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May 5-6, 2018 Lecture
Second World Marxism Conference
Peking University, School of Marxist Studies

Volumes II and III of Marx’s Capital describe how debt grows exponentially, burdening the economy with carrying charges. This overhead is subjecting today’s Western finance-capitalist economies to austerity, shrinking living standards and capital investment while increasing their cost of living and doing business. That is the main reason why they are losing their export markets and becoming de-industrialized.

What policies are best suited for China to avoid this neo-rentier disease while raising living standards in a fair and efficient low-cost economy? The most pressing policy challenge is to keep down the cost of housing. Rising housing prices mean larger and larger debts extracting interest out of the economy. The strongest way to prevent this is to tax away the rise in land prices, collecting the rental value for the government instead of letting it be pledged to the banks as mortgage interest.

The same logic applies to public collection of natural resource and monopoly rents. Failure to tax them away will enable banks to create debt against these rents, building financial and other rentier charges into the pricing of basic needs.

U.S. and European business schools are part of the problem, not part of the solution. They teach the tactics of asset stripping and how to replace industrial engineering with financial engineering, as if financialization creates wealth faster than the debt burden. Having rapidly pulled ahead over the past three decades, China must remain free of rentier ideology that imagines wealth to be created by debt-leveraged inflation of real-estate and financial asset prices.

Western capitalism has not turned out the way that Marx expected. He was optimistic in forecasting that industrial capitalists would gain control of government to free economies from unnecessary costs of production in the form of rent and interest that increase the cost of living (and hence, the break-even wage level). Along with most other economists of his day, he expected rentier income and the ownership of land, natural resources and banking to be taken out of the hands of the hereditary aristocracies that had held them since Europe’s feudal epoch. Socialism was seen as the logical extension of classical political economy, whose main policy was to abolish rent paid to landlords and interest paid to banks and bondholders.

A century ago there was an almost universal belief in mixed economies. Governments were expected to tax away land rent and natural resource rent, regulate monopolies to bring prices in line with actual cost value, and create basic infrastructure with money created by their own treasury or central bank. Socializing land rent was the core of Physiocracy and the economics of Adam Smith, whose logic was refined by Alfred Marshall, Simon Patten and other bourgeois economists of the late 19th century. That was the path that European and American capitalism seemed to be following in the decades leading up to World War I. That logic sought to use the government to support industry instead of the landlord and financial classes.

China is progressing along this “mixed economy” road to socialism, but Western economies are suffering from a resurgence of the pre-capitalist rentier classes. Their slogan of “small government” means a shift in planning to finance, real estate and monopolies. This economic philosophy is reversing the logic of industrial capitalism, replacing public investment and subsidy with privatization and rent extraction. The Western economies’ tax shift favoring finance and real estate is a case in point. It reverses John Stuart Mill’s “Ricardian socialism” based on public collection of the land’s rental value and the “unearned increment” of rising land prices.

Defining economic rent as the unnecessary margin of prices over intrinsic cost value, classical economists through Marx described rentiers as being economically parasitic, not productive. Rentiers do not “earn” their land rent, interest or monopoly rent, because it has no basis in real cost-value (ultimately reducible to labor costs). The political, fiscal and regulatory reforms that followed from this value and rent theory were an important factor leading to Marx’s value theory and historical materialism. The political thrust of this theory explains why it is no longer being taught.

By the late 19th century the rentiers fought back, sponsoring reaction against the socialist implications of classical value and rent theory. In America, John Bates Clark denied that economic rent was unearned. He redefined it as payment for the landlords’ labor and enterprise, not as accruing “in their sleep,” as J. S. Mill had characterized it. Interest was depicted as payment for the “service” of lending productively, not as exploitation. Everyone’s income and wealth was held to represent payment for their contribution to production. The thrust of this approach was epitomized by Milton Friedman’s Chicago School claim that “there is no such thing as a free lunch” – in contrast to classical economics saying that feudalism’s legacy of privatized land ownership, bank credit and monopolies was all about how to get a free lunch, by exploitation.

The other major reaction against classical and Marxist theory was English and Austrian “utility” theory. Focusing on consumer psychology instead of production costs, it claimed that there is no difference between value and price. A price is whatever consumers “choose” to pay for commodities, based on the “utility” that these provide – defined by circular reasoning as being equal to the price they pay. Producers are assumed to invest and produce goods to “satisfy consumer demand,” as if consumers are the driving force of economies, not capitalists, property owners or financial managers.

Using junk-psychology, interest was portrayed as what bankers or bondholders “abstain” from consuming, lending their self-denial of spending to “impatient” consumers and “credit-worthy” entrepreneurs. This view opposed the idea of interest as a predatory charge levied by hereditary wealth and the privatized monopoly right to create bank credit. Marx quipped that in this view, the Rothschilds must be Europe’s most self-depriving and abstaining family, not as suffering from wealth-addiction.


These theories that all income is earned and that consumers (the bourgeois term for wage-earners) instead of capitalists determine economic policy were a reaction against the classical value and rent theory that paved the way for Marx’s analysis. After analyzing industrial business cycles in terms of under-consumption or over-production in Volume I of Capital, Volume III dealt with the precapitalist financial problem inherited from feudalism and the earlier “ancient” mode of production: the tendency of an economy’s debts to grow by the “purely mathematical law” of compound interest.

Any rate of interest may be thought of as a doubling time. What doubles is not real growth, but the parasitic financial burden on this growth. The more the debt burden grows, the less income is left for spending on goods and services. More than any of his contemporaries, Marx emphasized the tendency for debt to grow exponentially, at compound interest, extracting more and more income from the economy at large as debts double and redouble, beyond the ability of debtors to pay. This slows investment in new means of production, because it shrinks domestic markets for output.

Marx explained that the credit system is external to the means of production. It existed in ancient times, feudal Europe, and has survived industrial capitalism to exist even in socialist economies. At issue in all these economic systems is how to prevent the growth of debt and its interest charge from shrinking economies. Marx believed that the natural thrust of industrial capitalism was to replace private banking and money creation with public money and credit. He distinguished interest-bearing debt under industrial capitalism as, for the first time, a means of financing capital investment. It thus was potentially productive by funding capital to produce a profit that was sufficient to pay off the debt.

Industrial banking was expected to finance industrial capital formation, as was occurring in Germany in Marx’s day. Marx’s examples of industrial balance sheets accordingly assumed debt. In contrast to Ricardo’s analysis of capitalism’s Armageddon resulting from rising land-rent, Marx expected capitalism to free itself from political dominance by the landlord class, as well as from the precapitalist legacy of usury.

This kind of classical free market viewed capitalism’s historical role as being to free the economy from the overhead of unproductive “usury” debt, along with the problem of absentee landownership and private ownership of monopolies – what Lenin called the economy’s “commanding heights” in the form of basic infrastructure. Governments would make industries competitive by providing basic needs freely or at least at much lower public prices than privatized economies could match.

This reform program of industrial capitalism was beginning to occur in Germany and the United States, but Marx recognized that such evolution would not be smooth and automatic. Managing economies in the interest of the wage earners who formed the majority of the population would require revolution where reactionary interests fought to prevent society from going beyond the “bourgeois socialism” that stopped short of nationalizing the land, monopolies and banking.

World War I untracked even this path of “bourgeois socialism.” Rentier forces fought to prevent reform, and banks focused on lending against collateral already in place, not on financing new means of production. The result of this return to pre-industrial bank credit is that some 80 percent of bank lending in the United States and Britain now takes the form of real estate mortgages. The effect is to turn the land’s rental yield into interest.

That rent-into-interest transformation gives bankers a strong motive to oppose taxing land rent, knowing that they will end up with whatever the tax collector relinquishes. Most of the remaining bank lending is concentrated in loans for corporate takeovers, mergers and acquisitions, and consumer loans. Corporate capital investment in today’s West is not financed by bank credit, but almost entirely out of retained corporate earnings, and secondarily out of stock issues.

The stock market itself has become extractive. Corporate earnings are used for stock buybacks and higher dividend payouts, not for new tangible investment. This financial strategy was made explicit by Harvard Business School Professor Michael Jensen, who advocated that salaries and bonuses for corporate managers should be based on how much they can increase the price of their companies’ stock, not on how much they increased or production and/or business size. Some 92 percent of corporate profits in recent years have been spent on stock buyback programs and dividend payouts. That leaves only about 8 percent available to be re-invested in new means of production and hiring. Corporate America’s financial managers are turning financialized companies into debt-ridden corporate shells.

A major advantage of a government as chief banker and credit creator is that when debts come to outstrip the means to pay, the government can write down the debt. That is how China’s banks have operated. It is a prerequisite for saving companies from bankruptcy and preventing their ownership from being transferred to foreigners, raiders or vultures.

Classical tax and banking policies were expected to streamline industrial economies, lowering their cost structures as governments replaced landlords as owner of the land and natural resources (as in China today) and creating their own money and credit. But despite Marx’s understanding that this would have been the most logical way for industrial capitalism to evolve, finance capitalism has failed to fund capital formation. Finance capitalism has hijacked industrial capitalism, and neoliberalism is its anti-classical ideology.

The result of today’s alliance of the Finance, Insurance and Real Estate (FIRE) sector with natural resource and infrastructure monopolies has been to reverse that the 20th century’s reforms promoting progressive taxation of wealth and income. Industrial capitalism in the West has been detoured along the road to rent-extracting privatization, austerity and debt serfdom.

The result is a double-crisis: austerity stemming from debt deflation, while public health, communications, information technology, transportation and other basic infrastructure are privatized by corporate monopolies that raise prices charged to labor and industry. The debt crisis spans government debt (state and local as well as national), corporate debt, real estate mortgage debt and personal debt, causing austerity that shrinks the “real” economy as its assets and income are stripped away to service the exponentially growing debt overhead. The economy polarizes as income and wealth ownership are shifted to the neo-rentier alliance headed by the financial sector.


This veritable counter-revolution has inverted the classical concept of free markets. Instead of advocating a public role to lower the cost structure of business and labor, the neoliberal ideal excludes public infrastructure and government ownership of natural monopolies, not to speak of industrial production. Led by bank lobbyists, neoliberalism even opposes public regulation of finance and monopolies to keep their prices in line with socially necessary cost of production.

To defend this economic counter-revolution, the National Income and Product Accounts (NIPA) and Gross Domestic Product (GDP) measures now used throughout the world were inspired by opposition to progressive taxation and public ownership of land and banks. These statistical measures depicting finance, insurance and real estate as the leaders of wealth creation, not the creators merely of debt and rentier overhead.


What is China’s “Real” GDP and “real wealth creation”?

Rejection of classical value theory’s focus on economic rent – the excess of market price over intrinsic labor cost – underlies the post-classical concept of GDP. Classical rent theory warned against the FIRE sector siphoning off nominal growth in wealth and income. The economics of Adam Smith, David Ricardo, J.S. Mill and Marx share in common the view that this rentier revenue should be treated as an overhead charge and, as such, subtracted from national income and product because it is not production-related. Being extraneous to the production process, this rentier overhead is responsible for today’s debt deflation and economically extractive privatization that is imposing austerity and shrinking markets from North America to Europe.

The West’s debt crisis is aggravated by privatizing monopolies (on credit) that historically have belonged to the public sector. Instead of recognizing the virtues of a mixed economy, Frederick Hayek and his followers from Ayn Rand to Margaret Thatcher, Ronald Reagan, the Chicago School and libertarian Republicans have claimed that any public ownership or regulation is, ipso facto, a step toward totalitarian politics.

Following this ideology, Alan Greenspan aborted economic regulation and decriminalized financial fraud. He believed that in principle, the massive bank fraud, junk-mortgage lending and corporate raiding that led up to the 2008 crisis was more efficient than regulating such activities or prosecuting fraudsters.

This is the neoliberal ideology taught in U.S. and European business schools. It assumes that whatever increases financial wealth most quickly is the most efficient for society as a whole. It also assumes that bankers will find honest dealing to be more in their economic self-interest than fraud, because customers would shun fraudulent bankers. But along with the mathematics of compound interest, the inherent dynamic of finance capitalism is to establish a monopoly and capture government regulatory agencies, the justice system, central bank and Treasury to prevent any alternative policy and the prosecution of fraud.

The aim is to get rich by purely financial means – by increasing stock-market prices, not by tangible capital formation. That is the opposite of the industrial logic of expanding the economy and its markets. Instead of creating a more productive economy and raising living standards, finance capitalism is imposing austerity by diverting wage income and also corporate income to pay rising debt service, health insurance and payments to privatized monopolies. Progressive income and wealth taxation has been reversed, siphoning off wages to subsidize privatization by the rentier class.

This combination of debt overgrowth and regressive fiscal policy has produced two results. First, combining debt deflation with fiscal deflation leaves only about a third of wage income available to be spent on the products of labor. Paying interest, rents and taxes – and monopoly prices – shrinks the domestic market for goods and services.

Second, adding debt service, monopoly prices and a tax shift to the cost of living and doing business renders neo-rentier economies high-cost. That is why the U.S. economy has been deindustrialized and its Midwest turned into a Rust Belt.


How Marx’s economic schema explains the West’s neo-rentier problem

In Volume I of Capital, Marx described the dynamics and “law of motion” of industrial capitalism and its periodic crises. The basic internal contradiction that capitalism has to solve is the inability of wage earners to be paid enough to buy the commodities they produce. This has been called overproduction or underconsumption, but Marx believed that the problem was in principle only temporary, not permanent.

Volumes II and III of Marx’s Capital described a pre-capitalist form of crisis, independent of the industrial economy: Debt grows exponentially, burdening the economy and finally bringing its expansion to an end with a financial crash. That descent into bankruptcy, foreclosure and the transfer of property from debtors to creditors is the dynamic of Western finance capitalism. Subjecting economies to austerity, economic shrinkage, emigration, shorter life spans and hence depopulation, it is at the root of the 2008 debt legacy and the fate of the Baltic states, Ireland, Greece and the rest of southern Europe, as it was earlier the financial dynamic of Third World countries in the 1960s through 1990s under IMF austerity programs. When public policy is turned over to creditors, they use their power for is asset stripping, insisting that all debts must be paid without regard for how this destroys the economy at large.

