Friday, February 17, 2017

Bad Lenders Make Bad Loans — Sharmini Peries interviews Michael Hudson

There is no way in which the lenders did expect Greece to grow. In fact, the IMF was the main lender. It said that Greece cannot grow, under the circumstances that it has now.
What do you do in a case where you make a loan to a country, and the entire staff says that there is no way this country can repay the loan? That is what the IMF staff said in 2015. It made the loan anyway – not to Greece, but to pay French banks, German banks and a few other bondholders – not a penny actually went to Greece. The junk economics they used claimed to have a program to make sure the IMF would help manage the Greek economy to enable it to repay. Unfortunately, their secret ingredient was austerity....
So, the question is, why does this junk economics continue, decade after decade? The reason is that the loans are made to Greece precisely because Greece couldn’t pay. When a country can’t pay, the rules at the IMF and EU and the German bankers behind it say, don’t worry, we will simply insist that you sell off your public domain. Sell off your land, your transportation, your ports, your electric utilities. This is by now a program that has gone on and on, decade after decade....
So they’re making an example of Greece. They’re going to show that finance rules, and in fact that is why both Trump and Ted Malloch have come up in support of the separatist movement in France. They’re supporting Marine Le Pen, just as Putin is supporting Marine Le Pen. There’s a perception throughout the world that finance really is a mode of warfare.
If they can convince countries somehow to adopt junk economics and pursue policies that will destroy themselves, then they’ll be easy pickings for foreign investors, and for the globalists to take over other economies. So, it’s a form of war....
One of Michael Hudson's better ones.

Michael Hudson
Bad Lenders Make Bad Loans
Sharmini Peries interviews Michael Hudson, President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

32 comments:

Dan Lynch said...

Great article, thanks for posting. Hudson makes a good point about the need to forgive bad debts. Mosler might disagree (he being a bond trader might have something to do with it). A floating fiat currency might allow Greece to refinance its debt in its own currency, but its exchange rate would take a hit, and essentially be a tax on the Greek people. Bond holders might not agree to be paid in drachmas, anyway.

GLH said...

Financiers are asset stripping Greece. They know what they are doing. They outright stole thirteen trillion form the US in 08. They control Washington and the deep state. Until they are stopped the world will suffer. The EU, the IMF, the World Bank, those people understand MMT as well as the people on Wall Street. They have their politicians use it when it benefits them, not us.

John said...

"A floating fiat currency might allow Greece to refinance its debt in its own currency..."

What's to stop a brief - nanosecond, say - fraudulent exchange rate of $500 billion to 1 drachma? The Greeks can give their "creditors" the 1 drachma they owe. After that nanosecond has elapsed, the drachma has found its true exchange rate of, say, $10 to 1 drachma. Ok, no international investor will every buy a Greek bond, but so what? The creditors will then have enough money to buy and share a shot of ouzo and drink away the pain.

Although I'd far prefer the Greeks telling their creditors that they don't plan to repay a single penny, for the good reason that they've already paid, there must be any number of frauds that the Greeks can come up with to legally pay back their creditors without in fact paying them.

Matt Franko said...

"the drachma has found its true exchange rate "

Channeling your inner Darwin again?????

Matt Franko said...

Notice how Hudson never uses NIA/SFC framework to explain his assertions?

He says "Greece cannot repay" but never explains why he thinks this... other than some obscure reference to 'austerity' ...

"Sell off your land, your transportation, your ports, your electric utilities. "

If there are people getting paid by those public institutions for not doing anything (cronyism, nepotism, etc..) then that is the same thing as any "austerity!" to the people who dont work there...

So if they were to convert it over to a PPP and it was then run with typical world class efficiency then that would leave more income in the economy for the current unemployed which would reduce unemployment for the same rate of leading govt spending...

they could well run a very high output economy and still maintain a 3% deficit target both are flows... the issue there has to be again the external sector savings similar to the current US situation... its not evident that Hudson understands any of this... he just wants to do debt 'foregiveness' and sweep it under the rug till the next crisis and not learn anything...

Dan Lynch said...

@Matt, I don't understand your point, please explain further? How do you propose that Greece pay its euro debts?

