Softpanorama

Home Switchboard Unix Administration Red Hat TCP/IP Networks Neoliberalism Toxic Managers
May the source be with you, but remember the KISS principle ;-)
Skepticism and critical thinking is not panacea, but can help to understand the world better

Fiat money, gold and petrodollar

News Casino Capitalism Recommended Links Petrodollar Money as conserved demand Pushing on the string Fiat money and Fractional Reserve Banking
Gold Inflation, Deflation and Confiscation Neoliberalism as a New Form of Corporatism Neocolonialism as Financial Imperialism Why Peak Oil Threatens the International Monetary System  Economics of Peak Energy Why Peak Oil Threatens the International Monetary System
Neoliberal Brainwashing: Journalism in the Service of the Powerful Few War is a Racket - Incredible Essay by General Smedley Butler Ron Paul War and Peace Quotes Corporatism quotes Humor Etc
energyecon:

Mary wrote:

Money has no intrinsic value. Its value is extrinsic, comparative.

Now don't upset the bigendians (hard money) folks by telling them they are not really different than the littleendians (fiat money) folks... 

Monies – Joining Economic and Legal Perspectivesby David Bholat, Jonathan Grant and Ryland Thomas

Bank Underground

The economist John Kenneth Galbraith once quipped that the answers economists give to the question “what is money?” are usually incoherent. So in this blog we turn to law for some answers. Debate about the nature of money has been renewed by recent financial crises and the rise of digital currencies (Ali et al 2014; Desan 2014; Ryan-Collins et al 2014; Martin 2013). This was the focus of a panel session at the Bank’s recent annual conference on Monetary and Financial Law, which brought together lawyers and economists to develop interdisciplinary perspectives on topics such as money. It prompted us to think more deeply about how law does and does not constitute ‘it.’

Common legal attributes of money

Anything can function as money. And many things have: cattle; cowry shells; even cigarettes. But as Minsky once said, while “everyone can create money, the problem is to get it accepted.”

While in theory anything can be money, the reality is few things are. Monies produced by the Royal Mint and the Bank of England (BoE) are the ultimate means of payment, followed by private sector claims, in order of how immediate they provide for full convertibility into these.

Some economists argue that this hierarchy of money is the result of legal privileges, especially legal tender legislation (Smith 1936; Hayek 1976). However, legal tender legislation in the UK only applies to the settlement of debts. It doesn’t cover spot transactions — our daily buying and selling in the marketplace.

So if we want to explain why state issued tokens and claims, and promises of immediate conversion into them, are monies, legal tender laws seem less important than other legal attributes that make them trusted and give people comfort they can get someone else to accept them.

In the past, when gold and silver were monies, economists often explained this reality by reference to these metals’ physical attributes such as portability, uniformity and durability. Today these physical attributes of metal monies have legal analogues.

Think of a fiver. Three legal attributes make it money.

First, a fiver is portable because it is legally negotiable: it can be transferred to others without each time gaining consent from the BoE (the fiver’s issuer), and, once transferred, it’s free and clear of any claims being brought by those who previously possessed it provided it was taken in good faith (Geva 2011).

Second, fivers are uniform because they are fungible: each can substitute for another. This is because the rights and obligations they confer are the same.

Finally, durability means maintaining fixed nominal value through time. A rough legal equivalent of durability is an option for instant par redemption. State-backed monies such as fivers and promises of immediate conversion into them are monies probably because states retain the power to fix the nominal meaning of their unit of account and can choose to accept only claims denominated in that unit of account in discharge of tax obligations.

Monies

While all monies share hues of negotiability, fungibility, and instant par redemption, each type of money also has unique legal features. Ordinarily, these legal differences don’t matter because one type of money is easily convertible into another. Qualitative differences in the legal construction of monies appear, if at all, merely as quantitative differences in their rate of financial return. For example, in ordinary times, although term bank deposits accrue interest and BoE notes do not, they are treated by most people as equivalents. However, during financial crises, qualitative differences reassert themselves and, in the extreme, parity breaks down. In classic bank runs, for example, individuals seek to convert bank balances into cash because the difference between having a claim on a private counterparty that can go bust, versus a public counterparty like central banks that can operate even on negative capital, acquires greater salience.

Consequently legal differences between monies sometimes matter. So we note some below. Here our analysis chimes with research in sociology and behavioural economics showing that money is not singular but plural (Dodd 2014). However, while those studies focus on how money is imbued with different meanings by individuals once in circulation, for example, depending on its source (e.g. whether it’s from wages or inheritance), our point is that monies are plural from the start, in the nature of their legal construction.

Royal Mint coins

Sterling coins are manufactured by the Royal Mint Limited, a public limited company wholly owned by HM Treasury through the Royal Mint Trading Fund. Different denominations of coin are legal tender up to different thresholds. For example, 5p coins are legal tender for any amount not exceeding £5, while 50p coins are legal tender for any amount not exceeding £10. Royal Mint coins are unique among UK monies in that they are not the legal obligations of any counterparty, though they are treated as a liability of central government in the financial accounts of national income statistics.

BoE notes

Legally, notes represent debt obligations of the Bank. Originally they could be redeemed in gold. However, since 1931, the Bank no longer pays out gold against its notes. BoE notes were first issued in the seventeenth century but did not acquire legal tender status in England and Wales until 1833. They are not legal tender in Scotland or Northern Ireland.

BoE reserve accounts

BoE reserve accounts are debt obligations owed by the Bank to commercial banks and other Sterling Monetary Framework (SMF) participants. They are the largest liabilities on the Bank’s balance sheet and have been used by banks for settling their obligations with each other since at least the mid-19th century.

