History is a difficult study. People love to read and think about history but also edit it so it obeys various ideological rules. This way, one can read history and learn nothing. When I read people’s examinations about ‘money’ and ‘capital’ and ‘labor’ it is quite clear the US prohibition against reading Karl Marx has taken a huge toll on our collective ability to figure out what are essentially simple concepts. Instead, I see on the ‘left’ calls for printing and distributing paper money and on the right, tax evasion, a refusal to fund the government and an inability to understand how sovereign wealth operates.
Over the years, I have tried to explain all of this as best I could but it is still a mystery to many how systems operate. The present system we live under is ANCIENT. It has risen and fallen over and over again. The functioning parts are distinct and some are several thousand years old. For example, it was the Sung Dynasty of ancient China that figured out how to create paper money. They also discovered what happens next: it loses value and collapses. They also learned the horrors this entails: complete destruction, social unrest and foreign invasion.
Centuries, a dozen, follow and what happens? Why, this is done over and over again! The Romans were unfamiliar with the Chinese paper money thing, they did the even much older ‘degrade the coin by debasing the metal’ gambit which is much older than the paper money gambit. I remember, during the Vietnam War, how the coins were debased in the ancient Roman way. I thought it was hilarious back then, When Nixon cut the gold standard, I was not surprised, either. He had to, to print money to pay for our wars.
So, here is Michael Hudson, a favorite writer on the left, giving his version of WWI economic history: America’s Deceptive 2012 Fiscal Cliff » Counterpunch: Tells the Facts, Names the Names
When World War I broke out in August 1914, economists on both sides forecast that hostilities could not last more than about six months… But the Great War dragged on for four destructive years. European governments did what the United States had done after the Civil War broke out in 1861 when the Treasury printed greenbacks. They paid for more fighting simply by printing their own money. Their economies did not buckle and there was no major inflation. That would happen only after the war ended, as a result of Germany trying to pay reparations in foreign currency.
Actually, there would be inflation during a war but only if there is no rationing. Since all the parties in WWI and WWII rationed goods and controlled prices via government fiat, there was no ‘inflation’. But…as in ALL wars, the money used to bankroll the war efforts and to bribe leaders to cooperate with the Great Empires required hard gold bullion. No paper. Not a scrap.
During the Napoleonic wars, it was the same. Gold was the only way governments could gain the services of allies! At home, the coins were debased while the pure coins are collected and shipped overseas! This happened quite a few times and goes way, way back in time, too. Thousands of years, in fact. In ancient times, weak governments did this to pay off potential invaders like say, the Vikings. HClick here to see a BBC show, Horrible Histories The Viking Payoff – YouTube.
Back to Michael Hudson:
This pro-austerity mythology aims to distract the public from asking why peacetime governments can’t simply print the money they need. Given the option of printing money instead of levying taxes, why do politicians only create new spending power for the purpose of waging war and destroying property, not to build or repair bridges, roads and other public infrastructure?
Let’s review what used to happen if one won a war: the losers lost land, goods, property, population and political power and had to pay reparations or were exterminated or moved into reservations or enslaved! Wars could be very lucrative! Ask the ancient Vikings!
The gamble is, if you print up worthless money, it is turned into gold via seizing the labor of the losers (enslavement and taxing them to pay for the costs of the war/invasion) or via exploiting the natural resources of the losers (American Indians learned this lesson) or displacing them entirely (again, the American Indians are very familiar with this!). If you win a war, you can rebuild your home base easily. Except usually, it pays more to park the loot elsewhere.
For example, when the Spanish fought the natives of the New World, they enslaved them and made them work to death in gold and silver mines, for example. The Spanish stole everything. Where did the loot go? To the average Spaniard?
NO. It went to…the Vatican! In Italy. HAHAHA. So much gold, St. Peter’s dome was clad in gold. Both the Spanish government and Italy went bankrupt not because they printed money but because the cost of wars, the internal factional wars and revolts at home were very expensive and they lost control of military overhead costs. Exactly what happened to Russia, Germany, France and England in WWI. They all went bankrupt. All.
The US, on the other hand, was the biggest winner. We bankrolled the British and French war with Germany. Russia’s rulers were brutally killed or driven out by enraged populations in a massive, important revolution. The ruling elites in the rival empires were scared to death they were next so they did various electoral and social reforms, bit by bit, fearing communists would come in and uproot them.
The US had the world’s biggest gold stash at the end of WWI and everyone else was reduced to pretending to be empires when they were hollow giants ready to fall to an angry resurgent Germany and a hungry Japan. Hardly able to stop either country from launching WWII and taking over a huge part of the planet, the US, the one last capitalist country with a stable currency and no debts to speak off, had to bail everyone else out and fought a two empire front war simultaneously, we were so strong. We had the industrial base, the workers, the natural resources and a solid currency based on gold and silver.