Do you disagree with Hudson that Greece cannot pay in euros? Perhaps they could pay in drachmas but that is a type of default and the bond holders could sue, as happened to Argentina. In any event printing drachmas to buy Euros would depreciate the drachma as happened to Germany post WWI and has happened to several Latin American states.

PPP's are run with world class efficiency? Surely you are joking?

High output of what? How can Greek businesses compete with foreign imports? Without protective tariffs the only Greek businesses that can survive are things that have "comparative advantage" like olives and tourism, or local monopolies like utilities.



Matt Franko said...

Dan yes they cannot pay their external debts but why?

Hudson never explains it, YV never explained it... none of these people can explain it... so they resort to fantasies about "neo-liberals!" etc.. they're not qualified people to be working in this area and are loose cannons not helping... just fomenting more continued ignorance and stupidity....

PPPs are run with an expected return to the PP investors, so this is incentive for most efficient operation of the infrastructure which is missing in a pure public owned model... so you get the cronyism/nepotism/Title7/Title9 coming in and the whole thing is soon shit...

Here locally the Port of Baltimore is a PPP and they win awards for efficiency:

http://www.baltimoresun.com/business/bs-bz-port-efficiency-award-20161213-story.html

"Baltimore's port was the most productive port in the nation for the third straight time in 2015, according to an independent analysis by the Journal of Commerce.

The port averaged 71 container moves per hour per berth, unloading and loading giant container ships by crane faster than any other port in the country.

The 11 cranes at the Seagirt Marine Terminal, the port's primary container facility, are operated by Ports America Chesapeake under a $1.3 billion public-private partnership deal."

PPP: "most productive"... so no joking...

All of the PPP roadways in my area are the most impeccably maintained...

Bill often uses a strawman for roadway PPPs where you have to "negotiate with the road owners... " here in Maryland anyway this thing you put in your car called EasyPass which debits an account for a buck or two when you use the infrastructure... so there is no negotiation involved, its regulated rates for the use...

It works well... increases efficiency so more income from leading govt USD flow is left over for other areas of the economy besides infrastructure...



Dan Lynch said...

@Matt I do not live in Maryland so cannot say anything about PPP's there. But last I heard, Maryland has a high cost of living? How is a high cost of living more efficient?

Running a monopoly for maximum return to investors does not guarantee efficiency, since a monopolist can pass on its costs to consumers. None of the private businesses that I have worked for were efficient. Cronyism & nepotism were rampant, and management was bloated.

Rural roads, rural mail, and rural utilities are not "profitable" and would not exist without government support. I'm grateful for my socialized infrastructure. The jobs it creates are stable living wage jobs.

There are many examples of public operations that are more "efficient" than for-profits. Health care is a good example. Countries with public health care like Cuba and Finland have lower costs than countries with for-profit health care. The VA costs less and provides better service than private health care in the U.S..

Perhaps the port business is simple enough that the private sector can handle it -- if all they are doing is loading & unloading containers. That's a lot different than healing a sick person or educating a child, where the value is not easily measured.

Matt Franko said...

Here Dan this is NOT a bad thing: "The port averaged 71 container moves per hour per berth, unloading and loading giant container ships by crane faster than any other port in the country."

According to Hudson, this is a bad thing... its NOT a bad thing...

Other people who study STEM fields spend a lot of time and effort training to then go make this type of thing happen... ie increase efficiency... its a general goal of many technical disciplines...

Hudson has NO apparent respect or awareness for any of this... ie he is NOT qualified to be working and/or commenting on any sort of material systems issues...

Matt Franko said...

Dan,

Health care in the US is run by NON profits... in my State, the big two are Johns Hopkins and University of Maryland (both in the academe) and then there is MedStar Health which is a NON profit (non academe).... that is about it...

So yes the costs are high here (for the people who pay...) the non-profit model leads to more inefficiencies so the prices keep going up...

Education is non-profit... so you see the high prices for University training...

the left doesnt look at the efficiency they look at idk how people are treated or something as being paramount... not the numbers... qualified people look at the numbers... left is not qualified for positions of material rule/administration...

rule of the left turns all the material systems into shit eventually....

Tom Hickey said...

That's way the red states are doing so much better socially and economically than the blue states. (snark)

Matt Franko said...

