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These remarks were made at the World Congress on Marxism, 2015, at the School of Marxism, Peking University, October 10, 2015. The presentation was part of a debate with Bertell Ollman (NYU). I was honored to be made a permanent Guest Professor at China’s most prestigious university.

When I lectured here at the Marxist School six years ago, someone asked me whether Marx was right or wrong. I didn’t know how to answer this question at the time, because the answer is so complex. But at least today I can focus on his view of crises.

More than any other economist of his century, Marx tied together the three major kinds of crisis that were occurring. His Theories of Surplus Value explained the two main forms of crises his classical predecessors had pointed to, and which the bourgeois revolutions of 1848 were fought over. These crises were the result of survivals from Europe’s feudal epoch of landed aristocracy and banking fortunes.

Financially, Marx pointed to the tendency of debts to grow exponentially, independently of the economy’s ability to pay, and indeed faster than the economy itself. The rise in debt and accrual of interest was autonomous from the industrial capital and wage labor dynamics on which Volume I of Capital focused. Debts are self-expanding by purely mathematical rules – the “magic of compound interest.”

We can see in America and Europe how interest charges, stock buybacks, debt leveraging and other financial maneuverings eat into profits, deterring investment in plant and equipment by diverting revenue to economically empty financial operations. Marx called finance capital “imaginary” or “fictitious” to the extent that it does not stem from within the industrial economy, and because – in the end – its demands for payment cannot be met. Calling this financial accrual a “void form of capital.”[1]In Volume III of Capital (ch. xxx; Chicago 1909: p. 461) and Volume III of Theories of Surplus Value. It was fictitious because it consisted of bonds, mortgages, bank loans and other rentier claims on the means of production and the flow of wages, profit and tangible capital investment.

The second factor leading to economic crisis was more long-term: Ricardian land rent. Landlords and monopolists levied an “ownership tax” on the economy by extracting rent as a result of privileges that (like interest) were independent of the mode of production. Land rent would rise as economies became larger and more prosperous. More and more of the economic surplus (profits and surplus value) would be diverted to owners of land, natural resources and monopolies. These forms of economic rent were the result of privileges that had no intrinsic value or cost of production. Ultimately, they would push up wage levels and leave no room for profit. Marx described this as Ricardo’s Armageddon.

These two contributing forces to crisis, Marx pointed out, were legacies of Europe’s feudal origins: landlords conquering the land and appropriating natural resources and infrastructure; and banks, which remained largely usurious and predatory, making war loans to governments and exploiting consumers in petty usury. Rent and interest were in large part the products of wars. As such, they were external to the means of production and its direct cost (that is, the value of products).

Most of all, of course, Marx pointed to the form of exploitation of wage labor by its employers. That did indeed stem from the capitalist production process. Bertell Ollman has just explained that dynamic so well that I need not repeat it here.

Today’s economic crisis in the West: financial and rent extraction, leading to debt deflation. Bertell Ollman has described how Marx analyzed economic crisis stemming from the inability of wage labor to buy what it produces. That is the inner contradiction specific to industrial capitalism. As described in Volume I of Capital, employers seek to maximize profits by paying workers as little as possible. This leads to excessive exploitation of wage labor, causing underconsumption and a market glut.

I will focus here on the extent to which today’s financial crisis is largely independent of the industrial mode of production. As Marx noted in Volumes II and III of Capital and Theories of Surplus Value, banking and rent extraction are in many ways adverse to industrial capitalism.

Our debate is over how to analyze the crisis the Western economies are in today. To me, it is first and foremost a financial crisis. The banking crisis and indebtedness stems mainly from real estate mortgage loans – and also from the kind of massive fraud that Marx found characteristic of the high finance of his day, especially in canal and railroad financing.

So to answer the question that I was asked about whether Marx was right or wrong, Marx certainly provided the tools needed to analyze the crises that the industrial capitalist economies have been suffering for the past two hundred years.

But history has not worked out the way Marx expected. He expected every class to act in its own class interest. That is the only way to reasonably project the future. The historical task and destiny of industrial capitalism, Marx wrote in the Communist Manifesto, was to free society from the “excrescences” of interest and rent (mainly land and natural resource rent, along with monopoly rent) that industrial capitalism had inherited from medieval and even ancient society. These useless rentier charges on production are faux frais, costs that slow the accumulation of industrial capital. They do not stem from the production process, but are a legacy of the feudal warlords who conquered England and other European realms to found hereditary landed aristocracies. Financial overhead in the form of usury-capital is, to Marx, a legacy of the banking families that built up fortunes by war lending and usury.


