Search Results for : Killing the Host

The Economics of Soaking the Rich

The Dreaded New York Times has another article by the dreaded Paul Krugman titled The Economics of Soaking the Rich. He starts out all right by supporting taxing the rich, but he quickly descends into his typical economic myopia when he goes on to say the following:

Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.

Krugman fails to account for the damage that the rich do to the economy with some of the “work” that they do. Part of the reason for taxing the rich heavily is to get the money out of their hands to stop them from doing the damage that they do.

I see no signs that Krugman is paying attention to the writings of Michael Hudson. I have posted about Hudson many times in cluding all the articles mentioning his book Killing the Host. One article in particular lists some of Hudson’s suggestions – Ten Reforms to Restore Industrial Prosperity.

Everything You Thought You Knew About Western Civilization Is Wrong

Naked Capitalism has the article Everything You Thought You Knew About Western Civilization Is Wrong: A Review of Michael Hudson’s New Book, And Forgive Them Their Debts.

“Mesopotamian societies were not interested in equality,” he told me, “but they were civilized. And they possessed the financial sophistication to understand that, since interest on loans increases exponentially, while economic growth at best follows an S-curve. This means that debtors will, if not protected by a central authority, end up becoming permanent bondservants to their creditors. So Mesopotamian kings regularly rescued debtors who were getting crushed by their debts. They knew that they needed to do this. Again and again, century after century, they proclaimed Clean Slate Amnesties.”

Reading Michael Hudson, I am finally getting some of the deeper lessons of Modern Money Theory (MMT). I have many posts on this blog about Michael Hudson. I don’t think I put it all together until I read his book Killing the Host: How Financial Parasites and Debt Destroy the Global Economy. Searching this blog for all the posts about the book helps to remind me of what I learned from the book,

The Public Banking Option

YouTube has the video A Discussion with Michael Hudson, Ellen Brown, & Walt McRee about the public banking option.

Before you swallow this discussion hook, line, and sinker, you might want to look at my dissent below,

On Thursday April 6, 2017 two world-renowned economic thinkers came to Franklin & Marshall College in Lancaster, PA to discuss how a public banking option can affect governmental effectiveness.

This discussion focused on the key differences between government’s unquestioned reliance on private capital markets and how an entirely new, more productive arrangement could be devised.

I’d say there is a fair amount of hogwash in this presentation. If you really understand the relation between Federal Reserve Bank and private banks you can supply enough of your own knowledge to justify some of the words that are being said, but if you don’t, I think you might be bamboozled by what Ellen Brown in particular has to say. I watched about 20 minutes of this, and expected Michael Hudson to correct what Brown said, but he did not. I have read Hudson’s book “Killing the Host”, and the truth is more subtle than they are making out here.

I think a good way to understand private banks is that they get money wholesale and lend it at retail. They get the wholesale money from many places including depositors, investors, and the Federal Reserve Bank. I haven’t been able to find a reference that explains the percentages that the many wholesale suppliers are responsible for. To pretend or give the impression that private banks only have one source of wholesale money is to give you a very distorted picture.

Fractional reserve banking allows banks to lend more money than they have, but if they run into trouble, they have the Federal Reserve Bank to provide them whatever money they need (at a cost of course).

Investopedia has the article Wholesale Money that gives a hint at what I mean by wholesale money. I do not know what Fraction of the wholesale money comes from the Fed at any particular moment in history, but when the system runs short, only the Fed has an infinite supply (in the USA) to fill in whatever is needed. The excerpt from Investopedia talks about a situation in England that has close parallels to what would happen in the USA with the Fed instead of the Bank of England.

A defining moment of the subprime crisis happened in 2007, when Northern Rock, a British bank which had relied on wholesale markets for most of its finance, was no longer able to fund its lending activities and had to ask the Bank of England for emergency funding.

I have now watched the entire video beyond the initial 20 minutes that aggravated me so. There is lots of good information and ideas buried in this manure pile.