Michael Hudson continues:
This $13 trillion debt creation to save banks from having to suffer a loss was not accused of threatening economic stability. It enabled them to resume paying exorbitant salaries and bonuses, dividends to bondholders and also to pay counterparties on casino-capitalist arbitrage bets. These payments have helped the 1% receive a reported 93% of the gains in income since 2008. The bailout thus polarized the economy, giving the financial sector more power over labor and consumers, industry and the government than has been the case since the late 19th-century Gilded Age…
Bank of England official Andrew Haldane recently observed. “‘In terms of the loss of incomes and outputs, this is as bad as a world war.’ he said.
How many millions of Europeans died from violent retribution in the last three years? Virtually none compared to WWI and WWII. The US and NATO did butcher a huge number of natives in former colonial properties in Africa and the Middle East. They have suffered a real war, real revolutions and real thefts of property and being shoved out of their homes by foreign invaders.
What we went through was similar to the Great Depression. We haven’t had the other half of the equation. That is, wars FOLLOW depressions, not cause them. Wars cause inflation. This time around, the NATO power holders (the Bilderberg gang) has decided to prevent war inflation not with rationing but with a clever scheme of regressive taxes and fees or scam operations parading as public moral duties to save the planet earth. Here is a classic Bilderberg example: In Ireland, Carbon Taxes Pay Off – NYTimes.com
The government imposed taxes on most of the fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s carbon dioxide emissions, a move that immediately drove up prices for oil, natural gas and kerosene. Household trash is weighed at the curb, and residents are billed for anything that is not being recycled.
The Irish now pay purchase taxes on new cars and yearly registration fees that rise steeply in proportion to the vehicle’s emissions…The three-year-old carbon tax has raised nearly one billion euros ($1.3 billion) over all, including 400 million euros in 2012. That provided the Irish government with 25 percent of the 1.6 billion euros in new tax revenue it needed to narrow its budget gap this year and avert a rise in income tax rates.
These taxes and fees hit the poor and working class very, very hard. The higher price of fuel hits them in the guts, hard. Higher energy costs bother the rich like a gnat bothers an elephant. While it is like a wolf to the workers, chewing off their limbs. All of this regressive taxation is used to STOP TAXES ON INCOME! That is, the rich. Just like we see here. The US has seen the rich gotten much, much richer in the last two decades of tax cutting while the poor have gotten eaten alive by inflation.
That is, we have inflation, lots and lots of inflation. The housing inflation was fun because people could sit at home and see the value rise like a rocket and many went very deep into debt based on the theoretical value of their homes. No more. Now, this lost its value while inflation in food, fuel and medical care shoots upwards relentlessly.
This is why we see rationing during wars. Rationing food, fuel and other necessities as well as luxury items. To control inflation. And the US is at war. And printing money like mad only little of it is helping us at home, here is where it is:
As Gold Is Spirited Out of Afghanistan, Officials Wonder Why – NYTimes.com
“We are investigating it, and if we find this is a way of laundering money, we will intervene,” said Noorullah Delawari, the governor of Afghanistan’s central bank. Yet he acknowledged that there were more questions than answers at this point. “I don’t know where so much gold would come from, unless you can tell me something about it,” he said in an interview. Or, as a European official who tracks the Afghan economy put it, “new mysteries abound” as the war appears to be drawing to a close.
Figuring out what precisely is happening in the Afghan economy remains as confounding as ever. Nearly 90 percent of the financial activity takes place outside formal banks. Written contracts are the exception, receipts are rare and statistics are often unreliable. Money laundering is commonplace, say Western and Afghan officials.
HAHAHA…the Afghanis are taking the many, many, many billions of dollars we wasted there and are converting this to gold which is one of several reasons why the value of gold shot up so much during the last decade. As I explained in the past, this happened during the Civil War, WWI and WWII except in the US where gold was, after the Civil War mess, regulated by the government quite severely. During wars, everyone tries to convert their cash into gold. This is ancient history and no shock to see the clever Afghanis, invaded often, doing the right thing and hoarding gold, converting US money into gold and then hiding it. Duh.
Ancient history. Very ancient history. And boy, do they remember ancient lessons! Wish we could.
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50 responses to “Counterpunch Michael Hudson Doesn’t Understand History Of Financing Wars”
It isn’t going to be easy, this next decade or two.
They’ll probably outlaw gold again in the US before long. It won’t be freely traded again for quite a while after that. Last time, it was forbidden for 40 years or so.
The board game ‘Monopoly’ is a little analogue of the economy — whoever ends up owning Boardwalk and Park Place eventually bankrupts the other players. That’s where we are right now, but it’s taking too long for the players to figure this out and put the game away and get back to reality.
Al Gore could become world’s first carbon billionaire – Telegraph
http://www.telegraph.co.uk › Earth › Energy
Nov 3, 2009 – Al Gore, the former US vice president, could become the world’s first … direct billions of dollars to the business ventures he has invested in.
There is alot of examples of countries who had allot of infation and even hyperinflation without wars. Too many to name here but let us start with Argentina. Your analysis of history is piss poor, to say the least.
Argentina had the internal wars, the Falklands and the currency and debt repudiation wars.
The US is now officially a police state. Evidence the US government worked with the banks to attack the Occupy movement,
OK, about South American dictatorships and wild spending: this is usually done to keep the people quiet when there is a military coup. The government prints money. This is done by the military.