China has managed to avoid this dynamic. But to the extent that it sends its students to study in U.S. and European business schools, they are taught the tactics of asset stripping instead of capital formation – how to be extractive, not productive. They are taught that privatization is more desirable than public ownership, and that financialization creates wealth faster than it creates a debt burden. The product of such education therefore is not knowledge but ignorance and a distortion of good policy analysis. Baltic austerity is applauded as the “Baltic Miracle,” not as demographic collapse and economic shrinkage.

The experience of post-Soviet economies when neoliberals were given a free hand after 1991 provides an object lesson. Much the same fate has befallen Greece, along with the rising indebtedness of other economies to foreign bondholders and to their own rentier class operating out of capital-flight centers. Economies are obliged to suspend democratic government policy in favor of emergency creditor control.


The slow economic crash and debt deflation of these economies is depicted as a result of “market choice.” It turns out to be a “choice” for economic stagnation. All this is rationalized by the economic theory taught in Western economics departments and business schools. Such education is an indoctrination in stupidity – the kind of tunnel vision that Thorstein Veblen called the “trained incapacity” to understand how economies really work.

Most private fortunes in the West have stemmed from housing and other real estate financed by debt. Until the 2008 crisis the magnitude of this property wealth was expanded largely by asset-price inflation, aggravated by the reluctance of governments to do what Adams Smith, John Stuart Mill, Alfred Marshall and nearly all 19th-century classical economists recommended: to keep land rent out of private hands, and to make the rise in land’s rental value serve as the tax base.

Failure to tax the land leaves its rental value “free” to be pledged as interest to banks – which make larger and larger loans by lending against rising debt ratios. This “easy credit” raises the price of obtaining home ownership. Sellers celebrate the result as “wealth creation,” and the mainstream media depict the middle class as growing richer by higher prices for the homes its members have bought. But the debt-financed rise in housing prices ultimately creates wealth mainly for banks and their bondholders.

Americans now have to pay up to 43 percent of their income for mortgage debt service, federally guaranteed. This imposes such high costs for home ownership that it is pricing the products of U.S. labor out of world markets. The pretense is that using bank credit (that is, homebuyers’ mortgage debt) to inflate the price of housing makes U.S. workers and the middle class prosperous by enabling them to sell their homes to a new generation of buyers at higher and higher prices each generation. This certainly does not make the buyers more prosperous. It diverts their income away from buying the products of labor to pay interest to banks for housing prices inflated on bank credit.

Consumer spending throughout most of the world aims above all at achieving status. In the West this status rests largely on one’s home and neighborhood, its schools, transportation and other public investment. Land-price gains resulting from public investment in transportation, parks and schools, other urban amenities and infrastructure, and from re-zoning land use. In the West this rising rental value is turned into a cost, falling on homebuyers, who must borrow more from the banks. The result is that public spending ultimately enriches the banks – at the tax collector’s expense.

Debt is the great threat to modern China’s development. Burdening economies with a rentier overhead imposes the quasi-feudal charges from which classical 19th-century economists hoped to free industrial capitalism. The best protection against this rentier burden is simple: first, tax away the land’s rising rental valuation to prevent it from being paid out for bank loans; and second, keep control of banks in public hands. Credit is necessary, but should be directed productively and debts written down when paying them threatens to create financial Armageddon.


Marx’s views on the broad dynamics of economic history

Plato and Aristotle described a grand pattern of history. In their minds, this pattern was eternally recurrent. Looking over three centuries of Greek experience, Aristotle found a perpetual triangular sequence of democracy turning into oligarchy, whose members made themselves into a hereditary aristocracy – and then some families sought to take the demos into their own camp by sponsoring democracy, which in turn led to wealthy families replacing it with an oligarchy, and so on.

The medieval Islamic philosopher Ibn Khaldun saw history as a rise and fall. Societies rose to prosperity and power when leaders mobilized the ethic of mutual aid to gain broad support as a communal spirit raised all members. But prosperity tended to breed selfishness, especially in ruling dynasties, which Ibn Khaldun thought had a life cycle of only about 120 years. By the 19th century, Scottish Enlightenment philosophers elaborated this rise-and-fall theory, applying it to regimes whose success bred arrogance and oligarchy.

Marx saw the long sweep of history as following a steady upward secular trend, from the ancient slavery-and-usury mode of production through feudalism to industrial capitalism. And not only Marx but nearly all 19th-century classical economists assumed that socialism in one form or another would be the stage following industrial capitalism in this upward technological and economic trajectory.

Instead, Western industrial capitalism turned into finance capitalism. In Aristotelian terms the shift was from proto-democracy to oligarchy. Instead of freeing industrial capitalism from landlords, natural resource owners and monopolists, Western banks and bondholders joined forces with them, seeing them as major customers for as much interest-bearing credit as would absorb the economic rent that governments would refrain from taxing. Their success has enabled banks and bondholders to replace landlords as the major rentier class. Antithetical to socialism, this retrogression towards feudal rentier privilege let real estate, financial interests and monopolists exploit the economy by creating an expanding debt wedge.

Marx’s Theories of Surplus Value (German Mehrwert), his history of classical political economy, poked fun at David Ricardo’s warning of economic Armageddon if economies let landlords siphon off of all industrial profits to pay land rent. Profits and hence capital investment would grind to a halt. But as matters have turned out, Ricardo’s rentier Armageddon is being created by his own banking class. Corporate profits are being devoured by interest payments for corporate takeover debts and related financial charges to reward bondholders and raiders, and by financial engineering using stock buybacks and higher dividend payouts to create “capital” gains at the expense of tangible capital formation. Profits also are reduced by firms having to pay higher wages to cover the cost of debt-financed housing, education and other basic expenses for workers.


This financial dynamic has hijacked industrial capitalism. It is leading economies to polarize and ultimately collapse under the weight of their debt burden. That is the inherent dynamic of finance capitalism. The debt overhead leads to a financial crisis that becomes an opportunity to impose emergency rule to replace democratic lawmaking. So contrary to Hayek’s anti-government “free enterprise” warnings, “slippery slope” to totalitarianism is not by socialist reforms limiting the rentier class’s extraction of economic rent and interest, but just the opposite: the failure of society to check the rentier extraction of income vesting a hereditary autocracy whose financial and rent-seeking business plan impoverishes the economy at large.

Greece’s debt crisis has all but abolished its democracy as foreign creditors have taken control, superseding the authority of elected officials. From New York City’s bankruptcy to Puerto Rico’s insolvency and Third World debtors subjected to IMF “austerity programs,” national bankruptcies shift control to centralized financial planners in what Naomi Klein has called Crisis Capitalism. Planning ends up centralized not in the hands of elected government but in financial centers, which become the de facto government.

England and America set their economic path on this road under Margaret Thatcher and Ronald Reagan by 1980. They were followed by even more pro-financial privatization leaders in Tony Blair’s New Labour Party and Bill Clinton’s New Democrats seeking to roll back a century of classical reforms and policies that gradually were moving capitalism toward socialism. Instead, these countries are suffering a rollback to neofeudalism, whose neo-rentier economic and political ideology has become mainstream throughout the West. Despite seeing that this policy has led to North America and Europe losing their former economic lead, the financial power elite is simply taking its money and running.

So we are brought back to the question of what this means for China’s educational policy and also how it depicts economic statistics to distinguish between wealth and overhead. The great advantage of such a distinction is to help steer economic growth along productive lines favoring tangible capital formation instead of policies to get rich by taking on more and more debt and by prying property away from the public domain.

If China’s main social objective is to increase real output to raise living standards for its population – while minimizing unproductive overhead and economic inequality – then it is time to consider developing its own accounting format to trace its progress (or shortcomings) along these lines. Measuring how its income and wealth are being obtained would track how the economy is moving closer toward what Marx called socialism.

Of special importance, such an accounting format would revive Marx’s classical distinction between earned and unearned income. Its statistics would show how much of the rise in wealth (and expenditure) in China – or any other nation – is a result of new tangible capital formation as compared to higher rents, lending and interest, or the stock market.

These statistics would isolate income and fortunes obtained by zero-sum transfer payments such as the rising rental value of land sites, natural resources and basic infrastructure monopolies. National accounts also would trace overhead charges for interest and related financial charges, as well as the economy’s evolving credit and debt structure. That would enable China to measure the economic effects of the banking privileges and other property rights given to some people.

That is not the aim of Western national income statistics. In fact, applying the accounting structure described above would track how Western economies are polarizing as a result of their higher economic rent and interest payments crowding out spending on actual goods and services. This kind of contrast would help explain global trends in pricing and competitiveness. Distinguishing the FIRE sector from the rest of the economy would enable China to compare its economic cost trends and overhead relative to those of other nations. I believe that these statistics would show that its progress toward socialism also will explain the remarkable economic advantage it has obtained. If China does indeed make this change, it will help people both in and out of China see even more clearly what your government is doing on behalf of the majority of its people. This may help other governments – including my own – learn from your example and praise it instead of fearing it.

• Category: Economics, Ideology • Tags: Debt, Housing, Marxism, Neoliberalism, Rentier 
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  1. Could not read this for very long, Michael Hudson is a far left economist and dwells in the realm of what is possible in the land of make believe. He is correct that the amazing is possible if the masses will simply all buy into the big lie. I am not certain that buying into the big lie is necessary or best if one has a long term viewpoint, certainly not for everyone, certainly not for real Americans.

    Really dislike almost all of this guys work. He is like the most far left Fed guy ever. The Fed has some pretty good monetary people, certainly ALL are far less marxist and utopian than this fool.

    But he is a Federal Reserve economist, is he not? And that company is in the business of selling what he is selling. I did not read the piece because it is probably not necessary, I know what he is thinking. Michael Hudson wants us all to continue our unfettered belief in the magic money his group pulls out of their hat. Or in the good cop bad cop he gets to play the bad cop when the monetary punch bowl has been left out for awhile.

    • Troll: utu
    • Replies: @m___
    , @anon
    , @gwynedd1
    , @KA
  2. m___ says:

    Along the line M. Hudson is correct, follows through consistently, and the way that his message stays in tune, approaching from different angles in his body of work is proof of his thorough knowledge of matters. He understood the game, and took a typical public intellectual position, make a living without disturbing society’s restive state. Staying out of trouble, not engage in acting. A specialist of finger pointing prudently. What options are there except for starving in academia?

    Now the Marx part, the irrelevance of it. Marx is not needed to comprehend what is going on, even historically, globally. Marx has two major despickeable, repugnant facets.

    The first is certainly the base opportunism(he was fully conscient about this) of his to peddle an idea that suggested some asset value to the white underclass, the workers, including in the colonies of the Americas. They were a ready prey, being worse of then most of the imported slave negros. That compensated for his universalist approach.

    The second, theoretics of economics, that focus as capitalism(as conceived by Marx or other) does on a human-centric view of the planet are fairy-tail, horror-stories for …seven year olds. How myopic a vision is possible? Pulling into the theory of growth outside assets, that leave black holes. A gaming theory of distribution of “riches” not even associated with the third dimension of time.

    Re-industrialisation, is a joke for many other obvious reasons, Chinese corrections to the Western scheme will equally grind to a standstill, there are some cycles left there, contrary to the West where there is no margin but military capitalism. If the global elites cannot homogenize their body of interests adjusted for reality, the human theoretics of economics, include all, are just translations into chaos and disruption exponentially.

    As a suggestion, any economic theory that does not include a scheme to suppress population numbers, migrations, that does not include as a tool a global currency that stands for a global bottom line of assets, human and natural, that sets not a goal for timely execution, is a further drift into “planet toxic”.

    Practically, as proven in reality, capitalism, as much as Chinese capitalism is both, about tuning and correcting “as we go”, a luxury for the elites, a religious believe for the masses, a recipe for a wasteland planet.

    • Replies: @jacques sheete
  3. m___ says:
    @Linda Green

    All of the comment.

    There is no quality of argument to be found in your comment, a sure indicator of the cognitive quality of the man. The whole is openly psychological argumenting, a flare of stomac acid.

    • Replies: @Alden
  4. anon[355] • Disclaimer says:
    @Linda Green

    You haven’t even bothered reading the piece let alone commenting on it in an informed manner. Why your comment even got printed baffles me.

  5. Tulip says:

    The question is that if through state ownership, the state becomes the beneficiary of the former rentier class (through either outright nationalization or taxation), why would we suppose that the state will kick back their windfall to the public, rather then hand out spoils to their supporters? Maybe they buy the masses off temporarily, but that won’t last. Isn’t this what the Communists actually did?

    In other words, don’t you just end up with another rentier class/nomenklatura, but this time with sufficient centralization of political and military power to protect it from would-be revolutionary forces?

    One central questions is capital allocation, and how capital allocation can be done in the most efficient manner possible. Interesting that it is hard to find much literature on this process, but the case for nationalized banking does not suggest that public finance is superior to private finance.

    • Replies: @Seamus Padraig
  6. nsa says:

    Thought Experiment: imagine all lending is outlawed and there is a return to sound money. Everyone would have to pay hard cash for everything. What would new car sales look like……possibly a million units a year? What would house sales look like…..possibly 100k units a year? What would umemployment look like…….possibly 60%, 70%, 80%? Who would feed the 2/3 of the population incapable of doing anything useful or feeding themselves? Anyone think the masses of botched urban morons would not resort to stealing, murder, mayhem, even cannibalism? Would government feed them all and where would the revenues come from, if not borrowed?
    How about a return to sound money backed by that barbarous relic, gold? There are supposedly 150 million ounces of gold in Fort Knox. Right now, 100 million Americans get a check for at least \$1000 a month. At the present price of gold (\$1350/ounce), there is only enough gold in Fort Knox to pay all the freeloaders for 2 months. Revalue gold to say\$20k/ounce……\$50k/ounce……\$100k/ounce? It is easy to see why the present consume-before-you-earn society runs on fiat money and usury……….it’s the only way to avoid an immediate total collapse.

