Michael Hudson spoke with Max Keiser about what he calls “fictitious capital” which is essentially lending backed by inadequate capital, such as collateral that has fallen in value. This is an idea he has explored in his previous papers, such as “From Marx to Goldman Sachs” and now in his new book, The Bubble and Beyond. For German readers, Hudson was also interviewed in FAZ.
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One word.
OUCH!
Thanks for posting this interview with Dr. Hudson. Few people have a better grasp of the sheer level of both material and intellectual fraud that is the new neoliberal global order than he does. And fewer still are able to explain the most complex scam ever designed as clearly as he does.
Keep spreading the word, folks. We can still take this monster down.
Friends;
So, let me get this straight. The system is going to blow up soon, and the crooks are trying to rig the game so that the victims end up paying for the whole mess. Sounds like the perfect formula for First World Regime Change to me.
A great interview and kudos to Max Kaiser who proves himself no lightweight in this exchange. Hudson is exactly right in his analysis. What we can expect regardless of the outcome of November’s political fandango is continuation of the prevailing financial fiction. The Fed will continue intravenous feeding of the zombie banks, the 99% will continue to suffer wage compression, unmeasured unemployment, reduction of public services, relentless demands for payment of unserviceable debt (real estate, student loans in particular). Financial assets will fluctuate in a downward trend that periodically punishes overeager shorts and leaves episodic opportunity for moderate short term gains, although the long term has been effectively abolished. Nothing can alter this scenario because the only alternative is a complete collapse of asset values, and asset values are what separates the 1/10% from everyone else. Hudson is just about the only public intellectual who understands this stuff and writes about it honestly. Unfortunately, his book is far too expensive.
How does this differ from a Ponzi scheme?
ponzi schemes run on liquidity alone, and buckle once there isn’t enough new money incoming to pay out the current holders (who advertise for you) at the rates they’re used to; here you can handwave towards the “assets” you have which aren’t worth what you say/think they are, while your income generally comes from loans that you’ve given out against those “assets”.
Hudson mostly makes sense, but he lost me when he talked about oil. He makes the standard leftist assumption that we invade countries to get their resources. This is simply false.
If we DID take their resources, it might make the invasions worthwhile; but we never do. We spend trillions of dollars and thousands of lives to accomplish precisely nothing for the nation or its economy. The contractors get rich, and that’s all.
If you want to make an oil-related assumption based on what REALLY HAPPENS, you could assume that we are invading ONLY those oil-rich countries THAT COMPETE WITH SAUDI, to keep their oil off the market for a while. This raises prices for Saudi and also makes more profit opportunities for speculators. Seems like a stretch, though.
Suggestion: we go there to create investment opportunities for shell/halliburton/ch2m hill/etc.. These companies are generally allowed to keep between 40-80% of the revenues for “risking” investing and setting up the infra etc., while the state only gets a pittance.
(in last sentence i’m talking about oil companies; halliburton etc. live off corporate welfare, both by being allowed to hugely overbill, and because the investment opportunities are created at all, when they wouldn’t have been absent the invasion.
Dear polistra;
It’s not just a “standard leftist assumption.” Lots of rightists I know make the same mistake, if it is such. Perhaps it would be better to assume that a lot of what passes for ‘strategic thinking’ is merely stupidity in disguise.
That is not the argument that he made.
He said “We want this oil…” and it seems you stopped listening there instead of the complete sentence.
“We want this oil not to go to China or with any country that has a potential military power” was the complete quote, and it is 100% correct in the countries we have invaded and the countries we’ve offered military aid.
This is the pattern playing out throughout the rest of the world, from Burma to Uganda. China’s been making diplomatic inroads into Africa for a decade now in order to secure favorable trade policies with those nations. The U.S. recognizing its own fading economy is threatened by the economic emergence of China and since the establishment of AFRICOM in 2007 has been throwing a fuckton of military aid and resources at the continent in order to win over corrupt African leaders(all of ECOWAS), scare off the Chinese, and interfere with the plans for PanAfrican unity that were being pushed by Gadaffi.
