Hudson "lite"?

[oddlots]

Good read from Naked Capitalism:

http://www.nakedcapitalism.com/2012/...aroufakis.html

Philip Pilkington: In your book The Global Minotaur: America, The True Origins of the Financial Crisis and the Future of the World Economy you lay out the case that this ongoing economic crisis has very deep roots. You claim that while many popular accounts – from greed run rampant to regulatory capture – do explain certain features of the current crisis, they do not deal with the real underlying issue, which is the way in which the current global economy is structured. Could you briefly explain why these popular accounts come up short?
Yanis Varoufakis: It is true that, in the decades preceding the Crash of 2008, greed had become the new creed; that banks and hedge funds were bending the regulatory authorities to their iron will; that financiers believed their own rhetoric and were, thus, convinced that their financial products represented ‘riskless risk’. However, this roll call of pre-2008 era’s phenomena leaves us with the nagging feeling that we are missing something important; that, all these separate truths were mere symptoms, rather than causes, of the juggernaut that was speeding headlong to the 2008 Crash. Greed has been around since time immemorial. Bankers have always tried to bend the rules. Financiers were on the lookout for new forms of deceptive debt since the time of the Pharaohs. Why did the post-1971 era allow greed to dominate and the financial sector to dictate its terms and conditions on the rest of the global social economy? My book begins with an intention to home in on the deeper cause behind all these distinct but intertwined phenomena.

[thriftyandboringinohio]

Re: Hudson "lite"?

Thanks, oddlots. That interview was fascinating.

[c1ue]

Re: Hudson "lite"?

I hope the book is more clear, but from the interview it seems Mr. Varoufakis is asserting that America consciously undertook to 'take advantage' of the Triffin Dilemma, as opposed to entered into it without knowing the consequences.

I also note his Wal-Mart example is a particularly poor one: he asserts that Wal-Mart rose to prominence as a mechanism for forcing labor into a declining spiral when Wal-Mart was already a powerhouse in 1971: it had already gone public and was operating in 5 states.

I also note a very odd version of history: according to Mr. Varounakis, the US Triffin Dilemma policy was such that

the US could suppress inflation by raising interest rates to levels that would destroy German and Japanese industries (without totally killing American companies)

Uh, perhaps my understanding of history is completely wrong, but 'destruction of German and Japanese" industries did not happen in the 1970s, 1980s, 1990s, or 2000s, and certainly not due to US policies.

If anything, the literal and complete opposite.

[don]

Re: Hudson "lite"?

c1ue, you nitpicker you . . . .

[oddlots]

Re: Hudson "lite"?

I hope the book is more clear, but from the interview it seems Mr. Varoufakis is asserting that America consciously undertook to 'take advantage' of the Triffin Dilemma, as opposed to entered into it without knowing the consequences.

I agree that there's some shaky-sounding points made here. The Volcker quote in particular seems a little suspiciously without context. But the above doesn't strike me as unreasonable. It seems to loosely match Hudson's interpretation of the way the dollar-reserve system has played out over time. Hudson always makes the point of stating that it was really up to the rest of the world to come up with an alternative and its failure to do so can't be laid at the feet of the US.

Or put in simpler terms, wasn't this really what Reagan meant when he said "deficits don't matter." That US seigniorage - correct usage - only increases the higher the deficit?

I also note his Wal-Mart example is a particularly poor one: he asserts that Wal-Mart rose to prominence as a mechanism for forcing labor into a declining spiral when Wal-Mart was already a powerhouse in 1971: it had already gone public and was operating in 5 states.

I don't see a contradiction here necessarily. What Wal Mart was originally and what it became are obviously two different things, but generally I got the sense that he was forcing the argument at points and weakening it by appealing to less demanding forms of criticism based on, presumably, reserve accounting or whatever you call inter-currency economics.

But what I responded to basically was the intuition that there's a bigger context for the crisis and much of what we talk about when we talk about it hasn't gotten to the roots of it. (I obviously wouldn't include EJ in that "we.")

[c1ue]

Re: Hudson "lite"?

The Volcker quote in particular seems a little suspiciously without context.

I didn't even bother speaking to that idiocy.

Volcker as Fed Chair had absolutely NOTHING to do with trade, deficits or otherwise.

The Federal Reserve's charter is supposed to be inflation. period.

Volcker was, however, under secretary of the Treasury in 1971 when Nixon abrogated the US' participation in Bretton Woods - something which Mr. Varounakis curiously doesn't add into his analysis.

It seems to loosely match Hudson's interpretation of the way the dollar-reserve system has played out over time.

I disagree. Hudson explicitly notes that the US was forced to abrogate Bretton Woods due to its lack of gold and ongoing deficits due to Vietnam and the Great Society.

This is a far cry from switching off one system to another which is better, and even less clear that this is evidence of a conscious decision to participate in a Triffin Dilemma.

Or put in simpler terms, wasn't this really what Reagan meant when he said "deficits don't matter." That US seigniorage - correct usage - only increases the higher the deficit?