  7. Excellent article, I had almost given up on economics in the modern world!

    I always wonder why are shareholders the democratic autocrats of the corporation? We don’t determine voting weight by an individual’s wealth in national elections, but we do for corporations. I would say scrap the dividend, as it can both encourage and discourage the investor, with respect to a company’s potential.

    Also give 50% voting rights to the employees, meaning simple money investors – I’m a futures trader, these people are price players just like me – don’t get to break all the ‘polite rules’ of pure speculation.

    In the end, if dividends and share buybacks were banned, money would still buy shares – so long as a business was profitable and likely to grow – share price rise is enough incentive for money. An even playing ground with dividend, and an even playing ground without dividend, offer the same relative value to investors/traders, but with the later no saboutage strategy is reasonable.

    As for rent – in the UK, the 210k new homes necessary to cover additional yearly demand (the 10m undersupply is a different issue now sadly), at 200k building cost = 2% of GDP. In other words (and subject to a large backlog being dealt with), housing is one of the cheaper social policies. No need for rent to even exist – granting each citizen a tax funded house costs 1/50 of yearly UK income, in the long run. This is not expensive. It’s not equivalent to effective and universal healthcare or education, which measure up at 10% of GDP each!

    Frankly I’m baffled that no one sees that, given the 20% average welfare state size in OECD countries, we don’t all acknowledge that our economies are a socialist-free market mix.

    Also, what about a state managed infrastructure and R&D fund, 2% and 5% respectively, or some reasonable number (based on objective research data!)?

  8. CanSpeccy says: • Website

    To evaluate this piece requires some thought, an activity with which some commenters seem unfamiliar.

    There are well known problems with state directed capitalism, but the example of China’s astounding recent development or Russia’s industrialization during the 1930’s makes it clear that the Anglo-American form of Money-Power directed capitalism falls far short of achieving the most productive use of available resources.

    • Agree: Seamus Padraig
  9. @nsa

    First off, the article does not understand it is not debt that created the wealth but private monopoly power.. private ownership in parcels of land, private ownership in expressions produced from publicly trained brain power and creative genius of mankind.(patents and copyrights). Remove the patent laws, and Google, Microsoft and Monsanto would deflate overnight.

    Transferring private ownership of all things public into everything private has created massive private wealth because these public services extract itty bitty bits of wealth when in public hands, but when in private hands they extract buckets of wealth from the public and transfer it to Pharaoh Barons.
    Debt has not created wealth, it has created cash flow..and unlimited supplies of printed currency has created the price inflation that has left the homeless man in the street to die. Neither debt nor printed currency have created wealth of any kind.

    Transferring public service cash flows from a public service cost into privately owned streams of guaranteed cash flows has made many single persons very wealthy at the expense of making the poor even poorer.

    Theft has created nearly all of the wealth since Kennedy was killed. Public property has been converted to private property, the cash flows resulting from government provided serves, that is, the cash flows that kept the engines of bureaucracy working, has been swindled by privatization. The massive cash flow engines that the government services (garbage collection, communications, electrical service, water services, gas services, Internet, Jails, road building, street cleaning, sewer providing, hospital services, old folks homes, money lending) and the mono power to prevent any private competition, have been converted into monopoly powered private enterprises(privatization).

    econ 101

  10. I’m beginning to think that UNZ.COM is nothing more than Psyop game. The same group of people seem to write about 70% or more of the articles. Hudson has no credibility. He reminds me of Mathematical Physics. These guys can prove anything mathematically–only problem it doesn’t work in the real world.

    Taleb is right to want get rid of all the clown economists because Hudson is just another side of Krugman or Reich or the rest of circus because of all of them never calculate the externalization of damage to the public. In every type of system the middle class and the poor get hit the worse. You can see this in today’s economy. It’s Capitalism (corporate fascism) for the rich and Marxist socialism for the rest of us.

    The rich win in every system because Hudson either refuses to acknowledge who runs the monetary pathways or is afraid to. Of course, we know the Khazars do and that’s never going away. If Hudson really believes his nonsense theories then he might be crazier then he sounds. Socialism will never work for any length of time in any region that has any diversity. Sweden had a socialist type system and it looked good until the so called diversity arrived. Now what’s happening? All these countries that think this will work are crazy. In Sweden you had a common belief system for the homogeneous population. They had similar goals, morals and values. You don’t have that now.

    It reminds of the great ecologist Garrett Hardin’s Tragedy of the Commons. Hardin knew that given the opportunity people would destroy all resources because there is no limit to our demands or desires because everyone would act in their own interest. He also knew about immigration and he was against most forms of it. Economist believe in a never ending consumerism and therefore constant new input into the system, like immigrants. Hudson doesn’t seem to ever address this real world problem of overpopulation and diminished resources and the cost of such items. I guess he thinks his magic socialism will take care of all of this.

    This can be seen in Africa with the game animals. Eventually the native populations will kill everything either for food or by poaching. Contrary to the myth hunters are not the cause of most of the population decline. The habitat is being destroyed by massive expanding populations which eventually will collapse the continent. America has some of the best wild and largest management parks and game areas and that’s because we were a Capitalist country. Only in a system that places values on such items will they be saved. You need a certain level of intelligence to understand this. The snow flakes and communists believe the common citizenry came up with this idea. Nothing can be further from the truth. The idea of the nobility of nature comes from the private North East Hunting and Fishing Clubs as espoused by Teddy Roosevelt and friends not the average citizen who wants to eat and kill everything. Roosevelt brought this to the attention of the common man and convinced congress the ideas of conservation (these guys were republicans…not the idiots of today).

    America has some of the largest game preserves in the world however the damage to nature is now showing up in national parks to water supplies due to overpopulation Our excessive demands for energy with our continued population growth is not part Hudson’s magic Utopia or any other economist for that matter.

    There is no system that will work unless you address population, pollution, energy use and the externalization of damage to the public. Hudson mentions China but doesn’t seem to understand what’s really going on there. Their production of stuff comes at the cost of dwindling resources and illness to their population. Perhaps Hudson might want to calculate what it will cost 20 years from now with maybe 40 or 50 million Chinese dying of cancer and related disease from the massive pollution of their major cities.

    • Agree: Cold N. Holefield
  11. ” A century ago there was an almost universal belief in mixed economies. Governments were expected to tax away land rent and natural resource rent, regulate monopolies to bring prices in line with actual cost value, and create basic infrastructure with money created by their own treasury or central bank. ”

    It was not a belief, until say 2000 these mixed economies existed in W and N Europe, these countries were the best ones to live in.
    Alas, around 1970 the belief began dat commercial organisations do anything better than government enterprises.
    The EU and the euro acted in this way.
    Present French unrest is against privatisations, against losing job security.
    The USA never believed in mixed economies, USA society still is the robber baron society of the 19th century.
    What Trump tries to do is turning back globalisation, the world wide battle of anyone with anyone, by re introducing protectionism, the limited protectionism all mixed economies had.
    I do not see, for example, that he’s nationalising railways.
    I do not see that he’s trying to bring down USA medicine prices, or excluding commercial insurers from selling health insurance.
    In nearly all, or all, Euopean countries, health insurance for profit does not exist.
    At the same time, incomes of doctors, nurses etc are regulated, impossible in the USA, as correspondents of mine wrote me.

    • Replies: @Wally
    , @Alden
    , @Alden
  12. @nsa

    Please explain to me the logic of delving for gold deep under the earth, at great cost, and then hiding this gold deep underground, under Fort Knox.
    But indeed, a gold standard is a brake on creating too much money.
    Money without a gold standard can function quite well, if those in control of the amount of money are wise people.
    The present world problems with money are the result of two central banks not controlled by a government, the FED and the ECB.
    Britain has the same problem, but the pound is not of much importance any more.

  13. utu says:

    Some rectification of the system can be accomplished by simple regulatory intervention.

    For instance all stocks should pay mandatory dividends based on the profit and second all stock transactions should be taxed to reduce speculation.

  14. j2 says:

    Unlike Linda I read three of his articles here in Unz. From one post I read that he is an American award-winning novelist and satirist. The satire on globalist was OK, but I guess that means he is not a real economy theoretician and can only comment that there is something wrong with growing debt and taking interest. That is a very old topic. Both Jesus and Mohamed condemned taking interest, that was against usury, but yes, there is a debt problem in this system. Marx made his analysis too long ago for it to be relevant today, and it did not lead to anything good, but probably someone not connected with business schools should again look into this problem. With better and more honest logic. In Ricardo’s and Marx’s time the goal was to destroy the old aristocracy and to replace it with a new upper class, which pretended to help the working class to get their support. Hudson commenting Chinese economy? I cannot see the sense in it. That is like an add-on, not so well structured, He writes satire better than analysis.
    I will also make a though experiment like nsa. Assume a bank is converted to state owned company managed as private companies but bringing profits to the state and the owner would act the same as in private companies. It should succeed exactly the same as private companies, but if it does not, there are networked forces against it, and these forces do not officially exist, should not talk about them. I simply ask why the Black-Scholes formula does not work. The only reason I see is that the stock market prices are not modeled correctly by random parameters, there is inside information. It is controlled by big players.

  15. One can’t understand debt dynamics, and their effect on the real economy, until one understand the fiat currency system.
    The fiat currency system demands debt creation in order to function. Creating debt is the only way for fiat currency to enter the financial system.
    A reduction in the level of debt would destroy the quantity of money in circulation, leading to deflation. Deflation is a democratically-elected politician’s worst nightmare, they will never let it happen. Therefore, debt must continue to accumulate.
    Destroying the value of the currency through inflation is seen as an acceptable price to pay for social harmony.
    Of course this system is doomed to break down. But so long as there is more road, the can will continue to be kicked down it.

    • Replies: @foolisholdman
  16. Using junk-psychology…

    We live in a world of junk. We not only have junk psychology, but junk philosophies, junk economics, junk government, junk religion, junk history, junk schooling, junk news, junk entertainment, junk crises, and junk wars. And that’ s only a partial list.

    Our “authorities” are mostly rabid, contemptible jokers, too.

    • Replies: @bjondo
  17. @smellyoilandgas

    Theft has created nearly all of the wealth since Kennedy was killed.

    Theft is baked into the system and it started looong before Kennedy’s murder. Government exists to make theft and economic slavery more efficient, any good intentions and pretexts to the contrary. Also, theft does not create wealth, it merely transfers it to the most undeserving.

    Corollary: Taxes are theft.

    • Replies: @foolisholdman
  18. China has managed to avoid this dynamic. But to the extent that it sends its students to study in U.S. and European business schools, they are taught the tactics of asset stripping instead of capital formation – how to be extractive, not productive. They are taught that privatization is more desirable than public ownership, and that financialization creates wealth faster than it creates a debt burden. 

    China managed to finesse the looming IMF restrictions by having these same students digging through tons of data for support and information for months.  They seldom do things by half measures and that certainly paid off.  I think China represents a new social paradigm with the B&R initiative the West would ignore at its peril. The entire Western Hemisphere is looking more and more third worldish daily.

  19. @m___

    Marx is not needed to comprehend what is going on, even historically, globally.

    That is so true, and it has always perplexed my as to why such a doofus got, and still gets, so much publicity. He and his ideas should long ago have wound up in the trash bin of history.

    • Replies: @gwynedd1
  20. Nowhere in this article do I see the Economist Michael Hudson discuss the contradiction of an Economic System predicated upon Unlimited Growth amidst a World of Rapidly Depleting Finte Resources.

    He ironically is speaking to China which is now even more egregious than America in destroying the planet via wasteful, inefficient, senseless, thoughtless, suicidal Growth.

    Debt is the Plug. For Growth to continue in this Economic System built upon it, considering Rapidly Depleting Resources, Debt is necessary to bridge that Gap. In this sense, Debt, and it doesn’t matter who holds it, is a Necessary Indicator of the degree of Resource Depletion. The greater the amount of Debt, the more perilous is Resource Depletion.

    Considering that, merely wiping away the Debt with a Debt Jubilee will not save the day if you start the entire process over again. In fact, I would argue that you can’t start the whole process over again. Growth is DONE. We have surpassed Peak Growth.

    It’s imperative that with a Debt Jubilee, we devise and implement an Economic System based on a Steady State after a considerable Contraction, and I mean CONSIDERABLE.

    But Hudson knows that he would be ostracized as a Pariah were he to speak this TRUTH, and it is the TRUTH. No Publisher would ever publish another book he wrote and he would never again get a Speaking Engagement, so, he tells Fairy Tales like all the rest.

    We live in a World awash in Lies. Yes, it’s always been this way since the Dawn of Civilization but it’s even worse now with the Proliferation of the Information Age. The more Information there is, the more Lies there are, because as you know or should know, Information is not necessarily FACT and often it isn’t, especially nowadays.

    • Replies: @m___
  21. @niteranger

    I’m beginning to think that UNZ.COM is nothing more than Psyop game. The same group of people seem to write about 70% or more of the articles. Hudson has no credibility. He reminds me of Mathematical Physics. These guys can prove anything mathematically–only problem it doesn’t work in the real world.

    And 90% of the comments are made by an Army of Insane Sock Puppet Trolls deploying a Faux Socratic Discussion to deceive those who have graduated beyond Level 1 of the Psychical Incarceration Matrix, The Mainstream Media.

    This Army of Insane Sock Puppet TrollsMission is to bring the Wayward back into The Fold and ensure the Wayward don’t graduate to Level 3 or Level 4 or beyond all the way out of The Cave. Note their cowardly Obeisance to Russia and their Rabid Hared of The Jews to the point that EVERYTHING is blamed on The Jews. But Oligarchy, oh, there’s nothing wrong with Oligarchy. No, they say, the Oligarchy doesn’t own the Government, it’s the Government that gets in the way of the Beneficence of the Oligarchy and the Government is comprised of Communists & Jews.

    Here’s what’s going on.