Right now in the Philippines and Myanmar, the U.S. is engaged in denying resources to the Chinese mainland.
Remember, in the current age of multinational oil corporations that are far above U.S. law, there is no such thing as “American oil”. The game is about keeping oil away from other countries that may contend for top spot once the financial crisis starts really unwinding.
Thank you. Finally somebody who gets it.
One of the two principle strategic motives for the U.S. invasion of Iraq was not that Saddam necessarily had WMDs at that time — although, like some of Saddam’s generals, many U.S. government officials genuinely assumed the worst (and were wrong) — but, rather, that Iraq’s oil fields represented an almost unlimited source of wealth to support future WMD development projects, including potential nuclear weapons in the hands of Saddam or, worse, his sons. Remember W’s bemused later comment about, “What does it matter whether Saddam had WMDs then or not?”
Great interview with Hudson.
What does it matter that North Korea an “insane” country or Pakistan a Muslim country has nuclear weapons?
It doesn’t.
Nuclear weapons are a veto to foreign invasion, especially by the US which has huge and soft targets, its cities.
Eh. A few simple points —
[1] Nuclear deterrence is much, much more unreliable than we’ve been programed to assume. Since 1945, at least seven or eight wars have occurred, depending on how you count, where one side had nuclear weapons and didn’t use them. Nuclear weapons didn’t deter North Korea and China in the 1950s. In 1973, Israel had nuclear weapons it could have delivered against Cairo and Damascus. China and Russia, both nuclear powers, almost went to war against each other at the end of the 1960s. And so on.
[2] You can make a good argument that nuclear deterrence doesn’t work _at all_, in fac t. I don’t agree, but go look at this essay “The Myth of Nuclear Deterrence”(2008), Ward Wilson, a senior fellow at the James Martin Center” for Nonproliferation Studies, in Monterey, California. Can you tell me where Ward is wrong?
http://cns.miis.edu/npr/pdfs/153_wilson.pdf
[3] To the extent that nuclear deterrence does work, however, the nuclear actor has to inject ever-increasing risk into the strategic equation. That is, the nuclear actor either creates a plausible facade via “rational irrationality” a la Tom Schelling’s Madman Theory or as the Romans did by burning their boats behind them. Thence, we get scenarios Cuba 1963 when the world nearly got blown up for no greater reason than JFK’s testosterone count.
(Look up, for contrast, Nixon and Kissinger’s little-noted handling of the 1971 Cuban non-crisis, where they essentially ignored the Russian nuclear buildup in Cuba that existed for the rest of the Cold War, despite whatever lies we told ourselves. And since it made no difference to the Cold War’s outcome, what the hell did Kennedy take the world to the brink for in 1963?)
[4] Go look at deterrence in the non-human world amongst animals. Evolutionary game theorists have done quite a bit of work on this. I don’t have time to link to any papers now because, but basically, the smaller challenger acts crazier to be plausible and, again, injects more risk into the strategic equation.
[5] I agree that any state with a semblance of modern infrastructure — or even without, like North Korea — can get nukes if it really wants to. If we sufficiently motivate the Tehran regime to acquire them — and I suspect that if Iran had really wanted nuclear weapons, it would have them by now — it can get them.
[6] But you have no idea how many times and how close to the edge the world has come via nuclear accidents and only happened to survive because, say, Yeltsin hadn’t had his first drink of the day. So add that accident rate to the fact that nuclear deterrence only works — if it works at all — by the nuclear actor injecting more risk into a confrontation and the conclusion has to be —
[7] Just like our financial system, in the long term a geopolitical order based on nuclear deterrence will appear to work. Till it doesn’t.
Yes, nuclear armed countries can fight with each other without using nuclear weapons as Pakistan and India have done over Kasmir. But if Pakistan’s national survival was at stake I imagine they’d tell India, “Backoff or we’ll start trading cities. We have nothing to lose. You?”
