Financialization is a process whereby financial markets, financial institutions, and financial
elites gain greater influence over economic policy and economic outcomes.
Financialization transforms the functioning of economic systems at both the macro and micro levels.
Its principal impacts are to (1) elevate the significance of the financial sector relative to the real
sector, (2) transfer income from the real sector to the financial sector, and (3) increase income inequality
and contribute to wage stagnation. Additionally, there are reasons to believe that financialization
may put the economy at risk of debt deflation and prolonged recession.
Financialization operates through three different conduits: changes in the structure and operation of
financial markets, changes in the behavior of nonfinancial corporations, and changes in economic policy.
Countering financialization calls for a multifaceted agenda that (1) restores policy control over
financial markets, (2) challenges the neoliberal economic policy paradigm encouraged by financialization,
(3) makes corporations responsive to interests of stakeholders other than just financial markets, and
(4) reforms the political process so as
to diminish the influence of corporations and wealthy elites.
“The sense of responsibility in the financial community
for the community as a whole is not small. It is nearly nil.”
-- John Kenneth Galbraith, The Great Crash of 1929
The term Casino Capitalism generally is symonim of
neoliberalism (also called
economic liberalism), but it also point out to a specific phase of
neoliberal transformation of capitalism.
Politically it was slow motion corporate coup d'état, which started in 70th and
is now accomplished in the USA and other Western countries which buries social-democratic (New Deal
style) model of capitalism.
It hypertrophied police functions of state (in the form of
state) while completely avoiding economic sphere in ways other then enforcement of laws
(with a notable exclusion from this top 1% -- "Masters of the Universe"). Like bolshevism it uses the state for the enforcement of
the social system. On top level this is crony capitalism for major corporation. On low level of medium and small business
owners it presupposed
a deregulated economy (in a sense of the "law of jungle" as a business environment).
Casino capitalism presupposes strong militarized state, suppressing all the attempts to challenge the new "nomenklatura" (much
like was the case in the USSR). It is quite different from traditional liberalism:
“Liberalism” can refer to political, economic, or even religious ideas. In the U.S. political
liberalism has been a strategy to prevent social conflict. It is presented to poor and working
people as progressive compared to conservative or Right wing. Economic liberalism is different.
Conservative politicians who say they hate “liberals” — meaning the political type — have no real
problem with economic liberalism, including neoliberalism.
In other words this is neoliberal model of corporatism
during the period of "cheap hydrocarbons". The period that is probably near the end and which
by some estimate can last only another 50 years or so (less than 100 years). The major crisis of casino capitalism
in 2008 was connected both with financial excesses (caused by moving to semi-criminal ways of
extracting return on capital, typical for casino capitalism), but also with the rise of the
price of oil and decrease of Energy returned on energy invested (EROEI). In this
sense the last low oil price period which started in late 2014 and ended in spring 2018 can be
viewed as the "last hurrah" of the casino
In understanding neoliberal transformation of the society since early 80th it is important to
understanding of the key role of financialization in this process. When major services are
privatized (education, healthcare, pension plans) financial institution insert themselves as
intermediaries in this arrangement and make it the main source of their profits. Also contrary
to neoliberal propaganda this process is aided and abetted by state. State is used by neoliberalism
as a tool of enforcing market relations even where they are not useless or even harmful (education).
All this talk about irresolvable controversy between market and state is for gullible fools. In
Trotskyism for rich, neoliberalism uses power of the state to enforce market relations by
force on reluctant population even in areas where this can do no good. That make really it close to
Soviet social experiment, which lasted from 1917 to 1991 or almost 75 years. As Marx noted "History repeats itself, first as tragedy, second as farce."
A very good discussion of the role of Financialisation in entrenchment of neoliberalism in modern
societies can be found in the book by
Costas Lapavitsas. Some highlights are provided in his Guardian article
Finance's hold on our everyday life must be broken
This extraordinary public largesse towards private banks was matched by
austerity and wage reductions for workers and households. As for restructuring
finance, nothing fundamental has taken place. The behemoths that continue to
dominate the global financial system operate in the knowledge that they enjoy an
unspoken public guarantee. The unpalatable reality is that financialisation will
persist, despite its costs for society.
Financialisation represents a historic and deep-seated transformation of mature
capitalism. Big businesses have become "financialised" as they have ample profits
to finance investment, rely less on banks for loans and play financial games with
available funds. Big banks, in turn, have become more distant from big businesses,
turning to profits from trading in open financial markets and from lending to
households. Households have become "financialised" too, as public provision in
housing, education, health, pensions and other vital areas has been partly
replaced by private provision, access to which is mediated by the financial
system. Not surprisingly, households have accumulated a tremendous volume of
financial assets and liabilities over the past four decades.
The penetration of finance into the everyday life of households has not only
created a range of dependencies on financial services, but also changed the
outlook, mentality and even morality of daily life. Financial calculation
evaluates everything in pennies and pounds, transforming the most basic goods –
above all, housing – into "investments". Its logic has affected even the young,
who have traditionally been idealistic and scornful of pecuniary calculation.
Fertile ground has been created for neoliberal ideology to preach the putative
merits of the market.
Financialisation has also created new forms of profit associated with financial
markets and transactions. Financial profit can be made out of any income, or any
sum of money that comes into contact with the financial sphere. Households, for
example, generate profits for finance as debtors (mostly by paying interest on
mortgages) but also as creditors (mostly by paying fees and charges on pension
funds and insurance). Finance is not particular about how and where it makes its
profits, and certainly does not limit itself to the sphere of production. It
ranges far and wide, transforming every aspect of social life into a profit-making
The traditional image of the person earning financial profits is the "rentier",
the individual who invests funds in secure financial assets. In the contemporary
financialised universe, however, those who earn vast returns are very different.
They are often located within a financial institution, presumably work to provide
financial services, and receive vast sums in the form of wages, or more often
bonuses. Modern financial elites are prominent at the top of the income
distribution, set trends in conspicuous consumption, shape the expensive end of
the housing market, and transform the core of urban centres according to their own
Financialised capitalism is, thus, a deeply unequal system, prone to bubbles
and crises – none greater than that of 2007-09. What can be done about it? The
most important point in this respect is that financialisation does not represent
an advance for humanity, and very little of it ought to be preserved. Financial
markets are, for instance, able to mobilise advanced technology employing some of
the best-trained physicists in the world to rebalance prices across the globe in
milliseconds. This "progress" allows financiers to earn vast profits; but where is
the commensurate benefit to society from committing such expensive resources to
The term "casino capitalism" was coined by Susan
Strange who used it as a title of her book
Casino Capitalism published in 1986. She was one of the first who realized that
"The roots of the world's economic disorder are monetary and financial";
"The disorder has not come about by accident, but hasin fact been nurtured and
encouraged by a series of government decisions." (p. 60). In other words its was a counter-revolution
of the part of ruling elite (financial oligarchy) which lost its influence in 30th (dismantling New Deal from above
in the USA (Reaganomics) or
Thatcherism in the GB).
According to Susan Strange transformation of industrial capitalism into
neoliberal capitalism ("casino capitalism")
involved five trends. All of them increased the systemic instability of the system and
the level of political corruption:
Innovations in the way in which financial markets work due to introduction of computers;
The sheer size of markets; (with the introduction of 401K the size of stock market
Commercial banks turned into investment banks;
The emergence of Asian nations as large players;
The shift to self-regulation by banks (pp.9-10).
Now it is pretty much established fact that the conversion from "industrial capitalism" to neoliberal,
"casino capitalism" is the natural logic of development of capitalism. In early and incomplete matter
this trend was noticed at early 1990th by many thinkers. This is just the second iteration of the
same trend which was interrupted by the Great Depression and subsequent WWII. So, in a way, replacement of industrial capitalism
with financial capitalism in a natural tendency within the capitalism itself and corruption was contributing, but not decisive factor.
The same is true about globalization, especially about
globalization of financial flows, typical for casino capitalism, which is a form of colonialism (neocolonialism).
this conversion did not happen due to lack of oversight or as a folly. It was a couscous choice made by the
US and GB elite, both of which faced deterioration of rates of return on capital. Also unlike "industrial capitalism"
which was more-or-less stable system, able to outcompete the neo-theocratic system of the USSR, the
financial capitalism is unstable in the same sense as radioactive elements are unstable. And
this instability tend to increase with time. So there is probably natural half-life period for
neoliberalism as a social system. It might be already reached in 2008. In we assume that
global victory of neoliberalism happened in 1990. It is just 18 years. If we think that it
happened in late 60th, then it is closer to 50 years.
The global crisis
of neoliberal capitalism which started from bursting the USA subprime housing bubble in 2008 undermined ideological legitimacy of its central claim that "free
markets" lead to faster and more uniform economic development of all countries. While the peak of its
"ideological" power might be over (much like the peak of attractiveness of "command socialism" was
over after WWII), it will exist in a zombie state for a long time due to economic and military power of the USA and
G7. And as we know from Hollywood films, zombies can be especially bloodthirsty. It probably will remain
the dominant force for at least the next two decades pursuing the same policy of "forceful" opening of energy
rich and resource countries for western multinationals intact using color revolutions and
local wars. But as Napoleon quipped "You can do anything with
bayonets, you just can't sit on them".
Conversion to neoliberal capitalism was a reaction on stagnation of industrial production
and as such it was nurtured and encouraged by a series of government decisions for the last 50 years.
Stagnation of industrial production made expansion of financial sector of paramount importance for the
ruling elite and by extension for Congress which represents this elite. House vote 377:4 for Commodity
Futures Modernization Act of 2000 is pretty telling in this respect.
There were also at least two important parallel developments.
"Appetite comes with eating" and banks which initially rise as an alternative to usury
gradually became indistinguishable from them, the new usury (vampire squid as Matt
Taibbi called GS).
Financial institutions brass became dominant political force partially displacing (or more
correctly complementing) media-military-industrial
complex and oil-energy complex... Sen. Dick Durbin, on a local Chicago radio station
blurted out an obvious truth about Congress which, despite being quite obvious, is rarely
spoken "press scorps" :
“And the banks — hard to believe in a time when we’re facing a banking crisis that many
of the banks created — are still the most powerful lobby on Capitol Hill.And they frankly
own the place.”
In other words the US political system is a brand of corporatism with financial capital
standing on the top stop on interval to Washington, DC corporate hierarchy and holding the most
of political power.
There is more at work here than simply a ramped up version of social Darwinism with its savagely
cruel ethic of “reward the rich, penalize the poor, [and] let everyone fend for themselves,” [ii]
there is also a full scale attack on the social contract, the welfare state, economic equality, and
any viable vestige of moral and social responsibility. The Romney-Ryan appropriation of Ayn Rand’s
ode to selfishness and self-interest is of particular importance because it offers a glimpse of a
ruthless form of extreme capitalism in which the poor are considered “moochers,” viewed with contempt,
and singled out to be punished. But this theocratic economic fundamentalist ideology does more. It
destroys any viable notion of the and civic virtue in which the social contract and common good provide
the basis for creating meaningful social bonds and instilling in citizens a sense of social and civic
responsibility. The idea of public service is viewed with disdain just as the work of individuals,
social groups, and institutions that benefit the citizenry at large are held in contempt.
As George Lakoff and Glenn W. Smith point out, casino capitalism creates a culture of cruelty: “its horrific
effects on individuals-death, illness, suffering, greater poverty, and loss of opportunity, productive
lives, and money.”[iii]
But it does more by crushing any viable notion of the common good and public
life by destroying “the bonds that hold us together.”[iv] Under casino capitalism, the spaces, institutions,
and values that constitute the public are now surrendered to powerful financial forces and viewed
simply as another market to be commodified, privatized and surrendered to the demands of capital.
With religious and market-driven zealots in charge, politics becomes an extension of war; greed and
self-interest trump any concern for the well-being of others; reason is trumped by emotions rooted
in absolutist certainty and militaristic aggression; and skepticism and dissent are viewed as the
work of Satan.
If the Republican candidacy race of 2012 is any indication, then political discourse in the United
States has not only moved to the right—it has been introducing totalitarian values and ideals into
the mainstream of public life. Religious fanaticism, consumer culture, and the warfare state work
in tandem with neoliberal economic forces to encourage privatization, corporate tax breaks, growing
income and wealth inequality, and the further merging of the financial and military spheres in ways
that diminish the authority and power of democratic governance.[v] Neoliberal interests in freeing
markets from social constraints, fueling competitiveness, destroying education systems, producing
atomized subjects, and loosening individuals from any sense of social responsibility prepare the
populace for a slow embrace of social Darwinism, state terrorism, and the mentality of war — not least
of all by destroying communal bonds, dehumanizing the other, and pitting individuals against the
communities they inhabit.
Totalitarian temptations now saturate the media and larger culture in the language of austerity
as political and economic orthodoxy. What we are witnessing in the United States is the normalization
of a politics that exterminates not only the welfare state, and the truth, but all those others who
bear the sins of the Enlightenment — that is, those who refuse a life free from doubt. Reason and freedom
have become enemies not merely to be mocked, but to be destroyed. And this is a war whose totalitarian
tendencies are evident in the assault on science, immigrants, women, the elderly, the poor, people
of color, and youth.
What too often goes unsaid, particularly with the media’s focus on inflammatory
rhetoric, is that those who dominate politics and policymaking, whether Democrats or Republicans,
do so largely because of their disproportionate control of the nation’s income and wealth. Increasingly,
it appears these political elite choose to act in ways that sustain their dominance through the systemic
reproduction of an iniquitous social order. In other words, big money and corporate power rule while
electoral politics are rigged. The secrecy of the voting booth becomes the ultimate expression of
democracy, reducing politics to an individualized purchase—a crude form of economic action. Any form
of politics willing to invest in such ritualistic pageantry only adds to the current dysfunctional
nature of our social order, while reinforcing a profound failure of political imagination. The issue
should no longer be how to work within the current electoral system, but how to dismantle it and
construct a new political landscape that is capable of making a claim on equity, justice, and democracy
for all of its inhabitants. Obama’s once inspiring call for hope has degenerated into a flight from
The Obama administration has worked to extend the policies of the George W. Bush
administration by legitimating a range of foreign and domestic policies that have shredded civil
liberties, expanded the permanent warfare state, and increased the domestic reach of the punitive
surveillance state. And if Romney and his ideological cohorts, now viewed as the most extremists
faction of the Republican Party, come to power, surely the existing totalitarian and anti-democratic
tendencies at work in the United States will be dangerously intensified.
Alternatively, we could have spent more time studying the work of Hyman Minsky. We could also
have considered the possibility that, just as Keynes’s ideas were tested to destruction in the
1950s, 1960s and 1970s, Milton Friedman’s ideas might suffer a similar fate in the 1980s, 1990s
and 2000s. All gods fail, if one believes too much. Keynes said, of course, that "practical men
… are usually the slaves of some defunct economist". So, of course, are economists, even if the defunct economists are sometimes still alive.
Casino capitalism is a nickname for nailibelism. Probably more properly nickname
would be financial corporatism. While
the key idea of corporatism: that political actors are not individual people, but some associations
and first of all corporations (which are officially considered to be "persons" and have rights
as well as
trade unions and some other associations) remains intact, financial corporatism is different from classic corporatism in several
Financial corporatism puts financial oligarchy at the top of pecking order. It is, like the USSR
Nomenklatura, the new ruling class similar to aristocracy in the last, which is allowed to operate essentially outside the law.
The top of this hierachy, kinds of Politburo of neoliberal order are the head sof major
transnational financial corporations ("Masters of the Universe") such as CEO of Goldman Sachs,
Citibank, who now have real political power (GS traditionally controls the Treasury
appointment and most of them were in recent administration were filled with GS alumnae)
Instead of the charismatic leader, "free markets" are deified. People mobilization typical for
corporatism is no longer needed and passivity of individual (or, more correctly, limiting his
activities to consumption) is preferred (Inverted
Labor unions are considered undesirable political actors and organized labor is
blackmailed and prosecuted. While classic corporatism suppressed labor protests by forcing labor unions to asset brokered
by government settlements with capital owners, under casino capitalism labor unions are
considered undesirable political actors and organized labor is blackmailed and prosecuted. Only private corporations
are first class citizens. Atomization of employees by brainwashing people to view
themselves as individual sellers of their labor on job market (rigged by corporations) also make social protest more difficult and
allow capital to dictate condition of employment including shrinking of permanent employment
workforce in favor of contractors and part-timers that we observe in the USA.
The idea of social justice (which in classic corporatism was limited to the middle class of a
particular nation, anyway), was replaced (or more precisely, limited) it to the well-being of transnational,
mainly financial, elite (aka top 1%, or at most top 10% ). Financial corporatism is not only hostile to labor unions,
it's hostile to the large part of the middle class as well.
Casino capitalism is international in nature
and ideologically close to Trotskyism (Trotskyism
for rich). While classic corporatism is national, financial corporatism is international by its nature
making it closer to Trotskyism (with the replacement of Communist Party as the vanguard on
world proletariat with financial oligarchy as a vanguard of transnational elite).
Like Trotskyism it is aggressive and use military force for propagating to any country which resist
it (similar to Trotskyism idea of Permanent revolution is implemented via
color revolutions which
serve for establishing in the country a neoliberal social order).
Promise of well-being is fake. Most of neoliberal ideology is based on lies and
distortions.So powerful propaganda
machine is required for constant brainwashing of population, promising them increase of
individual standards of living to the level that exists in the USA and G7. Which for most
countries can't be achieved.
Historically corporatism in various modifications
became dominant social system after WWII and defeated "command socialism" as was implemented in the
USSR. Here is an instructive review of corporatism history (The
Economic System of Corporatism):
In the last half of the 19th century people of the working class in Europe were beginning to show
interest in the ideas of socialism and syndicalism. Some members of the intelligentsia, particularly
the Catholic intelligentsia, decided to formulate an alternative to socialism which would
emphasize social justice without the radical solution of the abolition of private property.
The result was called Corporatism. The name had nothing to do with the notion of a business corporation
except that both words are derived from the Latin word for body, corpus.
The basic idea of corporatism is that the society and economy of a country should be organized
into major interest groups (sometimes called corporations) and representatives of those interest
groups settle any problems through negotiation and joint agreement. In contrast to a market
economy which operates through competition a corporate economic works through collective bargaining.
The American president Lyndon Johnson had a favorite phrase that reflected the spirit of corporatism.
He would gather the parties to some dispute and say, "Let us reason together."
Under corporatism the labor force and management in an industry belong to an industrial organization.
The representatives of labor and management settle wage issues through collective negotiation. While
this was the theory in practice the corporatist states were largely ruled according to the dictates
of the supreme leader.
One early and important theorist of corporatism was Adam Müller, an advisor to Prince Metternich
in what is now eastern Germany and Austria. Müller propounded his views as an antidote to the twin
dangers of the egalitarianism of the French Revolution and the laissez faire economics of Adam Smith.
In Germany and elsewhere there was a distinct aversion among rulers to allow markets to function
without direction or control by the state. The general culture heritage of Europe from the medieval
era was opposed to individual self-interest and the free operation of markets. Markets and private
property were acceptable only as long as social regulation took precedence over such sinful motivations
Coupled with the anti-market sentiments of the medieval culture there was the notion that
the rulers of the state had a vital role in promoting social justice.Thus corporatism was
formulated as a system that emphasized the positive role of the state in guaranteeing social justice
and suppressing the moral and social chaos of the population pursuing their own individual self-interests.
And above all else, as a political economic philosophy corporatism was flexible. It could
tolerate private enterprise within limits and justify major projects of the state. Corporatism
has sometimes been labeled as a Third Way or a mixed economy, a synthesis of capitalism and socialism,
but it is in fact a separate, distinctive political economic system.
Although rulers have probably operated according to the principles of corporatism from time immemorial
it was only in the early twentieth century that regimes began to identify themselves as corporatist.
The table below gives some of those explicitly corporatist regimes.
Corporatist Regimes of the Early Twentieth Century
Country, Religion, Monarchy
Miguel Primo de Rivera
Third Hellenic Civilization
In the above table several of the regimes were brutal, totalitarian dictatorships,
usually labeled fascist, but not all the regimes that had a corporatist foundation were fascist.
In particular, the Roosevelt New Deal despite its many faults could not be described as fascist.
But definitely the New Deal was corporatist. The architect for the initial New Deal
program was General Hugh Johnson. Johnson had been the administrator of the military mobilization
program for the U.S. under Woodrow Wilson during World War I. It was felt that he did a good
job of managing the economy during that period and that is why he was given major responsibility
for formulating an economic program to deal with the severe problems of the Depression. But
between the end of World War I and 1933 Hugh Johnson had become an admirer of Mussolini's National
Corporatist system in Italy and he drew upon the Italian experience in formulating the New Deal.
It should be noted that many elements of the early New Deal were later declared unconstitutional
and abandoned, but some elements such as the National Labor Relations Act which promoted unionization
of the American labor force are still in effect. One part of the New Deal was the development
of the Tennessee River Valley under the public corporation called the Tennessee Valley Authority
(TVA). Some of the New Dealer saw TVA as more than a public power enterprise. They hoped to make
TVA a model for the creation of regional political units which would replace state governments. Their
goal was not realized. The model for TVA was the river development schemes carried out in Spain in
the 1920's under the government of Miguel Primo de Rivera. Jose Antonio Primo de Rivera, the son
of Miguel Primo de Rivera, was the founder of Franco's National Syndicalism.
Corporatist regime typically promote large governmental projects such as TVA on the basis
that they are too large to be funded by private enterprise. In Brazil the Vargas regime created
many public enterprises such as in iron and steel production which it felt were needed but private
enterprise declined to create. It also created an organized labor movement that came to control those
public enterprises and turned them into overstaffed, inefficient drains on the public budget.
