Michael Hudson: Save the Economy, Dismantle the Empire

[Rajiv]

Michael Hudson: Save the Economy, Dismantle the Empire

Today's deepening financial and economic crisis cannot be alleviated without addressing a number of problems that the public does not really want to hear about. Even to cite them raises a wall of cognitive dissonance.

For starters, today's debt problem is not marginal, but has become structural--and structural problems cannot be solved with merely marginal palliatives. What Alan Greenspan called "wealth creation" turned out to be asset-price inflation--bidding up property values and the stock market on credit. The Bubble Economy loaded down households, real estate and entire companies with debt, while the Bush tax cuts for the higher tax brackets forcled to soaring federal, state and local budgets much more deeply into debt.

This policy could continue as long as debt inflated property prices at a faster rate than the interest rate that had to be paid. But paying interest and amortization charges diverted consumer and business spending away from consumption and production. This is what the term "debt deflation" means. The financial and property sectors received the income formerly spent on goods and services. If one has to pay dDebt service is not available to on loans that were issued to bid up real estate and stock prices, this income cannot be spent on consumer goods (for homeowners) or for capital investment (for debt-leveraged companies). The effect iwas to slow sales and business income, and hence the commercial rental and real estate market.

By 2006 a point was reached where debt service grew to exceed operating income or the ability of many homeowners to carry--especially when interest rates jumped. The Fed's bailout idea of bailouts of bad debts is simply to lend debtors enough to pay their bankers and other creditors, subsidizing their insolvency with enough to keep current on obligations theyn cannot otherwise afford. The alternative is negative equity: the sale of homes, office buildings and companies pledged as collateral and sold at prices below the mortgage or bond loan value. Such subsidy merely buys time for the debt problem to become even more deeply engrained.

The reality is that the existing level of debts cannot be paid. The problem is by no means confined to the bottom of the economic pyramid, but is concentrated at the top. The U.S. Government itself turns out to be the world's largest subprime debtor.
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Also an interview of Michael Hudson at Bloomberg Radio - Debt cancellation. History of Debt and Credit, Bloomberg radio with Lewis Lapham, Laphams Quarterly

[MEDIA]http://www.michael-hudson.com/audio/071107HudsonDebt,Bloomberg.mp3[/MEDIA]

[Spartacus]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

before joining iTulip I asked on a couple of boards (don't know if I emailed Doug Noland or not) on the probability of a debt amnesty in the US.

Many had no idea of what this was, or how often it had happened in the past.

When iTulip introduced me to Hudson I knew he would eventually suggest an amnesty, while knowing it would not happen

http://www.michael-hudson.com/articl...istDebate.html

<<<
No doubt if Milton Friedman had been around to argue the case for Mesopotamia’s private creditors, he would have tried to explain to Hammurapi and his fellow rulers that they did not need to cancel debts. If they only would let things alone, matters would adjust themselves to any given level of debt. Governments should stand aside and let local magnates foreclose, on the assumption that their wealth and power signified a superior efficiency to that of small landholders. Higher returns could be obtained in any event by replacing the cultivation of barley with that of cash crops such as dates (or further west, olives) which required less labor. Downsizing thus would seem to be more efficient.

But as far as is known, no proto-monetarist emerged in Bronze Age Mesopotamia to urge rulers to stand aside from debt management and let widespread expropriation occur. Such theorizing would have ignored the social and military problems caused by rural debt. As matters turned out, religion itself played a very different role from that familiar in today’s world. Instead of proposing equilibrium theories based on the Lord’s invisible hand a la Adam Smith, sun gods of justice were depicted as calling for public sanctions against usury, and specifically against unproductive lending. The Jubilee Year of Leviticus 25 used the term deror for debt cancellation, cognate to Babylonian andurarum employed when rulers of Hammurapi’s dynasty and other regions proclaimed clean slates. What changed, to be sure, was the fact that in an epoch when kings had become oppressive, Judaic religion removed from the palace the option to proclaim clean slates, placing the obligation for such policies at the core of the Mosaic covenant.
>>>>