Personally, I like weapons that can reach out and touch the elites and other armchair warriors. WWII killed 50-86 million with conventional weapons alone.
“We want this oil not to go to China or with any country that has a potential military power” was the complete quote, and it is 100% correct in the countries we have invaded and the countries we’ve offered military aid.
Thank you for the comment. I think to be exact, it’s the way the US keep China’s buying of the debts everybody knows to have little value in the future. The US can’t afford to fight China and loose all the real brick-and-mortar investment it have done there and China will loose the value of the fictitious IOUs it got from the US. But now, when the going get tough, I think the US may try real deny of access in the South China sea (in Vietnam we call them the East sea) and they’re building a coalition of the willing quite strong, lately include also Russia in RIMPAC 2012. Russia is delighted, you know, with the oil price.
I think it is more about keeping oil off the world market and holding up the price. Think about the extent to which oil serves as collateral (directly and indirectly) in the financial system.
Nope. It’s primarily about the geopolitical strategic reasons, as Chip Molter points out above.
We do it to enforce the “petrodollar”, which means lots of artifical demand of USD and USD-based securities which are then stored and held in Western banks.
Anyone that wants to use any appreciable amount of energy in the form of petroleum (and all of the machinery that requires it) either has to play ball, or use whatever exists within their own borders, if any.
Without that arrangement, I suppose we would see no benefit and our currency would have to compete fairly in some semblance of a “free market”.
People who insist that petroleum is traded in USD because of its inherent “stability” are deluding themselves.
“He makes the standard leftist assumption that we invade countries to get their resources. This is simply false.”
We DID try to steal their resources. Look back at the 2004 election. Both Kerry and Bush at the time backed privatizing Iraq’s oil even though over 80% of Iraqis were opposed.
Paul Bremer, who was in charge of the criminal and corrupt CPA, issued his infamous 100 orders, essentially carving up the Iraqi economy and selling it off to, largely foreign, investors. One of the orders called for the near total privatization of Iraq’s oil and allowed for 100% foreign ownership of Iraq’s oil wealth. He also claimed that the 100 orders could not be changed thereafter by Iraq’s democracy. The damage done to Iraq’s economy by these orders, and the radical free market mindset that formed their foundation, cannot be put into words. The privatization of the oil sector was beaten back by the Iraqis who initially used non-violent methods, strikes, sit ins, civil disobedience. We weren’t entirely successful because we didn’t try, we failed because the Iraqi people said hell no.
“If we DID take their resources, it might make the invasions worthwhile”
Well now the first comment makes sense. Would it make sense? We kill as many as a million Iraqis, create one of the largest internally displaced populations in the world, loot the economy, we drop depleted uranium and other poisons all over the country, but if we were able to privatize THEIR damn oil it “might make the invasion worthwhile”. It wouldn’t. If we had consciousness about what we’ve done to the Iraqis and if we as a country had any morals we see that nothing could have made the invasion worthwhile.
Any rate, Hudson, as usual, is right on in this video. The concept of fictitious capital was one of Marx’s focuses in the third volume of Capital, which is my favorate work of his. In that volume he focused on on finance and it’s amazing how far sighted his words and ideas critiques. I am not a Marxist, but if I were to recommend any book by Marx it would be the third volume of Capital.
I wonder about these things. Though it’s obvious it is not about us except for the looting and shooting. It seems to be about maintaining an oil peg to the dollar, banksters, defense and int’l oil inc. (other) money flow.
“it’s obvious it is not about us except for the looting and shooting.”
I don’t get your point here. What do you mean its not about us?
Invasion as a way to take oil off the market. What a way to fight global warming!
;)
“The contractors get rich, and that’s all.”
there, you DO understand.. i think your hung up on a faulty concept of “we”..once you understand who “we” is, then your “standard leftist assumptions” become axiomatic statements
Dude!
http://www.youtube.com/watch?v=E09LU6XVyxs
Listen more closely to what Hudson says about invading oil rich countries. As always, it’s not about obtaining the resources, it’s about controlling the spigot. The strategy is to keep competitors from gaining access to the resources. Anyone who thinks its about showering Americans with free/cheap oil is dreaming. Ensuring that American oil companies get huge profits and that competitors don’t gain controlling access to “our” oil is the goal.
