there is little progressive about his rotten party’s economic stances. They can’t live on the ideas of the Great Society any longer. That was a couple of generations ago and they now want to even gut their crown jewels in the New Deal.

  9. clarence swinney

    The General Accounting Agency reported that the Republicans in Congress spent $110,00,000 from 1995 to 2001 on Hearings and Investigations on the Clinton administration in a concerted organized effort to destroy it.

    Obama is getting the same treatment only a different approach. Do not allow him any programs that will help the middle class and poor and build his reputation. It was a disgrace to kill the American Jobs Bill in a severe recession with high unemployment.

    The list of Filibuster set new records by far. The Republican even got so petty they would not pass the Budget Resolution that always passed with ease.

    1. Lambert Strether

      Senate rules can be changed at the start of a session by majority vote. Since the Democrats did not change the filibuster rules when they had the chance, they own all the outcomes from that decision, including whatever didn’t pass because of filibusters.

      The real question, therefore, is not why the Republicans filibustered. Rather, since it was obvious that they would — this is the party that impeached Clinton over a b*** j** after all — why did the Democrats not take the obvious step to prevent them from doing so? The only answer I can see that they wanted to restrict the universe of possible policy outcomes to those Republicans would accept.

    2. different clue

      And anyway, how many hearings and investigations is the Congress really launching against Obama? Really? One little “Fast and Furious” from Issa? That’s it? That’s all? That’s a “Clinton treatment”?

      Are you trying to make me feel sorry for poor put-upon President Obama so I will support the BS Obama Catfood Plan to make President Obama feel better?

  10. McWatt

    Wow. This is incredible.

    “Catch-22 says they can do anything we can’t stop them from doing.”

  11. Jackrabbit

    It seems that Republican-friendly blogs are panning the Presidents budget (“tax and spend” etc.). Krauthammer (WSJ) poo-poos chained-CPI as a $5 cut of a $2,000 “entitlement”.

    Has Obama shot himself in the foot? Angering the left for no gain whatsoever? How could this oh-so politically savvy Administration make such a mistake? What am I missing?

    1. rob

      I don’t see any miss in what obama is doing.Other than him being a corporatist/fascist .This pretense of the republican orifices being against anything obama says, saves face for them.While the reality is that he is doing what they wish they could do openly.But their” brier rabbit” routine will still alow them to “get a soundbite of negotiation”for next election.While still providing all the soundbites for being against anything obama is for.
      And on the democratic side; all the democrats are lulled by the refusal of the republicans.The republicans coming out against this, negates the “radicals”, who say obama is the sell out.
      \all things being a fake posturing.Every one ‘going on the record”, with whatever they need to , to be used for a later soundbite.
      The truth is they are all working for the same pool of money from the same wealthy elite funneled through their company contributions,foundation/grass roots channels,with full cover being provided by academic support,which obfuscates deliberatly to create a poorly informed and/or mis-informed impotent public.
      With the exception being venues/authors like these,of course.

    2. pws

      This is not politics for Obama, this is about joining the lower rung of the American Upper Class. He wants a family name that means “aristocrat” both to other aristocrats and commoners.

      I’m hoping when he’s done being President, the aristocrats will betray him and kick him to the curb. It’s not impossible, but it might set a bad example to other would be aristocrats.

  12. JimmyT

    I hate to burst the Hudson bubble, but there’s alot of hogwash (or at least mis-direction) in what he says here. I do agree with his position that our politicians are more interested in transfers up the income scale. But, his general attitude of “the debt doesn’t matter” is patently wrong, and has been proven so numerous times.

      1. Garrett Pace

        Well, other than there being “better” instruments out there than the one that sets the risk-free rate.

        This is helpful for showing that our financial system is constructed on a foundation of questionable abstractions.

        1. from Mexico


          Here’s how the evolutionary biologist David Sloan Wilson explains it:

          [W]e must consider the the nature of symbolic thought compared to other ways of thinking. Suppose that I repeatedly say the word “cheese” to a mouse while feeding it a bit of cheese. The mouse will quickly associate the word with the object, just as Pavlov’s dogs associated the sound of a bell with food. Now suppose that I continue saying the word “cheese” but no longer provide cheese at the same time. The mouse will stop associating the word with the object, as surely as it formed the association in the first place. Now suppose that a perversely rude person says the word “cheese” to you a million times without ever offering you cheese. You might feel like smacking him, but you will still associate the word with the object, even though they aren’t paired with each other in your environment. You even associate a word such as “ghost” with something that you have probably never experienced in your entire life!

