Finance Capitalism Hits a Wall by Prof. Michael Hudson

[D-Mack]

Finance Capitalism Hits a Wall
The Oligarchs’ Escape Plan – at the Treasury’s Expense

by Prof. Michael Hudson


The financial “wealth creation” game is over. Economies emerged from World War II relatively free of debt, but the 60-year global run-up has run its course. Finance capitalism is in a state of collapse, and marginal palliatives cannot revive it. The U.S. economy cannot “inflate its way out of debt,” because this would collapse the dollar and end its dreams of global empire by forcing foreign countries to go their own way. There is too little manufacturing to make the economy more “competitive,” given its high housing costs, transportation, debt and tax overhead. A quarter to a third of U.S. real estate has fallen into Negative Equity, so no banks will lend to them. The economy has hit a debt wall and is falling into Negative Equity, where it may remain for as far as the eye can see until there is a debt write-down.

...
http://www.globalresearch.ca/index.p...t=va&aid=12328

Looks a bit like a pre-edited version, reminds a bit of the EJ-MH interview they pulled over at globalresearch

[don]

Re: Finance Capitalism Hits a Wall by Prof. Michael Hudson

It was an open question on how an IMF- austerity plan would be applied to the world's faltering hegemonic power. Now we're finding out.

The Obama bank bailout is arranged much like an IMF loan to support the exchange rate of foreign currency, but with the Treasury supporting financial asset prices for U.S. banks and other financial institutions. Instead of banks and oligarchs abandoning the dollar, the aim is to enable them to dump their bad mortgages and CDOs and get domestic Treasury bonds. Private-sector debt will be moved onto the U.S. Government balance sheet, where “taxpayers” will bear losses – mainly labor not Wall Street, inasmuch as the financial sector has been freed of income-tax liability by the “small print” in last fall’s Paulson-Bush bailout package. But at least the U.S. Government is handling the situation entirely in domestic dollars.


As in Third World austerity programs, the effect of keeping the debts in place at the “real” economy’s expense will be to shrink the domestic U.S. market – while providing opportunities for hedge funds to pick up depreciated assets cheaply as the federal government, states and cities sell them off. This is called letting the banks “earn their way out of debt.” It’s strangling the “real” economy, because not a dollar of the government’s response has been devoted to reducing the overall debt volume.


U.S./Post-Soviet Convergence?

It may be time to look once again at what Larry Summers and his Rubinomics gang did in Russia in the mid-1990s and to Third World countries during his tenure as World Bank economist to see what kind of future is being planned for the U.S. economy over the next few years. Throughout the Soviet Union the neoliberal model established “equilibrium” in a way that involved demographic collapse: shortening life spans, lower birth rates, alcoholism and drug abuse, psychological depression, suicides, bad health, unemployment and homelessness for the elderly (the neoliberal mode of Social Security reform).


Back in the 1970s, people speculated whether the US and Soviet economies were converging. Throughout the 20th century, of course, everyone expected government regulation, infrastructure investment and planning to increase. It looked like the spread of democratically elected governments would go hand in hand with people voting in their own economic interest to raise living standards, thereby closing the inequality gap.


This is not the kind of convergence that has occurred since 1991. Government power is being dismantled, living standards have stagnated and wealth is concentrating at the top of the economic pyramid. Economic planning and resource allocation has passed into the hands of Wall Street, whose alternative to Hayek’s “road to serfdom” is debt peonage for the economy at large. There does need to be a strong state, to be sure, to keep the financial and real estate rentier power in place. But the West’s alternative to the old Soviet bureaucracy is financial planning. In place of a political overhead, we have a financial and real estate overhead.


Should it be surprising that Chicago School In = Chicago School Out :rolleyes:

[serge_oc]

Re: Finance Capitalism Hits a Wall by Prof. Michael Hudson

Hudson is advocating debt-write-down, as if Americans owe money to Americans. That would mean Americans give to other Americans, which can even be labeled patriotic.

He's forgetting that politically, today, debt-write-down means one country is giving to another. That will not go down well.

He's advocating avoiding drama, just to get tragedy. But hey maybe it would work. Works on TV.

And what would exactly that mean for the dollar? Once everyone knows that US debts are not honored (have not been honored) and that no hard assets will be exchanged for paper?

It means massive exodus out of Treasury and dollar collapses anyway. Or would China and Saudis actually stick in? Hoping it will pass? But how much actual cash they have (when debt is removed)?

