An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Wednesday, May 2, 2018
Michael Hudson — “Creating Wealth” through Debt: The West’s Finance-Capitalist Road
I kid to this previously, but it was in a list of links. It is important enough to give it its own post.
Hudson at his best. It's a must-read. Longish, so save it for the weekend if time is an issue.
Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
“Creating Wealth” through Debt: The West’s Finance-Capitalist Road— To be delivered at the Peking University, School of Marxist Studies, May 5-6, 2018
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
Good article!.
ReplyDeleteMicheal Hudson -
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.
Thanks for posting it, I read it the first time and it is excellent. I don't think that anybody has as better understanding of how things are than MH.
ReplyDeleteDo you know, Tom said it was long, but is was so easy to read.
DeleteIf private debt is a problem, and it is, then logically all government privileges for private credit creation should be abolished, no??
ReplyDeleteAnd then there's restitution to consider and here we have one hand washes the other in that the proper abolition of government-provided deposit insurance should require a massive distribution of new fiat equally to all citizens into their inherently risk-free accounts at the central bank.
Wealth is created through savings and investment...
ReplyDeleteANDREW ANDERSON WRITES: “If private debt is a problem, and it is, then logically all government privileges for private credit creation should be abolished, no?”
ReplyDeleteI’m not sure what you mean, but I personally favor abolishing all private ownership of banks, or at the least, we need a balance between public banks and private banks, with strict regulation for both. By public banks I mean that every state should have something like the Bank of North Dakota.
As Hudson explains in his article, private credit creation is destroying the USA. Much of America’s GDP is based on rent payments and debt payments, which are parasitical, and which cripple production and efficiency.
++++++++++++++++++++
On a different note, I like Hudson, but sometimes he annoys me. Again and again, Hudson almost understands MMT, but he never fully gets there.
EXAMPLE FROM THE ARTICLE: “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 true with a publicly owned state bank (at the state level) but it does not apply to national governments that create their own currency. National governments are not “banks,” nor are they “credit creators” in the sense of making loans. A Social Security benefit is not a loan. A Social Security benefit need not be “paid back” (although it is subject to taxation).
ANOTHER EXAMPLE FROM THE ARTICLE: “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.”
Clearly Hudson has no grasp of MMT. The U.S. government has no “debt crisis,” since the U.S. government can create infinite money out of thin air. Hence, for the U.S. government, austerity is not the result of a “debt crisis,” but is entirely gratuitous. (This is not the case with euro-zone governments of nations with trade deficits. For them, their national debt is indeed a crisis, and austerity is unavoidable.)
Despite all this, Hudson’s article is extremely important, and it warrants re-reading several times.
BY THE WAY, have you ever wondered why the USA has any inflation at all? Why does it take ten dollars today to but what ten cents bought a century ago? I’ve heard various explanations for this, and I reject them all except for Hudson’s.
For Hudson, inflation in the USA is a combination of [1] housing shortages, [2] bank lending on real estate, and [3] the desire of mortgage borrowers to gain from property appreciation.
As the price of housing and property goes up, so does the price of everything else. Hudson counsels China that they must avoid this trap.
(Unfortunately it is too late in places that have runaway housing bubbles, like Shanghai. Meanwhile in San Francisco the housing bubble is so extreme that developers are frantically build high-rise apartments, all of which will be destroyed by the next earthquake.)
I’m not sure what you mean, but I personally favor abolishing all private ownership of banks, or at the least, we need a balance between public banks and private banks, with strict regulation for both. By public banks I mean that every state should have something like the Bank of North Dakota. Konrad
ReplyDeleteSorry but your solution is ethically muddled and carries no more weight than anyone else's ethically muddled opinion.
So how about we start with first principles such as that fiat is for the USE OF ALL CITIZENS and not just depository institutions? And that fiat should ONLY be created for the general welfare, not for special interests such as banks and asset owner or (looking at the Austrian Economists) gold owners and deflation lovers?
In principle, NO ONE can legitimately oppose an ethical solution. Then why don't the MMT folks propose ethical solutions?
I agree that Hudson doesn't quite get it.
Wealth is created through savings and investment... Franko
ReplyDeleteThen what does the government-privileged usury cartel do but steal and eventually destroy wealth?
I.e. Abundant food is in the fallow ground of the poor, but it is swept away by injustice. Proverbs 13:23
@Andrew Anderson: Please define "ethically muddled solution" as you understand the term. What is "ethical" about it, and what is "muddled" about it? Otherwise your charge is unintelligible to me.
ReplyDeleteWhat is ethical about it at all?
ReplyDeleteGovernment-privileged banks to a large extent and government-owned banks to an absolute extent lend the public's credit but for private gain. What is ethical about that AT ALL? Shouldn't we all be equal before the law?
The interest is PART of how the fiscal agents are compensated for their agency... nobody works for free...
ReplyDeleteEven the levites received the tithe...
I'm not arguing against usury, since it is permissible from foreigners.
ReplyDeleteI'm arguing against GOVERNMENT_PRIVILEGES FOR PRIVATE DEBT CREATION, which is so obviously evil that it astounds me that some dare defend it.
Yo.... the banks operate under govt AUTHORITY.... a topic you don’t understand by reading the OT...
ReplyDeletethe banks operate under govt AUTHORITY.... Franko
ReplyDeleteSo did death camps in Germany.
a topic you don’t understand by reading the OT... Franko
FYI, I read BOTH Testaments.
Woe to those who enact evil statutes
And to those who constantly record unjust decisions,
So as to deprive the needy of justice
And rob the poor of My people of their rights,
So that widows may be their spoil
And that they may plunder the orphans.
Now what will you do in the day of punishment,
And in the devastation which will come from afar?
To whom will you flee for help?
And where will you leave your wealth? Isaiah 10:1-3 [bold added]