          That’s what’s special about symbolic thought. With Pavolvian conditioning, the mental associations correspond to the associations that actually exist in the environment. With symbolic thought, the associations become detached from environmental associations, enabling them to acquire a life of their own.

          — DAVID SLOAN WILSON, Evolution for Everyone

          So why did humans develop symbolic thought, or, to put it another way, why is it adaptive? Sloan Wilson explains as follows:

          Symbolic thought is fundamentally communal and requires crossing the cooperation divide. Symbolic thought takes its place alongside our eyes, our ability to point, and our artistic nature as a seed awaiting only the appropriate social environment to grow.

          Symbolic thought enhances cooperation, and the theory is that groups with high levels of cooperation — in military terms what would be called unit cohesion — always outperform groups with low levels of cooperation.

          When you integrate this into the overall ways in which humans organize their societies, it looks something like this:

          [I]n the course of our evolutionary history, natural selection has shaped our psychology to possess the following traits: 1) perceptual sensitivity to potential gains from cooperation; 2) motivation to take advantage of those gains; 3) perceptual sensitivity to opportunities for free-riding; 4) motivation to avoid being free-rode upon; 5) motivation to take advantage of opportunities for free-riding; 6) perceptual sensitivity to the short and long-term personal costs and benefits of social norms regarding cooperative behavior (from the perspectives of both self and others); 7) motivation to negotiate social norms so that own personal benefits from cooperation and free-riding are maximized; 8) motivation to obey and enforce social norms so that punishment is avoided and those who disobey norms or fail to enforce them are punished.

          — HILLARD KAPLAN & MICHAEL GURVEN, “The Natural History of Human Food Sharing and Cooperation: A Review and a New Multi-Individual Approach to the Negotiation of Norms”

    1. from Mexico

      JimmyT says:

      …his general attitude of “the debt doesn’t matter”

      Pure straw man.

      Is that the best the austerians can do?

      Apparently so, because they don’t seem to be able to come up with any honest arguments that can withstand empirical and logical scrutiny.

    2. Me

      Which debt ,private or public debt? When I hear politicians, Wall Street crooks, millionaire journalists and the like talk about “debt” they are only talking about public debt. It would be nice if the word “public” was thrown in there when talking about public debt since there is such a thing as private debt. Private debt has exploded as well and it grew much faster than public debt in the decades leading into the crash of 2007. It is telling that private debt is rarely talked about by the establishment and it is doubly telling that we never analyze why all of society (not just the government) is swimming in debt. Those in power avoid this because it logically leads to a critique of the system itself instead of pretending (which is all it is) that only government is having to deal with this problem. Ignoring private debt and focusing only on public debt is done for self-serving and ideological reasons by those set to benefit from austerity.

      The reason most economists and right wing hacks don’t talk about private debt is that finance’s product IS debt and it is better for their backers if the private debt is ignored and stays on the books too.

      The rest of though, who are burdened with living in reality, it might make sense to ask why all of society is swimming in debt. Why are students drowning in debt? Why are households? Why did the debt of the financial sector itself explode in the decades leading into the crash of 2007? Why have developing countries been drowning in debt for decades now even when they pay massive amounts towards debt servicing (many times more than they do on their own people)? The answers aren’t pretty for financial capital, the political class or (frankly) this economic system.

      We also would deal with public debt differently if we actually acknowledged private debt.

  13. Hugh

    Yes, this is class war. The Democrats and the Republicans may play for different teams, but it is all the same game. They work for the same people, and it’s not us. And war is not an exaggeration. Obama wants to steal the food out of the mouths of the old. He wants to make their lives miserable and send them to an early grave. Why? To further enrich those who are already too rich.

    These are not the actions of a good man. Nor are they the actions of a mistaken man. Obama has access to unparalleled resources. He could choose to listen to voices like Michael Hudson’s or many of us here at Naked Capitalism and other sites that have gotten so much about recent economic history right. But he does not. Barack Obama is a man of his class, and he only listens to those in his class, and only those who put the interests of their class above all else. If that takes fostering policies that immiserate and kill off the old, then Obama will not only do that, he will take great pride in doing it.