Scottish and Northern Ireland banknotes

Seven banks in Scotland and Northern Ireland issue their own notes which are these banks’ debt obligations. These notes are not legal tender even in Scotland and Northern Ireland. Rather, they circulate by convention, underscoring our thesis about the importance of other legal attributes besides legal tender legislation in conferring ‘money-ness.’ As a result of the Banking Act 2009, these notes are backed in full by a combination of Royal Mint coins, BoE notes and reserve account balances.

Accounts with banks and mutual organisations

Banks and mutual organisations offer current and other types of spendable accounts used for payments. On the one hand, these accounts are unsecured debt obligations of private organisations. On the other hand, many are backed up to certain limits by statutory guarantees. Today the value of transactions involving these accounts greatly exceeds the value of transactions involving legal tender. And growth in these accounts’ balances is mainly driven by additional loans that create equal and opposite accounting entries.

Further research

Economists and lawyers often approach the topic of money differently because they have different philosophies underpinning their professions. Economics is basically a branch of utilitarianism, meaning that the consequences of actions are the basis for judging their rightness or wrongness. Hence many problems in economics are about optimization and involve cost-benefit analysis. By contrast, law is derived from deontology, meaning some actions are intrinsically right or wrong according to normative rules. Hence legal decisions are typically justified by history and notions of justice.

These philosophical differences mean economists and lawyers often think about money differently. For example, many economists think money arose as a transaction cost reducing, utility enhancing device to overcome the absence of a double coincidence of wants that hampers barter, while many lawyers and institutionally minded economists think the origins of money is the state (Goodhart 1998). Economists mostly think of money as a medium of exchange (Kiyotaki and Wright 1989) because this function relates to trade and commerce, while law emphasises money as a means of payment (Proctor 2012): whether one party has discharged their obligation to another. In emphasising the settlement of obligations, law draws attention to money’s role in non-commercial transactions such as taxation and transfers. And while economists treat money mainly as an indicator or intermediate target for influencing real, macroeconomic variables, lawyers typically think about money in the context of individual cases and adhere to the doctrine of nominalism.

Despite these different points of emphasis, this blog has tried to show that understanding money requires joining legal with economic perspectives. For example, while for a long time lawyers saw bank deposits simply as loans, economists much earlier appreciated their wider bearing on inflation and output. However, if economists want to explain why certain claims like bank deposits are money, while others are not, they must look at their legal attributes and socio-legal history. Recent research on money by Bank staff has been informed by both law and economics (McLeay et al. 2014; Bholat 2013). Here are a couple paths on which further interdisciplinary research might advance:

  1. How is the money demand for a claim impacted by changes in its legal constitution, for example, after a major structural break like the conferring of legal tender status on BoE notes or abolition of their gold convertibility?
  2. Besides negotiability, fungibility and instant par redemption, what other legal features make claims suitable to be money?

David Bholat works in the Bank’s Advanced Analytics Division, Jonathan Grant works in the Bank’s Legal Directorate and Ryland Thomas works in the Bank’s Monetary Assessment and Strategy Division.

Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.

If you want to get in touch, please email us at bankunderground@bankofengland.co.uk


Top Visited
Switchboard
Latest
Past week
Past month

NEWS CONTENTS

Old News ;-)

[Aug 17, 2019] On currency manipulation: The USA afministration wants to weaken dollar but this is not an easy task

Aug 17, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 07, 2019 at 02:23 PM

A Weak Dollar Could Help the US. Getting One
Isn't So Easy. https://nyti.ms/33j7eFe
NYT - Matt Phillips - August 6

President Trump has made no secret of his
frustration that the United States dollar
has strengthened against other currencies.

The trade war between Washington and Beijing took an unexpected turn this week as China let its currency drop sharply and the United States responded by officially designating the country a currency manipulator.

The confrontation underscored the Trump administration's focus on weakness in foreign currencies -- and the corresponding strength of the dollar -- as a drag on the American economy.

Now, investors are gaming out the prospect that the United States could actively intervene in the financial markets, in a significant break from a decades-long commitment to free-floating currencies.

"It's a big deal because I think it would mark a new sort of phase in how the U.S. approaches the international economy," said Michael Feroli, chief United States economist with JPMorgan Chase.

But while the president might want a weaker dollar, engineering one is complicated. Here's the context you need to understand the United States' changing approach to the dollar.

Why would the U.S. benefit from a weaker dollar?

A weaker currency makes a country's exports cheaper for buyers overseas, giving a country a competitive advantage. For years, an artificially weak renminbi underpinned China's growth as a manufacturing base for the rest of the world.

The Trump administration's tariffs on imports of Chinese-made goods are meant to raise the price of those products once they land in the United States, discouraging Americans from buying them.

But one way for China to respond is to weaken the renminbi and undermine the impact of those tariffs by making those products cheaper.

That's why when China allowed its closely controlled renminbi to depreciate sharply against the dollar on Monday, it was taken as a sign that the trade war between the United States and China was getting worse.

The currency has since strengthened, easing this tension somewhat, but China isn't the only trading partner the president has a problem with.

For instance, in June, after the European Central Bank said it might restart stimulus programs to bolster the economy, Mr. Trump accused it of pushing down the value of the euro, "making it unfairly easier for them to compete against the USA."

"They have been getting away with this for years, along with China and others," he said on Twitter.

A weaker dollar has other benefits. For instance, it could also bolster corporate earnings. Roughly 40 percent of the revenue of the biggest American companies now comes from overseas, and a weaker dollar means those foreign sales make a bigger contribution to the bottom line. Those higher earnings can help give the stock market a lift.

None of this is a secret. But in the past, governments have shied away from weakening their currencies, in part because they were afraid it would also lead to an ugly bout of inflation, which was traditionally viewed as the big risk of a weak currency. These days, inflation around the world is incredibly low and shows little sign of rising.

"You have almost the perfect macro backdrop for policymakers to encourage currency weakness," said Alan Ruskin, chief international strategist at Deutsche Bank in New York.