I do think that Ellen Brown is close to an idiot in understanding all the issues. Poo-pooing the need to watch out for fraud in a public bank is too naive to believe she could actually believe that. Michael Hudson was correct that their need to be stiff penalties including jail time for cheaters. There will always be cheaters and attempts at corruption. Read William K Black’s book, “The Best Way o Rob a Bank Is To Own One: How Corporate Executives and Politicians Looted the S&L Industry

Her introduction of the idea of using block chain for the Federal Reserve to serve the banking needs of the public is a complete red herring. Block chain is merely a computer security method which has nothing to do with the fundamentals of running a bank. None of the large and small financial institutions that serve the people at the retail level, use block chain to deal with USA money.

Ten Reforms to Restore Industrial Prosperity

Spoiler alert, here are the 10 ways the book, Killing The Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, suggests to stop the parasites from killing the host.

1. Write down debts with a Clean Slate, or at least in keeping with the ability to pay

2. Tax economic rent to save it from being capitalized into interest payments

3. Revoke the tax deductibility of interest, to stop subsidizing debt leveraging

4. Create a public banking option

5. Fund government deficits by central banks, not by taxes to pay bondholders

6. Pay Social Security and Medicare out of the general budget

7. Keep natural monopolies in the public domain to prevent rent extraction

8. Tax capital gains at the higher rates levied on earned income

9. Deter irresponsible lending with a Fraudulent Conveyance principle

10. Revive classical value and rent theory (and its statistical categories)

Read the book to understand the reasons for these proposals.

Understanding Russian Involvement in the Ukraine

People listening to the USA government and its corporate news media tend to have a very distorted view of the Russian involvement in the Ukraine. I found an interesting story that clarifies what happened in what you may find to be an odd place. Michael Hudson wrote a book that was published in 2015, Killing The Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

I’ll try to quote enough of one chapter to give you the picture about the Ukraine without quoting too much to violate Hudson’s copyright.

The point is that the European Union with the collusion of the USA was trying to raid the Ukrainian economy, and Russia was trying to prevent the raid. The nefarious tricks that our side used finally caused Russia to take action to protect itself. In actual fact, our side’s successful raid on the Ukraine has made a shambles of the Ukraine’s economy.

The most imaginative recent rationales for annulling sovereign debts have been thought up not by Argentina, Greece or Ireland, but by U.S. strategists seeking to enable Ukraine to avoid paying the bonds it has issued or debts run up for gas imported from Russia. In the wake of the New Cold War confrontation in mid-2014 after Crimea voted heavily in a popular referendum to be re-absorbed by Russia, the Peterson Institute for International Economics floated a proposal by former Treasury official Anna Gelpern to deprive Russia of a means for enforcing its loan to Ukraine. “A single measure can free up $3 billion for Ukraine,” she proposed. Britain’s Parliament could pass a law declaring the $3 billion bond negotiated by Russia’s sovereign wealth fund to be “foreign aid,” not a real commercial loan contract worthy of legal enforcement.

This would be a thunderclap shaking international debt markets. Its principle would be logically applicable to U.S. claims “foreign aid,” which includes loans to pay back American bankers and other creditors, as well as World Bank “aid” loans. The bonds held by Russia’s sovereign wealth fund were denominated in euros under strict “London” rules. Furthermore, the fund required at least an AA rating for bond investments. Ukraine’s B+ rating was below this level, so Russia acted in a prudent way to add financial protection by making the bonds payable on demand if Ukraine’s overall debt rose above a fairly modest 60 percent of its GDP. Unlike general-purpose foreign aid, the terms of this loan gives Russia “power to trigger a cascade of defaults under Ukraine’s other bonds and a large block of votes in any future bond restructuring,” Gelpern noted.