I think his belief in the rationale for our invasions is true.
Take Iraq for instance. The country’s entire foreign trade is now placed through J P Morgan which naturally favors its friends. Result – mineral exports go at low prices whilst imports are all top-dollar products of Europe and North America.
I don’t think Hudson is leftist in his assumption. Oil isn’t gold. It must be controlled by military means, deny access to competitors and potential enemies, that was known in world war II, the war with Japan started by such measure, the defeat of Hitler in North Africa also due to oil. That the way the war machines operates, and geopolitical reasoning.
You mentioned the Saudis, as I remember the first oil war with Iraq, in fact, started by oil-inspired conflict between the Kuwaitis and the Iraqis, when Saddam Hussein misread G.H.Bush intention, though he was the ally of the US in the region, and invaded Kuwait after consulted the decision with US Ambassador April Glaspie. The Gulf war of 1990 ended quickly with the Victory of the Coalition, and the strategic aim of the US to control the oil rich Arabia Saudi (not Iraq :-)
Later history of the region only confirm the strategic importance of oil in geopolitical thinking of the US.
“resource wars are FALSE??”
http://www.amazon.com/KILLING-HOPE-William-Blum/dp/1551640961
http://www.amazon.com/Confessions-Economic-Hit-John-Perkins/dp/1576753018
http://www.ratical.org/ratville/CAH/warisaracket.pdf
“the standard leftist assumption that we invade countries to get their resources.”
All wars are over either resources or turf. What’s leftist about that?
Chip, thank you for your careful correction about what Hudson really said. Hudson is also correct about the need for distraction in elections. Clearly this govt. is engaged in multiple forms of distraction to keep people from understanding what is actually occurring.
Social issues, about which neither party’s politicians give a crap, are whipped up to scare people so voters will desperately cling to “their” side. Wars and terrorism scares are also effective in keeping people in line. Expect more of those as it becomes more difficult to hide the collapse. (Frankly, I’m not certain they can make it to the election before nearly full collapse.) Not to mention, there’s lots of money in both for the 1 percent.
People need to stop turning against each other. It’s so easy to manipulate people who have been propagandized the way we have. Time to smart up!
Yet, some of the very authors of this blog engage in the same tactics, railing on about certain totally subjective and completely meaningless social issues for… ?
Kyrie,
I’m not certain who you are referring in your to but I will clarify my remarks. Social justice is of the highest import in any society. Equality of races, sexes, an end to classism and discrimation in all its forms is a very worthy goal. Too bad elities of the legacy parties couldn’t give a shit about social justice.
Legacy party elites pretend to care to get your vote. We all need to understand that pretense or we will keep making the same mistake in evaluating them every time. We must see through to the actual policies/values legacy party elites hold. That will help us cut through our fears, either on the right or the left. Truth telling is necessary but not sufficient for reaching social justice. But it is necessary.
Who I am referring to knows who they are.
Making a bold statement and then not defending said statement is not bold, it is cowardice.
Your line of reasoning is exactly in line with mine, and I’m not just faking it for PR and accolades.
If only the world had more people like you, Jill, is all I’m trying to say.
in memory of Gore Vidal
“There is a smell of Weimar in the air.”
It is truly the end of an age of gold.
“Tax real estate like you used to do before 1980.”
He doesn’t realize that here in California, people were losing their homes because they couldn’t afford their taxes. I don’t get this push by some leftists to reinstate this policy. It would just make things worse than they already are.
So? Why is someone who “owns” a parcel of land entitled to keep it, no matter what?
For that matter, renters get tossed out of their homes all the time. Why are their concerns any less valid than owners?
The problem is that you don’t understand that the portion of property tax that falls on land is a fee for denying everyone else use of that land. If you can’t pay the fee, you should lose that privilege.
It is too bad you cannot see the big middle finger salute I have waving for you.