  14. Susan the other

    The banks still have their eye on the prize. This is a diversion. The goal is to eventually give the administration of SS, Medicare and Medicate to the banksters. For a fee naturally, because they can do it so much better than the poor incompetent government. The same will happen with the EPA and any other formerly socially beneficial agency or fund. The main reason being that banks will have nothing left in their depositaries when the GFC is over; they will be broken up; they will need money to continue to blissfully financialize and securitize. The next move will probably be that the Obama administration or the next one gives us an analysis of how expensive a burden it is for the government to administer these funds and how much better it would be for the banks to do it. Such a savings.

    1. casino implosion

      “…he goal is to eventually give the administration of SS, Medicare and Medicate to the banksters…”

      That’s my theory. They want to “gamble” with our payroll tax money, if the “heads I win tails you lose” thing with an implicit government backstop can be called gambling.

      They know perfectly well that they can make huge short term gains for themselves spinning leveraged bubbles with our retirement money, and that saying NO to a bailout when they pop will be politically impossible.

  15. Don Levit

    Can someome explain how the $4 trillion the Fed paid for Treasuries does not have to be repaid back?
    I assume the $4trillion went into the Treasury’s general fund, and was used to pay for current expenses.
    How does this debt factor into the budget?
    I would think, logically, it would add to the deficit, for, in lieu of borrowing from the fed, taxes would have been raised, expenses cut, or debt borrowed from the public.
    The fed must be a distinct entity from the federal government, which would mean that it is part of the public. How does this debt not increase debt held by the public? Is the fed not part of the public?
    Don Levit

    1. bluntobj

      Welp, since it’s an asset on the Fed’s books, it will be paid back, most likely as a roll over at a much higher interest rate.

      Which is the point, really.

      IMHO the debt only matters to the budget in the amount of interest that must be paid.

      Therefore, if one wants to make out like a banker, one encourages prolific borrowing at low interets rates, then when the debt can’t be purchased back and must simply be rolled over, jack them rates up and hoover the cash out. It’s especially tasty when it’s done to a taxing authority. Then the lion’s share of tax revenue goes to the TPTB as mandatory interest payments, along with the universal message proclaiming the guilt of the american people for being so wasteful and demanding that they honor their debt and pay, because it’s the “moral” thing to do.

      Of course, the trick is to make sure that the debt stops at a level which merely crushes the tax slaves and does not destroy the currency.

      Historically, this is problematic and has not worked, but hey, this time is different!

      1. Bill Smith

        The technical term for it is “debt trap”.

        laymen description is “you aren’t broke until you can no longer borrow to make your interest payments”.

        Printing Press fans say at this point you can just print the money. But guess what folks – the bond market isn’t that stupid and that causes interest rates to soar, or new bond buyers just disappear and don’t show up for the big auction.

        1. ArtJames

          “the bond market isn’t that stupid and that causes interest rates to soar”

          The “bond market” is theatre for the rubes. It is pre-arranged that bonds will be bought. Primary dealers do not actually have a choice in this matter. The Fed sets the rates, and that is all there is to it.

          1. from Mexico

            @ ArtJames


            All the smoke and mirrors are for one reason and one reason only, and that is to scapegoat the culpability for the deliberate actions of the technocrats (central bankers in this case), along with their consequences, which are not always benign, onto “the markets.”

            And the technocrats do exactly what they’re told to do by the transnational capitalist class.

            It’s all one big elaborate mind fuck, choreographed for no other reason than to give the transnational capitalist class — that is the guys behind the curtain who are really pulling all the levers — plausible deniability.

        2. from Mexico

          @ Bill Smith

          You are making an empirical claim that is simply not true.

          Any country like the United States which has a fiat currency and moentary sovereinty can always keep interest rates low.

          There may be situations, such as during the naughties when the United States experienced an inverted yield curve, that the authorities cannot increase interest rates (they could have if they would have been willing to implement capital controls, but that would have been heresy for a neoliberal guru like Greenspan), but there exists no scenario in which the authorities cannot keep interest rates low.

          1. Bill Smith

            That’s hypothetical – inflation or asset inflation or currency value in FX come into play at some point. Or a black market.

          2. from Mexico

            @ Bill Smith

            You are employing rhethorical fallacie: errors or manipulations of rhetoric and logical thinking.

            More specifically, the rhetorical fallacies you are invoking include, but are not limited to:

            1) Ad Hoc Rescue: Trying to save a cherished belief by repeatedly revising the argument to explain away problems.

            2) Straw Man: No one ever said money supply has no effect on “inflation or asset inflation or currency value in FX.”