Marx’s concept of national income differs radically from today’s National Income and Product Accounts (NIPA). Every Western economy measures “output” as Gross National Product (GNP). This accounting format includes the Finance, Insurance and Real Estate (FIRE) sector as part of the economy’s output. It does this because it treats rent and interest as “earnings,” on the same plane as wages and industrial profits – as if privatized finance, insurance and real estate are part of the production process. Marx treated them as external to it. Their income was not “earned,” but was “unearned.” This concept was shared by the Physiocrats, Adam Smith, John Stuart Mill and other major classical economists. Marx was simply pressing classical economics to its logical conclusion.

The interest of the rising class of industrial capitalists was to free economies from this legacy of feudalism, from the unnecessary faux frais of production – prices in excess of real cost-value. The destiny of industrial capitalism, Marx believed, was to rationalize economies by getting rid of the idle landlord and banking class – by socializing land, nationalizing natural resources and basic infrastructure, and industrializing the banking system – to fund industrial expansion instead of unproductive usury.

If capitalism had achieved this destiny, it would have been left primarily with the crisis between industrial employers and workers discussed in Volume I of Capital: exploiting wage labor to a point where labor could not buy its products. But at the same time, industrial capitalism would be preparing the way for socialism, because industrialists needed to conquer the political stranglehold of the landed aristocracy and the financial power of banking. It needed to promote democratic political reform to overcome the vested interests in control of Parliaments and hence the tax system. Labor’s organization and voting power would press its own self-interest and turn capitalism into socialism.

China has indeed exemplified this path. But it has not occurred in the West.
All three kinds of crisis that Marx described are occurring. But the West is now in a chronic depression – what has been called Debt Deflation. Instead of banking being industrialized as Marx expected, industry is being financialized. Instead of democracy freeing economies from land rent, natural resource rent and monopoly rent, the rentiers have fought back and taken control of Western governments, legal systems and tax policy. The result is that we are seeing a lapse back to the pre-capitalist problems that Marx described in Volumes II and III of Capital and Theories of Surplus Value.

This is where the debate between Bertell Ollman and myself centers. My focus is on finance and rent overwhelming industrial capitalism to impose a depression stemming from debt deflation. This over-indebtedness is making the labor/capital problem worse, by weakening labor’s political and economic position. To make matters worse, labor parties in the West no longer are fighting over economic issues, as they were prior to World War I.

My differences with Ollman and Roemer: I focus on non-production costs

Bertell follows Marx in focusing on the production sector: hiring labor to produce products, but trying to get as much markup as possible – while underselling rivals. This is Marx’s great contribution to the analysis of capitalism and its mode of production – employing wage labor at a profit. I agree with this analysis.

However, my focus is on the causes of today’s crisis that are independent and autonomous from production: rentier claims for economic rent, for income without work – “empty” pricing without value. This focus on rent and interest is where I differ from that of Ollman, and also of course from that of Roemer. Any model of the crisis must tie together finance, real estate (and other rent-seeking) as well as industry and employment.

The rising debt overhead can be traced mathematically, as can the symbiosis of the Finance, Insurance and Real Estate (FIRE) sector. But the interactions are too complex to be made into a single economic “model.” I am especially worried that Roemer’s model might be followed here in China, because it overlooks the most dangerous tendencies threatening China today: Western financial practice and its pro-rentier tax policy.

China has spent the last half-century solving Marx’s “Volume I” problem: the relations between labor and its employers, recycling the economic surplus into new means of production to provide more output, higher living standards, and most obviously, more infrastructure (roads, railways, airlines) and housing.

But right now, it is experiencing financial problems from credit creation going into the stock market instead of into tangible capital formation and rising consumption standards. And of course, China has experienced a large real estate boom. Land prices are rising in China, much as they are in the West.

What would Marx have said about this? I think that he would have warned China not to relapse into the pre-capitalist problems of finance funding real estate – turning the rising land rent into interest – and into permitting housing prices to rise without taxing them away.

Soviet planning failed to take the rent-of-location into account when planning where to build housing and factories. But at least the Soviet era did not force labor or industry to pay interest or for rising housing prices. Government banks simply created credit where it was needed to expand the means of production, to build factories, machinery and equipment, homes and office buildings.