    It’s a battle for Heart & Minds. The Capture & Destruction of Hearts & Minds.

    It’s no coincidence that as we hit the Backside of Peak Resources, Debt, and Wealth Concentration, expand Exponentially.

    Wealth Disparity is increasing rapidly & unabatedly across The Planet as we head to Zero and these alleged High IQ Troll Sock Puppets have been deployed to tell you that It’s All Good, that it’s in your Best Interests to support Russia’s Ridiculously Rich Oligarchs and Oligarchy overall because, well, because they love you and they know what’s best for you and they have embraced God again after nearly a Century of Godless Communism.

    If this what a High IQ looks like, I’ll take a Low IQ, thank you very much.

  22. Marx, like professor Hudson, was very good at pointing out the “flaws” in capitalism that render it unable to deliver permanent peace and prosperity. One should not be deceived into thinking that this makes them able to prescribe some other setup that will deliver them.

    All “democratic” forms of government devolve into oligarchy, but socialism is the fast lane.

    The problem is not in our stars but in ourselves.

    Don’t drink the Kool-Aid.

    • Replies: @peterAUS
  23. Why is there “the privatized monopoly right to create bank credit” in the first place? Why can’t the US Treasury provide the same function as the Federal Reserve? Why can’t there be explanation simple enough for the average citizen? In an age where space travel is talked about, why esoteric banking practices? Who will enlighten the man?

  24. Joe Hide says:

    To Michael Hudson,
    This is a long long article and not particularly easy reading. BUT I read it all anyway because early on I was drawn in by the out of the box logic given. It’s not perfect, nothing is, but it presents ideas and a name (Marx) which we have been mind conditioned to feel immediate revulsion to, so why would an author threaten his reputation to present this unless he feels there is some Truths that need to be revealed?
    Looks to me as though unlimited free enterprise (…or unregulated capitalism) always eventually concentrates wealth…power into fewer and fewer hands, until the few take over the ecomomy, and make it into totally anti-free enterprise, extremely regulated economy
    (……to further unfairly enrich themselves) which leads to tyrannical rule of us serfs.
    The solution would be to identify all pyschopaths, sociopaths, and those of below average intelligence, and prohibit their holding public office or positions of power. Identifying pyschos- and socios- should be as easy as a cell phone ap for retinal scanning, heart rate changes, etc. upon certain questions or images presented to them. Of course, most of he resistance to this idea will come from pyschopaths and sociopaths.

  25. @Tulip

    The question is that if through state ownership, the state becomes the beneficiary of the former rentier class (through either outright nationalization or taxation), why would we suppose that the state will kick back their windfall to the public, rather then hand out spoils to their supporters?

    Everything hinges on who controls the state. That’s why we need, not Marxist socialism, but National Socialism.

    • Replies: @Anonymous
  26. @jilles dykstra

    yes, its the limit that describes the contained wealth.
    I have long felt that all currencies on earth should be made but one. The area on the other circumference of any circle becomes the limit. For example, if the surface of the moon were 1,000,000 square miles.. and the numbers of persons on the earth were 10 billion.. and if \$100,000 moon units MDs were allotted to each living person, the divisions might be adjusted every 5 years to the numbers of persons on earth? Then there would be \$1.9 X 10^15 divisions of the surface of the moon..that would be the stand normalized standard for each monetary unit in circulation. Standardized monetary units in limited numbers are a first step in equalizing the conditions under which mankind is allowed to experience life. Restricting monetary units (dollars) to a limited amount, and standardizing the exchange value of circulating currency would equate the economic capacity of all people in the world, the next step: Equalize the educational opportunity any where in the world. Each person is born to about 80 years of life.. Each person on earth is entitled to an equal opportunity.
    During that 80 years government should be charged to be certain that the benefits accumulated and the knowledge and technology produced by the previous and well as current contemporary society is made available, in usable form, to every single living human.

    The wars induced by the power of the dollar would disappear and taxes could be used to keep the distribution between humanity relatively uniform. People in Belize or Russia or Iran or Cuba or America would be able to compete with, and do business with, each other without currency exchange costs and the total transaction accounting would be made bureaucratically simple.

    • Replies: @Mefobills
    , @m___
    , @gwynedd1
  27. @Dagon Shield

    Why is there “the privatized monopoly right to create bank credit” in the first place? Why can’t the US Treasury provide the same function as the Federal Reserve?

    Dagon, it sounds like you’re ready to take a look at Modern Monetary Theory, a public alternative to Fed-style private monopoly banking:

  28. Che Guava says:

    Interesting article, as all of yours, Mr. Hudson, but any fool knows that PRC investors are very involved in FIRE ‘investments’, to the extent that they are making the R (real estate) side of cities in the places that fooliishly allow uncontrolled exploitation and (Toronto, Sydney, London, Vancouver, Melbourne, Bristol, Manchester, many more, of course, Peking, Shanghai, and more in China itself), impossible for the residents to live, of course, the upper and upper-middle classes in those places don’t care, they are playing the same game.

    So, although I am agreeing with your analysis, I doubt that many listening to you had any thought other than ‘must note this point of exploitation for future reference’.

    After all, Deng Xiao Ping was declaring ‘to become rich is glorious’, I am knowing that you are one of many comentators who is to never reply to a lowly conmentor.

    However, my refutation is solid.

  29. gwynedd1 says:
    @Linda Green

    Great argument there, moron . You admit that you don’t read his arguments. Then you tag and bag him all while getting basic facts wrong.

  30. gwynedd1 says:
    @jacques sheete

    Marx is not needed but he certainly condensed down the material and added plenty of good materiel, for example showing that making a 12 year old working in a factory for 60 hours was bad. Workers were under too much coercion. He had a good critique on its problems. Take his diagnosis but not his medicine. If anything,even if it were true Marxism, is never even applied according to its own dictates. Every country that ever adopted it was not even supposed to do so in its state of social evolution, Its legitimate use is theoretical , and in practice its an addictive and abused drug every time its applied.

    If anything he showed the hardships of capital in his cost accounting methods. Every technological improvement reduces capital because labor saving devices make stored labor worth less.

    Now the crony capitalists love him because compared to his followers they actually look good. So he is their favorite opposition. Hudson is not welcome because he uses a much more credible threat of classic economics.

  31. gwynedd1 says:
    @jilles dykstra

    The US was on a gold standard twice, during both major depressions.

    Gold standards are nothing but more government edicts that arbitrarily states that I must trade in a certain commodity. It will make corrupt government officials rich because they will make the inside trades before hand, and we will send half our wealth to India.

    Gold will be monopolized and a depression will follow leaving lots resources to be financed by the first state to go off it. They might decide to build a war machine…like Germany for example.

    The only way out if it is to not have stupid people. With public schools, teacher’s union and welfare, it look like we will have too many stupid people.

    And probably even worse than a fiat or gold standards on its own is going and and off them. Insider information and controlled volatility will rape the middle class.

  32. Che Guava says:

    This is off-topic, but I spent a little time looking into Semenya today, it is a man.also xy chromosomes (was checking it).

    He is even living as a man, off the track.

    Nn womb or ovaries, widely reported, and having testicles, I would strongly suspecting no other secondary sexual characteristics of a woman.

    A cheat. He is a man.

  33. Anonymous[436] • Disclaimer says:
    @Seamus Padraig

    Delighted to offer myself to run the National Socialism for you and likeminded supporters. I’ll even help give it a good start by guaranteeing no nepotism in my time. The big question is how you are to elect me and my small team of Cathars (yes I do anticipate destruction by the forces of the Papacy in due course, warmly applauded by the Calvinists, Lutherans, Baptists, Anglicans, Sunni and Shia). Democratic election with campaign finance limitations? Compulsory registration to vote and compulsory voting? Nationwide proportional representation or individual ungerrymandered electoral district for only one legislative chamber and preferential voting; i.e. the Alternative vote? Absolute power to legislate by 50.1 per cent majority?

    I think civil war will soon fix that problem, the winner being whoever had most Chinese support….

  34. Anonymous[436] • Disclaimer says:
    @jilles dykstra

    A gold standard can only be a brake on creating too much money if there is a lack of trust in every other form of money. An expanding money supply in the 19th century was important to economic growth but I would be surprised if an economic historian told me it was a function of the new gold discoveries in California, Australia and South Africa rather than bank and accepting house paper.

    • Replies: @gwynedd1
  35. CanSpeccy says: • Website

    As I understand Hudson’s argument, it is that corporate profits should be reinvested not paid out to shareholders who, in their capacity as owners of capital, contribute nothing to wealth creation. However, profits paid to shareholders may be reinvested, in which case the issue becomes not one of consumption versus investment, but of how capital is invested.

    In the US corporate profits are split by way of taxation between government and owners of capital, the latter deciding how to invest what profits they do not consume. The issue, so far as national productivity is concerned thus comes down to (a) the extent to which owners of capital over-consume, if at all, and (b) to what extent owners of capital make investment decisions that benefit the community as a whole? In addition, there is the question of how governments spend on what can be considered consumption items such as healthcare, versus investment items such as roads and bridges.

    In theory, at least, all of these variables could be optimized in a democratically regulated market economy. Over-consumption by owners of capital, for example, could be restricted by a progressive consumption tax. The direction of investment could be managed through various kinds of financial regulation, for example, limits on mortgage lending.

    In reality, however, regulation chiefly serves the Money Power, i.e., the great concentrations of capital held by corporations and a few hyper-wealthy individuals. How does that work out in practice? Currently, not well, with massive over-investment in the FIRE economy, and garbage such as FaceBook, gambling, and fake food, sex, entertainment and education. Then there’s America’s ludicrous healthcare system that consumes about five times as much wealth as America’s monstrous military industrial complex.

    That America and it’s dependent states in Europe and elsewhere are, in economic terms, severely sick suggests that no reform or recovery is possible without a radical revision of the political and economic structure. In that respect, Trump has, thus far, made pathetically little progress.

    • Replies: @peterAUS
    , @Wizard of Oz
  36. gwynedd1 says:

    I just do not see how the government will provide a brake by passing arbitrary laws on a commodity. After that, what’s to stop them from say making it illegal to own, ya know, like before?

    If people don’t like inflation, they can buy gold now. Its the free market gold standard. It functions as a market alternative today. It will not once the government comes around. If they do , then I would start molding bullion into pagan idols and protect them with laws against the persecution of your religion.

    It also is rather humorous in that if one is going to start passing laws, then one can pass a law directly on fiscal restraint. This is to say nothing about all that happened was government debt was passed around like money anyway. So the government never has to pay it off, and they never do and they never will.

    Learning Latin as a hobby is useful for learning living languages only compared to learning no language at all. The direct language of fiscal restraint is just as easy as a “standard” . So why would so called “libertarian types”, call for laws in the management of a commodity that indirectly hints at fiscal restraint with all those miserable side effects hostile to market forces ?

    I just don’t get it.

    • Replies: @Anonymous
  37. The type of actuarial profiling that Professor Hudson’s hopes that China might adopt can already be found in those kept by the USDA, United States Department of Agriculture, specifically being those reports that measure the prices of agricultural commodities in relation tothe legal Parity Price, 7 USC Sec. 602, that is not followed by a nation addicted to debt and asset stripping.

    Presently according to the USDA, American farmers are only getting \$0.29 of the legal “Parity” dollar, which means, as discovered by the research of Carl H. Wilken and the Raw Material National Council, which is now the National Organization for Raw Materials, that the missing \$0.71 cents represents the engine by which debt must be pushed into the economy to keep the house of cards standing.

    Underpay Raw Material Producers, primarily farmers, the one’s that keep us alive, then one is addicted to debt, and the farmers become but wage slaves to conglomerations dependent upon government subsidies.

    Pricing the dollar at Parity, then “Earned Income” is generated from the proper monetizing of real wealth, that Wilken and colleagues found multiplies debt free income through the entire economy. The evidence of success is found in the period of true Parity from 1942-1952, in the American economy.

    Essential reading is Charles Walters classic book called ~
    Unforgiven: The American Economic System SOLD for Debt and War

    Free online copy of Fred Lundgren’s book
    The Nature of Wealth

    Here is a proposed solution, with a graph of the collapse of Parity Prices.

  38. Anonymous[436] • Disclaimer says:

    There is a real problem about people buying gold to protect themselves against inflation: just look at a graph of the price of gold since 1972. On top of that only some big players who lend to yhe market can earn anything to offset the cost of holding gold safe or insured.

    • Replies: @gwynedd1
  39. I did some research into the dynamics of private sector debt accumulation while in graduate school. Aggregate debt figures, for various sectors of the economy, can be fairly easily obtained from the Federal Reserve’s Flow of Funds tables.

    A relevant finding concerns the household sector primary, or exclusive of interest, deficit. This is simply total outlays (ignoring interest payments) minus total income. For the period 1946-2012, the primary deficit, as a percentage of GDP, of all households in the US is found to be a stationary (mean-reverting) series with a long-run average value of zero. This finding implies that, on average, total yearly household borrowing is equal to total yearly household interest payments.

    Now, if the household sector were a single individual, this finding would clearly be an indication of Ponzi behavior. When one regularly borrows to pay interest, they are in violation of any normal inter-temporal budget constraint.

    Of course, as the household sector is composed of many individuals, the finding does not necessarily indicate a Ponzi scheme. However, the finding does have some interesting implications. It indicates that the entirety of household interest payments is regularly converted into loans to new borrowers. Under such circumstances, the debt stock tends to grow at the rate of interest, potentially leading to ever larger debt to GDP ratios, and ever larger interest payments as a percentage of total income.

    In my view, these circumstances have some implications for Fed policy in the long-run. As long as the tendency to re-lend total interest payments persists, the only way for the Fed to keep interest payments from absorbing ever greater amounts of income, is for the Fed to keep interest rates below the GDP growth rate. In other words, in the long-run, the Fed has to maintain a “low” interest rate environment; otherwise an ever greater percentage of income will be diverted away from spending on goods and services, towards debt service.