Although the above locates the origin of corporatism in 19th century France it roots can be traced
much further back in time. Sylvia Ann Hewlett in her book, The Cruel Dilemmas of Development:
Twentieth Century Brazil, says,
Corporatism is based on a body of ideas that can be traced through Aristotle, Roman law, medieval
social and legal structures, and into contemporary Catholic social philosophy. These
ideas are based on the premise that man's nature can only be fulfilled within a political
.......... The central core of the corporatist vision is thus not the individual but the political
community whose perfection allows the individual members to fulfill themselves and find happiness.
The state in the corporatist tradition is thus clearly interventionist and powerful.
Corporatism is collectivist; it is a different version of collectivism than socialism but it is
definitely collectivist. It places some importance on the fact that private property is not
nationalized, but the control through regulation is just as real. It is de facto nationalization
without being de jure nationalization.
Although Corporatism is not a familiar concept to the general public, most of the
economies of the world are corporatist in nature. The categories of socialist and pure market
economy are virtually empty. There are only corporatist economies of various flavors.
These flavors of corporatism include the social democratic regimes of Europe and the Americas,
but also the East Asian and Islamic fundamentalist regimes such as Taiwan, Singapore and Iran. The
Islamic socialist states such as Syria, Libya and Algeria are more corporatist than socialist, as
was Iraq under Saddam Hussain. The formerly communist regimes such as Russia and China are
now clearly corporatist in economic philosophy although not in name.
The term "Quiet
coup" which means the hijacking of the political power in the USA by financial oligarchy was introduced
by Simon H. Johnson, a British-American economist, who currently is the Ronald A. Kurtz Professor of
Entrepreneurship at the MIT Sloan School of Management and a senior fellow at the Peterson Institute
for International Economics. From March 2007 through the end of August 2008, he was Chief Economist
of the International Monetary Fund. The term was introduced in his article in Atlantic magazine,
published in May 2009(The
Quiet Coup - Simon Johnson - The Atlantic). Which opens with a revealing paragraph:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming,
says a former chief economist of the International Monetary Fund, is that the finance industry
has effectively captured our government
The wealth of financial sector gave it unprecedented opportunities of simply buying the political
power iether directly or indirectly (via revolving door mechanism):
Becoming a Banana Republic
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent
of moments we have recently seen in emerging markets (and only in emerging markets): South Korea
(1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors,
afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly
stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll
over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers
into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry
up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled
out into the rest of the economy, causing a severe economic contraction and hardship for millions
But there’s a deeper and more disturbing similarity: elite business interests—financiers,
in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles,
with the implicit backing of the government, until the inevitable collapse. More alarming, they
are now using their influence to prevent precisely the sorts of reforms that are needed, and fast,
to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act
Top investment bankers and government officials like to lay the blame for the current crisis on
the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere
else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie
Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And,
of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness”
were fast asleep at the wheel.
But these various policies — lightweight regulation, cheap money, the unwritten Chinese-American
economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally
associated with Democrats and some with Republicans, they all benefited the financial sector.
Policy changes that might have forestalled the crisis but would have limited the financial sector’s
profits — such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity
Futures Trading Commission, in 1998—were ignored or swept aside.
The financial industry has not always enjoyed such favored treatment. But for the past 25 years
or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and
it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations.
Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy
in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading
much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps
greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly
wealthy population invested more and more money in securities, helped by the invention of the IRA
and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial
Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector
never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19
percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been
in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948
to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of
the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent
The great wealth that the financial sector created and concentrated gave bankers enormous
political weight — a weight not seen in the U.S. since the era of J.P. Morgan (the man). In
that period, the banking panic of 1907 could be stopped only by coordination among private-sector
bankers: no government entity was able to offer an effective response. But that first age of banking
oligarchs came to an end with the passage of significant banking regulation in response to the Great
Depression; the reemergence of an American financial oligarchy is quite recent.
The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate
crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.
Oversize institutions disproportionately influence public policy; the major banks we have
today draw much of their power from being too big to fail. Nationalization and re-privatization
would not change that; while the replacement of the bank executives who got us into this crisis would
be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would
change only the names of the oligarchs.
Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business.
Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole,
but with the requirement of being broken up within a short time. Banks that remain in private hands
should also be subject to size limitations.
This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual
institutions in a sector that is essential to the economy as a whole. Of course, some people
will complain about the "efficiency costs" of a more fragmented banking system, and these costs are
real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes.
Anything that is too big to fail is too big to exist.
To ensure systematic bank breakup, and to prevent the eventual reemergence of dangerous behemoths,
we also need to overhaul our antitrust legislation. Laws put in place more than 100years ago to combat
industrial monopolies were not designed to address the problem we now face. The problem in the financial
sector today is not that a given firm might have enough market share to influence prices; it is that
one firm or a small set of interconnected firms, by failing, can bring down the economy. The
Obama administration’s fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelt’s
Caps on executive compensation, while redolent of populism, might help restore the political
balance of power and deter the emergence of a new oligarchy. Wall Street’s main attraction—to
the people who work there and to the government officials who were only too happy to bask in its
reflected glory—has been the astounding amount of money that could be made. Limiting that money would
reduce the allure of the financial sector and make it more like any other industry.
Still, outright pay caps are clumsy, especially in the long run. And most money is now made in
largely unregulated private hedge funds and private-equity firms, so lowering pay would be complicated.
Regulation and taxation should be part of the solution. Over time, though, the largest part
may involve more transparency and competition, which would bring financial-industry fees down. To
those who say this would drive financial activities to other countries, we can now safely say: fine.
To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important
thing is to change them from time to time. If the U.S. were just another country, coming to the IMF
with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises
that I’ve mentioned ended relatively quickly, and gave way, for the most part, to relatively strong
recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets.
Emerging-market countries have only a precarious hold on wealth, and are weaklings globally. When
they get into trouble, they quite literally run out of money—or at least out of foreign currency,
without which they cannot survive. They must make difficult decisions; ultimately, aggressive
action is baked into the cake. But the U.S., of course, is the world’s most powerful nation, rich
beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own
currency, which it can print. As a result, it could very well stumble along for years—as Japan did
during its lost decade—never summoning the courage to do what it needs to do, and never really recovering.
A clean break with the past—involving the takeover and cleanup of major banks—hardly looks like a
sure thing right now. Certainly no one at the IMF can force it.
In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank
deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup
and AIG. The administration will try to muddle through, and confusion will reign.
Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against
oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and
chaos were very much in the interests of the powerful—letting them take things, legally and illegally,
with impunity. When inflation is high, who can say what a piece of property is really worth? When
the credit system is supported by byzantine government arrangements and backroom deals, how do you
know that you aren’t being fleeced?
Our future could be one in which continued tumult feeds the looting of the financial system, and
we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t
seem to get into gear.
The second scenario begins more bleakly, and might end that way too. But it does provide at least
some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues
to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s
banks are mostly owned by western European banks—justifiable fears of government insolvency spread
throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies
that export manufactured goods are devastated, and the commodity producers in Latin America and Africa
are not much better off. A dramatic worsening of the global environment forces the U.S. economy,
already staggering, down onto both knees. The baseline growth rates used in the administration’s
current budget are increasingly seen as unrealistic, and the rosy "stress scenario" that the U.S.
Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.
Under this kind of pressure, and faced with the prospect of a national and global collapse, minds
may become more concentrated.
The conventional wisdom among the elite is still that the current slump "cannot be as bad as the
Great Depression." This view is wrong. What we face now could, in fact, be worse than the Great Depression—because
the world is now so much more interconnected and because the banking sector is now so big. We face
a synchronized downturn in almost all countries, a weakening of confidence among individuals and
firms, and major problems for government finances. If our leadership wakes up to the potential consequences,
we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope
it is not then too late.
It is pretty interesting to see how financial oligarchy filters information provided to the population
to fit their biases. For example, the key facts about repeal of Glass-Steagall law (BTW Joe
Biden voted for it) mostly hidden from the public:
Glass-Steagall had been weakened under Reagan, under the recommendation of Alan Greenspan who
was essentially a Wall Street mole in Fed (see below the concept introduced by
Willem Buiter of ‘cognitive regulatory
capture’ of the Fed by Wall Street.)
Clinton administration and Congress supported the repeal but it was Phil Gramm who made it happened.
Not only he was the main cheerleader for the repeal. Gramm essentially wrote the bill. As NYT noted:
The measure, which Mr. Gramm helped write and move through the Senate, also split up oversight
of conglomerates among government agencies. The Securities and Exchange Commission, for example,
would oversee the brokerage arm of a company. Bank regulators would supervise its banking operation.
State insurance commissioners would examine the insurance business. But no single agency would
have authority over the entire company.
"There was no attention given to how these regulators would interact with one another," said
Professor Cox of Duke. "Nobody was looking at the holes of the regulatory structure."
The arrangement was a compromise required to get the law adopted. When the law was signed in
November 1999, he proudly declared it "a deregulatory bill," and added, "We have learned government
is not the answer."
Support was bipartisan which tells something about Clinton Congress:
Commodity Futures Trading Commission — under the leadership of Mr. Gramm’s wife, Wendy — had approved rules in 1989 and 1993 exempting some swaps and derivatives from regulation. In
December 2000, the Commodity Futures Modernization Act was passed as part of a larger bill by unanimous
consent after Senator Gramm dominated the Senate debate...
"He was the architect, advocate and the most knowledgeable person in Congress on these topics,"
Mr. Donovan said. "To me, Phil Gramm is the single most important reason for the current financial
"The virtually unregulated over-the-counter market in credit-default swaps has played a significant
role in the credit crisis, including the now $167 billion taxpayer rescue of A.I.G.,"
Christopher Cox, the chairman of the S.E.C. and a former congressman, said Friday.
But you will never find discussion of flaws and adverse consequences Phil Gram (or Greenspan for
a change) initiatives in Heritage Foundation and other right-wing think tanks publications.
So what we are experiencing is a the completion of the transformation of one phase of capitalism
to another. It happened in stages:
Manufacturing stagnated and can't provide the "decent" rate of growth. Competition from
re-built Europe and Asian markets severely stressed the US manufacturing. due to competition
return of capital dropped and in several industries became negative.
Computers brought innovations into financial markets. They make possible real time trading
of induces like S&P500, complex financial instruments like derivatives, etc. Later they enables superfast
trading (HFT). All those instruments dramatically increased the possibilities of extracting the rent
by financial institutions from the society.
Globalization kicked in due to new opportunities offered by high speed global communications
(Internet). And that is not limited to outsourcing. Due to globalization the sheer size of the
financial markets increased to the extent that they started to represent a different, new transnational
phenomena allowing new types of redistribution of wealth to be practiced. Integration of Russian
elite (oligarchs) is just one example of this process. In case of pro-western oligarchs (fifth
column) West went to significant length to protect them and their racket (Mikhail
Khodorkovsky - Wikipedia,)
Commercial banks turned into investment banks to exploit this opportunity.
Financial sector completely corrupted academic science converting most economists to pay prostitutes
which serve their interests.
Collapse of the USSR provided the financial sector major shoot in the arm and a golden, once
in century opportunity to finance new half-billion consumers and stole for a penny on a dollar huge
industrial assets and natural resources as well as put most of those countries in the debt (Latin-Americanization
of xUSSR space). Harvard Mafia (with some
support from London) did the bidding of western banks in xUSSR space. As more becomes known about
the laundering of Russian money in Western banks, many in the United States will likely try to hide
behind stories of faraway organized crime. But U.S. policy toward Russia has contributed to that
country's sorry conditions--with the Harvard Institute for International Development's Russia project
(HIID) playing a major role (Harvard's
'Best and Brightest' Aided Russia's Economic Ruin ). Professor
Jeffery Sacks provided
a bogus idea of "shock therapy" to achieve spectacular for Western banks result. As a result all
xUSSR space became new Latin America with typical for Latin America problems like huge level of inequality,
prostitution, child poverty, and prominent role of organized crime.
Banks became dominant political force on western societies with no real counterbalance from
other parts of the elite. The first president completely subservient to banking elite was elected
in the USA in 1992. Bill Clinton regime lasted eight years and along with
economic rape of xUSSR space in best colonial powers tradition, it removed what was left of financial
regulations after the flurry of deregulation of the early 1980s. And they behaved as an occupying
force not only in xUSSR space but in the USA as well. They deprived workers out of their jobs, they
abolished the US pension system as it impede playing with population money and replaced in with widely
inadequate 401K plans. They deprived municipalities out of their revenues and assets, while municipalities
became just a den of bond traders looking for then next mark which give them the ability to put municipalities
deeper in debt.
Newly acquired political power of financial elite speeded the shift to bank "self-regulation"
created huge shadow banking system which dwarf "official" under the smoke screen of "free-market"
propaganda and PR from a coterie of corrupts academics (Chicago
Scholl, Harvard Mafia, etc) . It engaged
in pursuit of short term profits and self-enrichment of top brass which became new elite by-and-large
displacing not only the old one, but also the newly minted IT elite of dot-com boom. Using newly
acquired power financial elite remove all regulations that hamper their interests.
Glass-Steagall was repealed at the last
days of Clinton presidency, financial derivatives became unregulated.
Deindustrialization kicked in. As financial speculation proved to be much more profitable
to other activities deindustrialization kicked in the USA as the financial center of the world. Outsourcing
which first was limited to manufacturing jobs now extent its reach on IT and decimate previously
profitable sector and its export potential.
Externalities can no longer be suppressed and economics became unstable. Growth of inequality,
job insecurity, as well as frequency of financial crises were natural consequences of financialization
of the economy. They create huge imbalances, like bubble in residential real estate which was blown
with the help and full support of the USA government as a way to overcome dot-com crisis consequences.
Debt crisis strikes. Growth of debt became unsustainable and produces the financial crisis
of enormous proportions. By their reckless policies and greed financial sector caused huge financial
crisis of 2008 and now they are forcing national governments to auction off their cultural heritage
to the highest bidder. Everything must go in fire sales at prices rigged by twenty-something largest
banks, the most corrupt institutions the world has ever known.
Devastating "local" wars became "new normal". Due to financial crisis, the overconsumption
in western economies came under threat. Debt expansion which led to overconsumption within the western
economies affected (or infected) by financialization. To sustain the current standard of living financial
expansion became the necessity. It took the form of a competition for spheres of influence in the
area of energy supplies, which we see in post USSR space, Iraq, Libya and elsewhere. And central
banks play critical role in financing wars. After all Banks of England was created with this exact
I think by 2008 when the second major financial crisis hit the USA, the transformation on the USA
economy into casino capitalism, which is essentially implementation of neoliberal doctrine (or more
correctly the US brand of corporatism) was by-and-large complete.
In short we are living in a new politico-economic system in which financial capital won victory over
both labor and industrial capital. We might not like what we got, but financial elite is now a new ruling
class and this fact is difficult to dispute. As a result. instead of the robber barons of the early
20th century (some of whom actually created/consolidated new industries), we have the top executives
from investment banks, insurers and mortgage industry who represent a new Rentier class, much like old
They are living off parasitic monopolization of access to any (physical, financial, intellectual,
etc.) kind of property and gaining significant amount of profit without contribution to society (see
Rentier capitalism which
is a very fuzzy term for neoliberal model of capitalism).
Stagnation of industrial manufacturing droved up financial speculation as the method to compensate
for falling rate on return on capital. This stagnation became prominent during Reagan administration
(which started the major shift toward neoliberalism), although signs of it were present from early 60th.
For example Chicago which was a manufacturing center since 1969 lost approximately 400K manufacturing
jobs which were replaced mainly by FIRE-related jobs, In 1995 over 22% of those employed by FIRE industries
(66K people) were working in executive and managerial positions. Another 17% are in marketing, sales
and processional specialty occupations (computer system analysts, PR specialists, writer and editors).
Those changes in the structure of employment had several consequences:
The stagnation of the underlying economy meant that capitalists were increasingly dependent
on the growth of finance to preserve and enlarge their money capital.
The financial superstructure of the capitalist economy could not expand independently of its
base -- underlying productive economy — hence the bursting of speculative bubbles became a recurrent
and growing problem.
Financialization could never overcome stagnation of industrial production. It is just
an opium for rich, not a structural adjustment of the stagnation-prone economy. But like addition
to narcotics does to human body it does tremendous damage to real economy.
Rapid increase in inequality is necessary to sustain the appetites of the elite in the system
with fixed size of the pie. Politico-economic conditions might became even more unfavorable for
labor. Stagnation of industrial production mean shrinking pie, which necessitates redistribution
of wealth in favor of a new, all-powerful financial Rentier class. This redistribution resulted in
partial wipe-out of large swats of middle class. For the past three decades, America has steadily
converted itself into a nation of haves (as Bush II quipped "This is an impressive crowd -- the haves
and the have mores! Some people call you the elite -- I call you my base". ) and have-nots. The cost
of a college education rises rapidly at a time when wages for skilled labor stagnate, so access to
college became against discriminated in favor of upper class of the society. Repressive apparatus
and ideological brainwashing are too strong to mount effective resistance.
The key to understanding of Casino Capitalism is that it was a series of government decisions (or
rather non-decisions) that converted the state into neoliberal model. In other words casino capitalism
has distinct "Government property" mark. It was the USA elite, which refused to act responsibly in the
face of changing economic conditions resulting from its own actions, and instead chose to try to perpetuate,
by whatever means it had at its disposal, the institutional advantages of dollar as a reserve currency
which it had vis-à-vis its main economic rivals and grab as large part of the world economic
pie as it can. And this power grab was supported first of all by the role of dollar as currency in which
oil is traded.
There might be some geo-strategically motives as well as the US elite in late 80th perceived that
competitiveness is slipping out of the USA and the danger of deindustrialization is real. Many accuse
Reagan with the desire to ride dollar status as a world reserve currency (exorbitant privilege)
until the horse is dead. That's what real cowboys do in Hollywood movies... But the collapse
of the main rival, the USSR vindicated this strategy and give a strong short in the arm to financialization
of the economy. Actually for the next ten years can be called a triumphal ascend of financialization in
Dominance of FIRE industries clustered up and in recent years reached in the USA quite dramatic proportions.
The old Bolsheviks saying "When we say Lenin we mean the Party and when we say the Party we mean Lenin"
now can be reworded: "Now it we say US banks, we mean the US government and vise versa if we say US
government we mean US banks".
According to the Center for Responsive Politics, the FIRE sector was and is the biggest contributor
to federal candidates in Washington. Companies cannot give directly, so they leave it to bundlers to
solicit maximum contributions from employees and families. They might have been brought down to earth
this year, but they’ve given like Gods: Goldman Sachs, $4.8 million; Citigroup, $3.7 million; J.P. Morgan
Chase & Co., $3.6 million; Merrill Lynch, $2.3 million; Lehman Brothers, $2.1 million; Bank of America,
$2.1 million. Some think the long-term effect of such contributions to individual candidates was clear
in the roll-call votes for the bailout.
Take the controversial first House vote on bailout of major banks on Sept. 29, 2008. According to
CRP, the "ayes" had received 53 percent more contributions from FIRE since 1989 than those who voted
against the bill, which ultimately failed 228 to 205. The 140 House Democrats who voted for the bill
got an average of $188,572 in this election cycle, while the 65 Republicans backing it got an average
of $185,461 from FIRE—about 23 percent more than the bill’s opponents received. A tinkered bill was
passed four days later, 263 to 171.
According to the article
Fire Sale (The American
Conservative) half of Obama’s top ten contributors, together giving him nearly $2.2 million, are FIREmen.
The $13 million contributed by FIRE executives to Obama campaign is probably an undercount. Democratic
committee leaders are also dependent of FIRE contributions. The list includes Sen. Dodd ( please look
at Senator Dodd's top donors for 2007-8 on openSecrets.org
) and Sen. Chuck Schumer ($12 million from FIRE since 1989), Rep. Barney Frank ($2.5 million), and Rep.
Charlie Rangel ($4 million, the top recipient in the House). All of them have been accused of taking
truckloads of contributions while failing to act on the looming mortgage crisis. Dodd finally pushed
mortgage reform last year but by then as his hometown paper, The Hartford Courant stated, "the damage
At the same time rise of financial capital dramatically increased instability. An oversized financial
sector produces instability due to multiple positive feedback loops. In this sense we can talk about
Financial Sector Induced
Systemic Instability of Economy. The whole society became "House of cards", "Giant Enron" and "extension
of Las Vegas". Reckless management, greed and out-right stupidity in playing derivatives games was natural
consequence of the oversized financial sector, not just a human folly. In a way it was dramatic manifestation
of the oversized financial sector negative influence of the economy. And in 2008 it did brought out
economy to the brink of destruction. Peak oil added to suffocating effect on the economy of reckless
gambling (and related debts) of financial sector producing the economic calamity that rivals Great Depression.
Also, like Socialism, Casino Capitalism demands too much of its elite. And in reality,
the financial elite much like Bolsheviks elite, is having its own interests above the interests of the
As Kevin Phillips noted "In the United States, political correctness, religious fundamentalism,
and other inhibitions sometimes dumb down national debate". And the same statement is true for financial
elite that became the center of power under the Casino Capitalism. Due to avalanche of greed the society
became one giant Enron as money that are made from value addition in the form of manufacturing fade
in significance to the volume of the money that is made from shuffling money around. In other was the
Wall Street's locked USA in the situation from which there is no easy exit.