Michael Hudson: Save the Economy, Dismantle the Empire



Also an interview of Michael Hudson at Bloomberg Radio - Debt cancellation. History of Debt and Credit, Bloomberg radio with Lewis Lapham, Laphams Quarterly

http://www.michael-hudson.com/audio/...,Bloomberg.mp3

[GRG55]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

Michael Hudson: Save the Economy, Dismantle the Empire



Also an interview of Michael Hudson at Bloomberg Radio - Debt cancellation. History of Debt and Credit, Bloomberg radio with Lewis Lapham, Laphams Quarterly

http://www.michael-hudson.com/audio/...,Bloomberg.mp3

Dr. Hudson says:

"...The only way to stop this hemorrhaging is to negotiate a debt writeoff, starting with the U.S. Treasury bonds held by foreign central banks. But what does the United States have to offer? To ask foreign governments to make an economic sacrifice of this magnitude cannot be negotiated without the U.S. Government negotiating a grand global bargain. Having little quid pro quo to offer, the most promising way to get foreign countries to voluntarily give up their financial claims on the U.S. economy must include the one thing America can offer--the military dimension.

There is only one way that I can see this being done. The United States would agree to dismantle all its overseas military bases (or at least, those outside of the Western Hemisphere). This would mean relinquishing its dream of imposing world hegemony by force of arms. This also would free it--and other countries--from the post-Cold-War arms race. It would help revive the "real" economy's production and consumption by freeing revenue for spending on consumption and new direct investment. In the process it would free the United States from "Pentagon capitalism," that is, cost-plus production contracts that seemingly has led American industrial engineering to be incapable of cost-minimizing production methods, thereby losing what used to be its competitive technological advantage.

Foreign countries are coming to view the United States from the same perspective that the Bush Administration viewed other countries: Any economic potential is by definition military in character. It follows that what COULD be, should be stifled at the outset. The United States has become the world's major aggressive destabilizing force. Without dealing openly with this military "elephant in the room," any alleviation of foreign claims on the U.S. economy by foreign governments would simply permit America to maintain and even to increase its global military presence, building yet more foreign bases and imposing a yet larger balance-of-payments drain on the dollar. "Supporting the dollar" is synonymous with subsidizing the Executive Branch's addiction to hegemonic military diplomacy.

Unfortunately, this is not a truth that the American public wants to hear."

This bargain of debt forgiveness in exchange for military withdrawal may work in theory for countries such as Russia and China, but there are nations of lesser consequence but more numerous that may view such a policy with alarm.

The idea that American military withdrawal would free the rest of the world from "the post-Cold war arms race" is questionable. I wonder how South Korea, Japan, Taiwan, and Eastern Europe among others might react.

[FRED]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

Dr. Hudson says:

"...The only way to stop this hemorrhaging is to negotiate a debt writeoff, starting with the U.S. Treasury bonds held by foreign central banks. But what does the United States have to offer? To ask foreign governments to make an economic sacrifice of this magnitude cannot be negotiated without the U.S. Government negotiating a grand global bargain. Having little quid pro quo to offer, the most promising way to get foreign countries to voluntarily give up their financial claims on the U.S. economy must include the one thing America can offer--the military dimension.

There is only one way that I can see this being done. The United States would agree to dismantle all its overseas military bases (or at least, those outside of the Western Hemisphere). This would mean relinquishing its dream of imposing world hegemony by force of arms. This also would free it--and other countries--from the post-Cold-War arms race. It would help revive the "real" economy's production and consumption by freeing revenue for spending on consumption and new direct investment. In the process it would free the United States from "Pentagon capitalism," that is, cost-plus production contracts that seemingly has led American industrial engineering to be incapable of cost-minimizing production methods, thereby losing what used to be its competitive technological advantage.

Foreign countries are coming to view the United States from the same perspective that the Bush Administration viewed other countries: Any economic potential is by definition military in character. It follows that what COULD be, should be stifled at the outset. The United States has become the world's major aggressive destabilizing force. Without dealing openly with this military "elephant in the room," any alleviation of foreign claims on the U.S. economy by foreign governments would simply permit America to maintain and even to increase its global military presence, building yet more foreign bases and imposing a yet larger balance-of-payments drain on the dollar. "Supporting the dollar" is synonymous with subsidizing the Executive Branch's addiction to hegemonic military diplomacy.