As recently as 2013, Ukraine’s public debt amounted to just over 40 percent of the nation’s GDP – some $73 billion, seemingly manageable until the February Maidan coup led to civil war against the Eastern Russian-speaking region. Waging war is expensive, and Ukraine’s hryvnia currency ruptured. A quarter of its exports come from eastern Ukraine, sold mainly to Russia (including military hardware). Kiev sought to end this trade, and spent a year bombing Donbas and Luhansk cities and industry, turning off the electricity to its coal mines, and driving an estimated one million of the region’s civilians to flee into Russia. Ukraine’s exchange rate plunged steadily, raising its debt/GDP ratio far above the 60 percent threshold. That gave Russia the option to make the debt payable immediately, triggering the cross-default clauses it had inserted into the euro-bonds contracted with Ukraine.

Gelpern’s paper accused Russia of seeking to keep Ukraine “on a short leash,” as if this is not precisely what the IMF and most financial investors do. However, “governments do not normally sue one another to collect their debts in national courts.” If this should occur, the pari passu rule prevents some debts from being annulled selectively. That is the problem Gelpern has been describing in the Credit Slips blog with regard to Argentina’s debt negotiations.

Gelpern therefore raises another possibility – that Ukraine may claim that its debt to Russia is “odious,” addressing the situation where “an evil ruler signs contracts that burden future generations long after the ruler is deposed.” “Repudiating all debts incurred under Yanukovich would discourage lending to corrupt leaders,” she concludes.

The double standard here is that instead of labeling Ukraine’s long series of kleptocrats and their corrupt governments “odious,” she singles out only Yanukovich’s tenure, as if his predecessors and successors were not equally venal. An even greater danger in declaring Ukraine’s debt odious is that it may backfire on the United States, given its own long support for military dictatorships, corrupt client states and kleptocracies. U.S. backing for Chile’s military dictatorship following General Pinochet’s 1973 coup led to Operation Condor that installed Argentina’s military dictatorship that ran up that country’s foreign debt. Would a successful Ukrainian claim that its debt was odious open the legal floodgates for broad Latin American and Third World debt annulments?

Ukraine’s sale of bonds to Russia’s sovereign debt fund, as well as its contracts for gas purchases were negotiated by a democratically elected government, at low concessionary rates that subsidized industrial and household consumption. If this debt is deemed odious, what of the EU’s insistence that Greece remove its Parliamentary leader Papandreou in 2011 to prevent a public referendum from taking place regarding the ECB loan? Loans made in the face of evident public opposition may be deemed to have been imposed without proper democratic consent.

Asset Prices and Wealth Inequality

Naked Capitalism has the article Asset Prices and Wealth Inequality.

A central finding of this new research is that portfolios differ systematically along the wealth distribution. While the portfolios of rich households are dominated by corporate and non-corporate equity, the portfolio of a typical middle-class household is highly concentrated in residential real estate and, at the same time, highly leveraged. These portfolio differences are highly persistent over time.

An important upshot of this pattern is that relative asset price movements induce major changes in the wealth distribution and can decouple trends in income and wealth inequality for extended time periods. For instance, rising asset prices can mitigate the effects that low income growth and declining savings rates have on wealth accumulation.

This was prominently the case in the four decades before the financial crisis when the middle class rapidly lost ground to the top 10% with respect to income but, by and large, maintained its wealth share thanks to substantial gains in housing wealth.
By contrast, the top 10% were the main beneficiary from the stock market boom and were relatively less affected by the drop in residential real estate prices. The consequence of substantial wealth losses at the bottom and in the middle of the distribution, coupled with wealth gains at the top, produced the largest spike in wealth inequality in postwar American history. Surging post-crisis wealth inequality might in turn have contributed to the perception of sharply rising inequality in recent years.

You may have an intuition of what has been going on in the economy, but until you read this, you may not understand the magnitude of the shift in wealth.

Before the real estate crash, I tried to explain to some people that they shouldn’t tap the growing equity in their house like it was a piggy bank. That wealth growth did not make up for the stagnant wages they were earning.