    On a slightly different topic, according to many economic observers, from Irving Fischer, to Hyman Minsky, and more recently, Richard C. Koo, the worst economic downturns are associated with a period of highly speculative borrowing. Examples include the Great Depression, the US recession of 2008, and Japan’s long recession in the 1990s. A salient feature of these recessions is the collapse of stock and real estate prices, but what is not so frequently pointed out, is that the bubbles themselves were fueled by record levels of borrowing. These recessions were so severe, because while the asset prices collapsed, the debts incurred to purchase the assets remained largely on the books. The result was that net worth collapsed, and nobody wanted to borrow anymore, even with central banks keeping interest rates at zero. For more information on the topic, I highly recommend Richard C. Koo’s “The Holy Grail of Macroeconomics.” Very readable.

    • Replies: @another fred
  40. Wally says:
    @jilles dykstra

    “In nearly all, or all, European countries, health insurance for profit does not exist.”

    Wrong, absolutely.

    The profit merely goes to the government, politicians, and others sucking at the government tit.
    A whole lot of money being made from government controlled medicine.

    Of course, Marxists don’t call it ‘profit’.

  41. gwynedd1 says:

    Which proves the point about gold. Most people buy paper gold. In addition to this ,gold can leased:

    I mean why sit on some yellow bricks when you can lease it out at 1-2%?

    But guess what that does to the perceived supply when you can borrow gold? Gold renters the market right after it was purchased.

    Its the same old trick. The gold is over committed but no one knows because it never leaves the vault.

    When will people ever learn. In reality a fiat currency is the only one that could be known to everyone. In fact that is what crypto currencies essentially do . Every one is looking at the quantity and everyone must agree on the quantity.

    Do we actually even know what is in Fort Knox now and half the population would fall for iron pyrite.

    The government will not pay in gold, just paper gold.

    Gold should be held in small amounts as a hedge and insurance policy only. Its not going to make people rich on the whole.

    • Replies: @m___
    , @MarkinLA
  42. Anonymous [AKA "Y. U."] says:

    Mr Hudson, in your crystal ball can you predict the ”future” (if any) of the Franco-British colony of Canada whose ‘economy’ is based of FIRE?

    Financial services: we all know that Canada is a paradise for swindlers and money launderers. However, if distribution of the IMF via the franco (Rothschild) connection in foreign countries continues to slow down, and if the establishment of US-NATO in Europe (and in Ukraine and the Caucasus) to ”counter” the ”Russian threat” (as described by the state-owned compulsive liars of the CBC) becomes as usual a total fiasco, what is the ‘future” of Canada and of the obese construction sector as qualified in an article on the site of Goldman Sachs (implying that real estate will dramatically slow down even if thousands of migrants come to Canada)?

    Is there a future for Canada? Mines, resources? WATER? Selling electricity to the USA?

    • Replies: @Iris
  43. peterAUS says:
    @another fred

    Marx, like professor Hudson, was very good at pointing out the “flaws” in capitalism that render it unable to deliver permanent peace and prosperity. One should not be deceived into thinking that this makes them able to prescribe some other setup that will deliver them.

    All “democratic” forms of government devolve into oligarchy, but socialism is the fast lane.

    The problem is not in our stars but in ourselves.


    Now, what that problem is could be the next question.
    And, assuming we can answer that, what would be a solution.

    In meantime …more of the same for foreseeable future.

    • Replies: @another fred
  44. peterAUS says:

    That America and it’s dependent states in Europe and elsewhere are, in economic terms, severely sick suggests that no reform or recovery is possible without a radical revision of the political and economic structure.

    Agree, especially on “radical”.

    Any ideas?

    For the record, I don’t have any.
    Well, maybe something about methodology. Like, an Internet (because TPTBs are happy with the current paradigm) think table.
    That would be the first step. Very smart people (say, five times smarter than I am, at least) try to hammer all that out.
    Just try.

    I’ve visualized/imagined that scenario and, have to say, the result was tragicomic, with emphasize on tragedy part.
    Why…well…look at the “discussions” here.


    • Replies: @CanSpeccy
  45. Iris says:

    Another non-mainstream economist, Prof Steve Keen, has devised an interesting and realistic method to predict the future in an economy fuelled by debt .

    Using global private debt data trending, which started only recently thanks to the Bank of International Settlements, he considers a country situation based on (1) how large is private debt to GDP and (2) how quickly private debt grows compared to GDP.

    He calls the countries with high ratios for both criteria “the Walking Deads of debt”. Sorry to say that Canada is one of them.

  46. Anonymous [AKA "T. I."] says:

    Old, but Grabbe’s articles should be re-read from time to time:

    Digital Cash and the Regulators

    by J. Orlin Grabbe


    ”Digital cash, like other forms of money, can be issued in any political or legal jurisdiction, or in any banking environment: Salt Lake City, the Cayman Islands, Cyprus, or Sidney. There is a great deal of flexibility available to the digital cash provider when viewed from a global perspective.


    Nevertheless, digital cash may operate locally under a set of rules and regulations similar to other forms of computer money such as bank deposits. (“Locally” can be almost any Internet-accessible country.) The question of how banking regulators view digital cash is a practical one, because the answers to the question demonstrate the sort of issues that arise in any banking context. All the examples here will involve the U.S., a country with a complex maze of banking regulations.

    From the point of view of central bankers, digital cash generates three sorts of questions. Who issues it? How is it used as a means of payment? What impact does it have on the banking system balance sheet or bottom-line? ”

    Currency Competition and Seigniorage

    Digital cash is by design a partial substitute for ordinary cash. Hence it will be used in much the same fashion as ordinary cash–a context with which central bankers are familiar. To a certain extent, digital cash threatens the profitability inherent in central bank note issue.

    Consider traveler’s checks. Traveler’s checks are a form of private bank currency. They are analogous to the bank notes issued by private commercial banks in the U.S. prior to the Civil War. As such, they are very profitable to the banks and companies that issue them, because no interest is paid out on traveler’s checks to the check holders, but the issuer earns interest on the funds that customers use to purchase them. When you purchase American Express Traveler’s Checks, you are making an interest-free loan to American Express. That’s why AMEX likes to sell them to you–apart from the fees involved in the transaction.

    As with traveler’s checks, digital cash products such as electronic purses (a card with a memory chip on it) represent an attempt by commercial banks to capture part of the seigniorage earned by the central bank from issuing notes. Holders of currency (Federal Reserve notes) are making an interest-free loan to the government. The interest opportunity cost adds up. The approximate \$20 billion that the Federal Reserve turned over to the U.S. Treasury in 1994, for example, represented about 5 percent of the \$400 billion in Federal Reserve notes.

    The Bank for International Settlements (BIS) estimated that in the United States seigniorage is .43 percent of gross domestic product (GDP), while central bank (Federal Reserve) expenses are .03 percent of GDP, implying a profit of .40 percent of GDP. [1]

    These numbers can be used as a reference base to calculate the amount of seigniorage recapture available to providers of digital cash. Suppose that that digital cash was so successful for small purchases that it eliminated the U.S. \$1, \$5, \$10, and \$20 dollar bills. In that case, the BIS estimates the loss in seigniorage at .14 percent of GDP. Now it is highly unlikely that digital cash would replace all small denomination bills, as assumed in this calculation. But the calculation shows that up to one-third of current Federal Reserve seigniorage is potentially available to digital cash providers. And that’s a lot of money.

    While some central banks may be concerned that digital cash will infringe on their monopoly of issuing bank notes (although most do not appear to be particularly alarmed), such a monopoly can be easily circumvented without computers and without telecommunications. All that is required for the success of any privately-issued currency is local acceptance as a means of payment for goods and labor. Consider, for example, HOURS, which is a local currency circulating in Ithaca, New York. Here is a brief (albeit dated) summary of the HOURS system. [2]

    HOURS is a local currency created and issued by citizens in Ithaca, New York. The organizers have issued over \$50,000 in local paper money to over 950 participants since 1991. An estimated \$500,000 of in HOURS-based transactions have taken place.

    The idea behind an HOUR is that it is a rough equivalent to a \$10.00 bill. The unit was chosen because ten dollars per hour was the average wage paid in Tompkins County. HOUR notes come in four denominations, and have been used to buy goods and services like plumbing, carpentry, electrical work, roofing, nursing, chiropractic care, child care, car and bike repair, food, eyeglasses, firewood, and gifts. The local credit union accepts them for mortgage and loan fees. People pay rent with HOURS. Some of the best restaurants in town take them, as do movie theaters, bowling alleys, two large locally-owned grocery stores, and thirty farmer’s market vendors.

    Is Digital Cash (Stored-Value) a Deposit?

    U.S. banking regulations distinguish broadly between deposit-issuing institutions and others. Thus the question whether the digital cash liability of a private company represents a deposit or not determines who might attempt to regulate it or whether it is eligible for federal deposit insurance.

    Digital cash is a balance sheet liability of the commercial banks or companies that issue it. Does it thus fall under the laws governing ordinary checking accounts? And what about discharge of debt? In the case of the U.S., federal law does not currently address obligations discharged by stored value cards–only those settled by cash, check, or wire transfer.

    Non-banks, meanwhile, are not eligible for FDIC deposit insurance. But the question remains, If non-banks issue stored-value products, are these stored-value funds “deposits”? For if stored-value is legally a deposit, then federal and state regulators might attempt to deny a company or other entity the right to issue the product, using the Glass-Steagall Act or similar provisions.

    * * *
    [1] Bank for International Settlements, Implications for Central Banks of the Development of Electronic Money, Basle, October 1996.
    [2] Glover, Paul, “Creating Ecological Economics with Local Currency”, undated manuscript. Glover’s article contains a lot of grass-roots socialism that I don’t agree with. But that is not material to the use of HOURS as an illustration of an alternative currency.

    [3] Federal Deposit Insurance Corporation, “General Counsel’s Opinion No. 8–Stored Value Cards,” by William F. Kroener, III, General Counsel, FDIC, July 16, 1996.

    [4] Office of the Comptroller of the Currency, “Interpretations–Conditional Approval #220,” published in Interpretations and Actions, December 1996.

  47. Anonymous [AKA "SteveL."] says:

    I found this excellent complement of information for (me) the neophyte, from Mr. Hudson.

    The Slow Crash. The Shrinking of the Real Economy

    By Prof Michael Hudson and Bonnie Faulkner
    June 21, 2016

    ”Michael Hudson: Probably later this afternoon. [Laughing.] I mean, it’s ongoing. Look at Ukraine. Its currency, the hernia (as the hryvnia is affectionately known) is plunging. The euro is really in a problem. Greece is problematic as to whether it can pay the IMF, which is threatening not to be part of the troika with the European Central Bank and the European Union making more loans to enable Greece to pay the bondholders and the banks. Britain is having a referendum as to whether to withdraw from the European Union, and it looks more and more like it may do so. So the world’s politics are in turmoil, not to mention the Mideast, where the US has mounted attacks from Libya to Iraq to Syria, and ISIS is attacking governments in today’s pipeline rivalry.

    Bonnie Faulkner: Do you think the United States is conducting a financial war against Europe?

    Michael Hudson: That’s a byproduct. The financial war is aimed first of all at China and secondly at Russia. Europe is the collateral damage in this, because the natural geopolitical arrangement is for Europe to be part of Eurasia, especially for Germany to develop trade and investment relationships with Russia. But US opposition to Russia and China has entailed sanctions against Russia, and Russia in turn has made counter-sanctions against Europe. So Europe is essentially sacrificing its opportunities for trade and investment in order to remain part of NATO. It is also agreeing to bomb Syria and the Near East, creating a wave of refugees that it doesn’t know what to do with.

    It’s amazing that Europe says, “What are we going to do with these refugees?” It’s as if it doesn’t realize that being part of NATO and bombing these countries forces them to choose to live by fleeing, or to stay and get bombed. Europe is creating the flight of refugees that’s tearing it apart politically, and leading rightwing nationalist parties to gain power to withdraw from the Eurozone.

    So Europe is acting in a very self-destructive manner, but is doing so because it’s trying to be loyal to the United States. Most of the European leaders look at themselves as having to follow the United States, because if the US opposes them, there will be a regime change.

    Bonnie Faulkner: It seems as if the United States is willing to sacrifice Germany and the rest of Europe to conduct this war against Russia and China.”

  48. In short… we all get fucked by the capitalists. They have all the money to buy all the politicians.
    I’m certainly no genius but I can tell you what we have now as a financial/economic/political system is nothing short of criminal, and the corrupt politicians (puppets) that are supposed to represent us deserve nothing short of lynching for what they have allowed to happen to this country. Look no further than the current opioid epidemic, how many of our “leaders” hold a stake in these pharmaceutical corporations, and are literally profiting from the deaths and misery of millions of Americans. This was no accident. The CIA should also be abolished and the leaders imprisoned/executed for their roles in drug trafficking. Israels Mossad plays a big role in it too.
    No way all of these drugs could be getting into this country without help from the “government”. I live in rural GA., can’t even get good internet or tv out here, but you can find any drug you want, coke, heroin, ecstasy, the list goes on, you would think Wal-mart is running the drugs the way they’re supplied around here. We now have homeless camps out here that look like the ones in LA, never seen them until the past few years.
    Its pretty sickening, makes you wonder what the “deep state” has on all these politicians to make them sell their soul, their country and their own people down the river like they’re doing. It can’t just be briibery/money, makes you start to believe all the “conspiracy theories” of pedophilia blackmail.
    The whole system is being run by gangsters, thieves, perverts and murderers who worship money and power. Thats all they care about.
    At this rate the USSA will be done within a few years, you can’t keep this up for long, people are fed up with it.
    Stop voting, unless there is someone speaking on these issues, and daring to stand up to the bankers, Wall st. parasites, International corporations, and Israel, DON”T FUCKING VOTE!

    and yes it is the Zionists, I don’t say Jews cause a lot of them aren’t Jewish, but they’re all Zionists!
    Kind of hard to deny that when they openly brag about it, all the politicians are scared to death of speaking out against them, so that tells me, ITS THEM!