Self-reinforcing ‘positive’ feedback loops prevalent in Casino Capitalism trigger an accelerating
creation of various debt instruments, interest of which at some point overwhelm the system carrying
capacity. Ability to lend against good collateral is quickly exhausted. At some point apparently there
is no good collateral against which lending freely was possible, even at high rates.This
means that each new stage of financial innovation involves scam and fraud, on increasing scale. In other
words Ponzi economy of "saving and loans" is replaced with Madoff economy.
Whether you shift the resulting huge private debt to public to increase confidence or not, the net
result is of this development of events is a crisis and a huge debt that society needs to take. Actually
the debt bubble in 2008 can only be compared to the debt bubble of 1933. The liquidation of Bear Sterns
and Lehman was only a start of consolidation of finances and we need to find something that replace
financial sector dominance in the national economy. It would be nice is some technological breakthrough
happened which would lift the country out of this deep hole.
Like Bolshevism was marked by deification of teaching of Marx and Lenin, converting them into pseudo-religious
doctrine, the Casino Capitalism has its own deified ideological doctrine. It is the ideology of
Neoliberalism. The latter as an ideology
and an agenda seeks to topple democratic capitalism and replace it with a de facto unaccountable
autocratic government which serves as channel of a wealth transfer from the public to a rentier elite.
In a way it is a spectacular example of a successful (in a very negative sense) pseudo-religious doctrine.
Addiction of the societies to disastrous politico-economical doctrines are similar to addictions
to alcohol and drugs in individuals. It is not easy to recover and it takes a long, long time and a
lot of misery. As dissolution of the USSR aptly demonstrated not all societies can make it. In this
case the USSR elite (nomenklatura) simply shed the old ideology as it understood that it will be better
off adopting ideology of neoliberal capitalism; so it was revolution from above. this abrupt
switch created chaos in economics (which was applauded by Washington which under Clinton
administration adopted the stance the Carnage needs to be destroyed and
facilitated the process), criminal privatization
of major industries, and pushed into object poverty the 99% of population of those countries. For
some period under "drunk Yeltsyn" Russia sees to exist as an independent country and became a vassal
This also means that "society at large" did not had effective brakes to the assent of financial plutocracy
(aka financial oligarchy). I would add to this the computer revolution
and internet that made many financial transaction qualitatively different and often dramatically cheaper
that in previous history. Computers also enabled creation of new financial players like mutual funds
(which created a shadow banking system with their bond funds) , hedge funds,
exchange-traded funds (ETFs), as well as high-frequency trading and derivatives.
From the historical view Reaganomics also can be considered to be the US flavor of
Lysenkoismwith economics instead of genetics as a target.
Here is how Reaganomics is defined
reduce marginal tax rates on income from labor and capital,
reduce government regulation of the economy,
control the money supply to reduce inflation.
In attempting to cut back on domestic spending while lowering taxes, Reagan's approach was a departure
from his immediate predecessors.
Reagan became president during a period of high
unemployment (commonly referred
to as stagflation), which
had largely abated by the time he left office.
Please not that the Number 1 idea ("reduce government spending") was essentially a scam, a smoke
screen designed to attract Rednecks as a powerful voting block. In a way this was a trick similar to
one played by Bolsheviks in Russia with its "worker and peasants rule" smokescreen which covered brutal
dictatorship. In reality all administrations which preached Reagonomics (including Clinton's) expanded
the role of state and government spending. The number two was applied by-and-large to top 1%. The number
three means deregulation in the interests of financial oligarchy and dismantling all social program
that hamper profit of the latter (including privatizing of Social Security). The number fours is a scam,
in the same sense as number one. As soon as financial institutions get in trouble, money are printed
as if there is no tomorrow.
While the essence of Reagonomics was financial deregulation, the other important element was restoring
the Gilded Age level of power of financial oligarchy which influence was diminished by FDR reforms.
In this sense we can say that Reagan revolution was essentially a counter-revolution: an attempt to
reverse the New Deal restrictions on financial sector and restore its dominance in the society.
Like it was the case in Bolshevism the ideology was developed and forced upon the society by a very
small group of players. The key ideas of Casino Capitalism were formulated and implemented by Reagan
administration with some contribution by Nixon (the role of rednecks aka "moral majority", "silent majority"
as an important part of republican political base, which can be attracted to detrimental to its economic
position policies by the smoke screen of false "moral" promises).
It was supported by each president after Reagan (paradoxically with Clinton having the most accomplished
record -- he was the best Republican President in a very perverted way). Like in case of Lysenkoism
opponents were purged and economic departments of the country were captured by principless careerists
ready to tow the party line for personal enrichment. Like in case of Bolshevism, many of those special
breed of careerists rotated from Republican Party into Fed and other government structures. A classic
example of compulsive careerists that were used by finance sector to promote its interests was Alan
One of the key ideas of Reaganomics was the rejection of the sound approach that there should be
a balance between too much government regulation and too little and that government role is important
for smooth functioning of the market. In this area Reagan and its followers can be called Anarchists
and their idea of 'free market" is a misnomer that masks the idea of "anarchic market" (corporate welfare
to be exact -- as it was implemented). Emergence of corporate welfare Queens such as GS,
Citi, AIG, are quite natural consequence of Reaganomics.
Reaganomics was a the US flavor of Lysenkoism with economics
instead of generics as a target... It can and should be called Economic Lysenkoism.
The most interesting part of Reaganomics was that the power of this ideology made it possible to
conditioned "working class" and middle class to act against their own economic interests. It helped
to ensure the stagnation of wages during the whole 25 years period, which is close to what Soviets managed
to achieve with working class of the USSR, but with much more resentment. This makes it in many ways
very similar to Bolshevism as a whole, not just Lysenkoism (extremes meet or in less flattering way:
"history repeats, first as a tragedy, then as farce).
Along with the term Reaganimics which implicitly stresses the deregulation, the other close term
"market fundamentalism" is often used. Here is how market fundamentalism is defined (Longview
Market Fundamentalism is the exaggerated faith that when markets are left to operate on their
own, they can solve all economic and social problems. Market Fundamentalism has dominated
public policy debates in the United States since the 1980's, serving to justify huge Federal tax
cuts, dramatic reductions in government regulatory activity, and continued efforts to downsize the
government’s civilian programs.
Some level of government coercion (explicit or implicit ) is necessary for proper labeling of any
pseudo-scientific theory with the term Lysenkoism. This holds true for both
Market Fundamentalism (after all
Reagan revolution was "revolution from above" by financial oligarchy and for financial oligarchy and
hired guns from academia just do what powers that be expected) and, especially,
side economic. The political genius of those ideas is evident. Supply-side economics transformed
Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower
deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not
like a free lunch?
In this sense the Republican Party played the role very similar to the Communist Party of the USSR.
For example supply side economics was too bizarre and would never survive without explicit government
support. This notion is supported by many influential observers. For example, in the following
comment for Krugman article (Was
the Great Depression a monetary phenomenon):
Market fundamentalism (neoclassical counter-revolution — to be more academic) was more of a
political construct than based on sound economic theory. However, it would take a while before
its toxic legacy is purged from the economics departments. Indeed, in some universities this
might never happen.
Extreme deregulation and extreme regulation (Brezhnev socialism) logically meets and both represent
a variant of extremely corrupt society that cannot be sustained for long (using bayonets as in the case
of USSR or using reserve currency and increasing leverage as is the case of the USA). In both cases
the societies were economically and ideologically bankrupt at the end.
Actually, elements of market fundamentalism looks more like religious doctrine than political philosophy
— and that bonds its even closer to Lysenkoism. In both cases critics were silenced with the help of
the state. It is interesting to note that Reaganomics was wiped into frenzy after the dissolution of
the USSR, the country which gave birth to the term of Lysenkoism. In a way the last act of the USSR
was to stick a knife in the back of the USA. As a side note I would like to stress that contrary to
critics the USSR was more of a neo-feudal society with elements of slavery under Stalin. Gulag population
were essentially state slaves; paradoxically a somewhat similar status is typical for illegal immigrants
in industrialized countries. From this point of view this category of "state slaves" is generally more
numerous that gulag inmates. Prison population also can be counted along those lines.
It look like either implicitly or explicitly Reagan's bet was on restoration of gilded Age with its
dominance of financial oligarchy, an attempt to convert the USA into new Switzerland on the "exorbitant
privilege" of dollar status as the global fiat currency.
Casino Capitalism is characterized by political dominance of FIRE industries (finance, insurance,
and real estate) and diminished role of other and first of all manufacturing industries. It was also
accompanied by the drastic growth of inequality (New Gilded Age). Its defining feature is "the triumph
of the trader in assets over the long-term producer" in
The huge boost of Casino Capitalism was given by the collapse of the USSR in 1991. That gave a second
life to Reagan era. Collapse of the USSR was used as a vindication of market fundamentalism. After it
New Deal regulations were systematically destroyed. Dumped down variants of
like bastardatized variant promoted by Russian emigrant became fashionable with an individual "creative"
entrepreneur as a new Übermensch,
which stands above morality.
"The word Übermensch [designates] a type of supreme achievement, as opposed to 'modern' men, 'good'
men, Christians, and other nihilists ... When I whispered into the ears of some people that they
were better off looking for a
Cesare Borgia than a
Parsifal, they did not believe
Safranski argues that the combination of ruthless
warrior pride and artistic brilliance
that defined the Italian
Renaissance embodied the sense of the Übermensch for Nietzsche. According to Safranski, Nietzsche
intended the ultra-aristocratic figure of the Übermensch to serve as a Machiavellian bogeyman of
the modern Western middle class and its pseudo-Christian egalitarian value system.
The instability and volatility of active markets can devalue the economic base of real lives, or
in more macro-scenarios can lead to the collapse of national and regional economies. In a very interesting
and grotesque way it also incorporates the key element of Brezhnev Socialism in everyday life: huge
manipulation of reality by mass media to the extend that Pravda and the USSR First TV Channel look pretty
objective in comparison with Fox news and Fox controlled newspapers. Complete poisoning of public discourse
and relying on the most ignorant part of the population as the political base (pretty much reminiscent
of how Bolsheviks played "Working Class Dictatorship" anti-intellectualism card; it can be called "Rednecks
While transformation to casino capitalism was an objective development, there were specific individuals
who were instrumental in killing New Deal regulations. We would single out the following twelve figures:
(although first steps toward casino capitalism were made under Carter).
There is no question that Reagan and most of his followers (Greenspan, Rubin, Phil Gramm, etc) were
rabid radicals blinded by ideology. But they were radicals of quite different color then FDR with disastrous
consequences for society. Here again the analogy with Bolsheviks looms strong. In a way, they can be
called financial terrorists inflicting huge damage on the nation and I wonder if RICO can be use to
prosecute at least some of them.
In Bailout Nation (Chapter 19) Barry
Ritholtz tried to rank major players that led country into the current abyss:
1. Federal Reserve Chairman
2. The Federal Reserve
(in its role of setting monetary policy)
3. Senator Phil
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies)
7. The Securities and
Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17. The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley,
and Goldman Sachs) and their CEOs
18. President George
19. President Bill
20. President Ronald
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries
Robert Rubin and
25. FOMC Chief Ben
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28. Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for
buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk
Hyman Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation
of debt and the fact the financial system represents a positive feedback loop that tend to
destabilize the system, creating ossilations in the form of boom and bust cycles. . He identified 3 types of borrowers that contribute to the accumulation of insolvent debt: Hedge
Borrowers; Speculative Borrowers; and Ponzi Borrowers. That corresponds to three stages of Casino Capitalism
of increasing fragility:
Hedge finance: income flows are expected to meet financial obligations in every period.
The "hedge borrower" is one who borrows with the intent of making debt payments from cash flows from
Speculative finance: the firm must roll over debt because income flows are expected to
only cover interest costs (evergreen loans). In other words a "speculative borrower"
is a boorrower, who borrows based on the belief that the appreciation of the value of the
assets (e.g. real estate) to refinance or pay-off their debt but who does not have sufficient
resources to repay the original loan, otherwise. Classic example here are house flippers during
housing boom. Usually the are late to the game.
Ponzi finance: income flows won’t even cover interest cost, so the firm must borrow more
or sell off assets simply to service its debt. The "Ponzi borrower" (named for
Charles Ponzi, see also
Ponzi scheme) is who relies
on continually rolling over the principal obtained from new participants in the Ponzi scheme to cover
interests. After a certain point, the private sector debt can only be perceived as sustainable as
long as asset prices are perceived to be in continuous growth. Since the rise of asset prices is
fueled by rising indebtness, from a certain point onwards, the process acquires a pure speculative
character. When the rise in asset prices is interrupted, the private sector discovers it is insolvent.
The choice become either a horrible end or an endless horror.
Growth of debt and increased levarate at some point create predocition of the crash. The stage of
business cycle at which those preconditions are met is called "Minsky moment":
A Minsky moment is the point in a
credit cycle or
business cycle when
investors are starting to have cash flow problems due to spiraling debt they have incurred in order to finance
speculative or Ponzy investments.
At this point, a major selloff begins due to the fact that no
counterparty can be found
to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse
in market clearing
asset prices and a sharp drop in
After the collapse of the USSR there were a lot of chest thumping of the status of America as a hyper
power (American exceptionalism)
and the "end of history" where neoliberalism that displaced Brazhvev socialism (and wiped
out the socialist camp) was supposed to reign supreme forever.
But this triumphal march of neoliberalism was short lived. The system proved to be
self-destructive due to strong positive feedback look from the unregulated financial sector.
But in 2000 the first
moment to pay the piper arrives. It was postponed by Iraq war and housing bubble, but reappeared in much
more menacing form in 2008. In 2009 the USA experienced a classic Minsky moment with
high unemployment rate and economy suppressed by (and taken hostage) by Ponzi finance institutions which
threaten the very survival of the capitalist system and way of life. Huge injection freom the state
halped to save the economy from disintration, but the price was very high. And after 2009 the
US economy entered the period prologed stagnation, called the perios of "secular stagnation".
In events preceding 2008 the shift from speculative toward Ponzi finance was speed up by increased corruption of major players.
The drive to redistribute wealth up destroyed any remnants of the rule of the law in the USA. It
became a neo-feudal two casts society with "Masters of the Universe" as the upper cast (top 1% ) and
"despicables" (lower 80%) as the lower cast. With some comprador strata of professional in between
(top 20% or so), who generally support the upper cast.
Loweer cast experienced deterioration of the standard of living, loss of well paying jobs to
outsourcing and offshoring and in 2016 revolted electing Trump, who defeated Hillary Clinton, who
became a real symbol of the corruption of neoliberal system.
"As Minsky observed, capitalism is inherently unstable. As each crisis is successfully contained,
it encourages greater speculation and risk taking in borrowing and lending. Financial innovation
makes it easier to finance various schemes. To a large extent, borrowers and lenders operate on the
basis of trial and error. If a behavior is rewarded, it will be repeated. Thus stable periods
naturally lead to optimism, to booms, and to increasing fragility.
A financial crisis can lead to asset price deflation and repudiation of debt. A debt deflation,
once started, is very difficult to stop. It may not end until balance sheets are largely purged of
bad debts, at great loss in financial wealth to the creditors as well as the economy at large."
For Strange the speed at which computerized financial markets work combined with their much larger
size and near-universal pervasiveness is an important qualitative change, that changes the
social system into what he called "casino capitalism". She actually popularized the term
"Casino Capitalism" with her important book
published in 1997.
One of the side
effects of this change is that volatility extends globally. Approximately $1.5 trillion dollars are
invested daily as foreign transactions. It is estimated that 98% of these transactions are speculative.
In comparison with this casino Las Vegas looks like a aborigine village in comparison with Manhattan.
It was predominantly as a creative scholar and a forceful personality that she exercised her influence.
She was almost single-handedly responsible for creating ‘international political economy’ and turning
it into one of the two or three central fields within international studies in Britain, and she defended
her creation with such robustness, and made such strong claims on its behalf, that her influence
was felt—albeit not always welcomed—in most other areas of the discipline. She was one of the earliest
and most influential campaigners for the closer integration of the study of international politics
and international economics in the English language scholarship.
In the later period of her career, alongside the financial analyses offered in Casino Capitalism
(the analysis in which she felt was vindicated by the South-East Asian financial crisis) and Mad
Money, Strange's contributions to the field include her characterisation of the four different
areas (production, security, finance and knowledge) through which power might be exercised in International
Relations. This understanding of what she termed "structural power", formed the basis of her argument
against the theory of
American Hegemonic Decline in the early eighties.
Her analysis particularly in States and Markets focused on what she called the ‘market-authority
nexus’, the see-saw of power between the market and political authority. The overall argument of
her work suggested that the global market had gained significant power relative to states since the
This led her to dub the Westphalia system Westfailure. She argued that a ‘dangerous gap’ was
emerging between territorially-bound nation states and weak or partial intergovernmental cooperation
in which markets had a free hand which could be constructive or destructive.
Among important early critiques of casino capitalism was John K. Galbraith. He promoted a pretty novel idea
that the major economic function of Governments is to strengthen countervailing powers to achieve
some kind of balance between capital and labor.
While unions are far from being perfect and tend to slide into corruption due to "iron law of
oligarchy" when thier management stop representing interests of thwe worksers and start to
reprreesnt interest of thier own narry strate of fat cats, there were the only sizable
countewailing power that made the New Seal possible.
His prediction proved to be wrong as government actually represent the capitalist class and is
not that interested in creating this balance, which was convincingly demonstrated by Thatcher and
Reagan. Both Britain and the USA start sliding into a new form of corporations, called
neoliberalism which actually does not allocate any space for uniot at the negotiation table and
strive for their complete elimination and "atomization" of work force, when each invididual is up to
himself to find employment and group solidarity is suppressed by instilling neoliberal ideology in
schools and universitites as well as via MSM (which in the USA surprisingly never were allowed to
use the work neoliberlaism, as if it represents some secret Masonic cult)
And it does not look like there is any renewed
support of unions right (including important right to organize) at the post subprime/derivatives/shadow_banking
crisis stageof neoliberalism, when neoliberal ideology became sufficiently discredited
to allow rise of populist politicians such as Trump.
Still John K. Galbraith critique of primitive market fundamentalism of Milton Freedman and the
whole pseudoscience of neoclassical economics which like Marxist political economy is one of there
pillars of neoliberalism (along with Randism as philosophy and Neoconservatism or "Trotskyism for
the rich" in politics), still has its value today. As Joseph Stiglitz noted (CSMonitor,
Dec 28, 2006):
...In many ways, Galbraith was a more critical observer of economic reality.
Driven to understand market realities
Galbraith's vivid depictions of the good, bad, and ugly of American capitalism remain a sorely
needed reminder that all is not quite as perfect as the perfect market models – with their perfect
competition, perfect information, and perfectly rational consumers – upon which so much of Friedman's
Galbraith, who cut his teeth studying agricultural economics, strove to understand the world as
it was, with all the problems of unemployment and market power that simplistic models of competitive
markets ignore. In those models, unemployment didn't exist. Galbraith knew that made them fatally
... ... ...
In his early research, Galbraith attempted to explain what had brought on the Great Crash of 1929
– including the role of the stock market's speculative greed fed by (what would today be called)
irrational exuberance. Friedman ignored speculation and the failure of the labor market as he focused
on the failures of the Federal Reserve. To Friedman, government was the problem, not the solution.
What Galbraith understood, and what later researchers (including this author) have proved, is
that Adam Smith's "invisible hand" – the notion that the individual pursuit of maximum profit guides
capitalist markets to efficiency – is so invisible because, quite often, it's just not there. Unfettered
markets often produce too much of some things, such as pollution, and too little of other things,
such as basic research. As Bruce Greenwald and I have shown, whenever information is imperfect –
that is, always – markets are inefficient; hence the need for government action.
Galbraith reminded us that what made the economy work so well was not an invisible hand but countervailing
powers. He had the misfortune of articulating these ideas before the mathematical models of game
theory were sufficiently developed to give them expression. The good news is that today, more attention
is being devoted to developing models of these bargaining relationships, and to complex, dynamic
models of economic fluctuations in which speculation may play a central role.
While Friedman never really appreciated the limitations of the market, he was a forceful critic
of government. Yet history shows that in every successful country, the government had played an important
role. Yes, governments sometimes fail, but unfettered markets are a certain prescription for failure.
Galbraith made this case better than most.
Galbraith knew, too, that people aren't just rational economic actors, but consumers, contending
with advertising, political persuasion, and social pressures. It was because of his close touch with
reality that he had such influence on economic policymaking, especially during the Kennedy-Johnson
Galbraith's penetrating insights into the nature of capitalism – as it is lived, not as
it is theorized in simplistic models – has enhanced our understanding of the market economy.
He has left an intellectual legacy for generations to come. And he has left a gap in our intellectual
life: Who will stand up against the economics establishment to articulate an economic vision that
is both in touch with reality and comprehensible to ordinary citizens?
Galbraith was vindicated in his belief that the only economics possible is political economics and
that government is always an agent of dominant class. As such it always pursue poklitics favorable
to this class, just making marginal efforts to prevent the open revolt of lower classes.
In 2008 neoliberal economist such as Krugman and (to a lesse extent) Stiglitz
both have eaten humble pie, because according to neoclassical economics the crises should not have happened.
Both should now reread Galbraith's
The Great Crash: 1929 (see also
Krugman also need to shred his previous writings with this mathiness execises of using differential
equations to justify the dominance of financial oligarchy, and eat them with borsch ;-)
BTW it is interesting that in 1996 neoliberal stooge Paul Krugman criticized limitations of Galbright vision in the following
To be both a liberal and a good economist you must have a certain sense of the tragic--that is,
you must understand that not all goals can be attained, that life is a matter of painful tradeoffs.