What worries me about the political consequences of Roemer’s model is that it focuses only on what Marx said about the production sector and employer-labor relations. It does not ask how “endowments” come into being – or how China has changed so radically in the past generation. It therefore neglects the danger of industrial capitalism lapsing back into a rent-and-interest economy. And by the same token, it underplays the threat to China and other socialist economies of adopting the West’s surviving pre-feudal practices of predatory Bubble Finance (debt leveraging to raise prices) and wealth in the form of land-rent charges.

These two dynamics – interest and rent – represent a privatization of banking and land that rightly are public utilities. Marx expected industrial capitalism to achieve this transition. Certainly socialist economies must achieve it!

China has no need of foreign bank credit – except to cover the cost of imports and the foreign-exchange cost of investment in other countries. But China’s foreign exchange reserves already are large enough to be basically independent of the U.S. dollar and euro. Meanwhile, the American and European economies are suffering from chronic debt deflation and depression that will reduce their ability to serve as markets – for their own producers as well as for China.


Today’s debt-wracked economies throw into question just what kind of crisis the capitalist countries are experiencing. Marx’s analysis provides the tools to analyze its financial, banking and rent-extraction problems. However, most Marxists still view the 2008 financial and junk mortgage crash as resulting ultimately from industrial employers squeezing wage labor. Finance capital is viewed as a derivative of this exploitation, not as the autonomous dynamic Marx described.

The costs of carrying the rising debt burden (interest, amortization and penalties) deflate the market for commodities by absorbing a growing wedge of disposable business and personal income. This leaves less to be spent on goods and services, causing gluts that lead to crises in which businesses scramble for money. Banks fail as bankruptcy spreads. By depleting markets, finance capital is antithetical to the expansion of profits and tangible physical capital investment.

Despite this sterility, finance capital has achieved dominance over industrial capital. Transfers of property from debtors to creditors – even privatizations of public assets and enterprises – are inevitable as the growth of financial claims surpasses the ability of productive power and earnings to keep pace. Foreclosures follow in the wake of crashes, enabling finance to take over industrial companies and even governments.

China has largely solved the “Volume I” problem – that of expanding its internal market for labor, investing the economic surplus in capital formation and rising living standards. It is confronted by Western economies that have failed to solve this problem, and also have failed to solve the “Volumes II and III” problem: finance and land rent. Yet few Western Marxists have applied his theories to the present downturn and its rentier problem. Following Marx, they view the task of solving this problem to be solved by industrial capitalism, starting with the bourgeois revolutions of 1848.

Already in 1847, Marx’s Poverty of Philosophy described the hatred that capitalists felt for landlords, whose hereditary rents siphoned off income to an idle class. Upon being sent copies of Henry George’s Progress and Poverty a generation later, in 1881, he wrote to John Swinton that taxing land rent was “a last attempt to save the capitalist regime.” He dismissed the book as falling under his 1847 critique of Proudhon: “We understand such economists as Mill, Cherbuliez, Hilditch and others demanding that rent should be handed over to the state to serve in place of taxes. That is a frank expression of the hatred the industrial capitalist bears towards the landed proprietor, who seems to him a useless thing, an excrescence upon the general body of bourgeois production.”[2]Karl Marx, The Poverty of Philosophy [1847] (Moscow, Progress Publishers, n.d.): 155.

As the program of industrial capital, the land tax movement stopped short of advocating labor’s rights and living standards. Marx criticized Proudhon and other critics of landlords by saying that once you get rid of rent (and usurious interest by banks), you will still have the problem of industrialists exploiting wage labor and trying to minimize their wages, drying up the market for the goods they produce. This is to be the “final” economic problem to be solved – presumably long after industrial capitalism has solved the rent and interest problems.

Industrial capitalism has failed to free economies from rentier interest and rent extraction

In retrospect, Marx was too optimistic about the future of industrial capitalism. As noted above, he viewed its historical mission as being to free society from rent and usurious interest. Today’s financial system has generated an overgrowth of credit, while high rents are pricing American labor out of world markets. Wages are stagnating, while the One Percent have monopolized the growth in wealth and income since 1980 – and are not investing in new means of production. So we still have the Volume II and III problems, not just a Volume I problem.

We are dealing with multiple organ failure.

Instead of funding new industrial capital formation, the stock and bond markets to transfer ownership of companies, real estate and infrastructure already in place. About 80 percent of bank credit is lent to buyers of real estate, inflating a mortgage bubble. Instead of taxing away the land’s rising rental and site value that John Stuart Mill described as what landlords make “in their sleep,” today’s economies leave rental income “free” to be pledged to banks. The result is that banks now play the role that landlords did in Marx’s day: obtaining for themselves the land’s rising rental value. This reverses the central thrust of classical political economy by keeping such rent away from government, along with natural resource and monopoly rents.