Tom:

https://www.youtube.com/watch?v=iJfFJdzSM08


Looking more and more like Venezuela out there all the time...

btw dog that didnt bark: Trump no comment at all on the Oroville Dam...

Dan Lynch said...

@Matt, a "non-profit" is still private, and in practice the only difference between a for-profit and a non-profit is that the non-profit does not have to pay taxes. A non-profit is not the same as public operations. CEO's of non-profits are often paid just as much as their for-profit counterparts. If it were up to me I would eliminate the non-profit tax exemption, because I think it is a scam.

Who sets the price for medical care in the U.S.? The government is the price setter. If Medicare pays "$X" for a service, why would any doctor or hospital be willing to perform that service for less than $X ? Why does government set high prices? Because for-profit providers have an incentive to maximize returns by bribing politicians.

Someone needs to tell Finland that their leftist material systems are shit. Someone needs to tell Russia's state-owned defense industry that their planes and missiles are shit, but America's for-profit F-35 boondoggles are not shit.

I am agnostic on the capitalism vs. socialism issue, but will say that capitalism doesn't seem suited for every type of activity. Making widgets, yes, but doing things for the public good, maybe not.

Dan Lynch said...

@Tom, blue states are where finance, monopolistic tech, and defense industries are located. So yes they are doing better economically -- because they are parasites.

Socially the Western and mid-Western red states are superior to the blue states. It's the former slave states that have social problems. The social problems correlate to inequality.

Matt Franko said...

Dan here:

"Finland: The sick man of Europe?"


http://www.bbc.com/news/business-35656150


Same thing as Greece...

Hudson not helping at all....

Matt Franko said...

"Who sets the price for medical care in the U.S.? The government is the price setter."

Under numismatic systems, govt is price setter for everything....

Warren via rote: "all prices are necessarily a function of what govt pays for things and what they lend against things..."

govt pays for healthcare and lends against education... both going up up up as the academics in positions of rule continued to direct increased flows of USD balances into those two areas of the academe....

We've had 8 years of rule by the academe and they of course are going to get USDs to the academe... so you have rising healthcare and university prices... rinse and repeat...

now the academics have been tossed out and acquisitor people are coming in and they have a different approach that will be, I guaranty you, more efficient if they get their policies implemented... probably even more well distributed and egalitarian results ....

Ryan Harris said...

I think there needs to be a shift in thinking about finance.

The creditworthiness of the borrower is usually more impacted by the rules of the system than any thing else.

The US pursued idiotic trade policy, suppressed incomes, used low rates/ mon pol to induce people into real estate loans when creating a deflationary spiral then prosecuted the lenders for not knowing their loans would suffer under US economic policy and lambasted the real estate industry with all sorts of law suits and fines.

This is the level of thinking in the west. Gotcha regulation and protection rackets.

No one thinks about how the systems of governance, finance, environment, business -- all policy generally work together. Flaw or feature of compromise and democracy, perhaps.

Tom Hickey said...

Public GoodsPublic Goods

There are several ways that public goods can be provided by government. The first is government both pays and administers as is the case with the military, courts, law enforcement, etc.

Another way is that government funds the operation but hires contractors to administer it.

There can be various combinations of these ways.

Another is that government privatizes provision of the good entirely.

Public goods that are privatized can be run as private concerns subject to market vagaries, or subsidized.

Lot of options.

Suit the tool to the job.

Tom Hickey said...

So yes they are doing better economically -- because they are parasites.

Historically the blue states are surplus-generating states and the red states are deficit-dependent states in real terms of trade and employment, as well as recipients of per capital federal subsideies. Who exactly are the parasites?

Tom Hickey said...

Michale Hudson has identified the mechanism but his solution and others proposed, including the MMT solution, are simplistic since they are economic solutions rather than holistic ones when the problem is not only economic but also social and political.

Greeces problems are not foundationally economic. They are social and political historically. The require social and political solutions before progress can be made in addressing the economic issues. Otherwise it will just be exchanging one set of parasites for another.

There's an old Vietnamese proverb, "Dung heap remains the same, only the flies change."

Tom Hickey said...

Who sets the price for medical care in the U.S.? The government is the price setter."

Under numismatic systems, govt is price setter for everything....


Explain to me how that works.