You must want to help the poor, but understand that welfare can encourage dependency. You must want
to protect those who lose their jobs, but admit that generous unemployment benefits can raise the
long-term rate of unemployment. You must be willing to tax the affluent to help those in need, but
accept that too high a rate of taxation can discourage investment and innovation.
To the free-market conservative, these are all arguments for government to do nothing, to accept
whatever level of poverty and insecurity the market happens to produce. A serious liberal does not
reply to such conservatives by denying that there are any trade-offs at all; he insists, rather,
that some trade-offs are worth making, that helping the poor and protecting the unlucky may have
costs but will ultimately make for a better society.
The revelation one gets from reading John Kenneth Galbraith's The Good Society is that Galbraith--who
is one of the world's most celebrated intellectuals, and whom one would expect to have a deeper appreciation
of the complexity of the human condition than a mere technical economist would -- lacks this tragic
sense. Galbraith's vision of the economy is one without shadows, in which what is good for social
justice always turns out to have no unfavorable side effects. If this vision is typical of liberal
intellectuals, the ineffectuality of the tribe is not an accident: It stems from a deep-seated unwillingness
to face up to uncomfortable reality.
Similar limited understanding of Galbright is demonstrated in London Times (cited from comment to
Economist's View blog) :
Some motifs of Galbraith’s work have entered popular consciousness. Galbraith wrote of private
opulence amid public squalor, illustrating it with a memorable metaphor of a family that travels
by extravagant private car to picnic by a polluted river.
Yet while arguing for increased public expenditure on welfare, Galbraith gave scant attention
to the limits of that approach. His writings perpetuate a debilitating weakness of modern liberalism:
a reluctance to acknowledge that resources are scarce.
In Galbraith’s scheme, said Herbert
Stein, the former chairman of the Council of Economic Advisers: “The American people were only asked
whether they wanted cleaner air and water . . . The answers to such questions seemed obvious — but
they were not the right questions.”
This idea of "casino capitalism" as a driver of financial instability was developed further in the
The Crisis of Global Capitalism by prominent financial speculator and staunch neoliberal George Soros (1998), who
after Minsky highlights the potential for disequilibrium
in the financial system, and the inability of non-market sectors to regulate markets.
the latter is a prominant feature of Casino Capitalism, which can be defined as economic system
were financial barons run amok.
Although the insights of the Soros critique of global capitalism are scarcely new, they were articulated
with such candor and accuracy that the book made a significant impact. The following is a sampling of
Unregulated financial markets are inherently unstable. There is nothing new in this
statement. It is just a repetition of what Keynes and Minsky said much more eloquently. But Soros
made in important observation about the source of constant disequilibrium of markets under
neoliberalism, the observation which permitted for him to achieve spectacular success as a
financial speculator. Soros observes that, contrary to
conventional economic theory, financial markets are not driven toward a relatively stable and rational
price by the objective value assessment of such things as the soundness of a company's management,
products, or record of profitability. Rather they are constantly driven away from equilibrium by the momentum of self-fulfilling expectations -- a rising stock price
attracts buyers who further raise the price-to the point of collapse. The recent massive inflation
and subsequent collapse in the price of the shares of unprofitable dot-com companies illustrates
Bank lending also contributes to the instability, because the price of real and financial assets
is set in part by their collateral value. The higher their market price rises the larger the loans
banks are willing to make to their buyers to bid up prices. When the bubble bursts, the value
of the assets plummets below the amount of the money borrowed against them. This forces banks
to call their loans and cut back on the lending, which depresses asset prices and dries up the
money supply. The economy then tanks-until credit worthiness is restored and a new boom phase
Financial markets are amoral by definition. Following Napoleon Bonaparte ("Money
has no motherland; financiers are without patriotism and without decency; their sole object is
gain. "), Soros stressed
that there is no meaningful place for individual moral behavior of financial oligarchy in the context of financial markets,
because such behavior has no consequences for them other than to reduce the financial return
of a more ethical
actor. In other words modern finance is breeding ground for ruthless sociopath, which
we really observed during 2008.
When I bought shares in Lockheed and Northrop after the managements were indicted for bribery,
I helped sustain the price of their stocks. When I sold sterling short in 1992, the Bank of England
was on the other side of my transactions, and I was in effect taking money out of the pockets
of British taxpayers. But if I had tried to take social consequences into account, it would have
thrown off my risk-reward calculation, and my profits would have been reduced.
Soros argues that if he had not bought Lockheed and Northrop, then somebody else would have, and
Britain would have devalued sterling no matter what he did. "Bringing my social conscience into
the decision-making process would make no difference in the real world; but it may adversely affect
my own results." One can challenge the Soros claim that such behavior is amoral rather than immoral,
but his basic argument is accurate. His understanding that it is futile to look to individual morality
as the solution to the excesses of financial markets is all too accurate.
Corporate employees are duty-bound to serve only corporate financial interests.As
such financial institution are closely related to organized crime and top layers of managers are
essentially institualized criminals. Soros
Publicly owned companies are single-purpose organizations-their purpose is to make money. The
tougher the competition, the less they can afford to deviate. Those in charge may be well-intentioned
and upright citizens, but their room for maneuver is strictly circumscribed by the position they
They are duty-bound to uphold the interests of the company. If they think that cigarettes
are unhealthy or that fostering civil war to obtain mining concessions is unconscionable, they
ought to quit their jobs. Their place will be taken by people who are willing to carry on.
Though not specifically mentioned by Soros, this is why corporations were in the past (at least
partially) excluded from the political processes (although it was never complete and it is well known
fact that Crusades and
Siege of Constantinople
(1204) were financed by Genoese
bankers upset by lack of access to the Byzantium markets). But at least formally other parts of the
society can define their goals and the rules of the marketplace and suppress excessive appetities
of banker, if nessesary by brute force. Financial oligarchy is incapable of distinguishing
between private corporate interests and broader public interests. And that situation became even
worse with the the global dominance of corporatism in the form of neoliberalism.
Financial markets are oblivious to externalities and are infected by "short-termism". Specifically
the fact that a strategy or policy produces economic returns in the short-term does not mean the
long-term results will be beneficial. The focus of financial markets is on short-term individual
gain to the exclusion of both social and longer-term consequences. The fact that particular policies
and strategies are effective in producing short-term financial returns does not mean they are more
generally beneficial or desirable. Soros offers the example that running up a budget or trade deficit
"feels good while it lasts, but there can be hell to pay later."
The relationship between the center and the periphery of the capitalist system is profoundly
unequal. The powerful countries at the center of the capitalist system are both wealthier and
more stable than countries at the periphery because control of the financial system and ownership
of productive assets allows them to shape economic and political affairs to their benefit.
"Foreign ownership of capital deprives peripheral countries of autonomy and often hinders the
development of democratic institutions. The international flow of capital is subject to catastrophic
In times of uncertainty financial capital tends to return to its country of origin, thus depriving
countries at the periphery of the financial liquidity necessary to the function of monetized economies.
"The center's most important feature is that it controls its own economic policies and holds in its
hands the economic destinies of periphery countries."
In the capitalist system greed (aka "monetary values") tend to displace social values in sectors
where this is destructive to important public interests. Soros writes:
Monetary values [under neoliberalism] have usurped the role of intrinsic values, and markets have come to dominate
spheres of existence where they do not properly belong.
Law and medicine, politics, education,
science, the arts, even personal relations-achievements or qualities that ought to be valued for
their own sake are converted into monetary terms; they are judged by the money they fetch rather
than their intrinsic value."
Because financial "capital is free to go where most rewarded, countries vie to attract and retain
capital, and if they are to succeed they must give precedence to the requirements of international
capital over other social objectives.
Ha-Joon Chang, Reader in the Political Economy of Development at Cambridge University, has
written a fascinating book on capitalism's failings. He also wrote the brilliant Bad Samaritans.
Martin Wolf of the Financial Times says he is `probably the world's most effective critic of globalization'.
Chang takes on the free-marketers' dogmas and proposes ideas like
there is no such thing as a free market;
the washing machine has changed the world more than the internet has--[ I respectfully
we do not live in a post-industrial age;
globalization isn't making the world richer;
governments can pick winners;
some rules are good for business;
US (and British) CEOs are overpaid;
more education does not make a country richer;
and equality of opportunity, on its own, is unfair.
He notes that the USA does not have the world's highest living standard. Norway, Luxemburg,
Switzerland, Denmark, Iceland, Ireland, Sweden and the USA, in that order, had the highest incomes
per head. On income per hours worked, the USA comes eighth, after Luxemburg, Norway, France, Ireland,
Belgium, Austria and the Netherlands. Japan, Switzerland, Singapore, Finland and Sweden have the
highest industrial output per person.
Free-market politicians, economists and media have pushed policies of de-regulation and
pursuit of short-term profits, causing less growth, more inequality, more job insecurity and more
frequent crises. Britain's growth rate in income per person per year was 2.4 per cent
in the 1960s-70s and 1.7 per cent 1990-2009. Rich countries grew by 3 per cent in the 1960s-70s
and 1.4 per cent 1980-2009. Developing countries grew by 3 per cent in the 1960s-70s and 2.6 per
cent 1980-2009. Latin America grew by 3.1 per cent in the 1960s-70s and 1.1 per cent 1980-2009,
and Sub-Saharan Africa by 1.6 per cent in the 1960s-70s and 0.2 per cent 1990-2009. The world
economy grew by 3.2 per cent in the 1960s-70s and 1.4 per cent 1990-2009.
So, across the world, countries did far better before Thatcher and Reagan's `free-market revolution'.
Making the rich richer made the rest of us poorer, cutting economies' growth rates, and investment
as a share of national output, in all the G7 countries.
Chang shows how free trade is not the way to grow and points out that the USA was the
world's most protectionist country during its phase of ascendancy, from the 1830s to the 1940s,
and that Britain was one of world's the most protectionist countries during its rise, from the
1720s to the 1850s.
He shows how immigration controls keep First World wages up; they determine wages more than
any other factor. Weakening those controls, as the EU demands, lowers wages.
He challenges the conventional wisdom that we must cut spending to cut the deficit. Instead,
we need controls capital, on mergers and acquisitions, and on financial products. We need
the welfare state, industrial policy, and huge investment in industry, infrastructure, worker
training and R&D.
As Chang points out, "Even though financial investments can drive growth for a while, such
growth cannot be sustained, as those investments have to be ultimately backed up by viable long-term
investments in real sector activities, as so vividly shown by the 2008 financial crisis."
This book is a commonsense, evidence-based approach to economic life, which we should urge
all our friends and colleagues to read.
Loyd E. Eskildson
The 2008 'Great Recession' demands re-examination of prevailing economic thought - the dominant
paradigm (post 1970's conservative free-market capitalism) not only failed to predict the crisis,
but also said it couldn't occur in today's free markets, thanks to Adam Smith's 'invisible hand.'
Ha-Joon Chang provides that re-examination in his "23 Things They Don't Tell You About Capitalism."
Turns out that the reason Adam Smith's hand was not visible is that it wasn't there. Chang, economics
professor at the University of Cambridge, is no enemy of capitalism, though he contends its current
conservative version should be made better. Conventional wisdom tells us that left alone, markets
produce the most efficient and just outcomes - 'efficient' because businesses and individuals
know best how to utilize their resources, and 'just' because they are rewarded according to their
productivity. Following this advice, countries have deregulated businesses, reduced taxes and
welfare, and adopted free trade. The results, per Chang, has been the opposite of what was promised
- slower growth and rising inequality, often masked by rising credit expansion and increased working
hours. Alternatively, developing Asian countries that grew fast did so following a different version
of capitalism, though to be fair China's version to-date has also produced much greater inequality.
The following summarizes some of Chang's points:
"There is no such thing as a free market" - we already have hygiene standards in
restaurants, ban child labor, pollution, narcotics, bribery, and dangerous workplaces, require
licenses for professions such as doctors, lawyers, and brokers, and limit immigration. In 2008,
the U.S. used at least $700 billion of taxpayers' money to buy up toxic assets, justified by
President Bush on the grounds that it was a necessary state intervention consistent with free-market
capitalism. Chang's conclusion - free-marketers contending that a certain regulation should
not be introduced because it would restrict market freedom are simply expressing political
opinions, not economic facts or laws.
"Companies should not be run in the interest of their owners." Shareholders are
the most mobile of corporate stakeholders, often holding ownership for but a fraction of a
second (high-frequency trading represents 70% of today's trading). Shareholders prefer corporate
strategies that maximize short-term profits and dividends, usually at the cost of long-term
investments. (This often also includes added leverage and risk, and reliance on socializing
risk via 'too big to fail' status, and relying on 'the Greenspan put.') Chang adds that corporate
limited liability, while a boon to capital accumulation and technological progress, when combined
with professional managers instead of entrepreneurs owning a large chunk (e.g.. Ford, Edison,
Carnegie) and public shares with smaller voting rights (typically limited to 10%), allows professional
managers to maximize their own prestige via sales growth and prestige projects instead of maximizing
profits. Another negative long-term outcome driven by shareholders is increased share buybacks
(less than 5% of profits until the early 1980s, 90% in 2007, and 280% in 2008) - one economist
estimates that had GM not spent $20.4 billion on buybacks between 1986 and 2002 it could have
prevented its 2009 bankruptcy. Short-term stockholder perspectives have also brought large-scale
layoffs from off-shoring. Governments of other countries encourage longer-term thinking by
holding large shares in key enterprises (China Mobile, Renault, Volkswagen), providing greater
worker representation (Germany's supervisory boards), and cross-shareholding among friendly
companies (Japan's Toyota and its suppliers).
"Free-market policies rarely make poor countries rich." With a few exceptions, all
of today's rich countries, including Britain and the U.S., reached that status through protectionism,
subsidies, and other policies that they and their IMF, WTO, and World Bank now advise developing
nations not to adopt. Free-market economists usually respond that the U.S. succeeded despite,
not because of, protectionism. The problem with that explanation is the number of other nations
paralleling the early growth strategy of the U.S. and Britain (Austria, Finland, France, Germany,
Japan, Korea, Singapore, Sweden, Taiwan), and the fact that apparent exceptions (Hong Kong,
Switzerland, The Netherlands) did so by ignoring foreign patents (a free-market 'no-no'). Chang
believes the 'official historians' of capitalism have been very successful re-writing its history,
akin to someone trying to 'kick away the ladder' with which they had climbed to the top. He
also points out that developing nations that stick to their Ricardian 'comparative advantage,'
per the conservatives prescription, condemn themselves to their economic status quo.
"We do not live in a post-industrial age." Most of the fall in manufacturing's share
of total output is not due to a fall in the quantity of manufactured goods, but due to the
fall in their prices relative to those for services, caused by their faster productivity growth.
A small part of deindustrialization is due to outsourcing of some 'manufacturing' activities
that used to be provided in-house - e.g.. catering and cleaning. Those advising the newly developing
nations to skip manufacturing and go directly to providing services forget that many services
mainly serve manufacturing firms (finance, R&D, design), and that since services are harder
to export, such an approach will create balance-of-payment problems. (Chang's preceding points
directly contradict David Ricardo's law of comparative advantage - a fundamental free market
precept. Chang's example of how Korea built Pohang Steel into a strong economic producer, despite
lacking experienced managers and natural resources, is another.)
"The U.S. does not have the highest living standard in the world." True, the average
U.S. citizen has greater command over goods and services than his counterpart in almost any
other country, but this is due to higher immigration, poorer employment conditions, and working
longer hours for many vs. their foreign counterparts. The U.S. also has poorer health indicators
and worse crime statistics. We do have the world's second highest income per capita - Luxemburg's
higher, but measured in terms of purchasing power parity (PPP) the U.S. ranks eighth. (The
U.S. doesn't have the fastest growing economy either - China is predicted to pass the U.S.
in PPP this coming decade.) Chang's point here is that we should stop assuming the U.S. provides
the best economic model. (This is already occurring - the World Bank's chief economist, Justin
Lin, comes from China.)
"Governments can pick winners." Chang cites examples of how the Korean government
built world-class producers of steel (POSCO), shipbuilding (Hyundai), and electronics (LG),
despite lacking raw materials or experience for those sectors. True, major government failures
have occurred - Europe's Concorde, Indonesia's aircraft industry, Korea's promotion of aluminum
smelting, and Japan's effort to have Nissan take over Honda; industry, however, has also failed
- e.g.. the AOL-Time Warner merger, and the Daimler-Chrysler merger. Austria, China, Finland,
France, Japan, Norway, Singapore (in numerous other areas), and Taiwan have also done quite
well with government-picked winners. Another problem is that business and national interests
sometimes clash - e.g.. American firms' massive outsourcing has undermined the national interest
of maintaining full employment. (However, greater unbiased U.S. government involvement would
be difficult due to the 10,000+ corporate lobbyists and billions in corporate campaign donations
- $500 million alone from big oil in 2009-10.) Also interesting to Chang is how conservative
free marketing bankers in the U.S. lined up for mammoth low-cost loans from the Federal Reserve
at the beginning of the Great Recession. Government planning allows minimizing excess capacity,
maximizing learning-curve economies and economies of scale and scope; operational performance
is enhanced by also forcing government-owned or supported firms into international competition.
Government intervention (loans, tariffs, subsidies, prohibiting exports of needed raw materials,
building infrastructure) are necessary for emerging economies to move into more sophisticated
"Making rich people richer doesn't make the rest of us richer." 'Trickle-down' economics
is based on the belief that the poor maximize current consumption, while the rich, left to
themselves, mostly invest. However, the years 1950-1973 saw the highest-ever growth rates in
the U.S., Canada, Australia, and New Zealand, despite increased taxation of the rich. Before
the 'Golden Age,' per capita income grew at 1-1.5%/year; during the Golden Age it grew at 2-3%
in the U.S. Since then, tax cuts for the rich and financial deregulation have allowed greater
paychecks for top managers and financiers, and between 1979 and 2006 the top 0.1% increased
their share of national income from 3.5% to 11.6%. The result - investment as a ratio of national
output has fallen in all rich economies and the pace at which the total economic pie grew decreased.
"U.S. managers are over-priced." First, relative to their predecessors (about 10X
those in the 1960s; now 300-400X the average worker), despite the latter having run companies
more successfully, in relative terms. Second, compared to counterparts in other rich countries
- up to 20X. (Third, compared to counterparts in developing nations - e.g.. JPMorgan Chase,
world's 4th largest bank, paid its CEO $19.6 million in 2008, vs. the CEO of the Industrial
and Commercial Bank of China, the world's largest, being paid $234,700.
Read more ›
In short each financial
crisis make recovery longer and longer. That's why the US will most likely face a long period
of stagnation: the digestion of huge excessive debt of the private sector might well take a decade:
Since the excess of debt is relative to income and GDP, the lower the rate of growth, the longer
the required period of digestion. This explains for the paradox of trying to stimulate consumption
when the economy faces a monumental crisis provoked exactly by excessive debt and excessive consumption.
A cartoon line best captured the spirit of it: "country addicted to speculative bubbles desperately
searches a new bubble to invest in. "
... ... ...
The roots of the crisis are major international macroeconomic imbalances. Despite the fact that
the excesses of the financial system were instrumental to lead these imbalances further than otherwise
possible, insufficient regulation should not be viewed as the main factor behind the crisis. The
expenditure of central countries, spinned by all sort of financial innovations created by a globalized
financial system, was the engine of world growth. When debt became clearly excessive in central countries
and the debt-financed expenditure cycle came to an end, the ensuing crisis paralyzed the world economy.
With the lesson of 1929 well assimilated, American monetary policy became aggressively expansionist.
The Fed inundated the economy with money and credit, in the attempt to avoid a deep depression. Even
if successful, the economies of the US and the other central countries, given the burden of excessive
debt, are likely to remain stagnant under the threat of deflation for the coming years. The assumption
of troubled assets by the public sector, in order to avoid the collapse of the financial system,
might succeed, but at the cost of a major increase in public debt. Fiscal policy is not efficient
to restart the economy when the private sector remains paralyzed by excessive debt. Even if a coordinated
effort to increase public expenditure is successful, the central economies will remain stagnant for
as long as the excessive indebtedness of the private sector persists. The period of digestion of
excess debt will be longer than the usual recessive cycle. Since imports represent a drain in the
effort to reanimate domestic demand through public expenditure, while exports, on the contrary, contribute
to the recovery of internal demand, the temptation to central economies to also adopt a protectionist
stance will be strong.
This regulatory capture has resulted in an excess sensitivity of the Fed to financial market and
financial sector concerns and fears and in an overestimation of the strength of the link between
financial market turmoil and financial sector deleveraging and capital losses on the one hand, and
the stability and prosperity of the wider economy on the other hand. The paper gives five examples
of recent behavior by the Fed that are most readily rationalized with the assumption of regulatory
capture. The abstract of the paper follows next. The latest version of the entire enchilada can be
found here. Future revisions
will also be found there.
Stiglitz is very unene and early Striglist was actually defender of neoliberalism (aka casino
capitalism). Later he became a critic.
In his 2008 Vanity Fair article
Stiglitz identifies five key steps in transformation of American capitalism to Casino Capitalism
(moments of failure as he called them):
No. 1: Reagan Fires Fed Chairman Volcker and Replaces Him With Greenspan in 1987:
Volcker also understood that financial markets need to be regulated. Reagan wanted someone who
did not believe any such thing, and he found him in a devotee of the objectivist philosopher and
free-market zealot Ayn Rand.