How did this become a political issue?

Foreign exchange markets are a zero-sum game: If China's currency weakens against the dollar, the dollar, by definition, strengthens.

So whether China is deliberately lowering the value of the renminbi, or the euro is tumbling because currency traders are worried about the region's growth, the ultimate impact is that the dollar is stronger.

Strong currencies tend to weaken a country's exports and bolster the consumption of foreign products. That can lead to larger trade deficits.

President Trump has made reducing the trade deficit with China a crucial focus of his administration and a crucial goal of the tariff war that began in 2018.

But that effort has had mixed results. The United States' goods deficit with China initially widened to a record $43 billion in October before shrinking significantly since then. It is now hovering around $30 billion a month.

In theory, if the dollar weakened against the Chinese currency, it could do more to cut that trade deficit than a tariff battle, potentially offering the president a chance for a political victory going into the 2020 election.

If other countries can weaken their currency, why doesn't the United States do the same?

In theory, it can. But in practice it isn't easy.

In part, that's just because the currency markets are so big. Every day, more than $5 trillion changes hands in those markets, and more than $4 trillion of those trades involve the dollar.

China controls the renminbi because it can use the bottomless buying power of its central bank, which publishes an official price for the currency every day around which it allows a certain amount of trading.

The People's Bank of China has the ability to print renminbi to weaken the currency if the exchange rate gets too high. On the flip side, Beijing has $3 trillion in reserves it can deploy to keep the currency from getting too weak.

Right now, the United States doesn't operate that way.

It has some capacity to intervene in financial markets by using the Exchange Stabilization Fund, a vehicle under the control of the Treasury secretary, with about $100 billion of buying power.

"Unless Congress gives Treasury authority to beef up the Exchange Stabilization Fund, it just doesn't have enough firepower," said Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.

Last month, Larry Kudlow, director of the National Economic Council, said the White House had considered an intervention to weaken the dollar before deciding against it. The same day, however, Mr. Trump contradicted Mr. Kudlow, telling reporters that all options were on the table.

"I could do that in two seconds if I wanted," Mr. Trump said. "I didn't say that I'm not going to do something."

So in the past, when American politicians wanted to change the value of the dollar, they had to coordinate efforts involving a number of countries. That's what happened in 1985, when the United States engineered an agreement to weaken the dollar as part of an agreement known as the Plaza Accord.

Of course, those countries were all strategic allies of the United States. Persuading China to let its currency strengthen to help the United States is a different situation all together.

[Aug 17, 2019] If the U.S. abuses its exorbitant privilege too much by bullying, there will eventually be a switch.

Notable quotes:
"... The real concern is about the primacy of the dollar and US hegemony. When Krugman trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit, his main point was that it was good policy strategically. Krugman was woefully wrong, as China grew to be a geopolitical rival, not a US client state like Japan or Germany as the Clintonistas and the foreign policy borg had hoped. ..."
"... Folks, it ain't about US jobs and consumer prices, which will be affected at worst only marginally. What it's really about is the dominance of the empire and its enormous, tax-free profits overseas. ..."
Aug 17, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 07, 2019 at 06:22 AM

What's at Risk if US Stumbles Into
a Currency War https://nyti.ms/2yKGPC1
NYT - Neil Irwin - August 7

... ... .. ...

The Trump administration has introduced a zero-sum approach to global currency policy -- envisioning a loser for every winner -- that violates the spirit of those rules.

In that sense, the latest moves risk upsetting a relatively stable order, creating unpredictable ripple effects. When currencies swing wildly, they can pull along the economies of some of the most powerful nations, such as by crushing entire sectors of the economy that find themselves uncompetitive after a swing in global exchange rates.

And it could undermine the central role the United States has played in the international financial system, especially if the accusations of manipulation are followed up with concrete retaliation to try to artificially depress the value of the dollar.

"The dollar being the primary global currency has enormous benefits for the U.S., but with the side effect that when the U.S. tries to depreciate, there are limits on how much it can do that," said Adam Posen, president of the Peterson Institute for International Economics. "But if the U.S. abuses its privilege too much by bullying, there will eventually be a switch."

The decision to name China a currency manipulator does not, in and of itself, do much. But it could be followed up with pressure on the International Monetary Fund and other nations to make similar findings and lean on the Chinese to adjust their policies. Or it could lead to direct intervention in foreign exchange markets by the United States Treasury.

This is not the first time President Trump has accused a major trading partner of using currency policy to mistreat the United States.

... ... ...

A habit of the Trump administration has been to link seemingly unrelated items in its dealings with other countries -- using tariff threats to try to influence Mexican immigration policy, for example.

If the Trump administration continues down the path of using currency policy to try to bludgeon China over trade, technology and national security issues, it will signal a remarkable expansion into a policy area that has been a source of stability in recent decades.

"It's dangerous to start a currency war because you don't know where it will end," said Eric Winograd, chief U.S. economist at AllianceBernstein. "We've seen with the trade war that it started in one place, and ended up much broader. There's every risk a currency war will do the same."

JohnH -> Fred C. Dobbs... , August 07, 2019 at 09:26 AM
No we're talking turkey!

"It could undermine the central role the United States has played in the international financial system."

All the talk about hurting consumers and jobs is just noise that policy elites emit to win support on false pretenses.

The real concern is about the primacy of the dollar and US hegemony. When Krugman trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit, his main point was that it was good policy strategically. Krugman was woefully wrong, as China grew to be a geopolitical rival, not a US client state like Japan or Germany as the Clintonistas and the foreign policy borg had hoped.

Now there is a real debate about global strategy going on. Trump wants to whack China back into place, reduce it as a geopolitical threat. The other side is still wedded to the 2000 notion having China follow US global leadership and defending the exorbitant privileges of US corporations, their banksters, and their profits. Their latest gambit is to raise a potentially real issue--the primacy of the US dollar.