But…as in ALL wars, the money used to bankroll the war efforts and to bribe leaders to cooperate with the Great Empires required hard gold bullion. No paper. Not a scrap.-EMS
Sigh.. Still holding on to the gold dream I see. Elaine we are no longer on the gold standard and will NEVER return to it. Try to get used to the idea.
“Money” is a social construct, a useful abstraction, a unit of account—like inches, yards, or miles and nothing more. Hudson, as always, hits the nail on the head here. The 29 trillion in subsidies given to the Wall Street hustlers over the past five years would have been put to far more productive use had it been spent directly into the real economy while allowing the insolvent banks to collapse of their own accord. The capitalization of a true people’s bank run as a public utility (think Bank of China) would have had us off to the races. This is the advantage of being solvent in ones own currency.
Once again, the United States faces no solvency risk and can no more run out of Dollars than a carpenter can run out of inches or a scorekeeper can run out of points. Wear your gold around your neck or on your fingers were it belongs. Obviously it could never adequately serve as the money base in a monetized world economy of SEVEN BILLION PEOPLE! Only a sadist would seriously attempt to enforce such madness. The ONLY natural constraint to government fiscal spending to public purpose is the capacity of the real economy and the ability of the American people to produce what both the government and private sector wishes to consume.
Whatever thing you use for money, gold, dollars, ergs, or seashells, the current problem is the mal-distribution of it. Like in the Monopoly game, when one or two players have all the money, the other players have to quit. And then it stops being fun.
In the board game, this results in the markers and cash and cards being put back in the box and the box in the closet. In real life, frequently, war breaks out.
I’ve noticed in many history novels on wars, the economics factor is cut out.
Tuchman’s “The Guns of August” barely mentions the economy leading up to the big war. Her only mention was the puerile conceit that the Kaiser was sore at being considered a second best power.
That is quite a different interpretation than one in which Germany was a growing economic powerhouse that was being denied access to markets.
The only economy that has worked the past several years is System D.
Find your way into that economy and forget about TBTF banks and Armed Gangs of Thugs in government issue uniforms.
Gold and silver still function as stores of wealth, measures of accounts, and money. Always have; always will.
Today it is a good idea to select the real nickels out of your daily change; just as it was a good idea in 1963 to start keeping the silver dimes, quarters, halves and dollars out of your change.
Money, requires someone else to accept it from you for it to work as money. When folks stop accepting your paper; you are no longer solvent no matter how much paper you can print. You can empower your thugs to try to force people to accept your paper for their stuff ( that’s called legal tender laws within a nation’s boundaries and war when you try it outside your boundaries.)
The puerile fact that ‘money’ is pretend and can be printed to infinity is insanity. The bankers did this. Governments do this. The ability to do this is constrained by one major factor: when the printing makes money worthless, it vanishes!
Like magic. It ceases to operate as ‘money’ as we see over and over again in hyperinflation episodes.
Hudson thinks that printing money will save us, to be blunt. He is obviously not a saver who is being ravaged by near-zero return on his capital by banks while inflation rages all over kingdom come!
The saving of the banks was designed to prevent a total monetary collapse. But instead of fixing things by outlawing derivative contracts in money markets, the new status quo was propped up and THIS is the real killer which, along with NATO wars, is causing financial chaos since the rich refuse to be taxed to pay for their wars.
The real hyperinflation will hammer us the hour the Chinese communists decide the US is waging a secret war against them using Japan as the cat’s paw. When they open the floodgates to their huge FOREX accounts, this will cause the dollar to rapidly lose value. Right now, we are too valuable a resource for exports for them to do this…but not if we surround them with nuclear arms itching to explode.
Substituting money printing for energy inputs can only go on for so long.
Present global economy relies totally on cheap high flow light oil production to grow GDP.NO increase in oil production,no increase in GDP.
I can go anywhere in the world with my gold coin and buy any item or exchange it for any currency. I can’t do that with my CAD or US dollar.
What would you rather leave your grandchildren,15 ratty $100 notes or a one ounce gold coin?
Substituting money printing for energy inputs can only go on for so long.
The US has been doing this since Nixon? Or earlier?
Have you read ‘The Biggest Con’ by Schiff?
I read that as of a few decades ago one Central American country
had scrapped their currency and the whole place used the greenback.
In Russia theres panic when USA changes the look of its $.
I used to believe that the gold standard was passe, but have changed my mind. Because the only solution to the present crisis is to let the rich get it all, and let the middle class and poor pollute the airwaves with their cries and the lands and the seas with their corpses. I expect an economic and social convulsion no one is prepared for. Being interested in the solutions of some of the more contrarian economists, I have followed Michael Hudson for some time, and it occured to me some time ago that he has “keine Ahnung” where this will take us.
When one has manual and or mental skills;
when one has tools or access to them;
unreal money can be a convenience much as double entry accounting
is a convenience. Neither is reality but both help simplify reality.
When one’s only value in life is to be a consumer of others’ production, one can be eliminated without any net loss to the society within which that one is parasiting.