If you appoint an anti-regulator as your enforcer, you know what kind of enforcement you’ll
get. A flood of liquidity combined with the failed levees of regulation proved disastrous.
Greenspan presided over not one but two financial bubbles.
Congress repealed the Glass-Steagall Act in 1999 under Bill Clinton (Glass-Steagall
was a depression-era reform that separated commercial and investment banks)
I had opposed repeal of Glass-Steagall. The proponents said, in effect, Trust us: we will
create Chinese walls to make sure that the problems of the past do not recur. As an economist,
I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend
human behavior toward self-interest—toward short-term self-interest, at any rate, rather than
Tocqueville’s "self interest rightly understood."
Stiglitz also refers to a 2004 decision by the SEC "to allow big investment banks to increase
their debt-to-capital ratio (from 12:1 to 30:1, or higher) so that they could buy more mortgage-backed
securities, inflating the housing bubble in the process."
Once more, it was deregulation run amuck, and few even noticed.
The Bush tax cuts, both on income and capital gains
The Bush administration was providing an open invitation to excessive borrowing and lending—not
that American consumers needed any more encouragement.
Faking the Numbers
Here he refers to bad accounting, the failure to address problems with stock options, and the
incentive structures of ratings agencies like Moodys that led them to give high ratings to toxic
Paulson and the Flawed Bailout
Valuable time was wasted as Paulson pushed his own plan, "cash for trash," buying up the bad assets
and putting the risk onto American taxpayers. When he finally abandoned it, providing banks with
money they needed, he did it in a way that not only cheated America’s taxpayers but failed to ensure
that the banks would use the money to re-start lending. He even allowed the banks to pour out money
to their shareholders as taxpayers were pouring money into the banks.
The truth is most of the individual mistakes boil down to just one: a belief that markets are
self-adjusting and that the role of government should be minimal. Looking back at that belief during
hearings this fall on Capitol Hill, Alan Greenspan said out loud, "I have found a flaw." Congressman
Henry Waxman pushed him, responding, "In other words, you found that your view of the world, your
ideology, was not right; it was not working." "Absolutely, precisely," Greenspan said. The embrace
by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable
that we would eventually arrive at the place we are today.
The flawed economic philosophy brought by Reagan, and embraced by so many, brought us to this day.
Ideas have consequences, especially when we stop empirically testing them. Republican economics have
created great pain to America and harmed our national interest.
The flaw that Greenspan found was always there: self-regulation does not work. As Stiglitz said:
As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic
incentives to bend human behavior toward self-interest — toward short-term self-interest
Yes, for all their claims to science, the premise conflicts with tendencies of people.
This is the real legacy of Ronald Reagan and Alan Greenspan:
The whole scheme was kick-started under Ronald Reagan. Between his tax cuts for the rich
and the Greenspan Commission’s orchestrated Social Security heist, working Americans lost out in
a generational wealth transfer shift now exceeding $1 trillion annually from 90 million working class
households to for-profit corporations and the richest 1% of the population. It created an unprecedented
wealth disparity that continues to grow, shames the nation and is destroying the bedrock middle class
without which democracy can’t survive.
Greenspan helped orchestrate it with economist Ravi Batra calling his economics "Greenomics" in
his 2005 book "Greenspan’s Fraud." It "turns out to be Greedomics" advocating anti-trust laws, regulations
and social services be ended so "nothing....interfere(s) with business greed and the pursuit of profits."
Instead of conclusion I will reproduce the post from Sudden Debt (March
Animal Farm all animals are equal - except that some are more equal than others. All in the spirit
of law, order and the proper functioning of society, of course. Fittingly, the animals that have
chosen this role by themselves and for themselves, are the pigs.
Cut to US financial
markets today. After years of swinish behavior more reminiscent of
Animal House than anything else, the pigs are threatening to destroy the entire farm. As if it
wasn't enough that they devoured all the "free market" food available and inundated the world with
their excreta, they now wish to be put on the public trough. Truly, some businessmen believe they
are more equal than others.
But do not blame the pigs; they are expected to act as swine nature dictates. The fault lies entirely
with the farmers, those authorities entrusted by the people to oversee the farm because they supposedly
knew better. While the pigs were rampaging and tearing the place apart, they were assuring us all
that farms function best when animals are free to do as they please, guided solely by invisible hooves.
No regulation, no oversight, no common sense. Oh yes, and pigs fly..
So what is to be done now? Two things:
(a) Let financial markets sort themselves out, but with rock solid backing for bank depositors,
pension funds and public institutions. The public purse should not be used to bail out - directly
or indirectly - speculators in hedge funds, private equity funds and the like. Those that live
by the leverage sword can defend themselves or perish by credit destruction.
(b) Revamp public policy towards increasing earned income for working people.
In other words, the focus from now on should be on adding value by means of work and savings (capital
formation), instead of inflating assets and borrowing.
Furthermore, we should realize that in a world already inhabited by close to 7 billion people
and beset by resource depletion and environmental degradation, defending growth for growth's sake
is a losing proposition. The wheels are already wobbling on the Permagrowth model; pumping harder
on the accelerator is not going to make it go any faster and will likely result in a fatal crash.
Debt, and finance in general, should be left to re-size downwards to a level that better reflects
the carrying capacity of our world. The Fed's current actions are shortsighted and "conservative"
in the worst interpretation of the words: they are designed to artificially maintain debt at levels
that myopically projects growth as far as the eye can see.
What level of resizing may be necessary? I hope not as much as at Bear Stearns, which got itself
bought by Morgan at buzz-saw prices: $2 per share represents a 98% discount from its $84 book value.
What scares me, though, is the
statement by Morgan's CFO, who said the price reflected the risk the firm was taking, even though
he was comfortable with the valuation of assets in Bear's books. It "...gives us the flexibility
and margin of error that's appropriate given the speed at which the transaction came together", he
If it takes a 98% discount and the explicit guarantee of the Fed for a large portion of assets
to buy one of the largest investment banks in the world, where should all other financial firms be
trading at? ....Hello? Anyone? Is that a great big silence I hear, or the sound of credit imploding
into a vacuum?
On the final night of this past week's National Conservatism Conference, Senator Josh
Hawley -- a graduate of Stanford and Yale and a former instructor at an English private
school -- warned the attendees gathered in the ballroom of the Ritz-Carlton in downtown
Washington, D.C., about the threat of élite cosmopolitanism. "The politics of those
left and right have been informed by a political consensus that reflects the interests not
of the American middle but of a powerful upper class and their cosmopolitan priorities," he
intoned. "This class lives in the United States, but they identify as citizens of the
world. They run businesses or oversee universities here, but their primary loyalty is to
the global community, and they subscribe to a set of values held by similar élites
in other places." He went on to name those values: "The importance of global
integration and the danger of national loyalties; the priority of social change over
tradition, career over community and achievement and merit and progress. Call it the
"Let us be candid," she concluded. "Europe and the first world, to which the United States
belongs, remain mostly white for now, and the third world, although mixed, contains a lot
of nonwhite people. Embracing cultural-distance nationalism means, in effect, taking the
position that our country will be better off with more whites and fewer nonwhites. Well,
that is the result, anyway. So, even if our immigration philosophy is grounded firmly in
cultural concerns, it doesn't rely on race at all. And, no matter how many times we repeat
the mantra that correlation is not causation, these racial dimensions are enough to spook
"To reduce a complex argument to its bare bones, since the Depression, the twin forces of
managed democracy and Superpower have opened the way for something new under the sun: 'inverted
totalitarianism,' a form every bit as totalistic as the classical version but one based on
internalized co-optation, the appearance of freedom, political disengagement rather than mass
mobilization, and relying more on "private media" than on public agencies to disseminate
propaganda that reinforces the official version of events.
It is inverted because it does not require the use of coercion, police power and a messianic
ideology as in the Nazi, Fascist and Stalinist versions (although note that the United States
has the highest percentage of its citizens in prison -- 751 per 100,000 people -- of any nation
on Earth). According to Wolin, inverted totalitarianism has 'emerged imperceptibly,
unpremeditatedly, and in seeming unbroken continuity with the nation's political
The main objectives of managed democracy are to increase the profits of large corporations,
dismantle the institutions of social democracy (Social Security, unions, welfare, public health
services, public housing and so forth), and roll back the social and political ideals of the
New Deal. Its primary tool is privatization [and deregulation].
Chalmers Johnson, Inverted Totalitarianism: A New Way of Understanding How the U.S. Is
"Thus the elements are in place: a weak legislative body, a legal system that is both
compliant and repressive, a party system in which one (I would in 2019 now say either)
party, whether in opposition or in the majority, is bent upon reconstituting the existing
system so as to permanently favor a ruling class of the wealthy, the well-connected and the
corporate, while leaving the poorer citizens with a sense of helplessness and political
despair, and, at the same time, keeping the middle classes dangling between fear of
unemployment and expectations of fantastic rewards once the new economy recovers.
That scheme is abetted by a sycophantic and increasingly concentrated media; by the
integration of universities with their corporate benefactors; by a propaganda machine
institutionalized in well-funded think tanks and conservative foundations; by the increasingly
closer cooperation between local police and national law enforcement agencies aimed at
identifying terrorists, suspicious aliens and domestic dissidents."
Sheldon Wolin, Inverted Totalitarianism
"The truth is that we were so spiritually and morally bankrupt that we could not even see
some of those lines: we stepped over them blindly. Other times we saw the lines alright, but we
wanted to cross them... It wasn't God who was dead. We were."
Ray A., Practice These Principles
"Oh where is the noble face of modesty, or the strength of virtue, now that blasphemy is in
power and men have put justice behind them, and there is no law but lawlessness, and none act
with fear of the gods?"
Euripides, Iphigenia in Aulis
"Religion used to be the opium of the people. To those suffering humiliation, pain, illness,
and serfdom, religion promised the reward of an after life.
But now we are witnessing a transformation: a true opium of the people is the belief in
nothingness after death, the huge solace, the huge comfort of thinking that for our betrayals,
our greed, our cowardice, our murders, that we are not going to be judged."
Perhaps the most immediately effective strategy for effecting a realignment of the global
economy, ending the US pursuit of global military hegemony and the other planet threatening
practices of the US and Western plutocracy would be for other countries to follow the
historical precedent set by the United States in its Lend Lease dealings with Great Britain
as detailed in Hudson's Super Imperialism :
Britain was near the end of its financial tether. Its gold and dollar reserves had
fallen to $1 billion by September 1940, when it nationalized the overseas investments of
its large corporations and put them up for sale abroad. (p. 119)
(I am assuming Britain didn't do this voluntarily.) Hudson may be hinting at this with his
de-dollarization strategy suggest of "Deprivatization and buyouts of US assets abroad."
This would expose the whole rotten edifice of Western finance capitalism, perhaps provoking a
dangerous planet suicidal response. But one or two shots over the bow would be far more
effective in curbing the wealth addiction and predatory propensities of the West's plutocracy
than Trump's tariffs.
It would also provide the Western money worshipping public with a
powerful lesson they need a better definition of wealth than the price of stocks.
Within the vast bureaucratic sprawl of the
Pentagon there is a group in charge of monitoring the general state of the military-industrial
complex and its continued ability to fulfill the requirements of the national defense strategy.
Office for acquisition and sustainment and office for industrial policy spends some
$100,000 a year producing an Annual Report to Congress.
is available to the general public.
It is even available to the general public in Russia, and
Russian experts had a really good time poring over it.
In fact, it filled them with optimism.
You see, Russia wants peace but the US seems to
want war and keeps making threatening gestures against a longish list of countries that refuse to
do its bidding or simply don't share its "universal values."
But now it turns out that
threats (and the increasingly toothless economic sanctions) are pretty much all that the US is
still capable of dishing out -- this in spite of absolutely astronomical levels of defense spending.
Let's see what the US military-industrial complex looks like through a Russian
It is important to note that the report's authors were not aiming to force legislators to
finance some specific project.
This makes it more valuable than numerous other sources,
whose authors' main objective was to belly up to the federal feeding trough,
therefore tend to be light on facts and heavy on hype. No doubt, politics still played a part in
how various details are portrayed, but there seems to be a limit to the number of problems its
authors can airbrush out of the picture and still do a reasonable job in analyzing the situation
and in formulating their recommendations.
What knocked Russian analysis over with a feather is the fact that these INDPOL experts
(who, like the rest of the US DOD, love acronyms) evaluate the US military-industrial complex from
a market-based perspective!
You see, the Russian military-industrial complex is fully
owned by the Russian government and works exclusively in its interests; anything else would be
But the US military-industrial complex is evaluated based on its
According to INDPOL, it must not only produce products for the military but
also acquire market share in the global weapons trade and, perhaps most importantly, maximize
profitability for private investors. By this standard, it is doing well: for 2017 the gross margin
(EBITDA) for US defense contractors ranged from 15 to 17%, and some subcontractors - Transdigm, for
example - managed to deliver no less than 42-45%. "Ah!" cry the Russian experts, "We've found the
problem! The Americans have legalized
!" (This, by the way, is but one of many instances of something called systemic
corruption, which is rife in the US.)
It would be one thing if each defense contractor simply took its cut off the top, but
instead there is an entire food chain of defense contractors, all of which are legally required, no
less, to maximize profits for their shareholders.
More than 28,000 companies are involved,
but the actual first-tier defense contractors with which the Pentagon places 2/3 of all defense
contracts are just the Big Six: Lockheed Martin, Northrop Grumman, Raytheon, General Dynmics, BAE
Systems and Boeing. All the other companies are organized into a pyramid of subcontractors with
five levels of hierarchy, and at each level they do their best to milk the tier above them.
The insistence on market-based methods and the requirement of maximizing profitability turns out
to be incompatible with defense spending on a very basic level: defense spending is intermittent
and cyclical, with long fallow intervals between major orders.
This has forced even the Big
Six to make cuts to their defense-directed departments in favor of expanding civilian production.
Also, in spite of the huge size of the US defense budget, it is of finite size (there being just
one planet to blow up), as is the global weapons market. Since, in a market economy, every company
faces the choice of grow or get bought out, this has precipitated scores of mergers and
acquisitions, resulting in a highly consolidated marketplace with a few major players in each
As a result, in most spaces, of which the report's authors discuss 17, including the Navy, land
forces, air force, electronics, nuclear weapons, space technology and so on,
at least a
third of the time the Pentagon has a choice of exactly one contractor for any given contract,
causing quality and timeliness to suffer and driving up prices.
In a number of cases, in spite of its industrial and financial might, the Pentagon has
encountered insoluble problems.
Specifically, it turns out that the US has only one
shipyard left that is capable of building nuclear aircraft carriers (at all, that is; the USS
Gerald Ford is not exactly a success).
That is Northrop Grumman Newport News Shipbuilding
in Newport, Virginia. In theory, it could work on three ships in parallel, but two of the slips are
permanently occupied by existing aircraft carriers that require maintenance. This is not a unique
case: the number of shipyards capable of building nuclear submarines, destroyers and other types of
vessels is also exactly one. Thus, in case of a protracted conflict with a serious adversary in
which a significant portion of the US Navy has been sunk, ships will be impossible to replace
within any reasonable amount of time.
The situation is somewhat better with regard to aircraft manufacturing.
plants that exist can produce 40 planes a month and could produce 130 a month if pressed. On the
other hand, the situation with tanks and artillery is absolutely dismal. According to this report,
the US has completely lost the competency for building the new generation of tanks. It is no longer
even a question of missing plant and equipment; in the US, a second generation of engineers who
have never designed a tank is currently going into retirement. Their replacements have no one to
learn from and only know about modern tanks from movies and video games. As far as artillery, there
is just one remaining production line in the US that can produce barrels larger than 40mm; it is
fully booked up and would be unable to ramp up production in case of war. The contractor is
unwilling to expand production without the Pentagon guaranteeing at least 45% utilization, since
that would be unprofitable.
The situation is similar for the entire list of areas; it is better for dual-use technologies
that can be sourced from civilian companies and significantly worse for highly specialized ones.
Unit cost for every type of military equipment goes up year after year while the volumes being
acquired continuously trend lower -- sometimes all the way to zero. Over the past 15 years the US
hasn't acquired a single new tank. They keep modernizing the old ones, but at a rate that's no
higher than 100 a year.
Because of all these tendencies and trends, the defense industry continues to lose not only
qualified personnel but also the very ability to perform the work.
INDPOL experts estimate
that the deficit in machine tools has reached 27%. Over the past quarter-century the US has stopped
manufacturing a wide variety of manufacturing equipment. Only half of these tools can be imported
from allies or friendly nations; for the rest, there is just one source: China.
analyzed the supply chains for 600 of the most important types of weapons and found that a third of
them have breaks in them while another third have completely broken down. In the Pentagon's
five-tier subcontractor pyramid, component manufacturers are almost always relegated to the
bottommost tier, and the notices they issue when they terminate production or shut down completely
tend to drown in the Pentagon's bureaucratic swamp.
The end result of all this is that theoretically the Pentagon is still capable of
doing small production runs of weapons to compensate for ongoing losses in localized, low-intensity
conflicts during a general time of peace, but even today this is at the extreme end of its
capabilities. In case of a serious conflict with any well-armed nation, all it will be able to rely
on is the existing stockpile of ordnance and spare parts, which will be quickly depleted.
A similar situation prevails in the area of rare earth elements and other materials for
At the moment, the accumulated stockpile of these supplies needed
for producing missiles and space technology -- most importantly, satellites -- is sufficient for five
years at the current rate of use.
The report specifically calls out the dire situation in the area of strategic nuclear weapons.
Almost all the technology for communications, targeting, trajectory calculations and arming of the
ICBM warheads was developed in the 1960s and 70s. To this day, data is loaded from 5-inch floppy
diskettes, which were last mass-produced 15 years ago. There are no replacements for them and the
people who designed them are busy pushing up daisies. The choice is between buying tiny production
runs of all the consumables at an extravagant expense and developing from scratch the entire
land-based strategic triad component at the cost of three annual Pentagon budgets.
There are lots of specific problems in each area described in the report, but the main
one is loss of competence among technical and engineering staff caused by a low level of orders for
replacements or for new product development.
The situation is such that promising new
theoretical developments coming out of research centers such as DARPA cannot be realized given the
present set of technical competencies. For a number of key specializations there are fewer than
three dozen trained, experienced specialists.
This situation is expected to continue to deteriorate, with the number of personnel employed in
the defense sector declining 11-16% over the next decade, mainly due to a shortage of young
candidates qualified to replace those who are retiring. A specific example: development work on the
F-35 is nearing completion and there won't be a need to develop a new jet fighter until 2035-2040;
in the meantime, the personnel who were involved in its development will be idled and their level
of competence will deteriorate.
Although at the moment the US still leads the world in defense spending ($610 billion of $1.7
trillion in 2017, which is roughly 36% of all the military spending on the planet)
economy is no longer able to support the entire technology pyramid even in a time of relative peace
On paper the US still looks like a leader in military technology, but the
foundations of its military supremacy have eroded. Results of this are plainly visible:
The US threatened North Korea with military action but was then forced to back off because
it has no ability to fight a war against it.
The US threatened Iran with military action but was then forced to back off because it has
no ability to fight a war against it.
The US lost the war in Afghanistan to the Taliban, and once the longest military conflict in
US history is finally over the political situation there will return to status quo ante with the
Taliban in charge and Islamic terrorist training camps back in operation.
US proxies (Saudi Arabia, mostly) fighting in Yemen have produced a humanitarian disaster
but have been unable to prevail militarily.
US actions in Syria have led to a consolidation of power and territory by the Syrian
government and newly dominant regional position for Russia, Iran and Turkey.
The second-largest NATO power Turkey has purchased Russian S-400 air defense systems. The US
alternative is the Patriot system, which is twice as expensive and doesn't really work.
All of this points to the fact that the US is no longer much a military power at all.
This is good news for at least the following four reasons.
First, the US is by far the most belligerent country on Earth,
invaded scores of nations and continuing to occupy many of them. The fact that it can't fight
any more means that opportunities for peace are bound to increase.
Second, once the news sinks in that the Pentagon is nothing more than a flush toilet
for public funds its funding will be cut off
and the population of the US might see the
money that is currently fattening up war profiteers being spent on some roads and bridges,
although it's looking far more likely that it will all go into paying interest expense on
federal debt (while supplies last).
Third, US politicians will lose the ability to keep the populace in a state of
permanent anxiety about "national security."
In fact, the US has "natural security" -- two
oceans -- and doesn't need much national defense at all (provided it keeps to itself and doesn't
try to make trouble for others). The Canadians aren't going to invade, and while the southern
border does need some guarding, that can be taken care of at the state/county level by some good
ol' boys using weapons and ammo they already happen to have on hand. Once this $1.7 trillion
"national defense" monkey is off their backs, ordinary American citizens will be able to work
less, play more and feel less aggressive, anxious, depressed and paranoid.
Last but not least, it will be wonderful to see the war profiteers reduced to
scraping under sofa cushions for loose change.
All that the US military has been able
to produce for a long time now is misery, the technical term for which is "humanitarian
disaster." Look at the aftermath of US military involvement in Serbia/Kosovo, Afghanistan, Iraq,
Libya, Syria and Yemen, and what do you see? You see misery -- both for the locals and for US
citizens who lost their family members, had their limbs blown off, or are now suffering from
PTSD or brain injury. It would be only fair if that misery were to circle back to those who had
profited from it.