Folks, it ain't about US jobs and consumer prices, which will be affected at worst only marginally. What it's really about is the dominance of the empire and its enormous, tax-free profits overseas.

[Aug 08, 2019] What's at Risk if US Stumbles Into a Currency War

Aug 08, 2019 | economistsview.typepad.com

Fred C. Dobbs , August 07, 2019 at 06:22 AM

What's at Risk if US Stumbles Into
a Currency War https://nyti.ms/2yKGPC1
NYT - Neil Irwin - August 7

When the United States declared China a currency manipulator on Monday, long-building trade tensions between the world's two largest economies spread to the combustible realm of currencies -- with potentially huge consequences for the global financial system should the escalation continue.

Did China allow the value of the yuan to fall against the dollar simply to allow it to better match the nation's economic situation, as the country's leaders and many international economists argue? Or was it, as President Trump contends, an effort to give Chinese exporters an unfair advantage in trade?

That clash reflects Mr. Trump's rejection of the consensus of global economic policymakers. That consensus says countries should be free to set monetary policies aimed at generating sustained growth, even if that causes their currency to depreciate. And they should be free to manage their exchange rates so long as they keep those rates broadly in line with their economic fundamentals.

The conflict also reflects the president's singular focus on reducing trade deficits, which he has argued make the United States a loser in the global trade system. But waging a currency war could come at a big cost.

"I worry it further undermines the international framework that has supported decades of faster growth," said Kristin Forbes, an economist at M.I.T. and a former official of the U.S. Treasury and the Bank of England. "Exchange rates are the shock absorber in the global economy."

There have been international strains over currency valuations for years, all the more so in a world in which all the major economies are coping with sluggish growth. But the newest currency frictions are different.

Up until now, countries have been focused on stimulating their domestic economies. In particular, central banks have cut interest rates and taken other steps to pump money into their financial systems. That tends to lower the value of their currency. After all, investing in a currency with lower interest rates is less attractive, all else equal, than in one with higher rates.

But the conventional wisdom among international economists is that this doesn't count as currency manipulation. It's not a game in which one country's win means another must lose. Lower interest rates should generate more economic activity, which makes the whole world better off.

The Trump administration has introduced a zero-sum approach to global currency policy -- envisioning a loser for every winner -- that violates the spirit of those rules.

In that sense, the latest moves risk upsetting a relatively stable order, creating unpredictable ripple effects. When currencies swing wildly, they can pull along the economies of some of the most powerful nations, such as by crushing entire sectors of the economy that find themselves uncompetitive after a swing in global exchange rates.

And it could undermine the central role the United States has played in the international financial system, especially if the accusations of manipulation are followed up with concrete retaliation to try to artificially depress the value of the dollar.

"The dollar being the primary global currency has enormous benefits for the U.S., but with the side effect that when the U.S. tries to depreciate, there are limits on how much it can do that," said Adam Posen, president of the Peterson Institute for International Economics. "But if the U.S. abuses its privilege too much by bullying, there will eventually be a switch."

The decision to name China a currency manipulator does not, in and of itself, do much. But it could be followed up with pressure on the International Monetary Fund and other nations to make similar findings and lean on the Chinese to adjust their policies. Or it could lead to direct intervention in foreign exchange markets by the United States Treasury.

This is not the first time President Trump has accused a major trading partner of using currency policy to mistreat the United States.

He assailed the European Central Bank for moving toward monetary stimulus in June -- complaining on Twitter that the resulting drop in the value of the euro was "making it unfairly easier for them to compete against the USA."

The European Central Bank explained its stimulus as an effort to keep Europe from sliding back into recession. When the central bank first undertook its "quantitative easing" policies, it was with encouragement from the Obama administration, which believed a stronger European economy was ultimately good for the U.S. economy, despite its effect on currencies.

Similarly, the Trump administration's decision Monday to name China a currency manipulator -- for allowing the value of its currency to fall -- does not align with how mainstream economists view China's move.

With the economy slowing in China, in part because of the trade wars, market forces tend to push its currency lower. But the People's Bank of China has defended the currency from big drops, aiming to prevent capital from flowing out of the country or destabilizing the world economy.

The "manipulation" that took place Monday morning wasn't artificially depressing the Chinese currency to seize advantage with trade partners, but engaging in less manipulation in order to allow it to fall closer to its market-determined rate.

There is a more nuanced case to be made against Chinese currency policy -- that it did intervene for years to push down the value of its currency, ending in the early 2010s, and that Chinese economic might was built on an unfair practice. But the Trump administration's announcement focuses on the more recent actions, in which different economic rationales apply.

There is also a paradox for President Trump. Because of the dollar's unique role as the global reserve currency, when panic sets in overseas, money tends to flow into United States Treasury bonds, which are viewed as the safest assets on earth. But that movement tends to prop up the value of the dollar and push overseas currencies lower.

In other words, the more chaos he injects into the global economy by trying to pressure China, Europe and others to depreciate their currencies, the more upward pressure there will be on the dollar, undermining those efforts.

That is potentially the worst of both worlds. When the dollar rises on currency markets because the United States economy is booming, it may be hard on American export industries, but at least it takes place in the context of strong growth.

But for the dollar to surge because of a global economic troubles, it means exporters suffer at the same time that the overall economy is under pressure. A particularly extreme example of this happened in the fall of 2008, when the United States economy was in free fall and yet the dollar rose because of the global financial crisis.

A habit of the Trump administration has been to link seemingly unrelated items in its dealings with other countries -- using tariff threats to try to influence Mexican immigration policy, for example.

If the Trump administration continues down the path of using currency policy to try to bludgeon China over trade, technology and national security issues, it will signal a remarkable expansion into a policy area that has been a source of stability in recent decades.