Industrial economies are being stifled by financial and other rentier dynamics. Rising mortgage debt, student loans, credit card debt, automobile debt and payday loans have made workers afraid to go on strike or even to protest working conditions. To the extent that wages do rise, they must be paid increasingly to creditors (and now to privatized health insurance and drug monopolies), not to buy the consumer goods they produce. Labor’s debt dependency thus aggravates the “Volume I” problem of labor’s inability to purchase the products it produces. To top matters, when workers seek to join the middle class “homeowner society” by purchasing their homes on mortgage instead of paying rent, the price entails locking themselves into debt serfdom.

Industrial companies profit from labor not only by employing it, but by lending to customers. General Motors made most of its profits for many years by its credit arm, GMAC (General Motors Acceptance Corp.), as did General Electric through its financial arm. Profits made by Macy’s and other retailers on their credit card lending sometimes accounted for their entire earnings.


This privatization of rents and their transformation into a flow of interest payments (shifting the tax burden onto wage income and corporate profits) represents a failure of industrial capitalism to free society from the legacies of feudalism. Marx expected industrial capitalism to act in its own self-interest by industrializing banking, as Germany was doing along the lines that the French reformer Saint-Simon had urged. However, industrial capitalism has failed to break free of pre-industrial usurious banking practice. And in the sphere of tax policy, it has not shifted taxes away from land and natural resource rent. It has inverted the classical reformers’ idea of “free markets” as being free from economic rent and predatory moneylending. The slogan now means economies free for the rentier class to extract interest and rent.

Mode of production or mode of parasitism?

Instead of serving industrial capitalism, today’s financial sector is bleeding it to death. Instead of seeking profits by employing labor to produce goods at a markup, it doesn’t even want to hire labor or engage in the process of production and develop new markets. The epitome of this postindustrial economics is Enron: its’ managers wanted no capital at all – no employment, only traders at a desk (and crooked accountants).

Today’s characteristic mode of accumulating wealth is more by financial than industrial means: riding the wave of debt-financed asset-price inflation to reap “capital” gains. This seemed unlikely in Marx’s era of the gold standard. Yet today, most academic Marxists still concentrate on his “Volume I” crisis, neglecting finance capitalism’s failure to free economies from the rentier dynamics surviving from European feudalism and the colonial lands conquered by Europe.

Marxists who went into Wall Street have learned their lessons from Volumes II and III. But academic Marxism has not focused on the FIRE sector – Finance, Insurance and Real Estate. It is as if interest and rent extraction are secondary problems to the dynamics of wage labor.

The great question today is whether post-feudal rentier capitalism will stifle industrial capitalism instead of serving it. The aim of finance is not merely to exploit labor, but to conquer and appropriate industry, real estate and government. The result is a financial oligarchy, neither industrial capitalism nor a tendency to evolve into socialism.

Marx’s optimism that industrial capital would subordinate finance to serve its own needs

Having provided a compendium of historical citations describing how parasitic “usury capital” multiplied at compound interest, Marx announced in an optimistic Darwinian tone that the destiny of industrial capitalism was to mobilize finance capital to fund its economic expansion, rendering usury an obsolete vestige of the “ancient” mode of production. It is as if “in the course of its evolution, industrial capital must therefore subjugate these forms and transform them into derived or special functions of itself.” Finance capital would be subordinated to the dynamics of industrial capital rather than growing to dominate it. “Where capitalist production has developed all its manifold forms and has become the dominant mode of production,” Marx concluded his draft notes for Theories of Surplus Value, “interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process.”[3]Karl Marx, Theories of Surplus Value III: 468

Marx expected economies to act in their long-term interest to increase the means of production and avoid unproductive rentier income, underconsumption and debt deflation. Believing that every mode of production was shaped by the technological, political and social needs of economies to advance, he expected banking and finance to become subordinate to these dynamics. “There is no doubt,” he wrote, “that the credit system will serve as a powerful lever during the transition from the capitalist mode of production to the production by means of associated labor; but only as one element in connection with other great organic revolutions of the mode of production itself.”[4]Capital III (Chicago, 1905), p. 713.

The financial problem would take care of itself as industrial capitalism mobilized savings productively, subordinating finance capital to serve its needs. This already was happening in Germany and France.