As far as I can see based on personal experience and reports of people I know who are familiar with the process, the government pays about 25% of what an uninsured person will be billed, and insurance companies pay about 60 to 70% of that.

Dan Lynch said...

@Tom the parasites are those who don't produce anything of real value. Subtract FIRE, monopolistic profits, and the military from GDP, and the blue states don't have much left.

What do I consume that is produced in Maryland? New York City? San Francisco?

Matt Franko said...

Ask your fellow academics who are running that moron-fest not me....

Matt Franko said...

Maybe there is some sort of advantage to doing that in Accrual Accounting for non-profits...

iow they can take a non-cash expense for the amount of non-payment of the full invoice price...

Or they are selling the A/R to a collections firm at the full invoice and accept the usual 25% from the leg-breakers as paid and move on...

Who knows you have to get qualified people in accounting/finance to look into it... ie not Professor Jonathan Gruber...

Dan Lynch said...

Medicare and Medicaid create a defacto minimum price for medical services. Some providers may charge more than the Medicare/Medicaid rate, but there is little incentive to charge less.

Ditto the price of medicine. If Medicare is willing to pay $X per pill, why would a pharma company sell it for less in the U.S.?

100 years ago, doctors did not make much money, sometimes getting paid in chickens if they even collected anything at all.

How Medicare Payments Are Set

There has been some movement toward paying for outcomes rather than for services, but that is easier said than done since the quality of care is not easily measured. On the other hand, the problem with paying per procedure is that providers have an incentive to maximize the number of procedures performed.

On the supply side, the government has great influence on the quantity of doctors and nurses.


Tom Hickey said...

http://politicsthatwork.com/graphs/size-red-blue-economy

Tom Hickey said...

Ask your fellow academics who are running that moron-fest not me....

You are making that claim, not me. I genuinely don't understand it. Looks like "rote" to me.

Tom Hickey said...

Maybe there is some sort of advantage to doing that in Accrual Accounting for non-profits...

iow they can take a non-cash expense for the amount of non-payment of the full invoice price...


No, it's called negotiating power aka leverage. Government has the largest pool so it pays the lowest rates. Self-insured pay the highest rates. Insurance companies in between and they distribute over internal pools.

Ryan Harris said...

In response to increased Obamacare patient loads, my doctor converted to a concierge model in December. That means to get an appointment AT ALL you have to pay him $385/mo. Mind you, that is pure rent. It doesn't pay for the appointment or service, that is just for the privilege of being able to see him. He still charges the same fees for services that he always has.

Without realizing the economic irony, he said he was furious at his landlord for doubling his rent in January, so at the last minute in December before his lease was up he packed up and moved to a new office building.

The greatest power our government wields is NOT it's currency but regulatory monopolies it grants to selected people.

Matt Franko said...

Ryan the Obamacare academic morons would say that you are in the "individual group"...

Calgacus said...

Matt, Dan Lynch: Don't know about the current debt levels, but as Frances Coppola & Merijn Knibbe too (?) pointed out a year or so back, all the refinancing of the debt at long term and low interest made it probably not unpayable - if the Greek economy just got on its feet, for it does have two first class, major fx earners - tourism & shipping. This would happen in a jiffy if it just adopted MMT = not being insane = intuitive economics that makes logical, mathematical sense. So I think it is right to be skeptical of Hudson here. Greece could easily become "competitive" - an awful concept, almost always badly misused - if it just floated its own currency against the Euro. One index of how much the Euro has distorted trading relationships is the country in {Germany, Greece} that exports olive oil to the other. Hint: It is not Greece.

One of Marx's unfulfilled ambitions was to write a biography of Balzac. Often in the Comedie Humaine, the lawyer Derville complains of the crushing debt that he owes Gobseck, the money-lender. But Derville himself insisted on the high interest rate! So I think old Karl would have understood very well - maybe not agreed, but definitely understood - why it might be a good idea for Greece to pay in full, in Euro, if it can.

Matthew Franko said...

Calg,

to me it keeps coming back to what Ramanan has been pounding the table on for the last few years ie the external sector savings...

Greece has to figure out how to reduce external savings that is enabled by the conduct of economic activity within its jurisdiction... there are probably ways to do this and still stay within the regulations of the Euro system...

Same thing with the US...