          3. bluntobj

            from Mexico:

            “Any country like the United States which has a fiat currency and moentary sovereinty can always keep interest rates low.”

            False. Statement asserts “Always” as proof.

            “but there exists no scenario in which the authorities cannot keep interest rates low.”

            Also False. Statement asserts “no scenario” as proof.

            The underlying premise appears to be that TPTB/elite/State are benevolent and would not place taxpayers in a debt trap situation.

            Choosing a different premise, such as Cui Bono, would reveal that yes, there are many scenarios in which this would occur.

            Also, “Always” is a long time.

          4. Bill Smith

            I jumped to the conclusion that you would see the logical conclusion I laid out. (which is in accordance with what the financial world would say – not just my little error fraught theory.)

            So I guess I need to toss the ball back in your court and ask how you see the mechanism by which the government “can always keep interest rates low”.

            Now, we are supposed to have a market setting rates (yes, I have been paying attention and know we have QE now. The Fed still calls that “unconventional policy”, which implies that they still intend to act normal someday and give us our market back. I admit I don’t know if that will ever happen.)

            The other theoretical case is some form of command economy. Might be the happy kind, or maybe not.

            But back to the question – how do you think the government will set interest rates wherever it wants, forever, no matter what the bond markets and currency markets think?

          5. from Mexico

            @ bluntobj

            I think you need a refresher course in logic.

            That a country like the United States, which has a fiat currency and moentary sovereignty, can always keep interest rates low, and there exists no scenario in which the authorities cannot keep interest rates low, are analytic truths. That is, they are truths in which the predicate can be derived from the subject. Such truths are a priori, because they do not require recourse to experience.

            You are confusing analytic truths with empirical truths, or truths in which the predicate can be known through perception. Granted, empirical truths are a posteriori truths, but that’s not what we’re dealing with in this case.

          6. from Mexico

            bluntobj says:

            The underlying premise appears to be that TPTB/elite/State are benevolent and would not place taxpayers in a debt trap situation.

            Choosing a different premise, such as Cui Bono, would reveal that yes, there are many scenarios in which this would occur.

            Pure straw man. You’re arguing with yourself because one thing’s for sure: you’re certainly not arguing with me.

            No one ever said that policy makers of a nation with sovereignty cannot put their nation in a debt trap situation if they want to.

          7. from Mexico

            Bill Smith says:

            I jumped to the conclusion that you would see the logical conclusion I laid out.

            What “logical conclusion.” If it weren’t for faulty logic, you haven’t used any logic at all.

            Bill Smith says:

            (which is in accordance with what the financial world would say – not just my little error fraught theory.)

            Keep those rhetorical fallacies coming: 1) Appeal to annomymous authority; 2) Appeal to authority 3) Appeal to popular belief

            Bill Smith says:

            So I guess I need to toss the ball back in your court and ask how you see the mechanism by which the government “can always keep interest rates low”.

            Well that’s easy. All it would have to do is print up currency and pay off all the debt. There are of course other ways, but that’s the easiest one to understand.

            Bill Smith says:

            Now, we are supposed to have a market setting rates…

            More logical fallacies: 1) Appeal to wishful thinking. 2) Mistaking one’s own opinion for fact.

    2. Bill Smith

      If the Fed holds the Treasuries on the Fed balance sheet till maturity, the Treasury is supposed to pay the Fed back.

      If the Fed decides to sell them in the open market before maturity, which would be a monetary tightening move, they will get market price for them, which is sure to be less than the Fed paid. Under current accepted world central banker rules, the Fed is then technically insolvent – printing press or not. At that point the Fed needs a bailout. Usually it’s the treasury that borrows (puts taxpayers in debt) to bail out the central bank. The other way to do it would be for the banks to re-cap the Fed, but I never hear anyone talk about that option. haha jus makin’ a little joke.

      1. Don Levit

        Good illustration, Bill.
        Let’s assume the Feds holds the 30-year Treasuries, earns its 2.99%, and then the treasury must pay the principal back.
        What impact would that have on the budget?
        By the way, what sane person or entity would borrow for 30 years, and only 2.99% of it in interest, and maybe nothing in real (virtual) (rolled over) principal.
        Don Levit

        1. Bill Smith

          There is a part of the Federal budget called “interest”.

          In 30 years the Soviet States of America will sell another 30 year bond to the Fed and use the proceeds to pay off the Fed on the first 30 year bond.

          But we’ll be dead long before then.

          Been fun talking, but gotta go to the gym now.