Stocks and Precious Metals Charts -
The Mask of Agamemnon
- Deliberate Lies and Mispricing of Risks
"At the root of America's economic crisis lies a moral crisis: the decline of civic
virtue among America's political and economic elite. A society of markets, laws, and
elections is not enough if the rich and powerful fail to behave with respect, honesty,
and compassion toward the rest of society and toward the world."
the Word being eternal, men have proven to be uncomprehending,
both before they hear and once they have heard it. For although all things happen
according to this Word, they are like the uneducated who first experience words and
deeds such as when I distinguish each thing according to its essence and show how it
And as for the rest, they are as unaware of what they do when they are awake, as they
are when they are asleep."
"I believe order is better than chaos, creation better than destruction. I prefer
gentleness to violence, forgiveness to vendetta. On the whole I think that knowledge
is preferable to ignorance, and I am sure that human sympathy is more valuable than
ideology. I believe that in spite of the recent triumphs of science, men haven't
changed much in the last two thousand years; and in consequence we must try to learn
from history. History is ourselves.
I believe in courtesy, the ritual by which we avoid hurting other people's feelings, by
satisfying our own egos. And I think we should remember that we are all part of a
great whole, which for convenience we call nature. All living things are our brothers
The broken wall, the burning roof and tower
And Agamemnon dead.
W. B. Yeats,
Leda and the Swan
"Each day we are becoming a creature of splendid glory, or one of unthinkable horror."
C. S. Lewis
Lies seem to be coming more and more easily to and prevalent among the ruling elite, and
their enablers and acolytes in the professional class. And it is therefore no surprise
that hatred and irrationality are also in the air.
It will get worse before it gets better. If history is any guide, may God forgive us, this
will end in blood.
Pray for each other, that you do not lose your way in this madness.
Stocks were soaring to new highs today, and gold rose sharply, off of the rather dovish testimony of Fed chair Powell.
His rationale for cutting rates in such a 'strong economy' is trade risks. Although he did note correctly that despite the apparent
improvements, wages still remain sub-par.
Gold rallied smartly, up $20 to the upper bound of the consolidation pattern in which it is currently coiling.
If it breaks out to the upside it could be rather impressive.
I am stunned, and I hear little talk about it, at the lack of withdrawals from the Comex Hong Kong warehouses, much less the NY
Hong Kong has been an active supplier of physical gold to Asia for some time.
Something momentous is happening behind the scenes. I am almost certain of this. It will of course be brought to light, eventually.
But it will not be acknowledged readily by those who draw power from this rotten system. This is the credibility trap.
"The truth has to be melted out of our stubborn lives by suffering. Nothing speaks the truth, nothing tells us how things really
are, nothing forces us to know what we do not want to know except pain."
Aeschylus, The Oresteia
Do not allow yourself to be swayed back and forth by those snakes and vipers who prey upon the innocent for a living, and lead them
into destruction, for gain, and too often just for sport.
Regarding money, and the difference between private and public money.
As with all things public and private, public money is not required to make a profit, but
in contrast, private money has no other reason to exist than to make a profit.
What we call money in the US, is privately owned. It is actually a promissory note, the
signifier of a loan made to those who hold the note. This is how US money comes into
We could trade coconut shells, or beads, but we trade promissory notes. They are legal
tender by law. And they fulfill the role of money pretty well. But we the people do not
ultimately own those obligations.
Public money is issued out of the same thin air as private money, but not as a debt,
simply as an issuance. The bills do their job for exchange and storage, and circulate until
being retired as taxes and the like. No one pays interest on that money.
Public money doesn't charge interest. Private money charges interest. This is the only
difference, and this difference is killing us and destroying the entire world.
Professor Richard Werner illustrates nicely how a mortgage comes into existence through a
bank, which doesn't actually create money in this loan, but purchases a promissory note from
the home buyer. It is this promissory note that then enters the public record as new money,
which we then trade like sea shells - happy children, except that we now will pay interest of
more than 100 percent over the next 30 years. This interest is the profit on the private
You'll find the mortgage part specifically around 16:15.
As to all the rest, there is much more collateral, including the flagship work by Helen
Brown. Sorry I have no time to supply more links.
But I'm surprised to see so much wordy ignorance here on the subject, which is actually
very simple (although obfuscated, of course). Thanks to psychohistorian and karlof1 and
others who show that the good economists are all calling for public money which charges no
interest. And the communists and socialists do this as a matter of course.
As Hudson ended in his address cited by b and discussed here: "nations face a choice
between socialism and barbarism" .
Neoliberal economics and private finance is this very barbarism. It is accompanied by
fascism, oppression and the utter loss of freedom. As I cited in my previous comment, Dambisa
Moyo suggests very cogently that economic sufficiency undergirds democratic freedom. The
corollary is obvious: as we get more impoverished, freedom flees away.
Interest charged on a loan is a claim on wealth that it doesn't create. It therefore
steals existing wealth in order to be redeemed. That's where our wealth went, and why we're
all so broke.
A loan for a productive purpose that will create new wealth can hopefully afford to slice
some of this new wealth off to pay the interest. It's still usury. But any loan at interest
that doesn't create wealth - such as a mortgage that simply buys an existing asset - is
something vastly more wicked.
"... As Mael Colium says, the US picks off individual countries by isolating them. ..."
"... there's a fundamental difference between debt in the past and debt today. In the past debt was owed to the state, today it's owed to some wealthy corporations. Good luck with debt jubilees in the absence of violent uprisings. ..."
"... The difference is they internalize profit and externalize cost. And that's fundamentally different from all other epochs in the past. Even the birth of nation state was out of their rationalization of how to maximize profit extraction and cost externalization in the 1st place. Good luck with debt jubilees. ..."
"... How would this occur aside from a repudiation of the almighty buck one wonders, and would it be based on reserves in the vault, or actual use as money? ..."
"... The Eurozone and China could run trade deficits, thereby creating an opportunity for their currencies to become reasonably viable alternative reserves. But they don't because they don't want to cede control of their manufacturing and export-driven economic bases away. ..."
"... The sine qua non of our economic empire (which I learned here) is that a global currency requires global trade deficits, which must grow as quickly as the global economy to fulfill its role. ..."
"... So American deficits are structural. Our debt-ceiling controversies are theater. And our dollar is exceptional until the instant it isn't–then the Fed electron-tranfers trillions more to the speculators whose notional dollars just evaporated, keeping the currencies in the air with their new casino chips. Is this a loan? A gift? An electron cloud? It's the fog of war by other means . . . ..."
"... Resources and the critical health of the planet bother me a lot. Money and "gold" are, in the end, both fictitious obsessions. ..."
"... You'll find few authors willing to provide their seminal work for free online– 2nd Edition PDF . I think it fair for those unfamiliar with Hudson's work to read his analysis prior to being judgmental. ..."
"On a similar note, I've wondered why Russia has not defaulted on it's considerable USD and
EUR debt (also too, why is Russia still doing debt in USD and thus strengthening U.S.?)"
It should be noted that Russia has almost zero foreign public debt and that the private foreign
debt has been much reduced and now amounts to US dollars 450 billion.
As Russia has a surplus of more than US dollars 100 billion on the current account the total
foreign debt amounts to 4 years current account surplus only.
Ad to this that Russias international currency reserves amounts to ca. US dollars 500
billion which meens that Russia is in a very strong fiscal position as it is capable of paying
off its entire foreign debt any time it chooses.
Along the same lines, the summary starts with, "The first existential objective is to avoid the current threat of war by
winding down U.S. military interference in foreign countries and removing U.S. military bases as relics of neocolonialism."
Either would be
taken as proof of evil anti-US intentions, leading to sanctions, coups, assassinations,
regime change, and eventually outright war. As Mael Colium says, the US picks off individual
countries by isolating them.
When we have MMT paying for arts, history, journalism and particularly editors, I won't be
so irritated by these kinds of criticisms.
We live in a very advanced world of Bernaysian propaganda where the communicative
industries are privately owned and directed to ensure deep criticisms of the
hyper-exploitative current reality CANNOT be published and promoted.
When someone takes the effort to produce something, like this or the book other commenters
on this thread are also slighting, at great personal expense to themselves without corporate
backing or institutional support, a decent reply would be "Thank you!", rather than tasking
them or our hosts here at this site to "go back and clean up this mess??"
If you had any decency, you might suggest clarifying edits in comments, like changing
"– so that it can taxing its own citizens." at the end of the 23rd paragraph to,
"– so that it can avoid taxing its own citizens", to help the people you are
criticizing for making things so difficult for you.
Michael Hudson is a modern day Saint! Who cares about a few typos when his ideas are truly REVOLUTIONARY!
For example, i had no idea about Debt Jubilees in early civilizations 3000 years ago! The
pyramids built by FREE MEN! Liberty and Freedom originating from canceling debts! Torches and
Beacons of light as representatives of said Debt Jubilees!
If you ask me, the #HudsonHawk is trying to awaken the Workers of the World in
Forgiveness, Peace, Love, and Solidarity.
I didn't know that until I read anthropologist David Graeber's Debt: The First 5,000
But there's a fundamental difference between debt in the past and debt today. In the past
debt was owed to the state, today it's owed to some wealthy corporations. Good luck with debt
jubilees in the absence of violent uprisings.
The difference is they internalize profit and externalize cost. And that's fundamentally
different from all other epochs in the past. Even the birth of nation state was out of their
rationalization of how to maximize profit extraction and cost externalization in the 1st
place. Good luck with debt jubilees.
That is why Russia, China and other powers that U.S. strategists deem to be strategic
rivals and enemies are looking to restore gold's role as the preferred asset to settle
How would this occur aside from a repudiation of the almighty buck one wonders, and would
it be based on reserves in the vault, or actual use as money?
Keep in mind that there isn't a human alive now who ever proffered a monetized gold coin
in order to purchase something, and increasingly relatively few that have ever used a
monetized silver coin for the same purpose.
I don't have a huge amount of sympathy. The Eurozone and China could run trade deficits,
thereby creating an opportunity for their currencies to become reasonably viable alternative
reserves. But they don't because they don't want to cede control of their manufacturing and
export-driven economic bases away.
The US doesn't mind and doesn't care about the domestic repercussions. For how much longer
that can continue, especially as Trump's America First policy is putting that under
some strain, is an open question. But for now, it's willing to be satisfied with a little
rowing back rather than wholesale reversal (back to, for example, an immediate-post war
position of significant trade surpluses although the article is correct to point out this was
due to the US being the last man standing, in terms of having a manufacturing base still
The Eurozone and China are not only not showing any signs of a policy change, they've
continued embedding and strengthening the current modus operandi. You pays your money, you
takes your choices. Here as elsewhere. If they'd rather not have the US$ having a
more-or-less monopoly position in then global financial system as a reserve currency, they'll
need to make the compromises needed to set up these challenger currencies as viable
But they can't have their economic cakes and eat them, too.
And it's not just currencies. You need legal systems which are deemed to be (which can
only come through real, observational experience) investor-friendly -- not just prone to
supporting or at the very least given an easy ride to domestic stalwarts. Again, this has
repercussions if you then have to stop cosseting domestic "champions". The US legal system is
ridiculously business friendly. But it doesn't, overtly, differentiate between US and non-US
companies in a commercial dispute.
The sine qua non of our economic empire (which I learned here) is that a global currency requires global trade
deficits, which must grow as quickly as the global economy to fulfill its role. Tell that to Germany! If your silly little euro or yen or renminbi tries to go
global, the dollar-based currency speculators will shrivel it like Soros did the pound in the
So American deficits are structural. Our debt-ceiling controversies are theater. And our
dollar is exceptional until the instant it isn't–then the Fed electron-tranfers
trillions more to the speculators whose notional dollars just evaporated, keeping the
currencies in the air with their new casino chips. Is this a loan? A gift? An electron cloud?
It's the fog of war by other means . . .
It may have been Hudson who explained that a quarter (or was it half?) of all corporate
profits after WWII went to American companies, when our economy was that much of the world's.
Now we're a much smaller fraction of the global economy, but our corporate sector still
profits as much as it did when it was producing, rather than marketing, real goods. Another
Really all we know is that such a plan would create a different order. That so many
countries have continued to pauper their populations long after the obviousness that
"development" is a sham doesn't bode well for their intentions even after the USA is brought
Agreed. The likes of the Regional Comprehensive Economic Partnership are still under
negotiation and still, like every other multilateral investment agreement of recent vintage,
apparently primarily concerned with creating supranational rights for landlords, especially
of the absentee variety, at the expense of citizens in their collective capacity.
This is a good summary of our irrational world. MMT and the GND can save the situation but
only if we industrialized humans forego any more fossil fuels except for long-term survival
purposes. Ration it with draconian discipline. That in turn will discipline our military and
turn our energies to things we can no longer ignore. Money doesn't bother me much. Resources
and the critical health of the planet bother me a lot. Money and "gold" are, in the end, both
Thanks for providing this transcript prior to Hudson posting it to his own website. He was
the first political-economist to lay out the Outlaw US Empire's game plan when he published
Super Imperialism: The Economic Strategy of American Empire in 1972.
You'll find few
authors willing to provide their seminal work for free online– 2nd Edition
PDF . I think it fair for those unfamiliar with Hudson's work to read his analysis prior
to being judgmental.
I think Calvin and his role in today's debt based monetary system is much underestimated.
The meteoric rise of the seven provinces and what was to become the Dutch colonial empire was
in no small part funded and financed by this debt based system in the latter half of the 16th
century. The same applied shortly afterwards to the UK. The book passage I quoted from is
from Devaluing the Scholastics: Calvin's Ethics of Usury .
The essential problem is that money functions as a contract, with one side an asset and
the other a debt, but as we experience it as quantified hope and security, we try to save and
store it. Thus Econ 101 tells us it is both medium of exchange and store of value. Even
though one is dynamic and the other is static, like blood and fat, or roads and parking
Necessarily then, in order to store the asset side, generally equal amounts of debt have
to be manufactured and this creates a centripetal effect, as positive feedback pulls the
asset side to the center of the economy, while negative feedback accumulates the debt on the
The ancients used debt jubilees to push the reset button, but since we have been conditioned
to think of money as private property, not a public medium, now the only way to reset is for
Value, as a savings for the future, needs to be stored in tangibles, like strong social
and environmental networks, not as abstractions in the financial circulation system. The
functionality of money is in its fungibility. We own it like we own the section of road we
are using, or the fluids passing through our bodies.
We are also conditioned to think of ourselves as individuals, not as parts of a larger
community, so this social atomization enables finance to mediate most transactions and tax
them. A figurative version of The Matrix.
I was pretty much banned from NC for questioning MMT. Yves called me a troll. The exchange
is jan 6, in the links post.
Consequently I'll only try posting very occasionally and one or two have gone through
My view in MMT is that either these people are extremely naive, or operatives for the
oligarchy, as there is no free lunch and the public issuing ever more promises only drives it
further into debt. Which is then accumulated by the oligarchy and eventually traded for
remaining public assets. It's basic predatory lending/disaster capitalism and has been going
on since the dawn of civilization.
Not that people are not often incredibly stupid, but I suspect some recognize the dynamic.
When you start having to pay tolls on most roads, you will know we are way down that rabbit
John Merryman @7: Sure there are free lunches, Uncle Sugar has been getting lots of free
lunches ever since WWII. The thing about free lunches is those situations cannot be permanent
in a growth economy. To have permanent free lunches you have to have an ecologically stable
economy and a stable population consuming it. In other words, you can't get too greedy.
What's ridiculous is to fall for the "public vs. private" scam, one of the most potent
divide-and-conquer scams of the corporate state, where in reality there's zero distinction
between public and private power.
Power is power, and the finance sector is purely wasteful, purely destructive, serves zero
legitimate purpose, and needs to be abolished as a necessary part of any kind of human
Of course the Mammon religion has brainwashed almost everyone into believing, among other
lies, that the dominion of money is necessary for human existence. Never mind that the vast
majority of societies didn't use money for more than a few special transactions, and many
didn't use it at all. Almost all of those societies were humanly more wholesome than this
one, and all of them were less ecologically destructive by many orders of magnitude.
"The ancients used debt jubilees to push the reset button, but since we have been conditioned
to think of money as private property, not a public medium, now the only way to reset is for
John Merryman @4
There are compromises in this business: debt repudiation being an obvious one.
It is easy enough to make a case for declaring large parts of the public debt, odious. This
is particularly true of the enormous debts run up by Public-Private Partnerships of the sort
that the former UK Premier Brown promoted so enthusiastically. But it is generally true of
debts contracted for purposes which contradict the public interest.
Debt used to make deposits in private bank accounts in the Caymans for example can
justifiably be repudiated by the public, particularly when the creditor was well aware that
its loans were going to be employed for corrupt purposes.
Most of the US Debt, contracted to finance the MIC, is not only odious on general grounds
(Defending what against whom?) but on a contract to contract basis, most contracts being
padded to ensure the ability to provide kickbacks: when Congressmen receive funds from
government contractors and 'public servants', including military types, get jobs/sinecures
from the same, then any money borrowed to finance such contracts is, clearly, odious.
It would be revolutionary no doubt but perfectly practicable to push a 'reset' button on
the Public Debt by proclaiming that, in future, all borrowing for purposes not approved or
understood the putative taxpayer would be found to be odious.
Another possible course would be to stop paying interest on public debt and issue bonds to
repay the capital amounts lent.
The fact that such options are understood would make the regular claims, by neo-liberals
pushing austerity, that there is no money for such things as social security or living wages,
an obvious trigger for debt reduction measures designed to impact the rich rather than their
"On a similar note, I've wondered why Russia has not defaulted on it's considerable USD and
EUR debt (also too, why is Russia still doing debt in USD and thus strengthening U.S.?)"
It should be noted that Russia has almost zero foreign public debt and that the private foreign
debt has been much reduced and now amounts to US dollars 450 billion.
As Russia has a surplus of more than US dollars 100 billion on the current account the total
foreign debt amounts to 4 years current account surplus only.
Ad to this that Russias international currency reserves amounts to ca. US dollars 500
billion which meens that Russia is in a very strong fiscal position as it is capable of paying
off its entire foreign debt any time it chooses.
Along the same lines, the summary starts with, "The first existential objective is to
avoid the current threat of war by winding down U.S. military interference in foreign
countries and removing U.S. military bases as relics of neocolonialism." Either would be
taken as proof of evil anti-US intentions, leading to sanctions, coups, assassinations,
regime change, and eventually outright war. As Mael Colium says, the US picks off individual
countries by isolating them.
"... I thought all these foreign countries were international." He explained that "international" means countries that are not really countries. They're Liberia and Panama, countries that only use the US dollar, not their own currency. So the oil industry doesn't have a currency risk. They are flags of convenience and they don't have any income tax. ..."
"... He explained to me that Standard Oil sold its oil at a very low price from the Near East to Liberia or Panama or Lagos, or wherever they have a flag of convenience and no income tax. Then they would sell it at a very high price to its refineries in Europe and America, at such a high price that these "downstream" affiliates don't make any income. So there's no tax to pay. ..."
"... Standard Oil and other U.S. oil companies – and also mining companies – don't earn an income there, because they sell it so low, all the profits are reported to be taken in Liberia or Panama. These are non-countries. ..."
"... Here is a report. I'm from the State Department (I assumed that this meant CIA). "We want to calculate how much money the US could get if we set up bank branches and became the bank for all the criminal capital in the world." He said, "We figured out we can finance, (and he said this in an elevator), we can finance the Vietnam War with all the drug money coming into America, all of the criminal money. Can you make a calculation of how much that might be?" ..."
"... I found that the entire US balance of payments deficit in the 1960s, since the Vietnam War, the entire balance of payments deficit was military spending abroad. The private sector's trade and investment was exactly in balance; tourism, trade and investment were exactly in balance. All the deficit was military. ..."
"... Mr. Barsanti said that McNamara said that Arthur Andersen would never get another government contract if it published my report. ..."
"... There were three people, known as the Columbia Group, saying the Vietnam War was going to destroy the American monetary system as we know it. The group was composed of Terence McCarthy, my mentor; Seymour Melman, a professor at Columbia University's School of Industrial Engineering where Terence also taught; and myself. We would basically go around the New York City giving speeches. ..."
I worked at Chase Manhattan until 1967, then finally I had to quit to finish the
dissertation. I spent a year on that. At Chase I had become the specialist in the oil
industry's balance of payments. When the Vietnam War began and escalated, President Johnson
in January 1965, right after I joined the bank in December 1964, passed the voluntary –
in reality, compulsory – foreign investment rules blocking American companies from
investing more than 5% of the growth of the previous year's investment. The oil industry
objected to that. They came to David Rockefeller and said we've got to convince the
government that we're ripping off other countries so fast, we're able to exploit them so
rapidly, that it really helps the US balance of payments to let us continue investing more
abroad. Can you help us show this statistically?
So David Rockefeller asked me to do a study of the balance of payments of the oil
industry. Rockefeller said, "We don't want to have Chase's oil and gas department do it,
because they would be thought of as lobbyists. Nobody knows who you are, so you're neutral.
We want to know what the real facts are, and if they're what we think they are, we'll publish
what you write; if we don't like it we'll keep it to ourselves, but please just give us the
facts." He said, "You can ask the oil companies all the questions you want. They will fill
out the forms you design for a statistical accounting format. We'll give you a year to write
it all up." To me this was wonderful. Oil was the key sector internationally. It turned out I
found out that the average dollar that actually was invested abroad by oil companies was
recaptured by the US economy within 18 months. The payback period was that fast.
The report that I wrote was put on the desk of every senator and every representative in
the United States and I was celebrated for being the economist of the oil industry. So this
taught me everything about the balance of payments which, as I said, is a topic that's not
taught in any university. So I finished that, finished the dissertation, and then I developed
a methodology for the overall US balance of payments. Most of the balance of payment
statistics were changed when they designed the gross national product accounts. The accounts
now treat exports and imports as if they were paid for fully for cash. So if you make a
million dollars worth of grain exports, you are assumed to bring a million dollars into the
economy. And if you export a million dollars of arms, of military, it all comes back.