It seemed that the banking system’s role as allocator of credit would pave the way for a socialist organization of economies. Marx endorsed free trade on the ground that industrial capitalism would transform and modernize the world’s backward countries. Instead, it has brought Western rentier finance and privatization of the land and natural resources, and even brought the right to use these country’s currencies and financial systems as casinos. And in the advanced creditor nations, failure of the U.S. and European economies to recover from their 2008 financial crisis stems from leaving in place the reckless “junk mortgage” debts, whose carrying charges are absorbing income. Banks were saved instead of industrial economies, whose debts were left in place.

Irving Fisher coined the term debt deflation in 1933. He described it as occurring when debt service (interest and amortization) to pay banks and bondholders diverts income from being spent on consumer goods and new business investment.[5]See Irving Fisher, “The Debt-Deflation Theory of the Great Depression,” Econometrica (1933), p. 342. Online at He used the term to refer to bankruptcies wiped out bank credit and spending power, and hence the ability of economies to invest and hire new workers. I provide a technical discussion in Killing the Host (ISLET 2015), chapter 11, and “Saving, Asset-Price Inflation and Debt Deflation,” in The Bubble and Beyond, ch. 11 (ISLET 2012), pp. 297-319. Governments use their tax revenues to pay bondholders, cutting back public spending and infrastructure investment, education, health and other social welfare.

No observer of Marx’s epoch was so pessimistic as to expect finance capital to overpower industrial capitalism, engulfing economies as the world is seeing today. Discussing the 1857 financial crisis, Marx showed how unthinkable anything like the 2008-09 Bush-Obama bailout of financial speculators seemed to be in his day. “The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values.”[6]Capital III (Moscow: Foreign Languages Publishing House, 1958), p. 479.

Marx wrote this reductio ad absurdum not dreaming that it would become the Federal Reserve’s policy in autumn 2008. The U.S. Treasury paid off all of A.I.G.’s gambles and other counterparty “casino capitalist” losses at taxpayer expense, followed by the Federal Reserve buying junk mortgage packages at par.

Socialist policy regarding financial and tax reform


Marx described the historical destiny of industrial capitalism as being to free economies from unproductive and predatory finance – from speculation, fraud and a diversion of income to pay interest without funding new means of production. On this logic, it should be the destiny of socialist economies to treat bank credit creation as a public function, to be used for public purposes – to increase prosperity and the means of production to give populations a better life. Socialist nations have freed their economies from the internal contradictions of industrial capitalism that stifle wage labor.

China has solved the “Volume I” problem. But it still must deal with the West’s unsolved “Volume II and III” problem of privatized finance, land rent and natural resource rent. Western economies seek to extend these neoliberal practices to use finance as a lever to pry away the economic surplus, to finance the transfer of property at interest, and to turn profits, rent, wages and other income into interest.

The failure to socialize banking (or even to complete its industrialization) has become the most glaring economic tragedy of Western industrial capitalism. It became the tragedy of post-Soviet Russia after 1991, letting its natural resources and industrial economy be financialized while failing to tax land and natural resource rent. The commanding heights were sold to domestic oligarchs and Western investors buying on credit with their own banks or in association with Western banks. This bank credit was simply created on computer keyboards. Such credit creation should be a public utility, but it has broken free from public regulation in the West. That credit is now reaching out to China and the post-Soviet economies as a means of appropriating their resources.

The eurozone seems incapable of saving itself from debt deflation, and the United States and Britain likewise are limping along as they de-industrialize. That is what leads them to hope that perhaps socialist China can save them – as long as it remains free of the financial disease. asset stripping and debt deflation. Western neoliberal economists claim that this financialization of erstwhile industrial capitalism is “progress,” and even the end of history. Yet having watched China grow while their economies have remained stagnant since 2008 (except for the One Percent), their hope is that socialist China’s market can save their financialized economies driven too deeply into debt to recover on their own.

Note: Marx described productive capital investment by the formula M–C–M´, signifying money (M) invested to produce commodities (C) that sell for yet more money (M´). But the growth of “usury capital” – government bond financing for war deficits, and consumer lending (mortgages, personal loans and credit card debt) – consist of the disembodied M–M´, making money simply from money in a sterile operation.


[1] In Volume III of Capital (ch. xxx; Chicago 1909: p. 461) and Volume III of Theories of Surplus Value.