Luckily they had me to give them some help to keep their home after the crash.

If you want to read how and why this shift occurred, read Michael Hudson’s 2015 book “Killing The Host: How Financial Parasites and Debt Bondage Destroy the Global Economy

Until this book gets a lot more readership, we may stumble along like this until our economy is completely drained by the 1%

From Democracy to Oligarchy

“From Democracy to Oligarchy” is title of chapter 18 of the Micahel Hudson book Killing The Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

I think the point is that it is private bank created debt that is a far more serous threat to us all than is federal government “debt”.

Here is an excerpt from near the end of the chapter.

The popular media distract attention from how it has been possible for the Federal Reserve to create what is now more than $4 trillion in Quantitative Easing without spurring price and wage inflation. Morally, why have the banks’ large uninsured depositors, bondholders and gambling “counterparties” been bailed out in a period of debt deflation for the rest of the economy? Why did the Fed not create this credit to pay off the debts? Why were the debts left in place, leading to foreclosures that destroyed entire neighborhoods while the largest banks were rescued to resume their extravagant bonuses and dividend payouts?

Selling out voters to campaign contributors promoting pro-One Percent policies has led both major U.S. political parties to be distrusted by large swaths of the electorate. In view of how the Occupy Wall Street demonstrations won worldwide emulation by catalyzing awareness of how big money has corrupted our government and our economy, it seems remarkable that no Democratic or other would-be left coalition has sought to mobilize the widespread rejection of today’s pro-bank policy. Advocacy of truly socialist policies might stun the beltway class with its popularity, as Syriza has done in Greece (described in Chapter 24 below).

The Tea Party (and libertarians with roots in the anarchist tradition) fail to realize that only a government strong enough to tax and regulate Wall Street can check today’s financial and rentier power grab. Attacking “big government” without distinguishing between Big Oligarchy and a Progressive Era mixed economy – what used to be called socialism – dilutes efforts to regulate and tax wealth, and ends up being manipulated to support the vested interests, Koch Brothers-style.

I am learning some nuances about Modern Money Theory that had escaped me up till now. The economic difference between FED created money and private bank created money is that private bank created money entails debt and interest payments to the private banks that created the money whereas FED created money spent into the private sector does not produce any personal debt to the members of the private sector.

Federal government debt, unlike private, personal debt, does not require any person or corporation in the private sector to pay back that debt. The government sector debt created by deficit spending will be paid with money created by the FED.

Days of Revolt: How We Got to Junk Economics

YouTube has the video Days of Revolt: How We Got to Junk Economics,

In this episode of teleSUR’s Days of Revolt, Chris Hedges interviews economist Michael Hudson on the history of classical economics and explores Marx’s interpretation of capitalism as exploitation.

This is a discussion of Michael Hudson’s book “Killing The Host: How Financial Parasites and Debt Bondage Destroy the Global Economy”. I am finally getting a more complete picture of what I have been slowly piecing together from my study of Modern Money Theory. It is not Karl Marx that had crazy economic theories. It is the capitalist economic theories that I have been learning since the 1960s that is the crazy theory. (To be more accurate, the mixed economy is sensible, but the unregulated capitalism is what is crazy.)

Here is the second part of the interview Days of Revolt w/Hedges & Michael Hudson Junk Economics and the Future | Part 2

What Is Missing In Modern Money Theory (MMT)?

I think I have finally come to understand the key omission in Modern Monetary Theory (MMT). Close to the beginning of MMT Primer there is the chapter THE BASICS OF MACRO ACCOUNTING.

It is a fundamental principle of accounting that for every financial asset there is an equal and offsetting financial liability.

They using this accounting fact to justify later claims that banks making loans does not create net money. In this country, only the federal government is allowed to create money.

Accounting is essentially a static balance of assets and liabilities. An economy is not static, however.