Unfortunately, this is not a truth that the American public wants to hear."

This bargain of debt forgiveness in exchange for military withdrawal may work in theory for countries such as Russia and China, but there are nations of lesser consequence but more numerous that may view such a policy with alarm.

The idea that American military withdrawal would free the rest of the world from "the post-Cold war arms race" is questionable. I wonder how South Korea, Japan, Taiwan, and Eastern Europe among others might react.

We will be publishing a massive two part interview with Hudson next week.

[Guest]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

... This bargain of debt forgiveness in exchange for military withdrawal may work in theory for countries such as Russia and China, but there are nations of lesser consequence but more numerous that may view such a policy with alarm. The idea that American military withdrawal would free the rest of the world from "the post-Cold war arms race" is questionable. I wonder how South Korea, Japan, Taiwan, and Eastern Europe among others might react.

I agree with this emphatically. Hudson's idea is America's "critical paradox". It is both essential to our economic survival on the one hand, and impracticable without lots of really bad consequences on the other hand. << The idea that American military withdrawal would free the rest of the world from "the post-Cold war arms race" is questionable. >>. To say this is questionable is putting it mildly.

[jk]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

questionable or not, i don't think we have to worry about this particular bargain being struck any time soon. let's try imagining the circumstances in which a u.s. administration would make such a deal. i can't even think of a scenario except to say that the situation would have to be extremely dire. what president, and what political party would make this deal?

[Guest]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

questionable or not, i don't think we have to worry about this particular bargain being struck any time soon. let's try imagining the circumstances in which a u.s. administration would make such a deal. i can't even think of a scenario except to say that the situation would have to be extremely dire. what president, and what political party would make this deal?

For better or worse - Ron Paul

[c1ue]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

Dr. Michael Hudson is one of the select few I listen to no matter how wacky.

I do wonder, though, why an American inflationary/hyperinflationary episode wouldn't accomplish the same goal of negating debt, while simultaneously preserving the US military dimension.

USAF -> oil via the Gulf
US Army -> consumer goods via South Korea, Japan and Taiwan (and Vietnam)
US self sufficient in food already.

Sure, there are some strategic metals which require an African presence, but that's do-able as well...

Think of it as the American version of the British Commonwealth economic bloc.

[Guest]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

Some perspective on our empire and military now vs in the past.

In the 1840's at the outbreak of the war with Mexico, our military was outnumbered by that of Mexico.

Prior to WWII we didn't really keep a large standing army. They tend to be EXPENSIVE.

Lieutenants a few years before the civil war, in charge of maybe 30-50 men in remote posts, were leading brigades and divisions of 2,000 to 5,000 men, a few years later in the civil war.

In the 1980's the USSR had a massive fleet, second in power only to our own. It's now mostly rusting junk.

My point is that militaries expand and contract rapidly due to circumstances. Ours has remained a large percentage of GDP post WWII. We may not be able to afford it much longer. Actually, I know we can't. But we might be forced to reduce it soon.

I'm curious what portion of the benefits of "globalization" that are touted should be having the costs of the large military needed to protect trading partners attached to them. Is $100/barrel oil really $125 if we allocate the costs of protecting the source?

[bill]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

My point is that militaries expand and contract rapidly due to circumstances. Ours has remained a large percentage of GDP post WWII. We may not be able to afford it much longer. Actually, I know we can't. But we might be forced to reduce it soon.

I'm curious what portion of the benefits of "globalization" that are touted should be having the costs of the large military needed to protect trading partners attached to them.

SMART POWER

http://www.csis.org/smartpower/
Smart Power is the integration of hard and soft power. Exercising Smart Power requires that the U.S. strengthen our civilian capacity to support our national security.