What I found out is that only a portion actually of exports actually comes back. And
imports have an even lower balance-of-payment costs as compared to their nominal valuation.
For instance, all of America's oil imports are from American oil companies, so if you pay a
hundred dollars for oil, maybe thirty dollars of that is profit, thirty dollars is
compensation to American management, thirty dollars is the use of American exports to
physical equipment, oil drilling equipment and others to produce the oil.
The closest people that I worked with for the study were at the Standard Oil Company,
which was always very close to the Rockefellers, as you know. So I went over the statistics
and I said, "In the balance of payments, I can't find where Standard Oil makes the profit.
Does it make the profit by producing oil at the production end? Or does it make it selling it
at the gas stations, at the retail sales end?" The treasurer of Standard Oil said, "Ah I can
tell you where we make them. We make them right here in my office." I asked how. "What
countries could I find this in? I don't find it in Europe, I don't find it in Asia, I don't
find it in Latin America or Africa." He said, "Ah, do you see at the very end of the
geography headings for international earnings, there's something called international?"
I said, "Yes that always confused me. Where is it? I thought all these foreign countries
were international." He explained that "international" means countries that are not really
countries. They're Liberia and Panama, countries that only use the US dollar, not their own
currency. So the oil industry doesn't have a currency risk. They are flags of convenience and
they don't have any income tax.
He explained to me that Standard Oil sold its oil at a very
low price from the Near East to Liberia or Panama or Lagos, or wherever they have a flag of
convenience and no income tax. Then they would sell it at a very high price to its refineries
in Europe and America, at such a high price that these "downstream" affiliates don't make any
income. So there's no tax to pay. For all US oil investment in Europe, there's no tax to pay
because the oil companies' accountants price it so high, and pay so little per barrel to
third world countries such as Saudi Arabia, that they only get a royalty. Standard Oil and
other U.S. oil companies – and also mining companies – don't earn an income
there, because they sell it so low, all the profits are reported to be taken in Liberia or
Panama. These are non-countries.
That gave me the clue about what people these days talk about money laundering. In the
last few months that I worked for Chase Manhattan in 1967, I was going up to my office on the
ninth floor and a man got on the elevator and said, "I was just coming to your office,
Michael. Here is a report. I'm from the State Department (I assumed that this meant CIA). "We
want to calculate how much money the US could get if we set up bank branches and became the
bank for all the criminal capital in the world." He said, "We figured out we can finance,
(and he said this in an elevator), we can finance the Vietnam War with all the drug money
coming into America, all of the criminal money. Can you make a calculation of how much that
So I spent three months figuring out how much money goes to Switzerland, from drug
dealings, what's the dollar volume of drug dealings. They helped me with all sorts of
statistics on that, and said, "We can become the criminal capital of the world and it'll
finance the dollar and this will enable us to afford the spending to defeat communism in
Vietnam and elsewhere. If we don't do that, the bomb throwers will come to New York."
So I became a specialist in money laundering! Nothing could have better prepared me to
understand how the global economy works! I had all the statistics, I had the help of the
government people explaining to me how the CIA worked with drug dealing and other criminals
and kidnappers to raise the money so it would be off the balance sheet funding and Congress
didn't have to approve it when they would kill people and sponsor revolutions. They were
completely open with me about this. I realized they'd never done a security check on me.
So I wanted to do a study of the balance of payments of the whole United States. I went
to work for Arthur Andersen, which was at that time was one of the Big Five accounting firms
in the United States. Later it was convicted of fraud when it got involved in the Enron
scandal and was closed down. But I was working before the other people went to jail, before
they closed down Arthur Andersen. So I spent a year applying my balance of payments analysis
to the US balance of payments. When I finally finished, I found that the entire US balance of
payments deficit in the 1960s, since the Vietnam War, the entire balance of payments deficit
was military spending abroad. The private sector's trade and investment was exactly in
balance; tourism, trade and investment were exactly in balance. All the deficit was
So I turned in my statistics. My boss Mr. Barsanti, came in to me three days later and
he said, "I'm afraid we have to fire you." I asked, "What happened?" He said, "Well, we sent
it to Robert McNamara." (who was the Secretary of Defense and then became an even more
dangerous person with the World Bank, which probably is more dangerous to the world than the
American military. But that's another story). Mr. Barsanti said that McNamara said that
Arthur Andersen would never get another government contract if it published my report.
In all of the Pentagon Papers that later came out of McNamara's regime, there's no
discussion at all of the balance-of-payments cost of the Vietnam War. This is what was
driving America off gold. At Chase Manhattan from 1964 until I left, every Friday the Federal
Reserve would come out with its goal, its weekly statistics. We could trace the gold stock.
Everybody was talking about General de Gaulle cashing in the gold, because Vietnam was a
French colony and the American soldiers and army would have to use French banks, the dollars
would go to France and de Gaulle would cash it in for gold.
Well, Germany actually was cashing in more gold than de Gaulle, but they didn't make
speeches about it. So I could see that the war spending was going to drive America off gold.
There were three people, known as the Columbia Group, saying the Vietnam War was going to
destroy the American monetary system as we know it. The group was composed of Terence
McCarthy, my mentor; Seymour Melman, a professor at Columbia University's School of
Industrial Engineering where Terence also taught; and myself. We would basically go around
the New York City giving speeches.
"... The golden boy of Manhattan and Palm Beach society now sits in a grim jail cell accused of having sex with underage girls. He's been doing this in plain view since the early 1990's but, until recently, he seemed bullet-proof. ..."
"... More important than indelicacy, as an old observer of intelligence affairs, to me this offer reeked of ye old honey trap , a tactic to ensnare and blackmail people that was old when Babylon was young. A discreet room with massage table, lubricants and, no doubt, cameras stood ready off the main lobby . ..."
"... Besides sexual frolics, Epstein and Maxwell were up to many odd things. The FBI found diamonds, cash and a fake passport when raiding his mansion and documents showing his net worth at $559,120,954.00. The IRS tax people will be eager to review the sources of this income. ..."
"... It seems likely that political influence was brought to bear on then US attorney Alexander Acosta (he just resigned under fire last week) to make a sweetheart deal with Epstein, who had been charged by Florida with child molestation. Epstein got off with a token, 13-month jail sentence that allowed him to work from his office much of the day. ..."
"... Were Trump or Clinton involved? How much did they "party" with Epstein and revel in his fleshmart? There was talk of some sort of "intelligence" angle to the affaire Epstein that spared him a harsh sentence. ..."
"... A respected former CIA official, Phil Giraldi has come right out and accused Epstein of being an Israeli agent of influence. ..."
"... To Giraldi and this writer, the Epstein "massage" operation was a classic intelligence operation designed to blackmail men of influence into doing Israel's bidding. Clinton had reportedly already fallen into this trap years earlier while still president. ..."
"... Trump is a Mafia punk, protege of Roy Cohn, dead of AIDS in 1986. Only the brain dead would believe Trump is the lamb in this orgy. As for Epstein being a Mossad asset, probably. As for the CIA & NSA not knowing, absolutely impossible! This operation was most probably overseen, if not created, by the CIA, with NSA help, and tit bits handed to Mossad for European and ME operations. ..."
"... Trump was likely warned about Epstein by his mobster mentors/friends from the start. No doubt Trump did tell his buddy Epstein to keep that **** out of his properties, who wouldn't? ..."
"... Clinton knew as well but never gave a crap because He and HRC were probably protected CIA assets extending back to the AR drug smuggling days. ..."
"... Because it is a strange business, costing lots of money and achieving ..... what exactly? Ah ...., national security -- ain't that nice!! ..."
"... Anyone taking bets that Epstein will not live to tell all his tales? He probably has two years because he cannot be removed before all the excitement's died down but removed he will be. ..."
I've had many strange experiences in my decades of covering intelligence affairs.
These run from being invited to KGB HQ in Moscow, Chinese intelligence in Beijing, US
intelligence in Virginia, Libyan intelligence in Tripoli, South African intelligence, and even
Albanian intelligence in Tirana.
But none was odder than the day I was invited to lunch in New York City with the by now
notorious figure Jeffrey Epstein.
The golden boy of Manhattan and Palm Beach society now
sits in a grim jail cell accused of having sex with underage girls. He's been doing this in plain
view since the early 1990's but, until recently, he seemed bullet-proof.
Soon after I walked into the entrance of Epstein's mansion on E 71st Street, said to be the
city's largest private home, a butler asked me,
"would you like an intimate massage, sir,
by a pretty young girl?"
This offer seemed so out of place and weird to me that
More important than indelicacy, as an old observer of intelligence affairs,
this offer reeked of ye old honey trap
, a tactic to ensnare and blackmail people that
was old when Babylon was young. A discreet room with massage table, lubricants
no doubt, cameras stood ready off the main lobby
I had arrived with Canada's leading lady journalist who was then close to Epstein's sometime
girlfriend, Ghislaine Maxwell and, it was said, procuress – something Maxwell denies.
Bizarrely, Maxwell believed that I could get KGB Moscow Center to release satellite photos that
showed the murder on his yacht of her father, the press baron Robert Maxwell, who was a
well-known double agent for Israel and KGB, and a major criminal.
Also present was the self-promoting lawyer, Alan Dershowitz, who had saved the accused murderer
Claus von Bulow, as well as a titan of the New York real estate industry (not Trump) and assorted
bigwigs of the city's elite Jewish society. All sang the praises of Israel.
Epstein reportedly had ties to Donald Trump, Bill Clinton, Britain's Prince Andrew and
repeatedly flew them about in his private jet, aka "the Lolita Express." All guests deny any sexual
activity. I turned down dinner with Prince Andrew.
Epstein's residence in Manhattan and Palm Beach, both of which I visited, were stocked
with young female "masseuses."
All were working class girls making big money in their
spare time. I did not see any interactions between these girls and the guests.
Epstein and Maxwell became too big for their britches. They flaunted their sexual adventures and
laughed at New York society.
Everyone wondered about the source of Epstein's lavish income
but no one knew its origins.
He claimed to be an exclusive money manager for a group of
secretive millionaires. But the only one identified was billionaire Leslie Wexner, the owner of L
Brands and Victoria's Secret. Wexner denied any knowledge of Epstein's alleged crimes.
Besides sexual frolics, Epstein and Maxwell were up to many odd things. The FBI found diamonds,
cash and a fake passport when raiding his mansion and documents showing his net worth at
$559,120,954.00. The IRS tax people will be eager to review the sources of this income.
It seems likely that political influence was brought to bear on then US attorney Alexander
Acosta (he just resigned under fire last week) to make a sweetheart deal with Epstein, who had been
charged by Florida with child molestation. Epstein got off with a token, 13-month jail sentence
that allowed him to work from his office much of the day.
Were Trump or Clinton involved? How much did they "party" with Epstein and revel in his
fleshmart? There was talk of some sort of
to the affaire
Epstein that spared him a harsh sentence.
A respected former CIA official, Phil Giraldi has come right out and accused Epstein of
being an Israeli agent of influence.
Epstein was let off with a slap on the wrist on his
first child abuse charge, says Giraldi, because of his powerful Israel connections.
To Giraldi and this writer,
the Epstein "massage" operation was a classic intelligence
operation designed to blackmail men of influence into doing Israel's bidding.
reportedly already fallen into this trap years earlier while still president.
Now watch this stinking pile of corruption be hurriedly covered up. Talk about draining the
Trump is a Mafia punk, protege of Roy Cohn, dead of AIDS in
1986. Only the brain dead would believe Trump is the lamb in
this orgy. As for Epstein being a Mossad asset, probably. As
for the CIA & NSA not knowing, absolutely impossible! This
operation was most probably overseen, if not created, by the
CIA, with NSA help, and tit bits handed to Mossad for European
and ME operations.
Trump was likely warned about Epstein by his mobster
mentors/friends from the start. No doubt Trump did tell his
buddy Epstein to keep that **** out of his properties, who
wouldn't? 'Don't **** where I eat'. Clinton knew as well but
never gave a crap because He and HRC were probably protected
CIA assets extending back to the AR drug smuggling days.
<img src="http://b.scorecardresearch.com/p?c1=2&c2=16807273&cv=2.0&cj=1" />
By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City,
and a research associate at the Levy Economics Institute of Bard College. His latest book is
"and forgive them
their debts": Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee
Year Keynote paper delivered at the 14th Forum of the World Association for Political
Economy, July 21, 2019
Today's world is at war on many fronts. The rules of international law and order put in
place toward the end of World War II are being broken by U.S. foreign policy escalating its
confrontation with countries that refrain from giving its companies control of their economic
surpluses. Countries that do not give the United States control their oil and financial sectors
or privatize their key sectors are being isolated by the United States imposing trade sanctions
and unilateral tariffs giving special advantages to U.S. producers in violation of free trade
agreements with European, Asian and other countries.
This global fracture has an increasingly military cast. U.S. officials justify tariffs and
import quotas illegal under WTO rules on "national security" grounds, claiming that the United
States can do whatever it wants as the world's "exceptional" nation. U.S. officials explain
that this means that their nation is not obliged to adhere to international agreements or even
to its own treaties and promises. This allegedly sovereign right to ignore on its international
agreements was made explicit after Bill Clinton and his Secretary of State Madeline Albright
broke the promise by President George Bush and Secretary of State James Baker that NATO would
not expand eastward after 1991. ("You didn't get it in writing," was the U.S. response to the
verbal agreements that were made.)
Likewise, the Trump administration repudiated the multilateral Iranian nuclear agreement
signed by the Obama administration, and is escalating warfare with its proxy armies in the Near
East. U.S. politicians are waging a New Cold War against Russia, China, Iran, and oil-exporting
countries that the United States is seeking to isolate if cannot control their governments,
central bank and foreign diplomacy.
The international framework that originally seemed equitable was pro-U.S. from the outset.
In 1945 this was seen as a natural result of the fact that the U.S. economy was the least
war-damaged and held by far most of the world's monetary gold. Still, the postwar trade and
financial framework was ostensibly set up on fair and equitable international principles. Other
countries were expected to recover and grow, creating diplomatic, financial and trade parity
with each other.
But the past decade has seen U.S. diplomacy become one-sided in turning the International
Monetary Fund (IMF), World Bank, SWIFT bank-clearing system and world trade into an
asymmetrically exploitative system. This unilateral U.S.-centered array of institutions is
coming to be widely seen not only as unfair, but as blocking the progress of other countries
whose growth and prosperity is seen by U.S. foreign policy as a threat to unilateral U.S.
hegemony. What began as an ostensibly international order to promote peaceful prosperity has
turned increasingly into an extension of U.S. nationalism, predatory rent-extraction and a more
dangerous military confrontation.
Deterioration of international diplomacy into a more nakedly explicit pro-U.S. financial,
trade and military aggression was implicit in the way in which economic diplomacy was shaped
when the United Nations, IMF and World Bank were shaped mainly by U.S. economic strategists.
Their economic belligerence is driving countries to withdraw from the global financial and
trade order that has been turned into a New Cold War vehicle to impose unilateral U.S.
hegemony. Nationalistic reactions are consolidating into new economic and political alliances
from Europe to Asia.
We are still mired in the Oil War that escalated in 2003 with the invasion of Iraq, which
quickly spread to Libya and Syria. American foreign policy has long been based largely on
control of oil. This has led the United States to oppose the Paris accords to stem global
warming. Its aim is to give U.S. officials the power to impose energy sanctions forcing other
countries to "freeze in the dark" if they do not follow U.S. leadership.
To expand its oil monopoly, America is pressuring Europe to oppose the Nordstream II gas
pipeline from Russia, claiming that this would make Germany and other countries dependent on
Russia instead of on U.S. liquified natural gas (LNG). Likewise, American oil diplomacy has
imposed unilateral sanctions against Iranian oil exports, until such time as a regime change
opens up that country's oil reserves to U.S., French, British and other allied oil majors.
U.S. control of dollarized money and credit is critical to this hegemony. As Congressman
Brad Sherman of Los Angeles told a House Financial Services Committee hearing on May 9, 2019:
"An awful lot of our international power comes from the fact that the U.S. dollar is the
standard unit of international finance and transactions. Clearing through the New York Fed is
critical for major oil and other transactions. It is the announced purpose of the supporters of
cryptocurrency to take that power away from us, to put us in a position where the most
significant sanctions we have against Iran, for example, would become irrelevant."
The U.S. aim is to keep the dollar as the transactions currency for world trade, savings,
central bank reserves and international lending. This monopoly status enables the U.S. Treasury
and State Department to disrupt the financial payments system and trade for countries with
which the United States is at economic or outright military war.
Russian President Vladimir Putin quickly responded by describing how "the degeneration of
the universalist globalization model [is] turning into a parody, a caricature of itself, where
common international rules are replaced with the laws of one country."That is the trajectory
on which this deterioration of formerly open international trade and finance is now moving. It
has been building up for a decade. On June 5, 2009, then-Russian President Dmitry Medvedev
cited this same disruptive U.S. dynamic at work in the wake of the U.S. junk mortgage and bank
Those whose job it was to forecast events were not ready for the depth of the crisis and
turned out to be too rigid, unwieldy and slow in their response. The international financial
organisations – and I think we need to state this up front and not try to hide it –
were not up to their responsibilities, as has been said quite unambiguously at a number of
major international events such as the two recent G20 summits of the world's largest
Furthermore, we have had confirmation that our pre-crisis analysis of global economic trends
and the global economic system were correct. The artificially maintained uni-polar system and
preservation of monopolies in key global economic sectors are root causes of the crisis. One
big centre of consumption, financed by a growing deficit, and thus growing debts, one formerly
strong reserve currency, and one dominant system of assessing assets and risks – these
are all factors that led to an overall drop in the quality of regulation and the economic
justification of assessments made, including assessments of macroeconomic policy. As a result,
there was no avoiding a global crisis.
That crisis is what is now causing today's break in global trade and payments.
Warfare on Many Fronts, with Dollarization Being the Main Arena
Dissolution of the Soviet Union 1991 did not bring the disarmament that was widely expected.
U.S. leadership celebrated the Soviet demise as signaling the end of foreign opposition to
U.S.-sponsored neoliberalism and even as the End of History. NATO expanded to encircle Russia
and sponsored "color revolutions" from Georgia to Ukraine, while carving up former Yugoslavia
into small statelets. American diplomacy created a foreign legion of Wahabi fundamentalists
from Afghanistan to Iran, Iraq, Syria and Libya in support of Saudi Arabian extremism and
The United States is waging war for control of oil against Venezuela, where a military coup
failed a few years ago, as did the 2018-19 stunt to recognize an unelected pro-American puppet
regime. The Honduran coup under President Obama was more successful in overthrowing an elected
president advocating land reform, continuing the tradition dating back to 1954 when the CIA
overthrew Guatemala's Arbenz regime.
U.S. officials bear a special hatred for countries that they have injured, ranging from
Guatemala in 1954 to Iran, whose regime it overthrew to install the Shah as military dictator.
Claiming to promote "democracy," U.S. diplomacy has redefined the word to mean pro-American,
and opposing land reform, national ownership of raw materials and public subsidy of foreign
agriculture or industry as an "undemocratic" attack on "free markets," meaning markets
controlled by U.S. financial interests and absentee owners of land, natural resources and
A major byproduct of warfare has always been refugees, and today's wave fleeing ISIS, Al
Qaeda and other U.S.-backed Near Eastern proxies is flooding Europe. A similar wave is fleeing
the dictatorial regimes backed by the United States from Honduras, Ecuador, Colombia and
neighboring countries. The refugee crisis has become a major factor leading to the resurgence
of nationalist parties throughout Europe and for the white nationalism of Donald Trump in the
Dollarization as the Vehicle for U.S. Nationalism
The Dollar Standard – U.S. Treasury debt to foreigners held by the world's central
banks – has replaced the gold-exchange standard for the world's central bank reserves to
settle payments imbalances among themselves. This has enabled the United States to uniquely run
balance-of-payments deficits for nearly seventy years, despite the fact that these Treasury
IOUs have little visible likelihood of being repaid except under arrangements where U.S.
rent-seeking and outright financial tribute from other enables it to liquidate its official
The United States is the only nation that can run sustained balance-of-payments deficits
without having to sell off its assets or raise interest rates to borrow foreign money. No other
national economy in the world can could afford foreign military expenditures on any major scale
without losing its exchange value. Without the Treasury-bill standard, the United States would
be in this same position along with other nations. That is why Russia, China and other powers
that U.S. strategists deem to be strategic rivals and enemies are looking to restore gold's
role as the preferred asset to settle payments imbalances.
The U.S. response is to impose regime change on countries that prefer gold or other foreign
currencies to dollars for their exchange reserves. A case in point is the overthrow of Libya's
Omar Kaddafi after he sought to base his nation's international reserves on gold. His
liquidation stands as a military warning to other countries.
Thanks to the fact that payments-surplus economies invest their dollar inflows in U.S.
Treasury bonds, the U.S. balance-of-payments deficit finances its domestic budget deficit. This
foreign central-bank recycling of U.S. overseas military spending into purchases of U.S.
Treasury securities gives the United States a free ride, financing its budget – also
mainly military in character – so that it can taxing its own citizens.
Trump Is Forcing Other Countries To Create an Alternative to the Dollar Standard
The fact that Donald Trump's economic policies are proving ineffective in restoring American
manufacturing is creating rising nationalist pressure to exploit foreigners by arbitrary
tariffs without regard for international law, and to impose trade sanctions and diplomatic
meddling to disrupt regimes that pursue policies that U.S. diplomats do not like.