The only thing Reagan cared about outside the borders of the US was the use of the 'evil empires' to bolster his own political standing.

Specifically the quote above had nothing whatsoever to do with the US' deficits to the rest of the world; it was referring to Reagan's assertion that US domestic federal government budget deficits did not matter if the policies which incurred said deficits would wind up growing the economy and increasing tax revenue as a result.

I think it is very safe to say that while Reagan was correct in a certain sense - certainly the 1% were more than happy to cash in their capital gains given tax cuts - the same belief is utterly, completely wrong with respect to trade.

But what I responded to basically was the intuition that there's a bigger context for the crisis and much of what we talk about when we talk about it hasn't gotten to the roots of it. (I obviously wouldn't include EJ in that "we.")

I think this is a fair statement, but I'll just note that Bill Black, Dr. Michael Hudson, Stiglitz, and others are increasingly noting the 'bigger context' was bankster capture of government and decriminalization of financial crime.

EJ has been fairly quiet on this subject, choosing instead to look forward for ways out of this present dilemma even though the cause of the present situation is firmly rooted in the bankster political system we now have.

EJ did note the confluence of interests which pushed the last stage of the banksters real estate bubble, but I haven't seen any evidence that he is acknowledging that the same forces and people involved are still at the tiller, and that this is a fundamental obstruction to any path out.

So as I noted originally, perhaps Mr. Varounakis is more illuminating in his book, but the crumbs tossed out in his interview are anything but tantalizing for me.

[don]

Re: Hudson "lite"?

EJ did note the confluence of interests which pushed the last stage of the banksters real estate bubble, but I haven't seen any evidence that he is acknowledging that the same forces and people involved are still at the tiller, and that this is a fundamental obstruction to any path out.

a bit overstated . . .

The illness is the FIRE Economy, and it is structurally in-curable within the confines of the American political economy. The internal logic of the FIRE Economy propels it inexorably forward to a binary conclusion. This fact "should" figure into any serious investment thesis as it has ours since 2001. (from Year of the Jump Ball)

[c1ue]

Re: Hudson "lite"?

a bit overstated . . .

You'll note EJ separates FIRE and the existing political economy.

I do not.

I base my view on the succession of Treasury secretaries, as well as numerous other political appointees, revolving door between FIRE and .gov as well as the FIRE intrusion into many of the Federal Reserve banks - particularly the NY Fed.

[Prazak]

Re: Hudson "lite"?

You'll note EJ separates FIRE and the existing political economy.

I do not.

I base my view on the succession of Treasury secretaries, as well as numerous other political appointees, revolving door between FIRE and .gov as well as the FIRE intrusion into many of the Federal Reserve banks - particularly the NY Fed.

Are you able to read the subscription areas of EJ's comments?

[c1ue]

Re: Hudson "lite"?

Are you able to read the subscription areas of EJ's comments?

No, I am not a Select member.

All of my understanding is from what EJ has publicly published.

[jiimbergin]

Re: Hudson "lite"?

No, I am not a Select member.

All of my understanding is from what EJ has publicly published.

I know it is aganst your princples to pay for financial advice, but IMHO you are wrong to assume EJ separates FIRE from the existing political economy.

[c1ue]

Re: Hudson "lite"?

I know it is aganst your princples to pay for financial advice, but IMHO you are wrong to assume EJ separates FIRE from the existing political economy.

Absolutely this can be true; all I can judge from is what I have read.

And I've read everything EJ has written publicly.

I will further note that I have been saying that the present situation we are in is not itself a problem, but is going to be a problem because of the dysfunctionality of the system which brought it forth, and I've been saying pretty much ever since I started with iTulip in 2007.

[Thailandnotes]

Re: Hudson "lite"?

"In other words, the preferential tax treatment for carried interest all by itself saves hedge fund types like Paulson $20 million on every $100 million in carried interest income they collect."

"America’s Plutocrats Play the Political Ponies"

http://toomuchonline.org/americas-pl...itical-ponies/

[oddlots]

Re: Hudson "lite"?

Originally Posted by oddlots
It seems to loosely match Hudson's interpretation of the way the dollar-reserve system has played out over time.

I disagree. Hudson explicitly notes that the US was forced to abrogate Bretton Woods due to its lack of gold and ongoing deficits due to Vietnam and the Great Society.

This is a far cry from switching off one system to another which is better.

These are certainly the proximate causes that everyone cites. If you are objecting to the idea that it was a planned - as opposed to improvised - switch-over then I'm probably with you.

But what I don't understand is how you can claim that there's such a gulf between what Varoufakis is claiming and Hudson's view.

Hudson is all about how the dollar-reserve system, especially in a world where the US is running a trade deficit, works to draw the world's wealth to the economy that has the "exorbitant priviledge" of financing debt in its own currency. As far as I can recall, this is the central argument behind Superimperialism.