Not sure why Hudson didn't cover that in his essay. Because high inflation will achieve the same goal without nasty questions. There will be rush to buy real assets with depreciating dollars. Big holders of dollars will do everything politically to slow it down. Others will try to bank on falling dollar (if they can). But still, such process seems preferable to wholesale write-down.

[GRG55]

Re: Finance Capitalism Hits a Wall by Prof. Michael Hudson

Hudson is advocating debt-write-down, as if Americans owe money to Americans. That would mean Americans give to other Americans, which can even be labeled patriotic.

He's forgetting that politically, today, debt-write-down means one country is giving to another. That will not go down well...

Why does it matter? Has the USA ever worried about that sort of thing [other nation's interests] in the past?

Debt gets written down when the lender concludes that it can no longer be collected from the debtor. It matters not the nationality of the lender or borrower.

As long as debt continues to be transferred from private US entities onto the balance sheet of the US taxpayers, lenders will always assume [correctly] that the debt can be collected...at least in nominal terms.

[rj1]

Re: Finance Capitalism Hits a Wall by Prof. Michael Hudson

Economies emerged from World War II relatively free of debt...

...........Huh?

[D-Mack]

Re: Finance Capitalism Hits a Wall by Prof. Michael Hudson

...........Huh?

I'm not sure, maybe he is compareing it to WW1

Lend-lease

The reparations experience had a marked affect on the way in which the United States provided the bulk of its aid to nations fighting the Axis powers in World War II. Under the provisions of the Lend-Lease Act (1941) and in lieu of credits and loans, the United States supplied to more than thirty-eight nations whatever goods were certified by President Franklin D. Roosevelt as "in the interests of national defense."

After reelection in 1940, the president received from Prime Minister Winston Churchill a long letter setting forth Great Britain's financial straits. That nation was scraping the bottom of the barrel to pay for goods already ordered and would need "ten times as much" for the extension of the war. Churchill hoped that Roosevelt would regard his letter "not as an appeal for aid, but as a statement of the minimum action necessary to achieve our common purpose." The problem, as Roosevelt saw it, was how to aid England in the common cause without incurring such a breeder of ill-will as the war debt problem after World War I. After brooding over the matter for days during a Caribbean cruise on the cruiser Tuscaloosa, he came up with the ingenious idea of lending goods instead of money. He wanted, as he told a press conference, to get away from that "silly, foolish old dollar sign," and he compared what he proposed to do to lending a garden hose to a neighbor to put out a fire that might otherwise spread to one's own house.

In his "fireside chat" radio broadcast on 29 December 1940, Roosevelt depicted the United States as the "arsenal of democracy," and in his message to Congress a few days later, he made official the proposal that resulted in the Lend-Lease Act of 11 March 1941. The act, the complete negation of traditional neutrality, empowered the president to make available to "the government of any country whose defense the President deems vital to the defense of the United States" any "defense article," any service, or any "defense information." "Defense articles" might be manufactured expressly for the government that was to receive them, or they might be taken from existing stocks in the possession of the United States. Launched on a modest scale, the lend-lease program eventually conveyed goods and services valued at more than $50 billion to the friends and allies of the United States in World War II, and it left in its wake no such exasperating war debt problem as that of the 1920s.

Against the $50 billion of lend-lease aid furnished by the United States, it received approximately $10 billion in so-called reverse lend-lease from its allies. After the war the United States negotiated settlement agreements with most of the recipients. In general, the agreements stipulated that lend-lease materials not used in the war should be returned or paid for, but the settlements were also shaped by the proviso written into the original lend-lease agreements, that final settlement terms should "be such as not to burden commerce but to promote mutually advantageous economic relations …and the betterment of worldwide economic relations." Within a decade of the war's end, settlement agreements totaling more than $1.5 billion had been negotiated, on which $477 million had been paid. The Soviet Union, which had received $11 billion, did not settle its account until 1990, in the glow of glasnost and the end of the Cold War, eager to qualify for U.S. credits.

http://www.americanforeignrelations....end-lease.html

[Rajiv]

Re: Finance Capitalism Hits a Wall by Prof. Michael Hudson

Maybe this will shed some light from page 11 -- section titled -"Evolution from Stability to Instability" of the book - Debt, Crisis, and Recovery: The 1930s and the 1990s by Albert Gailord Hart, Perry Mehrling




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