As long as you can produce something of worth, you are necessary and sufficient. And when you decide to withhold any extra production beyond your own needs from the parasites … you are still sufficient but you are also invisible. It’s a good life to be invisible to the parasites.
Michael Hudson probably has a lot of insight into how economics really works, but unfortunately his writing style is painful. I want to tell him “Start at the beginning, and go slowly!”
Good point about governments using rationing to control inflation during the World Wars, Elaine. I do think he missed that.
I see printing money as governments borrowing from themselves. It isn’t bad per se, any more than borrowing is bad per se. The crucial thing is, what do you do with the money you borrow? If you invest it in things that pay off — infrastructure; economic development — it can earn back enough to be beneficial. If newly created money is spent to stimulate the production of things people want to buy, then it doesn’t create inflation. But governments do usually print to fund their wars, or print to bail out banks, which is at best a very inefficient way of stimulating the economy. Borrowing on behalf of everyone in order to make the rich richer.
Money, requires someone else to accept it from you for it to work as money. When folks stop accepting your paper; you are no longer solvent no matter how much paper you can print.-CK
Wrong. A desire for money is first created by the need to meet one’s tax obligation to the sovereign which will only settle in the monetary unit of account that it issues exclusively. This then further drives the economy as others labor to produce the goods and services to meet demand in exchange for currency… and the cycle continues. The key to remember is that the government must first spend money into the economy for the population to have the dollars with which to meet their tax obligations.
As long as you can produce something of worth, you are necessary and sufficient. And when you decide to withhold any extra production beyond your own needs from the parasites … you are still sufficient but you are also invisible. It’s a good life to be invisible to the parasites.-CK
So long as you remember that there is no long-term effective invisibility from the tax man…
The puerile fact that ‘money’ is pretend and can be printed to infinity is insanity. The bankers did this. Governments do this. The ability to do this is constrained by one major factor: when the printing makes money worthless, it vanishes!-EMS
Money is ‘pretend’ in exactly the same sense that inches or yards are pretend. We accept them as units of measurements not things of the physical world but theoretical tools of utility. It is the same with money. Lets try not to… fetishize it (hehee!).
The saving of the banks was designed to prevent a total monetary collapse. But instead of fixing things by outlawing derivative contracts in money markets, the new status quo was propped up and THIS is the real killer which, along with NATO wars,-EMS
(Good so far…)
is causing financial chaos since the rich refuse to be taxed to pay for their wars.-EMS (but here you veer off the rails)
Taxes do not pay for wars or any other government function. Taxes at the federal level for a government that is sovereign in its currency is the mechanism by which aggregate demand—spending power—is regulated. Taxation at the federal level is money destruction for it disappears and is not used to fund anything at all. The federal government spends by crediting reserve accounts with the currency that it creates at will.
When they [the Chinese] open the floodgates to their huge FOREX accounts, this will cause the dollar to rapidly lose value.-EMS
And what would they be purchasing with this flood of spending Elaine? Presumably some exchange would take place. I’m curious about where you’re going with this.
I see printing money as governments borrowing from themselves– Steve Murgaski
It’s not borrowing from itself for there is no expectation that the money it creates at will must be “paid back” (to whom?). Furthermore, the government does not “borrow” in the sense that you think. Treasury Securities are offered to assist the Federal Reserve in meeting its interest rate targets by offering an attractive and secure investment for excess capital in the economy. These activities do not, however, fund government operations for the United States government needn’t borrow or tax in order to spend.
If newly created money is spent to stimulate the production of things people want to buy, then it doesn’t create inflation. But governments do usually print to fund their wars, or print to bail out banks, which is at best a very inefficient way of stimulating the economy.-Steve Murgaski
‘I used to believe that the gold standard was passe, but have changed my mind.’
We did believe in a lot of things.
‘Times change and with them their demands’ I Ching
After all wars, taxes do rise. They rose very high after WWII, for example, here in the US. Anyone who imagines this doesn’t happen need to have their heads examined.
Countries that don’t raise taxes after wars have hyperinflation that wrecks the currency and the economy which is why the US didn’t do this after WWII. But then, the Democrats ran things and did this. And are hugely hated by the Republicans who used to be the solvent, gold standard party but devolved after WWI into the debt is fun party.
Owing nothing to any pretend sovereign ( armed thug) is a good thing.
People and trade among people existed prior to armed gangs of thugs imagining that they owned people and could steal part of the production of all of the producers for the enjoyment of thug parasite class.
After all wars, taxes do rise. They rose very high after WWII, for example, here in the US. Anyone who imagines this doesn’t happen need to have their heads examined-EMS
During and following WWII, US Dollars were convertible to gold so it’s perfectly understandable that taxes had to rise back then but today there is no such constraint. I point this out not in support of deficit spending for warfare off course, but merely to highlight that there is no solvency issue with regard to government fiscal spending post-1971 whether it be for productive or destructive purpose.
“And what would they be purchasing with this flood of spending Elaine? Presumably some exchange would take place. I’m curious about where you’re going with this.”