[2] Karl Marx, The Poverty of Philosophy [1847] (Moscow, Progress Publishers, n.d.): 155.

[3] Karl Marx, Theories of Surplus Value III: 468

[4] Capital III (Chicago, 1905), p. 713.

[5] See Irving Fisher, “The Debt-Deflation Theory of the Great Depression,” Econometrica (1933), p. 342. Online at He used the term to refer to bankruptcies wiped out bank credit and spending power, and hence the ability of economies to invest and hire new workers. I provide a technical discussion in Killing the Host (ISLET 2015), chapter 11, and “Saving, Asset-Price Inflation and Debt Deflation,” in The Bubble and Beyond, ch. 11 (ISLET 2012), pp. 297-319.

[6] Capital III (Moscow: Foreign Languages Publishing House, 1958), p. 479.

(Republished from by permission of author or representative)
• Category: Economics • Tags: Banks, Marx, Unemployment, Wall Street 
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  1. Why no reference to Lenin’s theory of imperialism, which he diagnosed as the last stage of capitalism and involving the domination of industrial capital by finance capital?

  2. What’s amazing is that in this day and age Marxists believe far more in capitalism than the so called “capitalists” of today. The “capitalists” of today are merely corporatists that use their special relationships with the government and with other corporations to create an economy wide monopoly that supports an entire network of oligarchic billionaires that rule from above while the middle and lower classes are taxed and regulated into nothingness.

    There should be more regulation on the top and less on the bottom, but instead it’s the other way around. There’s almost no regulation for the billionaires, but there’s tons of regulation and taxation for the average person on the street.

    • Replies: @Anonymous
  3. Sean says:

    Western neoliberal economists claim that this financialization of erstwhile industrial capitalism is “progress,” and even the end of history. Yet having watched China grow while their economies have remained stagnant since 2008 (except for the One Percent), their hope is that socialist China’s market can save their financialized economies driven too deeply into debt to recover on their own.

    It sounds like Western neoliberal economists have the least accurate idea of what is gong on. Bankers currently have interest rates ideal for leveraging and that probably is why they are being kept at the present level. With that much money behind a point of view within the US, economists will be found to serve it. China’s economy growing is a recipe for the Chinese asserting themselves against the US in due course. Financialized interests are paramount at present, but China can’t be compared to Russia (which is asserted itself internationally against its own financialized interests). The US is fated to clash with China, but it might too powerful by the time of the confrontation.

  4. unit472 says:

    We might all agree than ‘financialization’ of an economy hollows it out and shifts income away from wages to those who control credit. The issue today is that credit creation has been nationalized through Central Banking and , while financial profits are still private, the risks and losses tend to end up on the public balance sheet.

    Banks today do not need deposits to make loans. In fact, the modern bank is increasingly nothing more than a data processing system whereby government extends Central Bank credit to consumers with the bank merely managing the loan. Mortgages and student loans are between the borrower and government agencies with the risk of default being born by government agencies not the bank. Government even sets the interest rates banks will charge and, because government itself is the largest debtor of all, it sets them as low as possible. The distortions this arrangement creates is the problem. NINJA loans today are better known as ‘student loans’ and low interest rates have created incentives for leverage that would not otherwise exist.

    • Replies: @Sean
  5. Sean says:

    Government even sets the interest rates banks will charge and, because government itself is the largest debtor of all, it sets them as low as possible

    Or the bankers are able to successfully exert influence for the lowest possible rates, because they want to continue making massive profits by leveraging. It matters which country stands behind a bank.

  6. My goodness! When one reads of all these problems one might almost think there are limits to growth.


  7. War for Blair Mountain [AKA "Great Battle for Blair Moutain"] says:

    And in the meantime, Michael Hudson and Noam Chomsky are cheerleaders for importing an unbounded amount of nonwhite legal immigrant scab labor to the Greedy Cheating Mega-CEO Class.

    Michael Hudson and Noam Chomsky…two frauds….friends of the Greedy Cheating Mega-CEO Class.

    • Agree: Alfa158
  8. I’m not absolutely sure about the genes but I look forward to 40 years or so as a comfortably retired rentier if that’s what makes receipt of the fruits of diversified investments makes me. How would Marx want a Hudson led government to treat me?

    And what would Marx say about all those couples with 1.3 children and how those children can be expected to support their increasingly longlived and already aged rentier parents? Did Marx ever give his opinion on the future importance of those birthrates that gave us not only an industrial revolution which Europeans spread around the world but WW1 and Germany still needing Lebensraum in the 1930s?