If you can’t pay the fee, you should lose that privilege. liberal
I suppose I agree except for a limited homestead exemption (till the current owner dies or sells). I suppose that logic could be extended to renters too. The property tax on a rental unit could not rise till the current renter leaves or dies?
It will be interesting to see what the laws in the Millennium are like.
“I don’t get this push by some leftists to reinstate this policy.”
Sorry, it isn’t a leftist idea. Henry George, Adam Smith, David Ricardo weren’t leftists and they were in favor of just what Hudson was saying. Hudson has articulated his rationale for this though many times. He says that people have the mistaken assumption that if you lower taxes on land that the difference will go to the homeowner. Hudson says that what isn’t taxed by the government will simply be paid towards the bank in the form of interest. Since land is a gift from nature and generally speaking it goes up and down as a result of macroeconomic factors, not any work that is done by landowners, it is unearned income. Ricardo was in favor of free trade because he thought that it would reduce rents, which had the potential to squeeze profits and to harm the emerging industrial capitalists. Again, this isn’t a left wing idea.
I heard one interview of his where Hudson talked about England recently building a train and how they paid for it. A train was built there, and as usual land values near the train went up. The increase in land values had nothing to do with any work of the land owners, it was the government building the train that caused the increased land values. So the government taxed the increasd land values and used the money as a means to pay for the railway. Explain why you think this is wrong.
California used to have an amazing public school system. It had, has, an amazing public university system that was virtually free. Far from it now. I took one class at UCSD and had to pay more than people did for an entire year of classes decades ago. That, along with public services, have gone to hell since Prop 13 . A state as rich as California shouldn’t be in this position.
Land values went up near the train – they magically went up? Mother Nature increased them? or was it Mr. Market, whoever the hell that is …?
Maybe if i was living on a piece of land near the train, it was worth less to me with that damn train near it … Then to add insult to injury, I had to pay more taxes because somebody out there decided it was “worth more” in $ terms, i.e. i could make more money now if i sold it, even though i never wanted to sell it and just wanted to live there but couldn’t because i couldn’t pay the taxes and so lost the place to the County for taxes that the Cty had raised because my place was “worth more” …..
Sorry, I have to agree with those who object – gentrification of a lot of places has occurred because somebody bid up prices and hence taxes on places such that the folk who had lived there were driven out.
I live on a fixed income, in the house i grew up in, the place i want to end my days in – if Mr. Market decides for some reason that has nothing to do me that my place is “worth more” and my taxes go up and i can’t pay …..
So if you want to raise the taxes to whack the “rent” paid to the banks – remember the folks who may get whacked in the process – as they say, when elephants fight, the grass is trampled …
“Land values went up near the train – they magically went up? Mother Nature increased them? or was it Mr. Market, whoever the hell that is …?”
Do I have to explain why land values can go up when a train is built nearby? Regardless, if land values went up because of the train being built it would have nothing to do with anything the land owners did. I was stating what I heard Hudson say any damn way.
“Maybe if i was living on a piece of land near the train, it was worth less to me with that damn train near it … Then to add insult to injury, I had to pay more taxes because somebody out there decided it was “worth more” in $ terms, i.e. i could make more money now if i sold it, even though i never wanted to sell it and just wanted to live there but couldn’t because i couldn’t pay the taxes and so lost the place to the County for taxes that the Cty had raised because my place was “worth more” ….”
Nice what if scenario. Buidling, repairing and uprgrading bridges, roads and other types of infrastructure has to be paid for somehow. It would make sense that if people were making money off of increased property values that they should pay for as much of it as possible, seeing that it was Mr. Market or whatever and not anything THEY did that increased the land’s value. I would say the same in general of other types of unearned income, like financial speculation, inheritance, high rents.
I would guess the tax would go up on properties sold that increased in value thanks to the train being built nearby. You could raise taxes on local businesses if their earnings increased thanks to the train station being nearby.
As I also said, this WAS a pretty mainstream position within economics for some time, going back as far as I know to the Physiocrats.