    Hang the bankers, End the Fed, End the free press scam, force MSM to register as foreign agents/shut them down for lying about literally everything, ban all of the Zionist/Jewish interest groups that meddle in every election in this country, ban dual citizens from govt/courts, and I’m pretty sure things will improve!


    Jim Traficant sticks to his guns about Israel with Hannity:

    • Replies: @m___
    , @Sam J.
  49. CanSpeccy says: • Website

    Any ideas?

    Independence. Independence, that is, of the nation states from the tyranny of the globalist elite, which would mean the end of the globalist institutions, NATO, the EU, the WTO, etc., etc.

    THESE are the times that try men’s souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as FREEDOM should not be highly rated.
    Thomas Paine

    • Replies: @Alden
  50. Anonymous [AKA "Djan"] says:

    Why do people get all worked up when someone mentions the name Marx? It seems to me his analysis of the problems of capitalism is quite correct and so is Hudson’s basic idea that paying taxes protects the citizenry against greed and power concentration. Of course, provided a government does better than private institutions, but to doubt this is ludicrous, as with privatisation you know that you will be exploited and with a strong government there is a chance things will work out better, certainly if the public have some say in the government’s policies (as denotes the concept of democracy). To be sure, we have seen this dynamic over the last forty years. Lured by the prospect of lower taxes meaning more savings, the peoples of Western Europe have continuously voted for the destruction of their perfectly functioning social democracies, to the point where they have become debt enslaved and utterly powerless. Try voicing your concerns about income or the environment. The police will beat you up and you’ll be left to foot the bill. Well done. I had just left high school when this madness started, with no more than two years of basic economics under my belt, but to me it was immediately clear that this neo-liberalism thing would end in a great disaster as it was not driven by a desire to improve of even preserve society but by nothing other than plain greed.
    On the other side of the aisle, there are commenters screaming that nothing good will come of any form of economics, as our planet is finite and economics is about infinite growth. While there is truth in this argument, it is of course only the theory of economics which is implicitely based on infinite growth. But that is the thing, economics is and has never been anything more than a theory, since its topic, the budget side of a dynamic society, is way too complex to be approached in any other way than through theorising. Yet this does not refute the argument that it is always better to be run by a government one has at least a modicum of nominal control over than by an oligarchy of too rich over-hyped business men. You will all realise this as soon as the oligarchy has decided the planet can no longer sustain our numbers and they start starving us.

    • Replies: @gwynedd1
  51. m___ says:

    The comment in it’s entirity.

    Right, theoretical economics is a basketcase of myopy, very related to religion. If one can spin anything out of a single book, Torah(historically first), Bible, Koran. Then what not to be spinned out of the library of theoretical economics.

    Economics should, to get any kind of credibility relate to Nature, anything on top of the human-centric who gets what. Sucking in natural resources and biodiversity leaving black holes, without any long term vision of cause and consequence does not help the elites themselves, be it out of suppreme opportunism to give themselves a fighting chance to obtaining a lasting imperium.

    Again when restricting the context of reality, anything can be made true. What else can be expected of Hudson, or Krugman or any of those sandmen.

    • Replies: @Fredtard
  52. m___ says:

    Stop voting,


    That one you got right! Congratulations. Not voting is the only statement to be made.

  53. @CanSpeccy

    I used to campaign for a progressive consumption tax as part of tax reform but got tired. I’m glad to see it being considered. Mind you I see it as allowing top rates of income tax to be reduced.

  54. CanSpeccy says: • Website

    I used to campaign for a progressive consumption tax as part of tax reform but got tired.

    LOL. That is one of the best arguments against democracy. Any slightly complicated idea for the betterment of mankind is a non-starter because to the average voter [and legislator] it is unintelligible.

    I see it [a consumption tax] as allowing top rates of income tax to be reduced.

    In theory, a consumption tax could allow the elimination of income tax altogether, since what income was not taxed must be invested.

    The problem that remains, however, is with the target of investment. Today, a major target of investment seems to be in toxic products (e.g., FaceBook and other forms of of digital heroin, including porn and violent video games); marijuana products from joints, to pills, to beer and chocolate; and forms of carbon emitting and unnecessary transportation, including both vacation travel and commuting due to poor urban design.

  55. Sam J. says:

    Hudson may be right but as you noted it’s (((WHO)))) gets financed that matters. Look back at the 1980’s and see exactly (((who))) it was that bought out all these companies with debt. The same companies that they then outsourced all the manufacturing or sold off profitable assets to service the debt. The same companies that pocketed the workers pensions to pay off debt while keeping what was profitable left in (((their))) pockets. It’s asset stripping the large. If I remember correctly the Jew that bought the World Trade Center complex only put up around \$11 million. Paid off nicely after the terrorism insurance paid off.

    The banking bailout accelerated the trend. They’re buying up everything with our capital and leaving us with the bill for any of the parts that fail during the stressful stripping part. They’ve done the same thing to the third world,. Argentina is a good example which wasn’t third world before they stripped it.

  56. Sam J. says:

    Traficant. I believe, was killed because of this. No one, I mean no one, gets run over by their own tractor like him. He was run over by the front of the tractor. People do get run over by the back but no one runs around in front of their own tractor to get run over.

    Traficant was exactly right. I used to have no animosity towards Israel or Jews but after 9-11, their continuing assault on US freedoms and their financial hollowing out of the economy, I do now. They create hatred. Jews have little control over their own greed and lust for power, like heroin addicts lust for heroin, and it eventually destroys them.

  57. m___ says:

    Its the same old trick. The gold is over committed but no one knows because it never leaves the vault.

    Not only that, but a good pointer to what the whole of banking is about, peak status to be given to the now menaced Central Bank of the US. For a while they even succeeded in trapping China and till today part of the Russian dissident elites. Everyone took a bath. The commoner was the least of the worries of either the predator or the victims. Each and every trick historically practiced ever has his counterpart in modern banking. The whole of the dollar can only be compared to religion, melting snow compacted and a concrete dog-house built on top of it.

    Hudson is no fool, he is playing fool, a typical example of middle class gentiles. Relevancy zero, lying by putting the focus where there is no importance. Calling in Marx to justify himself? Delirious.

  58. m___ says:
    @Cold N. Holefield

    Considering that, merely wiping away the Debt with a Debt Jubilee will not save the day if you start the entire process over again. In fact, I would argue that you can’t start the whole process over again. Growth is DONE. We have surpassed Peak Growth.

    Exactly, pull only the above into the context and anything Hudson pretends becomes irrelevant rationally, and a psy-op for the public, from grade A to the level of salaried middle-class bought and sold janissaries. That is the only purpose of writing a book and getting away with it, of being a public intellectual. Again Chomsky championed this, and has the record of longevity. That is what “public intellectuals” do, they are into sales, they point to freckles on the wrapper, offer discounts for sludge, never offend their sponsors, never address conceptual evil systemics. Now understand this: evil as in evil to the gents that deserve by measure of ignorance what is coming at them.

    To write a single page of theoretical economics, we need a dictionary of terminology consolidation. Confusion of language seems pioneered by money merchants. The Koran has a more concise language then the books of the likes of Hudson or Krugman.

    • Replies: @RadicalCenter
  59. Alden says:
    @jilles dykstra

    American railroads were nationalized decades ago. The entire system is called Amtrak Amtrak is a comprehensive bus and rail system. Trains run on the RR tracks and the Amtrak buses run to all the small towns far from the railroads. One can travel all over the country using this very efficient bus/train system.

    It’s amazing, get off the train in some small town and maybe 12 Amtrak buses all lined up ready to take passengers off to other small towns. 12 buses and maybe 150 people milling about
    and passengers and luggage loaded in about 15 minutes. Those bus drivers are amazingly efficient in managing the transfer.

    Oh, we don’t have the thieving gypsies and Arabs living in the train stations and riding Amtrak to steal luggage and wallets purses and watches off sleeping ALL European trains do.

    Amtrak cars have a sort of alcove with shelved near the door where people just pile their luggage 8 hours, 15 stops later, your unguarded luggage is still there.

    Unlike European train stations infested with gypsy Arab and other thieves, the American homeless who live in our big city Amtrak stations behave pretty well because that’s where they live.

    And unlike in Europe where the train station police are afraid to do anything about the gypsy, Arab and African thieves and rapists, American train station police are allowed to enforce the laws and rules without being fired for, and criminally charged with racism

    It’s true that Trump has done nothing to nationalize the railroads. We’ve had this national Amtrak for as long as I remember.

    Our airports are owned and run by local governments. The airlines rent portions of the airport for their operations. Private airports are tiny and used only for small private planes.

    Our city and suburban towns have the same extensive public transit systems Europe has.

    American physicians work for big public or private health systems that severely regulate the salaries of the medics and the charges for medical procedures.
    And every county in this country must have by the state law a free public hospital and clinic system.
    Anyone can walk into a county hospital or clinic and receive free treatment.


  60. Alden says: • Website
    @jilles dykstra

    Forgot to mention that Amtrak has excellent service for old handicapped and small kids. Most trains are double decker, first floor for old and handicapped. Since it’s a socialized government system, there’s plenty of money for enough helpers to take care of handicapped and elderly.

    Big city and small town Amtrak stations are a lot more pleasant than airports with the dregs of the earth running the gestapo security systems

    Why don’t you try posting what you know about instead of displaying your jumped up petit bourgeois pseudo intellectual socialism in every comment

  61. The most relevant observation here rests the shift from money creation from tangible products to money creation via money making through money making.

  62. Alden says:

    And look what the founding fathers did as soon as America became a unified republic.

    The founders borrowed 13 billion in 1770s French *money to pay for our war of independence. How to pay back that debt? Surely not the coastal oligarchy.
    Horrors, the oligarchy pay income or sales or property tax
    Let the frontier people pay for it by taxing their only cash crop , whiskey.

    That was banker Hamilton’s Idea. Washington led more troops against the Whiskey rebel’s than he ever did against the British.

    I don’t see how the any form of government can help the proles and peasants. The much admired W. European socialism is only about 100 years old. Britain didn’t get it till after WW2.

    And as soon as socialism was instituted the European capitalists started importing non European cheap labor to replace its own working class.

    Belgium brought in Moroccans instead of Africans so had some sense.

    Western Europe went from class warfare to race warfare in 30 years. Socialism would be fine if Europe, Canada and USA didn’t give it to the entire population of the earth that manages to get over the borders.

    • Replies: @EliteCommInc.
    , @CanSpeccy
  63. @Alden


    Moroccans are Africans as Morocco is on the African continent

    • Replies: @Mefobills
  64. @Mario Partisan

    Keep in mind that when a downturn comes the obligations/debts of modern social democracies owed to the citizenry will be very difficult to default on. That is the difference between the coming “bust” and those that have gone before.

    The options left to governments will be much worse than bankruptcies.

    • Replies: @Miro23
  65. @peterAUS

    And, assuming we can answer that, what would be a solution.

    In my mind the only “solution” is to realize that Nature is not interested in stability – that is a dream for men. Nature uses homeostasis as a tool (one of many), but stability is not a goal.

    • Replies: @peterAUS
  66. peterAUS says:
    @another fred

    Nature uses homeostasis as a tool (one of many), but stability is not a goal.

    Agree, actually.

    But, I believe there are two problems there.

    Instability in human affairs, if not managed well, can result in a nuclear war.
    That’s The PROBLEM.

    The next, directly related problem, is that management.
    Current paradigm, from basics of body politics to the people on top, isn’t well suited for that (understatement).

    We need a paradigm which can manage instabilities well. And we have the opposite I think.

    So….we have a problem.

  67. Fredtard says:

    Yep. That plush vaulted cave outfitted with grow-light greenhouses and all the rest will buy a few extra months, maybe even years, with cash for security detail for the occasional above-ground “vacation.”

    Having lots of money is critical: he who starves last, wins!

  68. Mefobills says:

    I have long felt that all currencies on earth should be made but one

    This is a really bad idea, which leads to one world government. Money’s true nature is law, and hence should not extend past a nations boundaries. To extend money past national boundaries implies that Law must extend also. This then destroys sovereignty.

    Trading nations can trade using Bancors. Or, Schachts “trading banks” which paid for goods using purchasing power equivalents, where each nations goods were priced in its own money.

  69. Mefobills says:

    Moroccans are Africans as Morocco is on the African continent

    Moroccans are not Negroes.

    Using your logic, a hamster born in a fish tank is a fish.

    Implied in the term “African” are people native to Africa, which means Negroes. A negro born in Ireland, is not Irish, or Celt.

    This sort of re-norming is leftist propaganda that ignores race and culture.

    • Replies: @EliteCommInc.
  70. @Mefobills

    I have just two comments for you:


    and it is entirely possible for blacks to be Irish, Czechs, Germans, Welsh, or Moroccans . . .

    Goodness gracious a map of Morocco right there on Northern Africa . . .

    You might want to spend some time leaning the difference between skin color region and culture. while today moors are a Mix of colors, the dominant color of the Moor premodern and midevil — was black, dark brown, tawny . . .

    • Replies: @Anon
  71. m___ says:

    I have long felt that all currencies on earth should be made but one …(concerning a logic and hard science to theoretical economics as compared to social-relative ranting)

    A few similar suggestions,

    A currency, single globally evidently, the “middle man” of currency exchanges, reserves etc. is just a layer to allow cheating by the means of obscuring.

    A currency backed up by the sum of all assets, minus all liabilities, globally. Make the system dynamic by global consent. No middle man mongering, alas a single “digital” currency. Population density, human numbers locally, energy consumption, all could be brought in as liabilities, as long as the process of accountability is global.

    Why does this sound outlandish, big data, when applied diligently and centrally allows for above as never before real-time. Tuning and tweaks would have a lasting effect, as compared to the thinkering of today. Conflictive power stances would melt. The environment(missing in any kind of economic theory) would have it’s voice.