It doesn’t really matter. Because the purpose of the flood would not be to buy but to destroy. The flood of dollars will kill the United States as a world power for a long time perhaps forever. China seems perfectly willing to push themselves into a small depression in order to make sure the crazed leadership in the US doesn’t start WW3. They have industrial power that will kickstart their recovery immediately after the tidal flood of rubber dollars.
We no longer have industrial power. We allowed the oligarchs to off shore it all.
ELAINE: The Chinese told me directly that they are most willing to take an economic hit if it destroys the US economy and wrecks the dollar.
This doesn’t wash MK. This flood of dollars would have to be in exchange for someone’s output. So long as it doesn’t overrun the productive capacity of the economy then there is no risk of inflation. Furthermore, I’ve yet to hear a rational explanation as to why China would risk eroding the value of their dollar holdings.
ELAINE: The Chinese are using their FOREX money to buy up world resources and up their own military power. This also causes prices of US dollar items to rise as they outbid everyone.
Coldtype, I don’t think you realize the basics here. The US middle and lower class MUST face austerity in order to preserve a semblance of value to the dollar. That is what the whole game is about.
Who is holding dollars now? It’s the rich elite, corporations and foreign trading partners. The US rich elite and corporations are the architects of this policy. They have trillions of dollars stashed in tax haven accounts. The trade partners have trillions of dollars in forex accounts. None of them are interested in seeing floods of dollars fatten their accounts simultaneously and too fast, because that would simply be inflation rather than profits.
If the middle class and the poor in the US have printed money handed to them like candy it would negate the printed money candy for the rich and then their game would be up. They don’t want that.
If the US middle class got cheap money that cheap money would flood out of the US and into the coffers of China, Germany and the tax havens. As it did so the value of the dollar would disintegrate because nobody would believe this paper/electronic money had any value or backing in reality, which it of course does not have.
The US dollar is already a dead currency walking. It still looks animated because habitual energies are moving it about world wide. But the simple truth is that there are too many trillions of the stuff about and those trillions can never return to the domestic economy that issued them without a Weimar hyperinflation scenario following. And you can’t print up more stuff to make up for the dollars hidden away, because that will destroy everything, both the new dollars and the old dollars.
Nobody needs more dollars anymore. The day the dollars start to move out of the forex accounts and the tax haven accounts is the day the dollar implodes.
Correct. The Middle Class is always the fundamental basis of any good currency value and when this class gives up saving money they turn on the currency and demand free money for spending but this kills economies.
Funny, isn’t it? Saving the rich destroys the currency and the society and taxing the middle class while the rich pay much less in percentage does this, too.
Meanwhile, the rich egg the middle class into attacking the POOR as if they are the cause of this mess. Sad, isn’t it?
If the middle class and the poor in the US have printed money handed to them like candy it would negate the printed money candy for the rich…-CW
It hardly follows that fiscal spending to put unemployed teachers to work or rebuilding crumbling US infrastructure with the labor of both skilled and unskilled under-employed American workers would be inflationary in the slightest.
If the US middle class got cheap money that cheap money would flood out of the US and into the coffers of China, Germany and the tax havens-CW
Again, it is up to you to make the case that fiscal spending to public purpose in an economy operating at barely 70% of full capacity will lead to a flood of dollars rushing into foreign FX accounts and the Caymans but you’ve yet to make it here.
The off shore tax haven accounts and the forex trillion dollar holdings have grown like mushrooms over the last decade. It’s the trade deficit, and the corporate/rich elite bloodsucking, that is killing the US economy.
China (which is just one trade partner) went from holding about $200 billion in 2001 to holding $3 Trillion dollars just 10 years later. Printing more money would just feed this dynamic. As long as the basic flaws in the system are not fixed nothing will change. More easy money in the hands of the middle class would not create new quality jobs, it would be spent on basic necessities like housing, medical insurance/expenses, electronic gadgets, cars/transportation etc. More easy money would also feed the dynamic of offshoring quality jobs because that is a necessary trick by the elites to stave off inflation in the domestic economy
Easy money is exactly what dug you into the current pit in the first place.
The real start of this mess was when Dubya and Greenspan conspired to lower the interest rates in order to flood the stalling US economy with cheap money. The housing bubble, and all the scams to suck the wealth out of the middle and working class, was deliberate policy. Then on top of that you had the tax cuts and on top of that the war spending by money printing and selling bonds/treasuries.
All of this equals the dollar mushrooms in tax haven accounts and forex holdings.
To have another round of such ostensibly easy, cheap credit to kick start the economy would most likely be the death of the dollar, and it would impoverish Americans even further.
The off shore tax haven accounts and the forex trillion dollar holdings have grown like mushrooms over the last decade. It’s the trade deficit, and the corporate/rich elite bloodsucking, that is killing the US economy.-CW
No disagreement there…
More easy money in the hands of the middle class would not create new quality jobs, it would be spent on basic necessities like housing, medical insurance/expenses, electronic gadgets, cars/transportation etc.-CW
And history has adequate examples of an FDR-style jobs program creating a host of socially necessary quality jobs to public purpose—none of which would be remotely inflationary in an economy running significantly under-capacity with plenty of idle workers in a country with much that needs doing.