Hudson said that if land taxes are decreased the land owners wouldn’t get to capture the increased land values anyway, the bank would and the land owners would simply have to pay pledge more to the banks. I’ll ask again (keep in mind this is HIS point, if I am stating it incorrectly and anyone reading this can correct me, please do so), do you not agree with this? If you don’t, explain.
It seems to me that Prop 13 didn’t decrease the amount of people’s income that they have to pledge to purchase a home. Taxes were lowered, more money was pledged to the banks, people have had to go into higher and higher debt to purchase homes and local services have been starved for funds. Again, if you think I am wrong, explain why.
“Land values” – value to whom? What “value” are you talking about? That’s my point, in case you missed it – treating price as commensurate with value – the whole market mentality thing.
i know very well why prices rise – the market will always take what it can get and it doesn’t care who it gets it from. The fact that the land near the train now has a commercial “value” it didn’t before … The idea that land should be zoned for it’s “highest and best use” and that commercial and industrial uses are considered “higher and better” because they can fetch higher prices – I understand very well indeed …
The whole idea that a house is a financial “investment” in the sense of something to make money on instead of someplace to live and raise your kids and your flowers is, and was, IMO, dumb, to say the least, and one of the reasons we got into this mess ….. Using you house as a piggy bank?
The only time taxes should go up on a place, IMO, is when the place is sold – let the new owner can pay on the basis of what he bought it for, or put a fee on the seller based on the increased “value” it accrued, or, at best, what the owner can afford.
I do believe in paying taxes – it is the duty of a citizen to pay “maintenance fees” for the society (s)he lives in, but you haven’t at all addressed my issue of concern – folks being driven out of their homes by taxes, what is the difference if you lose your home because the banks screwed you or the taxes did? You lost it because Mr. Market decided it was “worth” more in $ than you had, though, in fact it is priceless as far as you are concerned. Check out some Suzuki on that score …..
“It would make sense that if people were making money off of increased property values that they should pay for as much of it as possible,”
No argument there – if people are making money off the increased “market value” But that’s not how tax assessments work, in case you weren’t aware. Your taxes are based on what the taxing entity has determined Mr. Market says your place is worth – whether you are making money off it or not. The only time you can “make money” off it, unless you are a business, is when you sell it. If you have no wish to sell, why should you be taxed off this artificial hypothetical “value”? And, as we have seen, folks still have to pay taxes on the “assessed value”, even when Mr. Market pulls the rug out ….
The more I listen to Mr. Hudson, the more I think he’s a whacko conspiracy theorist. Everyone he looks at is part of the problem and he can point at their “junk economic” solutions, fraud and corruption but we are supposed to believe his solution is all outlined in his most recent book, which you can buy for $32.95.
I don’t necessarily agree with Dr. Hudson’s proposed solutions but his diagnosis is sound.
Heck, banking and the current money system is such a huge target that one has to AIM carefully to miss it!
‘The more I listen to Mr. Hudson, the more I think he’s a whacko conspiracy theorist.’
You should go read some recent history starting with the latter 1960s and you’ll find, among other things, that Hudson is not only not a wacko but was a small, but significant player in events, to the extent that entities like the US State Department, David Rockefeller and Herman Kahn (author of the landmark strategic study ON THERMONUCLEAR WAR) took him very seriously indeed.
The book’s price-point is a little steep, I concede.
The oil thing is just the olde fashioned Great Power contest for increasingly scarce resources. A lot of Africans are going to die in the next 50 years while the US and China organize proxy wars over chromium mines and agricultural zones.