"It's dangerous to start a currency war because you don't know where it will end," said Eric Winograd, chief U.S. economist at AllianceBernstein. "We've seen with the trade war that it started in one place, and ended up much broader. There's every risk a currency war will do the same."

JohnH -> Fred C. Dobbs... , August 07, 2019 at 09:26 AM
No we're talking turkey! "It could undermine the central role the United States has played in the international financial system." All the talk about hurting consumers and jobs is just noise that policy elites emit to win support on false pretenses.

The real concern is about the primacy of the dollar and US hegemony. When Krugman trumpeted 'free' trade with China back in 2000, falsely claiming that US labor would benefit, his main point was that it was good policy strategically. Krugman was woefully wrong, as China grew to be a geopolitical rival, not a US client state like Japan or Germany as the Clintonistas and the foreign policy borg had hoped.

Now there is a real debate about global strategy going on. Trump wants to whack China back into place, reduce it as a geopolitical threat. The other side is still wedded to the 2000 notion having China follow US global leadership and defending the exorbitant privileges of US corporations, their banksters, and their profits. Their latest gambit is to raise a potentially real issue--the primacy of the US dollar.

Folks, it ain't about US jobs and consumer prices, which will be affected at worst only marginally. What it's really about is the dominance of the empire and its enormous, tax-free profits overseas.

[Aug 03, 2019] Trump created a significant motivation in Europe and even China in creating a real alternative to the US dollar for international transactions which bypasses US banks. If this happens to any significant degree, it would undercut the US dollar as the world's reserve currency, resulting in a permanent drop in its value.

Aug 03, 2019 | www.nakedcapitalism.com

Noel Nospamington , August 3, 2019 at 10:50 am

I think that 10 years from now the biggest impact from Trump will be from his cancellation of the Iran nuclear accord and unilateral imposition of strict sanctions which the Europeans were not able to bypass in any meaningful way due the prevalence of the US dollar in global transactions.

There is now significant motivation in Europe and even China in creating a real alternative to the US dollar for international transactions which bypasses US banks. If this happens to any significant degree, it would undercut the US dollar as the world's reserve currency, resulting in a permanent drop in its value.

Without international support, US Government deficits and trade deficits will become unsustainable, and there will be a significant drop in the American median standard of living.

[Aug 02, 2019] 'Dr Doom' economist Nouriel Roubini in Bitcoin battle

Aug 02, 2019 | economistsview.typepad.com

(Ron) Weakley , July 23, 2019 at 03:30 AM

https://www.bbc.com/news/business-48852059

'Dr Doom' economist Nouriel Roubini in Bitcoin battle


3 July 2019


Outspoken economist Nouriel Roubini, nicknamed Dr Doom for his gloomy warnings, has caused a stir with his latest attack on Bitcoin and its fellow cryptocurrencies.

Prof Roubini, who foresaw the financial crisis, says Bitcoin is "overhyped".

At a summit in Taiwan on Tuesday, he likened it to a "cesspool".

But his sparring partner at the event, who runs a cryptocurrency exchange, has angered the professor by blocking the release of video of the event.

Arthur Hayes, the chief executive of the BitMex exchange, controls the rights to footage of their debate, which took place during the Asia Blockchain Summit.


In a post on Twitter, Prof Roubini said he "destroyed" Mr Hayes in the debate and called him a "coward" for not making it available...

RC (Ron) Weakley said in reply to RC (Ron) Weakley... , July 23, 2019 at 03:34 AM
Oh, RE: The Great Crypto Heist

Jul 16, 2019 | Nouriel Roubini

https://www.project-syndicate.org/commentary/cryptocurrency-exchanges-are-financial-scams-by-nouriel-roubini-2019-07


Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.


NEW YORK – There is a good reason why every civilized country in the world tightly regulates its financial system. The 2008 global financial crisis, after all, was largely the result of rolling back financial regulation. Crooks, criminals, and grifters are a fact of life, and no financial system can serve its proper purpose unless investors are protected from them...

*

[Go get 'em Doctor Doom. Does he know that this is a feature and not a bug?]

Joe -> RC (Ron) Weakley... , July 23, 2019 at 03:55 AM
Wild traders are a feature, not a bug.

Wild traders are always here, as Doctor Doom points out. They are there when we use rocks, when we used sea shells, when we used paper and now crypto, the wild traders remain.

Regulate as much as Dr. Doom thinks regulators should regulate. But do not deploy government bean counters looking for stone age rocks under our matress, we are using digital crypto instead.

Just yesterday Daimler announce a completely independent hard wallet for crypto use, in a car. They are giving a car all the freedom to hold bearer assets in crypto form. The car needs this to automate much of the car industry functions from gas taxes to used car sales. So tell Dr. Doom to complain about car industry violating financial regulations.

RC (Ron) Weakley said in reply to Joe... , July 23, 2019 at 04:11 AM
The crypto casino was created so that speculators could profit from the money laundering industry that provides investor liquidity to the back end of the human and illegal narcotics trafficking industry. It was built on the anti-bank angst that emerged after the financial crisis. It gives organized crime the legitimacy that they need to spend their enormous wealth that is generated by so many ruined lives. Fools have always run with dicks. They just do not know any better.
Joe -> RC (Ron) Weakley... , July 23, 2019 at 05:39 AM
The crypto casinos were created to automate trading. Crypto insures that a bot trading obeys the prior contract, and thus great simplifies transactions everywhere, from the Fed down to you and me with significant savings, at least 1% increase in productivity.

We have a technology change happening. You get the wildcatters, they don't scare me, so Dr. Doom is likely missing something here. More than likely he is short sided, looking at this one thing and ignoring the fact that this is our 7th or 8th time we have changed money tech. How did we do it last time? Wildcatters, hysterics, and failure to read history. Worked fine then.