Easy money is exactly what dug you into the current pit in the first place-CW
No Christian, unsustainable private debt dug the pit we are in. A parasitical financial sector and mass ignorance giving life to the fiction that a nation sovereign in its currency has the same fiscal constraints as a household which must first secure an income or borrow before it can spend is what keeps us in that pit.
The battle now is to make the dollar mushrooms in tax haven accounts real. Now the problem is that this money is a gigantic bubble that will eventually pop. Twenty, Thirty or Forty or whatever TRILLIONS of dollars in tax haven accounts have to be underwritten by SOMETHING. If the American people are flush with dollars they can’t underwrite those dollars as well. It is TOO MANY dollars to support. Way too many dollars.
Add the various derivate money out of nothing scams that feed those tax haven accounts like nothing else and create even more phoney money that has to be washed and made “real”.
That is why austerity is necessary to keep the illusion going that the work/salary slaves in the US will work, work, work to keep the dollar system going. Printing money to give to the workers is anathema to the whole system. You will be starved to death, much like the Japanese were, with decades of austerity.
FDR didn’t have a trade deficit did he? The US dollar has been abused to death by now. The US is not an economic island but the caretaker (read: abuser) of the world reserve currency. FDR didn’t have foreign nations sitting on trillions of USD’s. It is the nature of the beast that dollars will flow out of the US economy into the world economy. The world economy is already creaking under the weight of the dollar mountains. You cannot create much more without the world refusing the dollar. When the world refuses the dollar you will get nothing done domestically.
You have already created far too many dollars. What you need to do is to claw back those dollars in the tax haven accounts, before you create new ones. You are in a political struggle more than an economic struggle. The money is there, only it’s stolen from the middle and working class and fed into the rich elite using various scams like the Pentagon/MIC and Wall Street.
You cannot create much more without the world refusing the dollar. When the world refuses the dollar you will get nothing done domestically.-CW
Roads and bridges won’t be built and repaired in America because the world will refuse US dollars? Teachers idled by layoffs won’t be hired to relieve overcrowded classrooms because the world will refuse US dollars? A commitment to re-build a viable public transportation system in the US by re-directing “defense” spending to the task won’t be possible because the world will refuse US dollars?
I’m still waiting for your explanation of how fiscal spending to public purpose in an economy running 30% under full capacity would be inflationary.
You have already created far too many dollars. What you need to do is to claw back those dollars in the tax haven accounts, before you create new ones.-CW
Yes, too many reserves have been created to subsidize the insolvent banks which should have long been dissolved and reorganized as public utilities and certainly massive clawbacks (i.e money destruction) are warranted from the parasites but to suggest that millions must suffer in the meantime from want before the government can mount a fiscal response suggests that you don’t fully grasp Federal Reserve accounting and equate the US government with a household.
You are in a political struggle more than an economic struggle.-CW
There is no question about it. So it is imperative that we educate ourselves regarding the tools that are actually at our disposal. Voluntarily tying our shoelaces together in a foot race isn’t helpful.
The money is there, only it’s stolen from the middle and working class and fed into the rich elite using various scams like the Pentagon/MIC and Wall Street.-CW
A path to understanding is there if you are willing to take the first step…
Roads and bridges won’t be built and repaired in America because the world will refuse US dollars? Teachers idled by layoffs won’t be hired to relieve overcrowded classrooms because the world will refuse US dollars? A commitment to re-build a viable public transportation system in the US by re-directing “defense” spending to the task won’t be possible because the world will refuse US dollars?
As long as you don’t recognize the trade deficit you won’t be getting anywhere. Sure, cutting the insane spending on the war department is a great start, along with curbing the equally insane financial scam industries. And certainly you need to spend on repairing your infrastructure.
But do recognize that any stimulus of the domestic economy will spill over and feed the trade deficit, as it has done for the last decade. You were advocating adding new money as stimulus and that simply won’t end well. Using already existing money, as in cutting the ‘defense’ spending is a better choice.
Still, stimulating the trade deficit IS inflationary to the dollar economy. It means the purchasing power of the dollars held by the middle and working class dries up as is happening now. If you try to kick start the domestic economy with a bleeding trade deficit still in place you will only cut your own artery more open and the short term positive effect will be negated by the long term negative effect, because if you do manage to lift the domestic economy out of the doldrums the trade deficit will gush ever stronger as the economic ‘recovery’ takes place and eventually the dollar economy will be bled dry again… Only this new cycle things will be even worse all around. China will sit on a $10+ Trillion dollar mountain, and the tax haven accounts will be even fatter…
As long as the dollar economy is bleeding dollars at this rate it is in a death spiral. The US is mighty and the end won’t come for some time, but it will come.
I don’t suggest that millions must suffer. But I know millions will suffer, and even die, until Americans get real. This means getting real people into power, stop supporting the GOP or the Dems because that is just a complete dead end and nothing will happen until it is far too late.
Christian W, it seems you figured out the problem!