http://www.marxists.org/archive/marx/works/1894-c3/ch25.htm
It seems to me that we are getting rid of the petrodollar – making it irrelevant by taking control of the entire industry right down to price fixing. I saw the Hudson interview on Max yesterday – what he says about fictitious capital is true for Europe too. The FAZ like was an eye opener. He was being interviewed along with a german, Wagenknecht, about the same fictitious capital pattern (increasing indebtedness to pay for the underlying indebtedness) in the EZ. Hudson was saying that it didn’t have to be that way (bank bailouts, etc) and he recommended the approach of Sheila Bair to do an EZ FDIC because she had made good progress here protecting the small savers. And he repeated his mantra that if debt cannot be repaid it won’t be. Wagenknecht pointed out the the EMS just maintains a private banking system at the expense of all citizens if it bypasses a sovereign distribution system. Hudson agreed and then pointed out that the Germans shouldn’t worry about hyperinflation if money is spent into their economies because the thing that causes hyperinflation is not sovereign spending but international exchange and if an economy is good its currency is good.
The most enjoyable part of the read was Hudson talking about his background, a kid born to a socialist family in Minnesota who knew lots of other famous socialists here and in Europe. He said by chance the ice ax that was used to kill Trotsky belonged to his aunt! And he mentioned a fact I hadn’t read that Stalin cut a deal with FDR to get rid of Trotsky for war aid.
The rise of NG (natural gas) is also making the petrodollar less relevant.
Look for all this to play out in the rush to grab all the Arctic resources that are now becoming available. Those methane clathrates you hear about as the ultimate global warming threat are, essentially, NG.
A great thinker, well worth the cost of admission..
Earlier books… ‘Super Imperialism’ (1972, revised 2003), ‘Global Fracture, The New International Economic Order’ (1977, revised 2005), ‘Trade, Development and Foreign Debt’ (2009)
and lots of great free stuff on his blog, such as this that was recently mentioned on NC
http://michael-hudson.com/2012/07/veblens-institutionalist-elaboration-of-rent-theory/
Veblen’s Institutionalist Elaboration of Rent Theory
July 27, 2012
By Michael
“”Economic rent – the excess of price over this “real cost” – is unearned income. It is an overhead charge for access to land, minerals or other natural resources, bank credit or other basic needs that are monopolized.””
“”Dropped from view was rentier overhead in the form of predatory and unproductive forms of wealth seeking.””
“”Excluding the political dimension of classical political economy is implicitly laissez faire. It leaves no role for government – the only power able to regulate and tax land rent and prevent the financial sector from turning itself into an oligarchy.””
“”Housing and land ownership were more widely distributed in the United States than in Europe, largely on credit as banking entered into a symbiosis with real estate and other rent-extracting activities.””
“”Labor is exploited as saver as well as debtor, with its pension fund set-asides turned over to financial managers.””
“”The result is a race to the bottom in terms of working conditions and living standards. Instead of making economies more competitive, austerity shrinks markets and leads to loan defaults, foreclosures – and emigration.””
“”Today’s financial managers use profits not to invest but to buy up their company’s stock (thus raising the value of their stock options) and pay out as dividends, and even borrow to pay themselves. Hedge funds have become notorious for stripping assets and loading companies down with debt, leaving bankrupt shells in their wake in what George Ackerlof and Paul Romer have characterized as looting””
“”The financial sector is unwilling to relinquish its hold simply because the economy is shrinking. Its dynamic is now crashing in a wave of debt deflation, imposing economic austerity and unemployment.””
I think it is proper to inject liquidity into the market as we did beginning in late 2008. We had to act quickly. The banks, the Fed and our legislature get a gold star for that part. The problem however was that there were no strings attached. We can’t even get the banks to mow the grass at the millions of homes they’ve taken in foreclosure. The blight on the majority of Americans is relentless in the wake of the actions. We now have a consumer based economy with no consumers. Until we get housing back on its feet, the economy of the world will stay in the toilet. As one noted economist stated, “It’s the foreclosures stupid.”
As to liquidity, fear brings panic and panic brings global economic collapse. The “Long Depression” of 1873 starting as a liquidity crisis in Vienna and spreading world wide, is a prime exampled of this.
http://en.wikipedia.org/wiki/Long_Depression
http://en.wikipedia.org/wiki/Panic_of_1873
It is wrong to condemn the Fed for injecting liquidity, but as usual the devil is in the details.