There is a parallel here with Rome in the late 1 st century BC. It stripped its
provinces to pay for its military deficit, the grain dole and land redistribution at the
expense of Italian cities and Asia Minor. This created foreign opposition to drive Rome out.
The U.S. economy is similar to Rome's: extractive rather than productive, based mainly on land
rents and money-interest. As the domestic market is impoverished, U.S. politicians are seeking
to take from abroad what no longer is being produced at home.
What is so ironic – and so self-defeating of America's free global ride – is
that Trump's simplistic aim of lowering the dollar's exchange rate to make U.S. exports more
price-competitive. He imagines commodity trade to be the entire balance of payments, as if
there were no military spending, not to mention lending and investment. To lower the dollar's
exchange rate, he is demanding that China's central bank and those of other countries stop
supporting the dollar by recycling the dollars they receive for their exports into holdings of
U.S. Treasury securities.
This tunnel vision leaves out of account the fact that the trade balance is not simply a
matter of comparative international price levels. The United States has dissipated its supply
of spare manufacturing capacity and local suppliers of parts and materials, while much of its
industrial engineering and skilled manufacturing labor has retired. An immense shortfall must
be filled by new capital investment, education and public infrastructure, whose charges are far
above those of other economics.
Trump's infrastructure ideology is a Public-Private Partnership characterized by high-cost
financialization demanding high monopoly rents to cover its interest charges, stock dividends
and management fees. This neoliberal policy raises the cost of living for the U.S. labor force,
making it uncompetitive. The United States is unable to produce more at any price right now,
because its has spent the past half-century dismantling its infrastructure, closing down its
part suppliers and outsourcing its industrial technology.
The United States has privatized and financialized infrastructure and basic needs such as
public health and medical care, education and transportation that other countries have kept in
their public domain to make their economies more cost-efficient by providing essential services
at subsidized prices or freely. The United States also has led the practice of debt pyramiding,
from housing to corporate finance. This financial engineering and wealth creation by inflating
debt-financed real estate and stock market bubbles has made the United States a high-cost
economy that cannot compete successfully with well-managed mixed economies.
Unable to recover dominance in manufacturing, the United States is concentrating on
rent-extracting sectors that it hopes monopolize, headed by information technology and military
production. On the industrial front, it threatens disrupt China and other mixed economies by
imposing trade and financial sanctions.
The great gamble is whether these other countries will defend themselves by joining in
alliances enabling them to bypass the U.S. economy. American strategists imagine their country
to be the world's essential economy, without whose market other countries must suffer
depression. The Trump Administration thinks that There Is No Alternative (TINA) for other
countries except for their own financial systems to rely on U.S. dollar credit.
To protect themselves from U.S. sanctions, countries would have to avoid using the dollar,
and hence U.S. banks. This would require creation of a non-dollarized financial system for use
among themselves, including their own alternative to the SWIFT bank clearing system. Table 1
lists some possible related defenses against U.S. nationalistic diplomacy.
As noted above, what also is ironic in President Trump's accusation of China and other
countries of artificially manipulating their exchange rate against the dollar (by recycling
their trade and payments surpluses into Treasury securities to hold down their currency's
dollar valuation) involves dismantling the Treasury-bill standard. The main way that foreign
economies have stabilized their exchange rate since 1971 has indeed been to recycle their
dollar inflows into U.S. Treasury securities. Letting their currency's value rise would
threaten their export competitiveness against their rivals, although not necessarily benefit
the United States.
Ending this practice leaves countries with the main way to protect their currencies from
rising against the dollar is to reduce dollar inflows by blocking U.S. lending to domestic
borrowers. They may levy floating tariffs proportioned to the dollar's declining value. The
U.S. has a long history since the 1920s of raising its tariffs against currencies that are
depreciating: the American Selling Price (ASP) system. Other countries can impose their own
floating tariffs against U.S. goods.
Trade dependency as an Aim of the World Bank, IMF and US AID
The world today faces a problem much like what it faced on the eve of World War II. Like
Germany then, the United States now poses the main threat of war, and equally destructive
neoliberal economic regimes imposing austerity, economic shrinkage and depopulation. U.S.
diplomats are threatening to destroy regimes and entire economies that seek to remain
independent of this system, by trade and financial sanctions backed by direct military
Dedollarization will require creation of multilateral alternatives to U.S. "front"
institutions such as the World Bank, IMF and other agencies in which the United States holds
veto power to block any alternative policies deemed not to let it "win." U.S. trade policy
through the World Bank and U.S. foreign aid agencies aims at promoting dependency on U.S. food
exports and other key commodities, while hiring U.S. engineering firms to build up export
infrastructure to subsidize U.S. and other natural-resource investors.The financing is
mainly in dollars, providing risk-free bonds to U.S. and other financial institutions. The
resulting commercial and financial "interdependency" has led to a situation in which a sudden
interruption of supply would disrupt foreign economies by causing a breakdown in their chain of
payments and production. The effect is to lock client countries into dependency on the U.S.
economy and its diplomacy, euphemized as "promoting growth and development."
U.S. neoliberal policy via the IMF imposes austerity and opposes debt writedowns. Its
economic model pretends that debtor countries can pay any volume of dollar debt simply by
reducing wages to squeeze more income out of the labor force to pay foreign creditors. This
ignores the fact that solving the domestic "budget problem" by taxing local revenue still faces
the "transfer problem" of converting it into dollars or other hard currencies in which most
international debt is denominated. The result is that the IMF's "stabilization" programs
actually destabilize and impoverish countries forced into following its advice.
IMF loans support pro-U.S. regimes such as Ukraine, and subsidize capital flight by
supporting local currencies long enough to enable U.S. client oligarchies to flee their
currencies at a pre-devaluation exchange rate for the dollar. When the local currency finally
is allowed to collapse, debtor countries are advised to impose anti-labor austerity. This
globalizes the class war of capital against labor while keeping debtor countries on a short
U.S. financial leash.
U.S. diplomacy is capped by trade sanctions to disrupt economies that break away from U.S.
aims. Sanctions are a form of economic sabotage, as lethal as outright military warfare in
establishing U.S. control over foreign economies. The threat is to impoverish civilian
populations, in the belief that this will lead them to replace their governments with
pro-American regimes promising to restore prosperity by selling off their domestic
infrastructure to U.S. and other multinational investors.
US Warfare on Many Fronts Dedollarization defense
Military warfare (the Near East, Asia)
NATO and bilateral treaty (Saudi, ISIS, Al Qaida). color revolutions and proxy
Shanghai Cooperation Organization, and pressure for Europe to
withdraw from NATO unless the U.S. alleviates its New Cold War threats.
Dollarization is monetary warfare. The US Treasury-bill
standard finances the mainly military U.S. balance-of-payments deficit. SWIFT threatens to
isolate Iran and Russia
Dedollarization will refrain from foreign central banks financing U.S. overseas military
spending by keeping their savings in dollars.
Creation of alternative payments clearing system.
The IMF finances US client regimes and seeks to isolate those
not following US policy.
An alternative global financial organization, such as Europe's
INSTEX to circumvent US anti-Iran sanctions, and Russo-China alternative to SWIFT.
Creditor policy forcing austerity on debtor economies, forcing
them to privatize and sell off their public domain to pay debts.
An international court empowered to write down debts to the
ability to pay, based on the original principles that were to guide the BIS in 1931.
The World Bank finances trade dependency on US food exports and
opposes national food self-sufficiency.
An alternative development organization based on food
self-sufficiency. Annulment of World Bank and IMF debt as "odious debt."
Unilateral US trade war based on levy of US protectionist
tariffs, quotas and sanctions,
Countervailing sanctions, and creation of an alternative to the
WTO or a strengthened organization free of US control.
Cyber War, spycraft via US internet platforms, and Stuxnet
Work with Huawei and other alternatives to US internet
Class War: austerity program for labor
MMT, taxation of rentier income and capital gains.
Neoliberal monetarist doctrine of privatization and creditor-oriented
Promotion of a mixed economy with public infrastructure as a
factor of production.
US patent policy seeks monopoly rents.
Non-recognition of predatory monopoly patents.
Deprivatization and buyoutsof US assets abroad.
International law and diplomacy
The U.S. as the world's "exceptional nation," not subject to international laws or even
to its own treaty agreements.
Veto power in any organization it joins. The basic principle that the U.S. is not
subject to any foreign say over its laws and policies.
Global Problems caused by US Policy Response to U.S. Disruptive Policy
U.S. refuses to join international agreements to reduce carbon emissions, Global Warming
and Extreme Weather.
U.S. diplomacy is based on control of oil to make other countries dependent on U.S.
Trade and tax sanctions against U.S. exporters and banks. Taxes on U.S. tax avoidance by
the oil industry's "flags of convenience" (convenient for tax avoidance).
Taxation or isolation of U.S. exports based on high-carbon production.
Attempt to monopolize new G5 Internet technology, Sanctioning of Huawei,
insistence on US priority in high-tech.
Rejection of patents on basic IT, medicine and other basic human
Patent laws in pharmaceuticals, etc.
Taxation of monopoly rents.
There Are Alternatives, on Many Fronts
Militarily, today's leading alternative to NATO expansionism is the Shanghai Cooperation
Organization (SCO), along with Europe following France's example under Charles de Gaulle and
withdrawing. After all, there is no real threat of military invasion today in Europe. No nation
can occupy another without an enormous military draft and such heavy personnel losses that
domestic protests would unseat the government waging such a war. The U.S. anti-war movement in
the 1960s signaled the end of the military draft, not only in the United States but in nearly
all democratic countries (Israel, Switzerland, Brazil and South Korea are exceptions).
The enormous spending on armaments for a kind of war unlikely to be fought is not really
military, but simply to provide profits to the military industrial complex. The arms are not
really to be used. They are simply to be bought, and ultimately scrapped. The danger, of
course, is that these not-for-use arms actually might be used, if only to create a need for new
Likewise, foreign holdings of dollars are not really to be spent on purchases of U.S.
exports or investments. They are like fine-wine collectibles, for saving rather than for
drinking. The alternative to such dollarized holdings is to create a mutual use of national
currencies, and a domestic bank-clearing payments system as an alternative to SWIFT.Russia,
China, Iran and Venezuela already are said to be developing a crypto-currency payments to
circumvent U.S. sanctions and hence financial control.
In the World Trade Organization, the United States has tried to claim that any industry
receiving public infrastructure or credit subsidy deserves tariff retaliation in order to force
privatization. In response to WTO rulings that U.S. tariffs are illegally imposed, the United
States "has blocked all new appointments to the seven-member appellate body in protest, leaving
it in danger of collapse because it may not have enough judges to allow it to hear new
cases."In the U.S. view, only privatized trade financed by private rather than public banks
is "fair" trade.
An alternative to the WTO (or removal of its veto privilege given to the U.S. bloc) is
needed to cope with U.S. neoliberal ideology and, most recently, the U.S. travesty claiming
"national security" exemption to free-trade treaties, impose tariffs on steel, aluminum, and on
European countries that circumvent sanctions on Iran or threaten to buy oil from Russia via the
Nordstream II pipeline instead of high-cost liquified "freedom gas" from the United States.
In the realm of development lending, China's bank along with its Belt and Road initiative is
an incipient alternative to the World Bank, whose main role has been to promote foreign
dependency on U.S. suppliers. The IMF for its part now functions as an extension of the U.S.
Department of Defense to subsidize client regimes such as Ukraine while financially isolating
countries not subservient to U.S. diplomacy.
To save debt-strapped economies suffering Greek-style austerity, the world needs to replace
neoliberal economic theory with an analytic logic for debt writedowns based on the ability to
pay. The guiding principle of the needed development-oriented logic of international law should
be that no nation should be obliged to pay foreign creditors by having to sell of the public
domain and rent-extraction rights to foreign creditors. The defining character of nationhood
should be the fiscal right to tax natural resource rents and financial returns, and to create
its own monetary system.
The United States refuses to join the International Criminal Court. To be effective, it
needs enforcement power for its judgments and penalties, capped by the ability to bring charges
of war crimes in the tradition of the Nuremberg tribunal. U.S. to such a court, combined with
its military buildup now threatening World War III, suggests a new alignment of countries akin
to the Non-Aligned Nations movement of the 1950s and 1960s. Non-aligned in this case means
freedom from U.S. diplomatic control or threats.
Such institutions require a more realistic economic theory and philosophy of operations to
replace the neoliberal logic for anti-government privatization, anti-labor austerity, and
opposition to domestic budget deficits and debt writedowns. Today's neoliberal doctrine counts
financial late fees and rising housing prices as adding to "real output" (GDP), but deems
public investment as deadweight spending, not a contribution to output. The aim of such logic
is to convince governments to pay their foreign creditors by selling off their public
infrastructure and other assets in the public domain.
Just as the "capacity to pay" principle was the foundation stone of the Bank for
International Settlements in 1931, a similar basis is needed to measure today's ability to pay
debts and hence to write down bad loans that have been made without a corresponding ability of
debtors to pay. Without such an institution and body of analysis, the IMF's neoliberal
principle of imposing economic depression and falling living standards to pay U.S. and other
foreign creditors will impose global poverty.
The above proposals provide an alternative to the U.S. "exceptionalist" refusal to join any
international organization that has a say over its affairs. Other countries must be willing to
turn the tables and isolate U.S. banks, U.S. exporters, and to avoid using U.S. dollars and
routing payments via U.S. banks. To protect their ability to create a countervailing power
requires an international court and its sponsoring organization.
The first existential objective is to avoid the current threat of war by winding down U.S.
military interference in foreign countries and removing U.S. military bases as relics of
neocolonialism. Their danger to world peace and prosperity threatens a reversion to the
pre-World War II colonialism, ruling by client elites along lines similar to the 2014 Ukrainian
coup by neo-Nazi groups sponsored by the U.S. State Department and National Endowment for
Democracy. Such control recalls the dictators that U.S. diplomacy established throughout Latin
America in the 1950s. Today's ethnic terrorism by U.S.-sponsored Wahabi-Saudi Islam recalls the
behavior of Nazi Germany in the 1940s.
Global warming is the second major existentialist threat. Blocking attempts to reverse it is
a bedrock of American foreign policy, because it is based on control of oil. So the military,
refugee and global warming threats are interconnected.
The U.S. military poses the greatest immediate danger. Today's warfare is fundamentally
changed from what it used to be. Prior to the 1970s, nations conquering others had to invade
and occupy them with armies recruited by a military draft. But no democracy in today's world
can revive such a draft without triggering widespread refusal to fight, voting the government
out of power. The only way the United States – or other countries – can fight other
nations is to bomb them. And as noted above, economic sanctions have as destructive an effect
on civilian populations in countries deemed to be U.S. adversaries as overt warfare. The United
States can sponsor political coups (as in Honduras and Pinochet's Chile), but cannot occupy. It
is unwilling to rebuild, to say nothing of taking responsibility for the waves of refugees that
our bombing and sanctions are causing from Latin America to the Near East.
U.S. ideologues view their nation's coercive military expansion and political subversion and
neoliberal economic policy of privatization and financialization as an irreversible victory
signaling the End of History. To the rest of the world it is a threat to human survival.
The American promise is that the victory of neoliberalism is the End of History, offering
prosperity to the entire world. But beneath the rhetoric of free choice and free markets is the
reality of corruption, subversion, coercion, debt peonage and neofeudalism. The reality is the
creation and subsidy of polarized economies bifurcated between a privileged rentier
class and its clients, eir debtors and renters. America is to be permitted to monopolize trade
in oil and food grains, and high-technology rent-yielding monopolies, living off its dependent
customers. Unlike medieval serfdom, people subject to this End of History scenario can choose
to live wherever they want. But wherever they live, they must take on a lifetime of debt to
obtain access to a home of their own, and rely on U.S.-sponsored control of their basic needs,
money and credit by adhering to U.S. financial planning of their economies. This dystopian
scenario confirms Rosa Luxemburg's recognition that the ultimate choice facing nations in
today's world is between socialism and barbarism.
Billy Bambrough, "Bitcoin Threatens To 'Take Power' From The U.S. Federal Reserve,"
Forbes , May 15, 2019.
Vladimir Putin, keynote address to the Economic Forum, June 5-6 2019. Putin went on to
warn of "a policy of completely unlimited economic egoism and a forced breakdown." This
fragmenting of the global economic space "is the road to endless conflict, trade wars and maybe
not just trade wars. Figuratively, this is the road to the ultimate fight of all against
Address to St Petersburg International Economic Forum's Plenary Session, St Petersburg,
Kremlin.ru, June 5, 2009, from Johnson's Russia List, June 8, 2009, #8,
. Already in the late 1950s the Forgash Plan proposed a World Bank for Economic Acceleration.
Designed by Terence McCarthy and sponsored by Florida Senator Morris Forgash, the bank would
have been a more truly development-oriented institution to guide foreign development to create
balanced economies self-sufficient in food and other essentials. The proposal was opposed by
U.S. interests on the ground that countries pursuing land reform tended to be anti-American.
More to the point, they would have avoided trade and financial dependency on U.S. suppliers and
banks, and hence on U.S. trade and financial sanctions to prevent them from following policies
at odds with U.S. diplomatic demands.
Don Weinland, "WTO rules against US in tariff dispute with China," Financial Times
, July 17, 2019.
Views from an economist who has been promoting neoclassical ideology for decades and then
wonders when there are no alternatives to escape the narrative? Completely ignores how a
monetary sovereign capacity can move away from US hegemony. The countries under the heel of
the US are there because the IMF has engineered their economies in favour of the US. They
could all threaten default at the same time and scare off the IMF horses – the US picks
off individual countries by isolating them. Play the united game and the power of division
practiced by the US would crumble. Just saying.
"They could all threaten default at the same time and scare off the IMF horses – the
US picks off individual countries by isolating them. Play the united game and the power of
division practiced by the US would crumble."
This is interesting. On a similar note, I've wondered why Russia has not defaulted on it's
considerable USD and EUR debt (also too, why is Russia still doing debt in USD and thus
But only after she sells off all her U.S. holdings which will be (and have been already)
seized by Out Law America.
I believe Russia would be on some sort of legal ground in doing so in response to the
illegal sanctions imposed upon by by the EU and U.S.
And it will be interesting to see if Germany backs down on Nordstream II. Will she be a
total puppet of the U.S.?
Of course, it's depressing Russia has not reformed it's internal economy so that she can
grow faster. Maybe because while Putin and others don't want to take orders from Washington
they are trapped in neoliberal economic thinking and can't think outside the box?
Until Washington changes, I firmly believe Russia and other nations must act as if their
future hold one totally without U.S. interdependence and must create completely independent
economies the U.S. can not touch. China? Hard to include China in that right now with so much
trade with the U.S. but on the other hand their are reports U.S. related firms are starting
to move out of China.
The corporations that moved manufacturing to Mexico and then subsequently to China will
continue to seek cheaper labor so that their management can feather their own nests. They're
not going to bring back manufacturing to the US. Look at these greedy corporations that sell
Hanes underwear for example. They get rid of labels on their product to save less than a cent
per item and spend money and spend millions in extolling the virtues of not having labesl on
their tee shirts (Michael Jordon is the spokesman in the ad). Greed has no limits.
"Maybe because while Putin and others don't want to take orders from Washington they are
trapped in neoliberal economic thinking and can't think outside the box?"
Probably a lot there. Maybe the idea is that the system can work but needs to be fiddled
with to make it more fair to B stringers like Russia and China.
The only time anyone has had any success escaping Anglo-American finance was Germany,
Japan and the USSR in the 1930-45 period. The Soviets managed to keep their thing going until
much later, but internal corruption ( where isn't this a factor?) did them in.
Notice how this hasn't effected anything; other parties just happily bought it all up. The
Russians were stupid to drop it because Treasury Securities are a guaranteed return on
investment. Because, stick with me here on this, the US government can't run out of US
They have removed those assets from the very great possibility of seizure by the US and
others (like the Venezuelan gold seized by the UK). When push comes to shove the US and its
minions have no ethics abut breaking whatever laws they deem to be in their way.
They bought quite a lot of gold, which seems to be doing pretty well these days.
You misunderstood me. Russia borrows USD and EUR from Western banks. That makes US –
Russia's enemy – stronger. Russia should borrow from Russia not the US. I'm asking why
don't they default on that debt. Your response assumed I was referring to Russia holding US
assets. That's different. BTW I don't agree with you that Russia made a mistake getting rid
of US assets given the US has stolen Russian real estate holdings in the US and other nations
property held in US banks like Venezuela's USD deposits and gold.
Along the same lines, the summary starts with, "The first existential objective is to
avoid the current threat of war by winding down U.S. military interference in foreign
countries and removing U.S. military bases as relics of neocolonialism." Either would be
taken as proof of evil anti-US intentions, leading to sanctions, coups, assassinations,
regime change, and eventually outright war. As Mael Colium says, the US picks off individual
countries by isolating them.
I noticed that. I think Michael Hudson is a classical economist pushing back against the
currently reigning neo-classical economists. Classical economics is not Neo-classical
economics. Saying Hudson promotes neo-classical economics is a mistake.
I believe his hope is for the world to recognise that Athens, Rome and Constantinoiple
collapsed economically due to legislatively favoring creditors over debtors. Its a process we
see alive in North America and Europe today. That's where he is coming from
Michael Hudson promoting neoclassical ideology for decades?? Are we talking about the same
Michael Hudson from UMKC?
Could you please provide one single link to a paper that was written by him relying on
inductive methodology-based equilibrium theory??