OF COURSE, one half of all the money created by loans and government overspending went…OVERSEAS. Half! It did not feed our society, it moved nearly relentlessly overseas.
I have made a point from day one that the thing we should be concentrating on is the trade deficit. Number two is overextension of our imperial military obligations and false alliances that drain our economy.
Think about all the trillions of dollars in off shore account for a minute.
This money is theoretically CASH MONEY. It represents something. Maybe you cannot say it is pure Sovereign Wealth, like a nation state’s forex holdings. But at the very least it represents a powerful, very powerful, economic interest.
What is this money sitting in the tax haven accounts? I guess it’s commodity loot (Gulf Royal money, speculator profits), drug profits, corporate stashes, washed criminal loot, Banking/Wall Street profits, stashes of politician/CEO/hedge fund manager loot, MIC profits etc.
This is money that was looted out of the real economies in various ways. The banks are empty, but the overseas accounts are bursting and growing by the day.
This stash came to be after the Japanese Carry trade ended. You don’t see this money move about like the wild speculation during the Carry days. But this money works to stay alive and become real. It cannot just start to move about, like in the Carry trade days, because that would be inflationary. But to stay real, and stay alive and have purchasing power, it needs to not be inflated to death.
The poorer average people are, the more powerful, and real, this cash money is. In depressions Cash Is King. The powers guarding this tax haven hoard have little interest in starting a new inflationary bubble. They don’t need a ‘recovery’, unlike the wealth of ordinary people, their wealth is growing by the day from the austerity economics. This is why you will have decades of austerity Japan style. They have managed to hook their fangs straight into the artery of the Western economic system and are busy sucking the tax payers dry.
I would say this is the place to start. You must fight off the vultures because they are perverting all systems. The US economy is not real anymore. This is why I don’t pay any attention to ‘conventional’ economists and their solutions. All the numbers are massaged to the point of meaninglessness. This is why they can’t, or bother, passing budgets. This is why you are inching towards a surveillance police state so dissent can be controlled. This is why the OWS was crushed by the FBI and banks collaborating.
This is a POLITICAL battle that average Americans are losing very badly. You cannot fix the trade deficit until you have normal, sane people in charge. The trade deficit is there because it’s an easy way to buy off voters with cheap products (short term). You have to get real. Look at Japan, you cannot move within the political system because the parties are completely in the pocket of the Wealth Suckers, you can keep voting for the Democratic party for the next 20 years and nothing will get better whatsoever.
You must get real, create a real debate, and create a real alternative. It won’t be easy, as we have seen the powers that be are expert at subverting all sprouting political dissent. And they are guarding against it like hawks. The surveillance system is very powerful. But if you don’t fight it you will be passively taken for a long, bad ride.
Once the Japanese carry trade ended the derivatives market blew up. This wasn’t coincidental at all, one caused the other. That carry trade business of the bankers is ill-known in the US and I talked about it endlessly here at my own blog.
The derivatives market wouldn’t exist if we didn’t also have the floating currency regime running on a sea of red ink in US trade deficit spending.
Indeed. This mad, hubristic, two tier system is ripping the US apart. You simply cannot have a normal, healthy economy running parallel with these new perverted financial machinations of the rich elite. They cannot both exist at the same time. This is why middle class society is being eroded in the US/UK (the centers of the western financial scamming systems).
Anyone who thinks they can refute Michael Hudson, in my own, and hundreds of other persons’ opinions, the premier political economist in the world today,in a few hundred words no less, is either a budding megalomaniac, simply incapable of serious exegesis, but only flip “isogesis” — a wonderful and exceptionally useful, if infrequently employed concept, a word which I stumbled upon Germany as an exchange student and then, like the fellow in search of his “lost chord,” searched for fruitlessly for 25 years until one of my best graduate students ever happened to know its meaning.
I kept asking and asking each new class [I guess I must be “hope fiend” like Timmy Leary and Barry Obama, two rather unsavory charactors in my book.] And finally one of them, — a woman of course, one fully fluent in all the main ancient languages, knew the answer, though she was too meticulous to stand behind her answer without first checking about five Lydell and Scott-like tomes overnight. Anyway, it means “a purported interpretation, i.e. “exegesis” that is in fact really no more than a clever and biased misreading of the text that appears to butress whatever reading of the text you may have previously accepted — and usually fobbed off as your own as well, or simply want the word to mean although no historical precedents point toward such a meaning.” Is that a great rhetorical term or what?!!
[Though I still wish I had continue to study the phase transitions of various materials at differring temperatures, pressures, magnetic field strengths, and weak or strong inhibitions on bonding, as say in the new and truly fascinating work being done by researchers working with graphene and graphane.] But, to get back to Hudson and his reputed “refutation” by our imo rather naive commentator, I can at least also attest to the fact that, as a Marxist-inspired, and hence cogenitally poor, Political-Economist for over four decades, and a many decades long student of Macro-Economics in general, I still find much of Hudson’s work almost as difficult to follow at points as it is brilliant at all points.