    Gold(physical gold in one’s posession) is only golden, for there is a hard backup. Gold and mining digital currencies(a misnomer in this case, but boiling down to mining electricity) are not enough. Basing a single currency on the sum of all assets and liabilities goes way ahead into the same direction. But borrows from the Gold and “Bietcoin” ideas both.

    Since everything and anything is triggered on conquest of individual, group, ethnic, national, religious interests, the experiment would sooth any kind of conflict globally. And from the look of the stupor by presenting the idea to the “knowledgeable”, a lot of cognitive brainpower, and raw energy would transfer into realizing something meaningful in integrating the concept of limited resources and allowance for limited populations.

    This is a single example of associative thinking that has the help of data mining, networking, and a clear goal: quality of life for the men standing.

    Give or take fifteen years, and this will be a mainstream float. Globalism, not the one as most think of it now, must be.

  72. gwynedd1 says:

    “I have long felt that all currencies on earth should be made but one.”

    I have long since considered bell curves and have wondered what king of sociopaths one will end up with where .00001 percent of the population actually leads to whole people.

    One big happy family with the biggest nut jobs humanity has ever produced in charge of the money supply.

  73. @smellyoilandgas

    The first sentence tells me that you have no idea what wealth is. Look. The pharaohs of early Egypt were undeniably wealthy, though they had no money, because money had not been invented. How come they were wealthy? They were wealthy because they had abundant goods and services. These goods and services were made the same way that wealth has ever been made, by people working. Private ownership of parcels of land creates nothing. Not a single piece of goods nor yet any sort of service. Likewise private monopoly power creates nothing except power. It feeds nobody.

    Theft has created nearly all of the wealth since Kennedy was killed.

    Theft transfers wealth it does not create it.

  74. @jacques sheete

    Theft is the earliest form of “Labour saving”. It long predates human beings.

  75. @Stebbing Heuer

    Nearly everyone whatever his level of ignorance seems to think that the monetary system is easy to understand. Having wrestled with my own ignorance for decades, I will give you my own two-pennyworth:
    Money is a sort of lubricant to the economic system.
    It is possible to run economies without money, but much easier with.
    Money is worth what it will buy. It does not have to be made of intrinsically valuable material it can be a computerbyte, a coin, a note or an entry in a leger.
    Fractional reserve banking introduces an element into the economy which is essentially destabilising, it means that there is always more debt in the economy than their is money to pay it.
    Clearly unless the money supply is under democratic control, there is no point in talking about democracy.
    Wealth and money are totally different things which many economists seem determined to conflate. Wealth consists of access to goods and services.
    Goods and services are made by people working.
    Money should be made costlessly by the treasury department of a government.

    • Replies: @gwynedd1
    , @Anon
  76. @Dagon Shield

    Go to youtube and look for “The Beast from Jekyll Island”. It is quite a good introduction.

  77. gwynedd1 says:

    The money supply means very little until it causes wealth redistribution. That’s generally what the problem is. Its just a form of redistribution.

    • Replies: @foolisholdman
  78. CanSpeccy says: • Website

    Socialism would be fine if Europe, Canada and USA didn’t give it to the entire population of the earth that manages to get over the borders.

    But it is why Western elites invite in the “entire population of the earth” to get over the borders: global socialism means destruction of the Western nations as racial and cultural entities, the continued existence of which is the chief obstacle to global governance. That’s why the Treason class in Canada, headed by the lover-of-all-tyrants, Justin Trudeau, has declared the Canadian nation to be kaput, dead, deceased, no longer existent.


    I wonder why I have to type my name, etc. every time I post. I am not “anonymous” and don’t think I ever posted anything under “anonymous”, yet now the system only “recognizes” me as Anonymous. Is there something personal about this, or what? Thanking you in advance for your advice.

    • Replies: @Anonymous
  79. Mr Hudson, wonderful Economics 101! It takes some exposure to Marx’ work (which many discard on a knee-jerk basis) to fully understand its implications. You hit the bull’s eye with the nefarious efect of land-rent on the health of Western economies. It will not be easy to set things right without a catastrophic conflict with the powerful neo-rentier crowd. How would a GDP comparison between China and the US look like if finance, insurance and real estate (which destroy value rather than create it) were removed from the “value” calculation?

    • Replies: @RadicalCenter
  80. Anonymous[436] • Disclaimer says:

    I enjoyed your linked rundown on the juvenile Trudeau and related matters but, because I have sources on Ukraine now and historically that I trust far more than the Russophiles and agents like annamaria on UR, I think you may be off target when you criticise Canada’s External Affairs minister with Nazi smears. My guess is that “Nazi” applied to Ukrainians should – setting aside any anti-Semitic aspects as irrelevant now – really mean anti-Russian, given that in 1941 Ukrainians had more reason to be anti- Russian than anti-German, not least if they were Galician.

    • Replies: @CanSpeccy
  81. Anon[436] • Disclaimer says:

    Please explain what you think the connection is between the “fractional reserve system” (assuming you think you can explain what it is and what innovation it constituted) and the lack of money to pay all debt.

    I suspect that you have forgotten the point you made about it being possible for money to be a ledger entry (or computerbyte). Surely the tendency is for the pressure of debt to be relieved by bankruptcy or schemes of arrangement which reduce the amount of debt to be paid – and of course reducing the money supply if the form of debt was a form of money – like an accepted bill.

    There must be a particular problem when there are imbalances which the systems aren’t organised and managed to cope with. If there has been a huge increase in housing finance, for example, and then all the poorest house purchasers lose their jobs you have one kind of familiar imbalance but I’m not sure it supports your “not enough money” theory.

  82. @Anon

    Please explain what you think the connection is between the “fractional reserve system” (assuming you think you can explain what it is and what innovation it constituted) and the lack of money to pay all debt.

    I think foolisholdman might be on to something when he says:

    Fractional reserve banking introduces an element into the economy which is essentially destabilizing, it means that there is always more debt in the economy than there is money to pay it.

    It is quite simple, but it might help to review for a second how money is created under fractional reserve banking. Under such a system, new money is created every time a bank makes a new loan. The reason is that the bank doesn’t reduce any individual’s checking account in order to increase the checking account of the person they are making the loan to. The bank simply credits the borrower’s account, and thus the total sum of deposits is increased.

    Now let’s do a simple thought experiment. Let’s imagine that all money has been created by banks through the issuance of loans (according to 97% of all money is created in this fashion). Under this scenario, the stock of money is equal to the stock of debt issued by banks. But banks demand that the borrower repay not simply the principal, but the principal with interest. But if the money supply equals the stock of bank-issued debt, where does the money come from to pay the interest? It can only come from the issuance of yet more money (more debt). At any given time, there is not enough money to pay all principal and all interest, and thus default by at least some people is not only possible, but inevitable. The corresponding transfer of tangible assets to banks is a key component of how the system works.

    I hope this helps explain what foolisholdman was getting at.

    • Replies: @foolisholdman
    , @Miro23
    , @Anon
  83. CanSpeccy says: • Website

    My guess is that “Nazi” applied to Ukrainians should – setting aside any anti-Semitic aspects as irrelevant now – really mean anti-Russian

    I have no expertise concerning racial and religious prejudice in Ukraine, where, to an outsider, it seems that everyone hates everyone else.

    But historically, Nazis seem to have been agnostic with respect to who most deserved extermination: Jews or Russians. Moreover, in view of the role of the Russian Jew, Lazar Kaganovich, in the 1930’s Ukrainian Holodermor, or genocide by starvation, and the call by former Ukrainian Prime Minister and Jew, Yulia Tymoshenko, for the extermination of eight million people in Eastern Ukraine by means of nuclear bombs, it is not difficult to believe that there are still Ukrainian Nazis who hate both Jews and Russians.

    In any case, it does seem that the only reasonable thing to do with the Ukraine is break it up: the division based on a plebiscite to determine, by oblast, with which country the citizens wish to be united, Ukraine, Russia, Poland, etc.

  84. olde reb says:

    Michael Hudson wants to ignore the embezzling from the US government by the FRBNY and (select) Primary Dealers using their exclusive handling of funds [\$10 trillion annually] from the auctions of Treasury securities–which have never been audited. Ref. 31 CFR 375.3. ;

  85. MarkinLA says:

    Gold should be held in small amounts as a hedge and insurance policy only. Its not going to make people rich on the whole.

    Now come on. Every so often we see these programs where the company makes owning gold so easy you would be stupid not to. You send them money, they “buy” the gold, hold it in their vaults for free and send you a piece of paper that you can trade in at any time for your money or sell to somebody else through their exchange. Just like Bitcoin exchanges, they sometimes up and disappear in the middle of the night or are discovered to never have any gold in their vaults at all (like goldbug Howard Ruff found out in the 80s). Who says gold can’t make you rich?

    • Replies: @gwynedd1
  86. gwynedd1 says:

    My mistake. I meant buying gold will not make you rich. Selling it certainly makes some people rich.

  87. gwynedd1 says:

    Marx is underrated … Though its mostly due to him being demonized. His entire ideological system is fantasy meant for a termite colony to be sure, but the devil himself is a little overboard.

    He also said some pretty insightful things like this:

    “The state creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would. ”

    I try to explain to people that there is no such thing as a national debt because the debt of the sovereign acts too much like printed money. That means 99% of the population I try to explain it to is dumber than Marx. The sovereign can never go into debt because its favors will be hoarded and coveted. Since it can be spent anytime, where is the cost to the lender?

    Most people fail to understand that the large national debt to GDP ratio in Japan is a side effect of low commercial credit. With little private debt, the economy is priced much closer to the public float of credit. If Japanese borrowed more money then much less of the government credit would represent the economy. Doesn’t matter even when I tell them this. When I first understood the concept I thought everyone would easily understand it with a little explanation. Well, I am no better than Marx either. I completely over estimated my fellow man , or human nature. People turned out to be a lot more stupid than I anticipated .

    • Replies: @KA
  88. @Mario Partisan

    Yes, thank you, it does explain it exactly.

    • Replies: @RadicalCenter
  89. @Anon

    I thank Mario Partisan for his reply, as it says exactly what I meant.

    There is also the point that I did not make, which is that the fractional reserve banking system is a sophisticated form of robbery, which requires a “crisis” from time to time to maximise the amount of loot that the banks can take.

    After such a crisis, (a slump) the banks usually lowered the interest rate at which they lent money and were less demanding on such things as deposits and valuation of mortgaged property. People were encouraged to borrow money and to invest in property, which caused the economy to grow and made people feel more optimistic. The banks happily lent money on fairly liberal terms and the economy grew some more. When the bankers felt that “harvest time” had arrived, they upped the interest rate.

    This meant that the firms who were working closer to the edge of unprofitability than others, cut wages, overtime, employment and investment. This in turn affected e.g. the property market and the price of property went down, which left some people in “negative equity” and enabled the Banks to foreclose some mortgages. This, of course, transferred some property for which the banks had done practically nothing, to the banks. In some cases, the ex-owner of the property was left owing money to the bank as well!

    This process continued until the banks decided that the economy had suffered enough, the trade unions were sufficiently weakened and wages sufficiently depressed and then they started the whole cycle again. In this way the banks have been able, quite legally, to carry out what must be, by a large margin, the largest, robbery in history.

    • Replies: @RadicalCenter
  90. @gwynedd1

    Control of the money supply means control of government policy. If the Central bank does not like a government policy, they refuse to fund it, as Harold Wilson found out.

  91. Miro23 says:
    @Mario Partisan

    Now let’s do a simple thought experiment. Let’s imagine that all money has been created by banks through the issuance of loans (according to 97% of all money is created in this fashion). Under this scenario, the stock of money is equal to the stock of debt issued by banks. But banks demand that the borrower repay not simply the principal, but the principal with interest. But if the money supply equals the stock of bank-issued debt, where does the money come from to pay the interest?

    Ceteris Paribus (Other things being equal ) – which they aren’t.

    The real question seems to be how this created money (debt ) is used:

    In the 19th century London lent money to US railroad companies to open up the West creating real economic growth and the lenders got back their capital and interest with no problems (at least at the start).

    In the 20th century the US lent money to rebuild Europe after WW2, creating real economic growth, and the lenders again got back their capital and interest with no problems.

    However, in the 21st century, FED QE is injecting enormous amounts of created money into bubble finance, Middle East wars and covering permanent government and trade deficits. How are these “investments” going to pay back the capital and interest?

    • Replies: @Mario Partisan
  92. @Miro23

    I agree with you that how a debtor chooses to use the money lent to them is of paramount importance to whether they will succeed in paying the money back. The way the US government is using its bond receipts is completely irresponsible.

    That said, I don’t think you have successfully disproved my point about the money supply being less than or equal to the stock of debt obligations, and the consequences of that relationship. You point to a couple examples of successful lending. I will second you on those, and even admit that the vast majority of debts will generally be paid, with interest. But my point was that at the aggregate, economy-wide, level, some debtors will inevitably default. Find me any substantial period of time in which there are zero defaults. I don’t think you can.

    I haven’t looked at the data to actually compare the total (public and private) US debt stock to the money supply (maybe I should do that before making an ass of myself, but here I go). Nevertheless, I think I can do some back of the envelope calculations with the figures that I have in my head. I know that in 2006 the debt of just US households reached roughly 100% of US GDP. So,

    Household Debt/nominal GDP = 1, for 2006.

    Now, recall the following economic identity: Nominal GDP = Money x Velocity (of money). Velocity is the average number of times a dollar changes hands in a year. So for 2006,

    Household Debt/M*V = 1.


    Household Debt/M = V, for 2006.

    Now, the Velocity of money in the US has tended to be about 2 for much of the post-war period. It peaked at 2.2 in the late 1990s, and has hit an historical low of about 1.4 in recent years Taking V=2 for 2006, it follows that

    Household Debt/M = 2, for 2006.

    That is, for 2006 the stock of household debt alone should be about twice the stock of money.