RC (Ron) Weakley said in reply to Joe... , July 23, 2019 at 09:51 AM
Crypto currencies are not money. They are just private scrip. Only demand give them exchange value and only crooks and speculators have any demand for scrip born of the daughters of ENIAC. To believe otherwise is to be a sovereign fool.
RC (Ron) Weakley said in reply to RC (Ron) Weakley... , July 23, 2019 at 10:05 AM
Actual automated trading algorithms run on computers all the time and have been for decades now, no cryptocurrencies required.
Julio -> RC (Ron) Weakley... , August 01, 2019 at 07:50 AM
The Empire, in all its wisdom, has declared some countries as illegal, unworthy of using the banking system. And then, sanctioned anyone who does business with those illegals. So, it is illegals all the way down, in our ever-expanding WOE (War On Everyone).

This has generated interest in cryptocurrencies from some of those crooks and criminals (aka "other countries").

Julio -> Joe... , July 23, 2019 at 10:01 AM
You are too focused on the technology. Banks are not there just to conduct transactions, they are there to track them and report to the government. They are required to know something about the people behind the transactions.
RC (Ron) Weakley said in reply to Julio ... , July 23, 2019 at 10:07 AM
Joe appears to miss the significance of underlying technology as much as anything else. Joe's focus is directed somewhere inside his own mind that is separated from any reality that I am aware of.
Joe -> RC (Ron) Weakley... , July 23, 2019 at 11:56 AM
No, we are using cryptography everywhere, from cars to toys to wallets. Dr. Doom fails to see this happening, happening as sure as we switched from metal to paper. Dr. Doom wants more regulation of shadow banking, fine, why not say that out loud?

His ability to regulated shadow bankers has nothing to do with technology. Crypto is no different than the embedded water mark on paper, same technology. Both regulators and regulated have to adapt.

He has created a red Herring, a useless talking point to fool the delusionals, give them some worthless talking point.

RC (Ron) Weakley said in reply to Joe... , July 24, 2019 at 03:40 AM
Duh! Cryptography and cryptocurrencies are not the same thing.
kurt -> Joe... , July 25, 2019 at 04:07 PM
Crypto - the money laundering index.
mulp -> Joe... , July 23, 2019 at 02:26 PM
"Crypto insures that a bot trading obeys the prior contract, and thus great simplifies transactions everywhere, from the Fed down to you and me with significant savings, at least 1% increase in productivity."


Huh?

How does crypto ensure that my wages producing a thousand meals as a food worker will allow me to buy a thousand meals in the future? What I've seen is crypto turning a thousand meals produced into a contracct that will buy two thousand one day, but only 500 the next day.

kurt -> mulp ... , July 25, 2019 at 04:09 PM
Crypto really just wastes a bunch of computing power to solve a problem that only exists if you are trying to hide illegal transactions from governments. Crypto currency is a solution in search of problem unless you are engaged in laundering money, selling large quantities of drugs/guns/people/animals/other illegal products, or buying same. Governments should make it prosecutable wire fraud to use them.
anne -> RC (Ron) Weakley... , July 23, 2019 at 05:14 PM
The Roubini-Hayes video:

https://www.youtube.com/watch?v=qlZukhN_C6c&t=12s

RC (Ron) Weakley said in reply to anne... , July 24, 2019 at 03:41 AM
thanks

[Jul 31, 2019] Tell me now, how did George Soros get so rich, and why was the Bretton Woods system abandoned?

Jul 31, 2019 | economistsview.typepad.com

David -> reason... ,

Thanks. I referred to Judy Shelton's book for the reasons to support the gold standard. But, I can list some of them here:
1) The gold standard was the core mechanism of Bretton-Woods that worked so well at keeping world prices stable, promoting growth, and tying the money supply to the real economy.
2) Free market currencies have led to speculation taking over from market exchange rates to support trade. Currency trading is ~100x the underlying trade in goods and services.
3) The exchange rates of currencies fluctuate far greater under a free market fiat currency system than under the gold standard
4) Fiat currencies are always subject to political intervention.
5) gold can't be faked or conjured into existence.
6) The gold supply grows about 2%/year, which has been stable for many decades.
7) gold, as a real commodity, ties money to the real economy rather than the financial markets.

canonicalthoughts.blogspot.com

kurt -> David ... , July 16, 2019 at 10:04 AM
1. Under the gold standard prices were much more unstable. This argument doesn't pass even the most modest scrutiny. https://www.minneapolisfed.org/community/financial-and-economic-education/cpi-calculator-information/consumer-price-index-1800

2. This has what to do with the gold standard? There was lots of currency trading under the gold standard. This is primarily a result of algorithmic trading.

3. True - but this is good. Why would this be bad?

4. This is why you have an independent central bank.

5. No but gold can also be hoarded. Please see Krugman's Baby Sitter Klatch article.

6. This is utterly absurd. Gold production stops when the price is too low, ramps up when it is high.

7. How is gold a commodity? 99% of the gold in the world sits in a basement being guarded by governments. It's only value is in making shiny things and the current supply is wildly more than there is demand for said shiny things. Ohhhh, Shiny! does not make something a commodity. If there were any large industrial applications for the metal maybe - but there really isn't.

David -> kurt... , July 16, 2019 at 11:33 AM
Thanks for the good points. Some clarification:
1) By world prices this means the exchange rate. Under Bretton-Woods the price of gold was set at $35/oz and other currencies were pegged to the dollar.
2) If the purpose of currency exchange is to facilitate trade, then this is the tail wagging the dog, and indicates a currency trading system that has become disconnected from its core purpose.
3) Price stability is a core goal of money. So that tomorrow I will be confident of what that money will be worth.
4) Independence is not disinterest. Central banking has shown itself to sway with political winds such as the German central bank in the 1990s, and the US central bank under Nixon.
5) Hoarding of gold, in the sense of cornering the market, is essentially impossible because of the wide distribution of gold in the world and because moving to gold in general would indicate a loss of confidence in a currency, which is good. (as long as we're saying good v. bad).
6) True. production is not that stable, but on average it is fairly constant. See Fig 1. : https://pubs.usgs.gov/of/2002/of02-303/OFR_02-303.pdf
7) Not true. Again see the USGS publication. Most gold goes into jewelry, and so is held by the public. Much of the other gold goes into industry, dental

Total gold in the world, 3.4B troy oz (105,000 t) see: https://pubs.usgs.gov/gip/gold/gold.pdf
Annual production ~2500t, which is about 2.4% of the total.