Now it is certainly possible that I am simply vastly less intelligent than you, or than I have imagined in my worst dreams, but if so, I at least fooled my second tier, world class university of the contrary long enough to advance to Associate Professor with tenure, before becoming far too ill to continue teaching, research and endlessly proliferating “service” — i.e. “hand-holding,” if that is not by now some sort of sexual-abuse felony of its own, and hence was finally forced to go on long-term disability for my excedingly, indeed perhaps fatal case of ME/CFS . But there is a far worse problem to the critiques just provided.
The comments on Japan are quite sensible, at least as far as I have kept up with that three decades old situation, which seems quite strangely to inspire not more organized and militant protest, and the overturning of the responsible, or at least highly complicit, governing parties, but rather merely to have generated still greater complacency and hopelessness in the citizenry as a whole — hardly a good sign for the coming showdown in many western countries against the “austerity/debt/imperial/police state,” already far more advanced than the token, if sincere effort of small oppositions like “Occupy Wall Street.”
I am much more troubled by the author’s hasty application of the Japanese “lost decades” to the situation in North and Central America and Europe, though thankfully NOT also South America, as Chomsky has frequently pointed out. It is true that the 99% has been quite moribund for the last few Winter months. But as one says, “still waters run deep.” It is far from obvious to me that the widespread resistance after the austerity onslaught of 2008 has dissipated and corporate fascism become a fait accompli at least in europe and North Americas. In fact the American Republican party is determined to make a complete ass of itself once again, by cutting billions of $s for necessary social programs, and in exchange for what, still more loopholes and tax breaks for the richest thousand american families.
Were the Democrats to play their cards wisely, this should mean that the Republicans are about to commit political sucide, just as the early, nearly equally reactionary Federalistis did right after the nation’s founding. But, then, what are the chances of the democrats “playing their cards” or anything else “right”? I cannot go into all the signal differences between the Federalist and Republican determinations to destory themselves at the polls here, o.c. Nor can I provide some instanter appraisal of which features may and which may not be relevant to both countries, the USA and Japan. Still, I will readily admit that the author raises some very interesting questions quite worthy of further inquiry, and that, after all, not being more or less correct than Dr. Hudson, is what intellectual discourse ought to be about.
I tried breaking up the huge paragraph so it was readable.
Look, we have many disputes, Mr. Hudson and I. We have argued over the years online. Mr. Hudson is of the ‘magic money fix’ Krugman branch of economics.
This DOES NOT WORK.
It is fun to do! Printing money has been the solution for the elites and the hoi poi for the last 40 years and it has gone hog wild and now the world has trillions and trillions and trillions of ‘money’ sitting in FOREX accounts, private offshore bank entities and various vaults all waiting to suddenly panic and be disgorged in a massive Noah’s Flood event.
The trigger? War with China. Instigated by Japan.
To put Mr. Hudson in the same category as Krugman is insulting.
Krugman is a neo-liberal propagandist.
Hudson, on the other hand, is a true scholar of the people.
“As long as you don’t recognize the trade deficit you won’t be getting anywhere. Sure, cutting the insane spending on the war department is a great start, along with curbing the equally insane financial scam industries.”
A trade deficit nation, by definition, recieves more goods & services from other nations than it gives in return.
I see this as a good thing.
In regards to the US trade deficit in specific, two things;
1) the USD is the world’s reserve currecy
2) foreign military spending accounts for the entire US trade deficit
It is therefore foreign nations, not the US, that bear the burden of US foreign military spending. They pay for the privilege of being surrounded by US military bases.
10. CK – “Gold and silver still function as stores of wealth, measures of accounts, and money. Always have; always will.
Money, requires someone else to accept it from you for it to work as money. ”
Whatever the form it takes, gold, wood, paper, iron, all money is debt.
But WEALTH is capital! Property, too. Money simply is a trade valuation of these things.
emsnews – “Money simply is a trade valuation of these things.”
Money is used to denominate price.
Prices can be set in many ways, with or without markets.
Money is a financial instrument, a debt/credit.
do not argue with hudson
Your representation of Hudson is inaccurate, in my opinion. He is definitely not of the “Krugman let’s print money school.” To understand his perspective, you must understand the philosophy of Henry George, of whom, Hudson is a scion. Fundamentally shifting the funding of government and communal needs away from the taxation of productive labor and capital to the unearned income derived from monopolization of land and resources is the basis of his thought.
Hudson is not a “leftist.” In fact, he repudiates Marxism with its focus on class struggle between Labor and Capital. The real struggle, as it has been since the beginning of history, is the struggle between landless peasants and oligarchic landlords.
Read up on your Adam Smith- all economic activity derives from land, labor, and capital. The great mistake was to merge land and capital. I should not call it a “mistake” as this philosophical hoax was the brainchild of paid economists who sold their souls to the robber barons of the 19th century…..
I own land. And my land is taxed. Welfare families don’t pay taxes directly like I do. My food and fuel are also taxed. I pay high school taxes and have no children in school anymore.
A welfare mother doesn’t pay school taxes, the taxpayers pay her school taxes which means I have to do this, for example.
Food is taxed?