    Now with V=2, the ratio of Household Debt to GDP has to fall below 0.5 for the ratio of Household Debt to Money to fall below 1. And I can tell you that the household debt to GDP ratio hasn’t been that low for a long, long time. When you take into account that I am ignoring all other sectors, it seems clear that the stock of total debt is almost always greater than the stock of money. I’ll have to pull some data to verify that my reasoning is correct, but I think it is.

    The situation is less stark than I’m making it seem because debts generally have maturities that are quite lengthy, and so the interest and principal are paid off over time. This enables the money supply to expand so that those obligations can be met. But again, the debt stock is expanding alongside the growth of money, so in a way we are constantly running faster just to stay in place.

    Most of the time, defaults are a small fraction of outstanding obligations, so banks can absorb the losses without a crisis. On top of that, a large fraction of debts are backed by some kind of collateral so even in the event of a default the bank gets something in return. Problems arise when banks have done poor due diligence with regards to whom they lend money and the underlying collateral has reached bubble prices. That situation leads to substantial levels of default, which in turn pushes down the value of the collateral as a large quantity of it hits the market at once. It is in those situations that banks are in trouble because the collateral is worth less than the money they lent out.

    • Replies: @Miro23
    , @foolisholdman
  93. Miro23 says:
    @Mario Partisan

    That’s an interesting calculation of US Household Debt to GDP but I’m wondering how it captures the FED QE programs which are the great financial event of the 21st century.

    QE allows very cheap money and it has generated enormous borrowing. The point seems to be that the credit has gone into “investments” that are both private (Bubble finance) and public (ME wars) but which don’t so much influence Household Debt (although they do inflate GDP – like ME wars).

    Share buy-backs and Bubble speculation benefit large shareholders, and the \$ trillions directed to ME wars benefit the privileged Military Industrial Complex (maybe why the US is showing record levels of economic inequality by developed country standards). It’s true that government borrowing to cover trade deficits and meet social obligations (pensions, salaries, welfare etc. ) ends up with households, but it’s debt that the government is taking on, not the households directly.

    To my mind this comes back to:

    Most of the time, defaults are a small fraction of outstanding obligations, so banks can absorb the losses without a crisis. On top of that, a large fraction of debts are backed by some kind of collateral so even in the event of a default the bank gets something in return. Problems arise when banks have done poor due diligence with regards to whom they lend money and the underlying collateral has reached bubble prices. That situation leads to substantial levels of default, which in turn pushes down the value of the collateral as a large quantity of it hits the market at once. It is in those situations that banks are in trouble because the collateral is worth less than the money they lent out.

    US credit (new debt) has largely been wasted in projects that will never create new wealth such as ME wars, bubble finance speculation and covering welfare spending.

    The system holds together because world trade is at record levels, and it is based on the US dollar as the reserve currency. Traders and governments have to hold US dollar balances (US bonds) so the FED can spread the cost of its printing around the world and feed massive asset price (not wage-salary-consumer price) inflation in the US. To see this asset price inflation, it’s enough to compare a chart of the S&P stock index with a chart of the QE enabled rise in the FED balance sheet – they’re basically the same.

    But the US dollar is an a precarious position. Reserve currency status belongs to the country with the largest international trade and strongest export economy i.e. China – although the Chinese still have some technical controls blocking convertibility, and they in fact want to manipulate their currency to keep the value down (they want an artificially low Yuan and high Dollar to help their exports).

    If the world one day abandons the Dollar then the US gets inflation and all the variables in Household Debt/M = V start increasing in a fast and unpredictable way.

    • Replies: @gwynedd1
  94. Miro23 says:
    @another fred

    Keep in mind that when a downturn comes the obligations/debts of modern social democracies owed to the citizenry will be very difficult to default on. That is the difference between the coming “bust” and those that have gone before.

    The options left to governments will be much worse than bankruptcies.

    One possibility is for the government to fulfill all of its the obligations to the citizenry, but to do it with almost worthless money. This is what Germany’s Weimar Republic did. When a citizen received their so called “confetti money” they had to put it in a wheelbarrow and go at high speed to the nearest shop before the prices were marked up again.

  95. @m___

    Yes, the Koran is beautifully concise in its instructions to demean women and kill infidels. Outstanding.

  96. @milonguero139

    Insurance destroys value? Man, I hope you can explain your lack of life insurance to your wife 😉

  97. @foolisholdman

    Must say that I’m inclined to agree with you guys. Bleak.

  98. @foolisholdman

    Instead of giving, apparently, hundreds of billions or more to bankers and already-wealthy people, the us fed gov during the last crash could have simply refinanced all residential mortgages under one million dollars owned by US Citizens at zero percent. Funny how that didn’t happen.

    • Replies: @gwynedd1
  99. Anon[198] • Disclaimer says:

    Whoever said African-Americans were disadvantaged?

    (Elon Musk)

  100. @Mario Partisan

    The profits of Fords or GM are not measured in motor cars because that is their product. In the same way, money is the Banker’s product and his profit should not be measured in money. His profit is in collateral seized from defaulters and magnificent buildings paid for with money created from thin air and, perhaps, the work that has been done by the bank’s employees.

  101. gwynedd1 says:

    Could have send a few thousands to each house hold which would be required to pay down principle if applicable. Then it should have been amortized again. That would have lowered payments and compensated those who were debt free.

    Yep, they could have readjusted the nominal amounts to reflect the real debt before the cash, but they didn’t.

  102. gwynedd1 says:

    China cannot be the reserve currency until it runs trade deficits. Its basically like the carry trade. Too many Chinese ships come right back to port. The ship must sail and never return. Also need to have the military to back it up.

  103. Anon[436] • Disclaimer says:
    @Mario Partisan

    I think perhaps, despite a greater sophistication, you share foolisholdman’s (and many other commenters on UR’s) problem of not realising how many kinds of money there can be. Before the (central) Bank of England got into the business in 1694 there was plenty of creation of money out of thin air – and a piece of paper. A signature from a trusted accepting house on a bill of exchange written by a merchant immediately made it into pretty good quality money. There has never been any magical real money and it is probable that life was most miserable for most when there was not enough trusted paper around, for lack of trusted institutions such as the Fed, or JP Morgan in 1906, and the indebted peasant farmer was reduced to serfdom because he couldn’t hand over enough of the gold or silver with the ruler’s head on it or something weighing the same.

    Having distant memories of M1 to M6 (at least) when the monetarists made it necessary to point out what blunt instruments they had to control the quantity of money I looked up Wikipedia and recommend that to ianyone who thinks fiat money is the problem should also do so and think again about what you have if you don’t have a trusted government backed central bank. Actually trust is key. Many countries have proved that the making of their currency legal tender means nothing when inflation really takes off and gold has only occasionally been a relatively reliable store of value over the long history of money and is now just a speculative asset.

    • Replies: @peterAUS
  104. peterAUS says:

    Actually trust is key.

    Or, maybe, a strong belief that the entity which issued the money will back it up.
    So, maybe, the power to make it so is the key. The top dog.
    At the moment it’s USA, and what makes that power is its military.

    So, sometimes, I think that a word strongest military is the key for world money.
    They are close connected and interlinked. And, sometimes I think that military drives money and not other way around.

    • Replies: @Anon
  105. Anon[436] • Disclaimer says:

    I think you greatly exaggerate the importance of the military. Does Switzerland’s reputation for having a currency and banks that can be trusted depend on its military strength? Obviously not – though they could make themselves prickly for a while if anyone invaded.

    The US dollar’s and its financial system’s primacy are a result of incumbency, size, convenience and efficiency but nothing about it is irreplaceable in quite a short time. True the value of the US military to the Europeans is probably a factor limiting how far they will go in preventing Trump’s anti Iranian nonsense affecting their business with Iran. But the EU’s problems with the Euro and Brexit negotiations are probably even bigger barriers to immediate displacement of the US dollar. Maybe China will one day make it possible for the Yuan to take its place. But that won’t be a function of its military power except in the trivial sense that China, like the US, is in no danger of being invaded.

    • Replies: @peterAUS
  106. peterAUS says:

    Well, I was kind of hoping for a more elaborate comment (not necessarily just yours).

    I still believe that the military power is the key of power. Power, then, makes that entity capable of enforcing a contract (and money is simply a contract).

    Now, money itself is just a tool.

    Bottom line, it’s all about power. Money, military, whatever….it’s about human nature to impose own will onto another.

    If we imagine, for a second, that, suddenly, US military becomes incapable of projecting its power overseas I am not sure for how long US \$ would be the world currency.
    Now…..would that be a better world I am not quite sure about. I mean replacing characters in Washington/New York with characters from…..pick any.

    More importantly, I am positive should anyone want to challenge US \$ as world reserve currency that country/coalition will have a nasty conflict with USA.

    Again, some people like, when talking abut world woes (for common people), to point to money power and Jews.I just think there is more to that than just money and “them”.


    • Replies: @Wizard of Oz
  107. @peterAUS

    You should do some reading (Niall Ferguson’s book perhaps) or perhaps take a course (my main economics degree subject was called “Currency and Credit”). You seem so thoroughly confused that we are not even on the same page. I note that within a few lines you say “and money is simply a contract” and “money itself is just a tool”. OK reconcilable I suppose as “money is a contract with no intrinsic value but useful for 1, 2 and 3 (used often to be 4)”. But you should start thinking about credit and trust as key if you want to get past your fixation on military power.

    • Replies: @peterAUS
  108. peterAUS says:
    @Wizard of Oz

    You are most likely correct.

    Hard to argue with somebody stating “my main economics degree subject was called “Currency and Credit”….”
    Experts in science of economy and such……

    Or , you should start thinking about military power as key if you want to get past your fixation on credit and trust.

    I know, can’t happen in this universe.
    Works other way around too.

    Thank you for your help in this particular topic.

  109. KA says:
    @Linda Green

    “Failure to tax the land leaves its rental value “free” to be pledged as interest to banks – which make larger and larger loans by lending against rising debt ratio”

    Fed prints money. Treasury borriws . Bank gets the money . Bank lends to the company. Company buys and builds the condo. Condo is not sold . Condo is rented . The renter spends 40-60% income on rent . The builder returns the money to the bank.
    Fed , bank, builder sleep eat cavort frolic together . They also come to university of Chicago. They teach economics . They get Nobel prize . Other countries come flocking to the circular corridor . A new elite is created versed in the new model.

    Renter has no money for food , education day care and savings . Their labor keeps the ponzu scheme standing .

  110. KA says:

    “. I try to explain to people that there is no such thing as a national debt because the debt of the sovereign acts too much like printed money”

    This depends on the countries or to be precise , this varies among the countries.

    When India or Brazil borrows from outside , they face certain kind of problems . Greece has been an example.

    When they borrow internally by issuing bonds or by direct printing , inflation strikes.

    International currency -dollar- is not susceptible while Euro and Yen are to some extent or not at all.

  111. KILLING THE HOST, the title of one of Michael Hudson’s books, is EXACTLY what is happening to historically WHITE America, since Dec. 23, 1913. (Of course, it is also happening in the entire Western Hemisphere.) You see, in case you hadn’t noticed, the so-called “Federal” “Reserve” is comprised of privately-owned banks which are owned by (predominantly) “Jews”. Now, IF you don’t fully comprehend the SIGNIFICANCE of that fact ~ then, you need to seriously study history. The same can be said of the entire Western Banking System: BIS/IMF/World Bank/ECB/”Federal” “Reserve”.

  112. I gave up about half way through.

    One of the more striking elements in the argument is that the author implicitly assumes that any money collected as interest simply vanishes — as if the creditors are off on Mars or something.

    They’re not, of course — nor will they hide their ill-gotten millions under the mattress. They’ll either loan the money out again, thus reinjecting it into the economy, or they’ll spend it on extravagant boats and homes and cars, thus restoring it to the economy that way.

    In any case, I don’t see what the problem is.

    • Replies: @Mefobills
  113. Mefobills says:
    @Dagon Shield

    Why is there “the privatized monopoly right to create bank credit” in the first place?

    Hudson routinely mentions that money is part of the commons. That it is a public good.

  114. Mefobills says:
    @Colin Wright

    One of the more striking elements in the argument is that the author implicitly assumes that any money collected as interest simply vanishes

    When you take out a loan on a house, the Interest is calculated at that moment in time.

    During the first cycles of the loan it is all interest. This is a form of seigniorage as the bank credit has more purchasing power in the early phases of the loan than it does at the end of loan.

    This is a gift to the banker of seigniorage for the sanctioned privilege of creating new debt money
    with keystrokes entry.

    This interest does not land on your ledger, but instead passes through to land on the banker ledger. Banker can then spend it on payroll or play with it in financial markets. In any case, it creates an Oligarchy of private finance interests who maneuver the economy to their interests, not necessarily what is best for the commons.

    At the end of the loan period, only then does the principle decrement at a high rate, thus extinguishing the credit.

    As Hudson has pointed out ACCURATELY in other writings, a debt based economy has a saw tooth function. The slow build up of credit in money supply, and then the rapid fall off into depression (the cutting edge of the tooth).

    So, yes – there are multiple problems with bank credit economies, and thefts through the interest mechanism is only one.

    • Replies: @Colin Wright
  115. @Mefobills

    Perhaps, but the essential point is that the money — and the wealth it represents — is still there, and in circulation. The article at several points reasons as if this wealth disappears somehow.

    That’s not what happens. The big house is still there, and the gardeners and domestic staff it requires are still happily employed. It might not be you who’s the seigneur anymore but the banker who did you out of it, but that doesn’t really affect the economy as a whole.

    Besides, it’s a bit questionable to single out interest payments as ‘theft.’ Obviously, taxes are equally dubious. When the medical system manages to arrange things so that they and only they can fix my son’s broken arm — and then charge me \$4500 for what was visibly about one man-hour of work inolving no technology less than a century old, isn’t it as least as reasonable to call that ‘theft’? What about when a mechanic replaces a perfectly good alternator with a new one and charges an inflated price for both his labor and the part?

    It’s all not new either. What was so just about manorial dues or the exactions of the Church? It’s been a whole long time since we were booted out of Eden, and focussing on interest strikes me as implausible and obsessive.

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