The reason to prefer gold, besides the above, is that most money created since 1971 has gone into the financial sector rather than the real economy. Thus, workers don't get a real raise, but financial instruments just keep going up with no limit.

http://canonicalthoughts.blogspot.com

reason -> David ... , July 17, 2019 at 08:06 AM
David,
tell me now, how did George Soros get so rich, and why was the Bretton Woods system abandoned?

5. Shows that you don't understand the issue. Hoarding doesn't have to corner the market to be an issue, it's just that rewards people who are creating a problem and so can create a vicious circle.

reason -> reason... , July 17, 2019 at 08:30 AM
P.S. 2% is way too low. Money needs to expand at least enough to match nominal GDP - and that assumes that the rate of savings and circulation velocity are constant. And if prices are absolutely constant how will people ever pay off debts. People have to pay back the nominal capital of a loan. If income/head in nominal terms is relatively constant (in some countries at some times there will be actual deflation) then compared to the current situation in situations of absolute price stability delinquency rates will rise. You quote the 50/60s as a golden - what were inflation rates like then (answer >2% with real growth of >5% so >7% nominal GDP growth)?
David -> RC (Ron) Weakley... , July 16, 2019 at 08:50 AM
Gold is not a great system for a money supply, but its the best one we have so far. Other commodities could be used as the means of value and settlement, but they are far less convenient and have other properties that are not as good as gold.

Perhaps a global crypto currency will take the place of gold in the future? It would need to be of a fixed amount that does not change over time, and secure against hacking. So, maybe not.

canonicalthoughts.blogspot.com

RC (Ron) Weakley said in reply to David ... , July 16, 2019 at 10:11 AM
[Great answer inasmuch as changing the question is always the best answer when one has no answer to some obvious questions.

OTOH, the US dollar based global reserve currency is a problem, although mostly for the US in just general economic terms, but a problem for the entire world in terms of limiting the use of carbon based fuels. Cheap oil is good for the dollar hegemon, but bad for supporting continued human existence on Earth.

Internationally managed reserve currency and FOREX institutional arrangements along the lines of Keynes's Bancor might be a better idea. Crypto currency is an invitation to black market traffickers and hackers. Primary support is from drug and sex trafficking. So, what is not to love?

The hard money crew in the US defeated Keynes's Bancor proposal at the Bretton Woods conference and basically all of the problems that the gold bugs complain about today have been the results of following their preferred policy path after WWII.]

https://theweek.com/articles/626620/how-john-maynard-keynes-most-radical-idea-could-save-world

How John Maynard Keynes' most radical idea could save the world

As the Second World War was drawing to a close, the economic experts of the Allies met in a New Hampshire resort to try to hammer out an international monetary system that would help prevent a recurrence of the Great Depression. The ensuing debate centered around two main proposals, one from the British delegation and one from the American. John Maynard Keynes, the greatest economist of the 20th century, presented the British case while Harry Dexter White, one of FDR's key economic advisers, presented the American one.

Keynes lost on many key points. The result was the Bretton Woods system, named after the small town in which the conference was held. As part of the agreement, it also created what would later become the International Monetary Fund and the World Bank. That served as the system of managing international trade and currencies for nearly three decades. Today the IMF and World Bank survive, but Bretton Woods was broken in 1971 when Nixon suspended the convertibility of the dollar into gold.

Yet most of the problems that spurred the creation of Bretton Woods have since returned in only somewhat less dire form. It's worth returning to Keynes' original, much more ambitious idea for an international institution to manage the flow of goods and money around the globe.


The basic problem with international trade is that imbalances can develop: Some countries get big export surpluses, while others necessarily develop big trade deficits (since the world cannot be in surplus or deficit with itself). And because countries typically must borrow to finance trade deficits, it's a quick and easy recipe for a crash in those countries when their ability to take on more debt reaches its limit. It's not as bad for surplus countries, since they will not have a debt crisis or a collapse in the value of their currency, but they too will be hurt by the loss of export markets. This problem has haunted nations since well before the Industrial Revolution.

Nations like Germany with a large export surplus often portray it as resulting from their superior virtue and technical skill. But the fundamental reality of such a surplus is that it requires someone to buy the exports. As Yanis Varoufakis points out in his new book, without some sort of permanent mechanism to recycle that surplus back into deficit countries, the result will be eventual disaster. It's precisely what caused the initial economic crisis in Greece that is still ongoing.

Bretton Woods addressed this problem with a set of rather ad hoc measures. The dollar would be pegged to a particular amount of gold, and semi-fixed exchange rates for other currencies were to be fixed around that. In keeping with White's more orthodox economic views, all trade imbalances were to be solved on the deficit side. There was no limit to the surplus nations could build up (importantly, at the time the U.S. was a huge exporter), and the IMF was tasked with shoring up countries having serious trade deficit problems by enforcing austerity and tight money. (This would lead to repeated disaster for developing countries.)

Keynes' idea, by contrast, was substantially more ambitious. He proposed an overarching "International Clearing Union" that potentially every country in the world could join. It would create a new reserve currency, the "bancor," that could only be used for settling international accounts, and member nations would pay a membership quota in proportion to their total trade. Countries in surplus would receive bancor credit, while those in deficit would have a negative account.