  9. Anonymous • Disclaimer says: • Website
    @johnny memeonic

    Excellent comment!
    And the only way to accomplish that is transparency and accountability as a precondition of political or financial power. I am a mere Industrial mechanic, and I have surveillance, drug testing, and sometimes sting operations done to test my honesty. Yet someone can be a governor, head of the fed, or a judge, and never be scrutinized in any way. We have the means to make power accountable by using political and surveillance technology on those who are allowed to have financial or political power. Where is the movement demanding this?

  10. joe webb says:

    more communist bum magicians auguring the entrails of Das Kapital.

    Instead of this ju-ju magical thinking, try this:

    Continuing the headline….”…stagnation, and…” immiseration of white working people who lack the money to stimulate Consumer Demand by spending lots of same. The economy has been going down hill for several years now in growth terms, per the WSJ.

    Apparently the establishment economists fail to see what is so simple that any child could see it if left unmolested by internationalist economics propaganda: Globalism is Good For You.

    For the last couple of years I have been commenting on this factor. No money in workers’ hands equals no growth, only stagnation. As far as the Mexers are concerned all 50 million of them squatting in the US, as one of them said recently, the worst day in the US is better than the best day in Mexico. Think Europe in this regard with the muzzle squatters.

    Most folks think that the low interest-rate environment is a function of Fed actions. Not true. The low interest rates are due to Surplus Capital which cannot find anything worthwhile in which to invest, again, due ultimately to lack of consumer spending. No consumer spending, nothing in which to invest. A perfect storm as the cliche goes.

    Low interest rates are due to the old supply and demand equation. Weak demand for capital cheapens its price. Econ 101 in this regard.

    No way will Demand go up for Capital. Thus, there will be no increase in interest rates. More and more stagnation will finally drive down stock prices as well. Likewise, bond prices are similarly effected.

    If you are yawning now, you are making a mistake, an intellectual mistake of the first order.

    Joe Webb

    today in WSJ. I cannot get the url to show up here.


    Big Banks to America’s Firms: We Don’t Want Your Cash
    Profit-crunching low interest rates have banks judging cash too costly to keep
    Oct. 18, 2015 5:38 a.m. ET69 COMMENTS
    U.S. banks are going to new lengths to ward off a surprising threat to their financial health: big cash deposits.
    State Street Corp., the Boston bank that manages assets for institutional investors, for the first time has begun charging some customers for large dollar deposits, people familiar with the matter said. J.P. Morgan Chase & Co., the nation’s largest bank by assets, has cut unwanted deposits by more than $150 billion this year, in part by charging fees.
    The developments underscore a deepening conflict over cash. Many businesses have large sums on hand and opportunities to profitably invest it appear scarce. But banks don’t want certain kinds of cash either, judging it costly to keep, and some are imposing fees after jawboning customers to move it.
    The banks’ actions are driven by profit-crunching low interest rates and regulations adopted since the financial crisis to gird banks against funding disruptions.
    The latest fees center on large sums deemed risky by regulators, sometimes dubbed hot-money deposits thought likely to flee during times of crises. Finalized last September and overseen by the Federal Reserve and other regulators, the rule involving the liquidity coverage ratio forces banks to hold high-quality liquid assets, such as central bank reserves and government debt, to cover projected deposit losses over 30 days. Banks must hold reserves of as much as 40% against certain corporate deposits and as much as 100% against some deposits from hedge funds.
    “At some point you wonder whether there will be a shortage of financial institutions willing to take on these balances,” said Kelli Moll, head of Akin Gump Strauss Hauer & Feld LLP’s hedge-fund practice in New York, saying that where to hold cash has become an increasing topic of conversation as hedge funds are shown the door by long-time banking counterparties.
    The push comes as the globe is awash in cash, reflecting soft economic growth and low interest rates that limit investment. Some asset managers have been increasing the amount of cash they are holding in their portfolios, in part because of an increased focus by the Securities and Exchange Commission on liquidity management in mutual funds.
    Domestic deposits at U.S. banks in the second quarter hit $10.59 trillion, up 38% from five years earlier, Federal Deposit Insurance Corp. data show. Loans outstanding at U.S. banks as a share of total deposits tumbled to 71% from 78% in 2010 and 92% in mid-2007, before the financial crisis, the data show.
    Jerome Schneider, head of Pacific Investment Management Co.’s short-term and funding desk, which advises corporate and institutional clients, said that as a result of the bank actions, he and his customers have discussed as cash alternatives boosting investments in U.S. Treasury bonds, ultrashort-duration bond funds and money-market funds.
    When it comes to cash, Mr. Schneider said, “Clients have been put on warning.”
    Auctions for one- and three-month Treasury bills this week sold bills at zero yields, reflecting outsize demand for the securities.
    Few banks disclose how much in “nonoperating” deposits they hold. Credit Suisse GroupAG analysts estimated in August that the top four U.S. banks by assets hold roughly $650 billion in those deposits that require the highest levels of reserves.