Below's a brief snippet from a piece Hudson wrote about Poland's situation (just a random find by googling Hudson and "dollar rerserve" (or something similar):

European versus American fiscal and monetary policy


In recent months there has been a growing belief in the United States that its foreign policy simply can ignore Europe. As EC output and exports grow more slowly, its population will shrink along with new investment. Europe will commit geopolitical suicide if its politicians believe that they do not have a choice when it comes to monetary and fiscal policy.
But this feeling of being boxed in is merely an illusion. Europe has been hypnotized by the monetarist theories – so-called theories of wealth and capitalism – that have been exported from the University of Chicago via the Washington Consensus and imposed by the International Monetary Fund (IMF) as gospel.
What is so remarkable is that this monetarist fiscal policy is purely an export item that benefits America, which has pursued a much more successful domestic policy at home. Domestic U.S. economic policy is diametrically opposite to the Washington Consensus that it broadcasts abroad with fervor. The U.S. policy is to “ignore the foreigner.” Ever since World War I, America has refused to join any international organization in which it does not have veto power, so that it can go its own way whenever it chooses. And the present administration has gone its own way in its decision to run government budget deficits of historically unprecedented size, along with balance-of-payments deficits now amounting to half a trillion dollars annually.
This policy has enabled the U.S. economy to get a free ride internationally. The free ride comes mainly from Asia (China and Japan) and Europe. It has been built into the international monetary system ever since the United States went off gold in 1971. At the time this occurred, it was viewed as a weakness. After all, the United States had fought hard to keep the dollar “as good as gold” – until the costs of its military spending in Vietnam, Asia and elsewhere in the 1960s broke the linkage.
But severing the link to gold left the world’s central banks in a no-man’s land. What were they to invest their growing international reserves in, if not gold? What was OPEC to do with its oil money?
Central banks invested in U.S. Treasury bills because they were not able to find an alternative to gold or dollars for their balance-of-payments inflows. This meant that the larger their export surpluses to the United States grew, the more dollars they had to invest in U.S. Treasury bonds.
In this way, central banks have financed America’s balance-of-payments deficit year after year, and decade after decade for the past 34 years, since 1971. For the United States, running a balance-of-payments deficit turned out to be a way to finance its own domestic budget deficit. Foreign central banks rather than Americans bought up the bonds issued to finance these deficits.
Nobody back in 1971 expected the United States to run budget deficits of a size that now amounts to half a trillion dollars annually. But it has done so, in order to spur its own economy. The U.S. Government debt has doubled and redoubled, yet Americans have not had to finance these deficits with their own money. Foreign central banks are doing this – including that of Poland with its own dollar reserves.

SORRY BOTCHED POST: DINNER'S BURNING. AHHHHH!

[c1ue]

Re: Hudson "lite"?

But what I don't understand is how you can claim that there's such a gulf between what Varoufakis is claiming and Hudson's view.

Hudson is all about how the dollar-reserve system, especially in a world where the US is running a trade deficit, works to draw the world's wealth to the economy that has the "exorbitant priviledge" of financing debt in its own currency. As far as I can recall, this is the central argument behind Superimperialism.

Hope dinner wasn't too smoky

As for Mr. Varoufakis vs. Dr. Michael Hudson: I agree that both share the understanding of how the US dollar as a reserve currency benefits the US by providing extra 'free' float.

However, Dr. Hudson repeatedly notes that the sum of the US trade deficit nearly exactly matches US foreign war spending. Thus it is not clear to me that Dr. Hudson shares the view of Triffin and by extension Varoufakis: that the US deficits are a structural consequence of having a reserve currency, as opposed to a conscious decision to spend money fighting contras in Nicaragua, mujahideen vs. the Soviets, the same mujahideen on the War on Terror, Saddam Hussein, and so on and so forth.

Secondly Mr. Varoufakis asserts that the decision to switch to the US dollar as a reserve currency was a deliberate and conscious one. As I noted before, this is a very strong statement which needs very strong evidence.

If the US understood the benefits of having the US dollar as a reserve currency, why then did it wait until 1971 to switch over - even as it was running low on gold? There were plenty of opportunities long before then - starting with the end of World War II and floods of US dollars being lent to rebuild Europe and Japan, onwards to the Korean War and its huge impact on the US deficit, thence to Vietnam and its equally high price tag in defense against Communism.

While of course I cannot rule out that Mr. Varoufakis is right, but then again it seems suspiciously ex post facto: much as a gambler who picked red instead of black exclaiming "I didn't need that money anyway", so then the US is said to have chosen to switch to a US dollar global reserve currency even as its gold was dwindling away.

If you've read Super Imperialism, version 1, Dr. Michael Hudson goes over in some detail the many machinations and games which the US played in order to not default on Bretton Woods gold for dollars obligations - including reclassifying the IMF's gold reserves as 'American', pressuring the French to stop loading up on gold, and so on and so forth.

The picture resulting doesn't mesh well with the idea of some technocrats in the US Treasury or US Presidents making a sound, reasoned decision to switch to a better system.