The report page 62:

Chief among these, the next president is going
to face intense pressure to reset the U.S. military,
both in terms of manpower and materiel.
As this report has argued, maintaining U.S. military
power is paramount to any smart power
strategy. Although the Pentagon wrestles over
the focus of this reset—whether, for instance,

it should center on traditional power projection

military missions or on future long-duration
counterinsurgency or stabilization missions—
the president will have a broader set of decisions
regarding the proper investments in and

balance of hard and soft power tools.

[grapejelly]

Re: Michael Hudson: Save the Economy, Dismantle the Empire

Hudson's thesis is that USA is the only polity operating out of its own best interests. But what I think he misses is that other *governments* act in their self interests when they buy USA debt. They do so to support the USA military and economic machine which helps them, that is helps those foreign governments, to stay in power.

There is no paradox if you think in terms of self interests of other governments rather than in terms of the self interest of other countries.

[World Traveler]

Chalmers Johnson: "Going Bankrupt" (Military Expenditures)

Chanlmers Johnson is a former CIA analyst, now president of the Japan Policy Research Institute. He is professor emeritus at the University of California, San Diego. He's written 3 books on theme of this thread: Blowback, Sorrows of Empire (which I read and is excellent), and Nemesis.

His basic thesis: U.S. empire and military projection of power is reaching the end of the line...we just can't afford it. He does a good job of tracing it from post WW II (when we could afford it) to now, when we can't.

In early 2008 he published a new article. Exerpts and link below.

Going Bankrupt: Why the Debt Crisis Is Now the Greatest Threat to the American Republic
By Chalmers Johnson
Tuesday 22 January 2008

"The military adventurers of the Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups of men thought that they were the "smartest guys in the room," the title of Alex Gibney's prize-winning film on what went wrong at Enron. The neoconservatives in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination.


As a result, going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out, or preparing for a war in outer space against unknown adversaries. Instead, the Bush administration puts off these costs for future generations to pay - or repudiate. This utter fiscal irresponsibility has been disguised through many manipulative financial schemes (such as causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.

There are three broad aspects to our debt crisis. First, in the current fiscal year (2008) we are spending insane amounts of money on "defense" projects that bear no relationship to the national security of the United States. Simultaneously, we are keeping the income tax burdens on the richest segments of the American population at strikingly low levels.

Second, we continue to believe that we can compensate for the accelerating erosion of our manufacturing base and our loss of jobs to foreign countries through massive military expenditures - so-called "military Keynesianism," which I discuss in detail in my book Nemesis: The Last Days of the American Republic.

By military Keynesianism, I mean the mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy. The opposite is actually true.

Third, in our devotion to militarism (despite our limited resources), we are failing to invest in our social infrastructure and other requirements for the long-term health of our country. These are what economists call "opportunity costs," things not done because we spent our money on something else. Our public education system has deteriorated alarmingly. We have failed to provide health care to all our citizens and neglected our responsibilities as the world's number one polluter. Most important, we have lost our competitiveness as a manufacturer for civilian needs - an infinitely more efficient use of scarce resources than arms manufacturing. Let me discuss each of these.

The Current Fiscal Disaster It is virtually impossible to overstate the profligacy of what our government spends on the military. The Department of Defense's planned expenditures for fiscal year 2008 are larger than all other nations' military budgets combined. The supplementary budget to pay for the current wars in Iraq and Afghanistan, not part of the official defense budget, is itself larger than the combined military budgets of Russia and China. Defense-related spending for fiscal 2008 will exceed $1 trillion for the first time in history.The United States has become the largest single salesman of arms and munitions to other nations on Earth. Leaving out of account President Bush's two on-going wars, defense spending has doubled since the mid-1990s. The defense budget for fiscal 2008 is the largest since World War II.

The world's top 10 military spenders and the approximate amounts each country currently budgets for its military establishment are:
1. United States (FY08 budget), $623 billion
2. China (2004), $65 billion
3. Russia, $50 billion
4. France (2005), $45 billion
5. Japan (2007), $41.75 billion
6. Germany (2003), $35.1 billion
7. Italy (2003), $28.2 billion
8. South Korea (2003), $21.1 billion
9. India (2005 est.), $19 billion
10. Saudi Arabia (2005 est.), $18 billion"

http://www.truthout.org/docs_2006/012308E.shtml