      2. Yves Smith Post author

        This is not quite right. Willem Buiter (former central banker) has discussed this at some length.

        Negative equity for a central bank isn’t meaningful since it can just “print” to cover the losses. What could cause a problem is if the “printing” causes inflation.

        Since there seems to be little transmission between the financial and real economy, it isn’t clear whether/when printing will generate inflation. I’m not saying it won’t, but the Reagan/Thatcher experiments proved money supply changes don’t have any reliable macroeconomic impacts.

        1. joe bongiovanni

          First, the Thatcher-Reagan era merely showed that pushing on the interest rate string to and fro has no real control over the money supply – explained away in the fog of ‘lag’ by the econs.
          What it did not show was that the changes in the money supply had or did not have any effect on the real economy.
          That brand of psuedo-monetarism proved nothing.
          It was Friedman himself who proposed a monetary ‘rule’ to replace his theoretical support for using the price of money to control the supply of money.
          Which, for some reason today’s monetary theorists still seem to rather endogenously support.

          Second, the result of a ‘loss’ by the FRBNY in its non-monetary transactions (buying and selling marketable assets) has a direct and automatic impact on the year end statement of financial operations of the bank.
          The bank is in a ‘negative’ income flow situation, viv-a-vis those losses, which would have a direct effect on the bank’s transfer of its net income to the Treasury for that period.
          The Fed is already talking about ‘reserving’ some of its surplus-account net-earnings to offset potential losses. A reduction in the transfer amount to Treasury means that the difference must be made up by tax revenues.
          Or by issuing even more debt.
          So, no matter what Mr. Buiter might have said about the money-printing powers of the central bank – there are none in our case as all money is issued by private banks – the (FRBNY) banks’s loss is the taxpayer’s loss.
          Ultimately, the role of the private central bank is to transfer wealth from the interest-payer (public and private) to the banks that issue the debts.
          You know, socialism for capitalists.

        2. Bill Smith

          Sure a CB can “print to cover”, but I was under the impression that that was considered bad form in central banker land, and maybe there are US laws about that – don’t know for sure.

          But Soros did bankrupt the BOE once, so must not have been on Buiter’s watch. There was the Asian Currency crisis, but there the problem was a reversal of capital flows demanded USD and Yen on the way out, so the Asian Tigers couldn’t print those. So maybe the mighty US gets away with more in the world, as usual.

          But the markets are supposed to take a dim view of that, and pre-GFC base money was only $900B, so the impact of a Fed loss on inflation would be very significant if the economy ever did get better. If the economy stays bad, rich people will buy tulips with it and we’ll be fine.

          I remember reading the Buiter piece vaguely. The thing he seemed to miss is that if the Fed wanted control over the money out there that they “lost”, the treasury would have to give the Fed some T-Bills to sell to mop up the excess liquidity – that is really the function provided by having the treasury re-cap the Fed. Or we could do it the MMT way – the Treasury could raise taxes on someone – but they would have to be sure and tell the IRS agent to shred the money or if it’s electronic, delete it, so the government doesn’t spend it back into the economy!

          1. Yves Smith Post author

            No, Soros did not bankrupt the BoE. Lordie, can you stop making stuff up here? You are so off the mark on this and other stuff it is driving me crazy.

            He broke their attempts to hold a currency peg. Big difference. They would have had to drive and hold interest rates higher than they wanted to. Too much damage to the real economy.


          2. Bill Smith

            Ok, Soros broke the peg and drove down the pound value and in FX and English assets by 15-25%.

            As far as crazy goes, there is plenty to go around.

        3. Yves Smith Post author


          You just make stuff up. Stop it. I’m tired of you making authoritative, jargon-filled pronouncements that are wildly wrong.

          Start with your remark above. You are simply Thatcher and Volcker did. Volcker and Thatcher targeted the money supply. Successfully, I might add. What came out of that was not what they had hoped for, however.

  16. Brooklin Bridge

    Really appreciate Hudson’s ability to make these damned lies and sneaky obfuscated bills more understandable. His point that Chained CPI is a cost of diminishing living standards index helps a lot to visualise just how deadly it will be. The worse it gets, the less they will spend and the less they spend, the worse it will get.

    Naked class warfare is spot on.

    I notice the so called “Liberals” in Washington are making all the he usual pathetic empty noises and hand waiving. http://www.huffingtonpost.com/2013/04/12/obama-chained-cpi_n_3070312.html

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