Review of William Goetzmann, Money Changes Everything: How Finance Made Civilization Possible (Princeton University Press, 2016)
By Michael Hudson
Debt mounts up faster than the means to pay. Yet there is widespread lack of awareness regarding what this debt dynamic implies. From Mesopotamia in the third millennium BC to the modern world, the way in which society has dealt with the buildup of debt has been the main force transforming political relations.
Financial textbook writers tell happy-face fables that depict loans only as being productive and helping debtors, not as threatening social stability. Government intervention to promote economic growth and solvency by writing down debts and protecting debtors at creditors’ expense is accused of causing an economic crisis (defined as bankers and bondholders not making as much money as they thought they would). Creditor lobbyists are not eager to save indebted consumers, businesses and governments from bankruptcy and foreclosure. The result is a biased body of analysis, which some extremists project back throughout history.
By Michael Hudson
(Remarks by Prof. Michael Hudson at The Atlantic’s Economy Summit, Washington DC, Wednesday, March 13, 2013)
There are two quite different perspectives in the set of speeches at this conference. Many on our morning panels – Steve Keen, William Greider, and earlier Yves Smith and Robert Kuttner – have warned about the economy being strapped by debt. The debt we are talking about is private-sector debt. But most officials this afternoon focus on government debt and budget deficits as the problem – especially social spending such as Social Security, not bailouts to the banks and Federal Reserve credit to re-inflate prices for real estate, stocks and bonds.
When the financial bubble burst in September 2008, U.S. and European governments responded by shifting bank losses onto their own balance sheets. The pretense is that real growth cannot resume until the banks and speculators are “made whole.” To cover the cost of bailing out the banks, governments now are trying to run budget surpluses. This adds fiscal deflation to the debt deflation left in the bubble’s wake, shrinking the economy at large. Governments are raise taxes (or simply print new debt to swap for the financial sector’s bad loans and gambles) to reimburse financial institutions whose lending and outright gambling (not to mention the excursion into financial fraud) caused the crisis. Continue reading →
The ideological crisis underlying today’s tax and financial policy
From antiquity and for thousands of years, land, natural resources and monopolies, seaports and roads were kept in the public domain. In more recent times railroads, subway lines, airlines, and gas and electric utilities were made public. The aim was to provide their basic services at cost or at subsidized prices rather than letting them be privatized into rent-extracting opportunities. The Progressive Era capped this transition to a more equitable economy by enacting progressive income and wealth taxes. Continue reading →
Quantitative easing as free money creation – to subsidize the big banks
The Federal Reserve’s three waves of Quantitative Easing since 2008 show how easy it is to create free money. Yet this has been provided only to the largest banks, not to strapped homeowners or industry. Ben Bernanke’s helicopter only flies over Wall Street to drop its money. An immediate $2 trillion in “cash for trash” took the form of the Fed creating new bank-reserve credit in exchange for mortgage-backed securities valued far above market prices. QE2 provided another $800 billion in 2011-12. The banks used this injection of credit for interest rate arbitrage and exchange rate speculation on the currencies of Brazil, Australia and other high-interest-rate economies. So nearly all the Fed’s new money went abroad rather than being lent out for investment or employment at home. Continue reading →
Today’s financial war against the economy at large
Today’s economic warfare is not the kind waged a century ago between labor and its industrial employers. Finance has moved to capture the economy at large, industry and mining, public infrastructure (via privatization) and now even the educational system. (At over $1 trillion, U.S. student loan debt came to exceed credit-card debt in 2012.) The weapon in this financial warfare is no longer military force. The tactic is to load economies (governments, companies and families) with debt, siphon off their income as debt service, and then foreclose when debtors lack the means to pay. Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers. Continue reading →
How today’s fiscal austerity is reminiscent of World War I’s economic misunderstandings
When World War I broke out in August 1914, economists on both sides forecast that hostilities could not last more than about six months. Wars had grown so expensive that governments quickly would run out of money. It seemed that if Germany could not defeat France by springtime, the Allied and Central Powers would run out of savings and reach what today is called a fiscal cliff and be forced to negotiate a peace agreement. Continue reading →
Thursday, September 29, 2012, William Black, Randall Wray and Michael Hudson appeared on KCUR.org’s Central Standard. The discussion was a roundtable on all things Post-Keynesian. This link will take you to KCUR’s page where you can listen the discussion.