    • Replies: @Wizard of Oz
  11. Mike1 says:

    The idea that China is not a financialized economy is bizarre.

    The author also seems confused by credit creation – veering between banks lending savings and banks creating money on a keyboard. The distinction between the two is everything.

  12. @joe webb

    Help my clear thinking…

    Isn’t all money credit apart from currency made of something of intrinsic value?

    That being so how does one make the crucial distinctions all the way along the spectrum from the IOU which I accept from you because I trust you and someone accepts from me, even if I haven’t added my signature because everyone trusts you, to a bank cheque to a deposit acknowledged in a bank statement and the various manoeuvres central banks and Treasuries undertake to make lots of money available at low interest rates?

    Other questions. How can all the fulminating against “fiat money” stand up against the reality of what I have called a spectrum above? Why isn’t the $US as good as gold as long as people accept it – as they do at all levels – and inflation doesn’t take off? Why isn’t it actually better than gold which fluctuates greatly in exchange value and costs money to keep (which is usually not true of money at the bank)?

    If, as I think, the US has a problem of decaying infrastructure, isn’t that evidence that all the primitive “Austrian” politicians in DC should have had shovel ready projects that could have got under way in 2008 instead of leaving stimulus to the Fed which can only print money and hope it’s going into the hands of those who will invest it to productive effect. Superficially the labor market has recovered so that fiscal (and/or monetary) stimulus is no longer needed but that ignores the gross underemployment. Low wages are mostly the consequence of immigration and globalisation in a world where half of the American population at least has nothing in the way of talent or education to make it worth paying them a lot more than Chinese or Mexicans.

    I’m not sure how Mr Hudson’s explanations wrap all that up and blame the banks for current discontents.

    • Replies: @joe webb
  13. Perfect analysis.

    And why the destruction of the nation-state is so dear to the hearts – such as they are – of the global financed system.

    Can’t have the peasantry owning their own resources can they?

  14. joe webb says:
    @Wizard of Oz

    “Isn’t all money credit apart from currency made of something of intrinsic value?”

    Credit is the driver of economic expansion, along with in-hand capital. Credit increases the money supply. The ‘intrinsic value’ is there of course and you are correct. This is the capitalist virtuous circle of growth.

    Otoh, credit is extended on the basis of sound investing, whether in your house mortgage, or among firms. It gets tricky when the investment based on credit is not sound.

    Your remark about gov’t (Fed and Treasury) using Keynesian stimulus in the money supply is again a bit tricky. I am a Keynesian, but the other side of the coin of Keynesian stimulation during a slowdown, is that it assumes a return to good economic times and hence a withdrawal of all that stimulus money. Loans in effect are called back and excess green backs are literally burned.

    So far, there appears to be no end insight of present stagnation, and the Fed as well as gov’t spending (fiscal policy ) is about run out of gas. You cannot get past zero interest rates as well as too much taxation that presumably slows investment and savings. All of this appears to be the beginning of the end of the Keynesian policies. The Fed does not have any more ammunition, ditto the gov’t.

    Fiat money is just fine as long as the economy chugs along. A US dollar buys lots of nice things. A Cuban fiat peso buys less than zero. Reality . Gold is atavistic.

    Your last paragraph is correct, thank you.

    I confess that I was once a student of marxist economics. There is something to it of course, but Hudson’s obsession with Debt is single-factor analysis.

    Debt is fine as long as it leads to production and services, like a municipal bond for a sewer system that will be paid off in 10 years, and will continue to service sewage for much longer.

    You see too the importance of Consumer Demand and its sickness right now with the consequence that the economy continues to decline thru lack of consumer spending. A corollary here is that financial capital as well as American firms don’t give a damn about Americans. They will sell internationally and to hell with Americans.

    We need a nationalist economics, one partnered with White Europe to some large degree, but your country is first in practical terms, even if your race is first in theory at least.
    Both-And. thanks, Joe Webb

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