When you get a loan from the bank, you make a promise to pay the money back later. However, you get the money to spend now. Your spending now stimulates the economy now, whereas the promise to pay back later will only have economic consequences later. The idea of spending now and paying later is promoted by business exactly because they know that you will be enticed to spend more money now if you don’t have to pay for it now.

During WWII, war bonds were not sold to finance the war. There was no need for the government to take back the money it had already created to finance the war, when it could just have created more money to finance the war. What the war bonds were for was to control inflation. With all of the country’s productive capacity going to the war effort, people immediately spending what they earned would have caused competition between too much money chasing too few goods. The government had to find a way to let you earn your income now, but get you to wait to spend it. So you gave the government back your money with the promise that they would return it to you later and add some interest to make it worth your while.

The point of this discussion is that the difference in time between when you get money and when you spend it or pay it back has a huge economic consequence.

The recognition of this difference may be implicit in some of the discussion of Modern Money Theory, but it ought to be more explicit. I’d hate to have our political leaders making economic decisions for our country solely based on the accounting balance idea only to figure out later that there is a time component that they needed to considered.

November 13, 2018

Michael Hudson’s book Killing the Host: How Financial Parasites and Debt Destroy the Global Economy, made me see the key difference between Fed money and private bank money. Essentially, it is all about the interest charges. MMT says that, but the significance didn’t quite strike me until I read the book.

When Will the White House and OMB Ever Learn About Sector Financial Balances?

New Economic Perspectives has the article When Will the White House and OMB Ever Learn About Sector Financial Balances? by Joe Firestone.

The Sector Financial Balances (SFB) model is an accounting identity, and these are always true by definition alone. The SFB model says:

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0.
However, the “accidental deficits” produced will not be big enough, nor targeted well enough to prevent continuing stagnation. In my next post, I’ll look at the Congressional (CPC) budget and see if the CPC has yet learned the lesson that projections that don’t take sectoral financial balances into account project private sector results that are far from consistent with what is necessary for a robust and just economy.

For those of you who don’t cotton to equations, I have prepared a picture for a blog post I will be publishing one of these days. [For a deeper discussion with even more pictures, see my previous post Diagrams and Dollars: Modern Money Illustrated (Part 1 & 2)]

Three Pots

Each  arrow in the above picture represents a flow from one pot to another. A flow into a pot is positive for that pot, and a flow out of a pot is negative for that pot.  If all four arrows at the mouth of any pot sum to a negative number, then you have a deficit for that pot. If greater than zero,  the pot has a surplus.  What is a deficit for a pair of arrows at one end of the pair is a surplus at the other end of that pair.

What Joe Firestone called an “accounting identity”, I explained in the following words:

There is no other flow of money. None rains in from the sky. None falls on the floor.

What the zero on the right hand side of Joe’s equation, (Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0), is the equivalent of what I said above.  The zero accounts for all the other flows.  There aren’t any.

If you can think of a flow of money that is not in one of these sectors, please do enlighten us.  I’d be willing to bet that whatever you come up with is actually in one of the above mentioned sectors (pots).

Oh, and the point is what?  The Republican budgets, the White House OMB budgets, and even Democratic budgets are based on the premise that the equation is not true, or the fact that these three pots are not the only ones.  If you cannot believe what is obvious to me and to Joe Firestone, and the whole world of Modern Money Theorists, then I challenge you to come up with some other explanation.

September 22, 2017

Please read my subsequent post What Is Missing In Modern Money Theory (MMT)? It casts a little shadow on the certainty of this post. It shows that the other pots can create money that sure economically acts a lot more like USA money than MMT imagines.

November 13, 2018

Michael Hudson’s book Killing the Host: How Financial Parasites and Debt Destroy the Global Economy, made me see the key difference between Fed money and private bank money. Essentially, it is all about the interest charges. MMT says that, but the significance didn’t quite strike me until I read the book.