The union was also explicitly aimed at facilitating increased trade overall (also unlike Bretton Woods). And critically, it would incentivize nations to keep their trade balanced on both sides -- surplus and deficit. Run too far into deficit, and a country would be required to devalue to reduce imports. But run too far into surplus, and a country's currency would be required to appreciate so as to increase imports. A bancor tax would also be levied at an increasing rate on anyone with a large trade imbalance.


There's much more to the story, but the fundamental idea is fairly simple. As Keynes wrote in his original proposal, the basic "principle is the necessary equality of credits and debits, of assets and liabilities. If no credits can be removed outside the clearing system but only transferred within it, the Union itself can never be in difficulties."

For the postwar generation, Bretton Woods worked tolerably well -- and it certainly was a vast improvement on the prewar gold standard. But its mechanisms were far less legible, and required constant good-faith efforts from various nations, particularly Germany and the U.S., to work properly. More importantly, it relied on large American surpluses to soak up the huge aid that was being sent to Europe under the Marshall Plan, a goodly portion of which was used to buy American-made exports. When the U.S. moved to deficit, the system broke down within only a few years.


Keynes' plan, by contrast, would likely have had the flexibility to adapt to a massive 180 degree shift in the balance of trade. It is also far more transparent and comprehensible to average people, perhaps disrupting the excessive pride of surplus countries to some extent. And if it were to be created in the future, it would be under effective supervision from the member states. The vast carnage inflicted by the unaccountable, supranational European Central Bank is too stark to ignore.

It would undoubtedly take years and years to build and update Keynes proposal to where it might be implemented. But the problems it is designed to address will always keep cropping up. Perhaps after the eurozone implodes, the world will get another chance to do it right.


*

[The rallying cry of the gold bugs is "Idiots of the world unite," which is very effective given the considerable majority held by idiots in the electorates of republics and among their controlling elites both public and private.]


David -> RC (Ron) Weakley... , July 16, 2019 at 11:42 AM
Under Bretton-Woods no trade imbalances were possible because of the settlement mechanism in gold. The deficit nations (that imported more than exported) would have to settle by transferring gold out in the amount of the deficit. Thus, in effect selling the commodity of gold for the excess imports. This all works well if the imbalances are periodically settled by the gold transfers, which didn't happen as many countries simply held onto the currencies, and if trade is balanced.

Balance of trade is the key to stable trade. All imbalances eventually come back into balance. The question is: will this happen in a smooth orderly manner, like under Bretton-Woods, or in a calamity where for example the dollar crashes?

http://canonicalthoughts.blogspot.com

RC (Ron) Weakley said in reply to David ... , July 16, 2019 at 12:16 PM
"...This all works well if the imbalances are periodically settled by the gold transfers, which didn't happen as many countries simply held onto the currencies, and if trade is balanced..."

*

[You are getting warmer, but still no cigar and a whole lot of cart before the horse. What happened under the original Bretton Woods agreement was that surplus traders held onto their US dollar reserves while convertibility (more to silver than gold - which we hold) kept the US dollar from becoming overvalued under the simultaneous pressures of what remained small US trade deficits and growing foreign reserves of US dollars. This was not a gold standard per se, but rather the establishment of the US dollar, the currency of the dominant global economic power, as the global reserve currency for foreign held reserves and also the dominant currency of international trade exchange. Trade remained relatively well balanced because convertibility limited how overvalued the dollar could maintain itself under trade deficits despite its broadly held status as the dominate global reserve currency.

The end of Bretton Woods US dollar convertibility saw growing US trade deficits with simultaneous growth in US dollar denominated foreign reserves and an over-valued dollar which just accelerated US trade deficits even further. Bigger US trade deficits just fed into even larger USD foreign reserves. It was a vicious cycle of dollar over-valuation despite growing US trade deficits because surplus partners had relatively secure means of holding large USD reserves. The world's high demand for dollars was great for rentiers, arbitrage seekers, and global corporations. Trading partners could hold USD reserves to keep their currencies undervalued relative to the USD more successfully than with convertibility. OTOH, the US gained cheap access to global oil reserves and also US multinational corporations gained global price arbitrage advantages if they were willing to offshore much labor to countries with currencies undervalued relative to the dollar or merely countries with lower standards of living (i.e., real wages) and environmental protection standards for industrial production. Winning all three together on the same US dollar capital flow was the global price arbitrage trifecta. ]

David -> RC (Ron) Weakley... , July 16, 2019 at 01:21 PM
The US could have had it both ways in the sense that it could have run budget deficits by monetizing the dollar and causing inflation as it was starting to do in the late 1960s and maintain the international exchange rate. The mechanism to do this is US tariffs. This would have made imports to the US expensive and kept all those excess dollars from flowing overseas. The rational is balance of trade. As long as the current account is balanced the Bretton-Woods system would continue to function.
RC (Ron) Weakley said in reply to David ... , July 16, 2019 at 02:22 PM
The US went all in on free trade and eliminating tariffs when it implemented the income tax system to finance government operations spending in 1913. At the time the US dollar was underpriced against most European currencies in FOREX, particularly the pound sterling, and the US had a growing trade surplus which eventually contributed significantly to the settlements crisis under the gold standard that was a major cause for precipitating the Great Depression. Once that path was taken it became difficult to turn back since the wealthy build their rentier and arbitrage systems upon the world that is rather than some world that might be. Policy makers rely upon the stock of wealth both for campaign contributions and to raise their miserable lives into something of elite significance because of who they hang out with and in turn whose interests that they serve.

I understand it that if a frog had wings then it would not bump its ass every time that it leaped.

reason -> David ... , July 18, 2019 at 05:18 AM
The US consistently ran a trade surplus during the Bretton Woods period, but Bretton Woods was based on US dollars. So the world was being drained of US dollars (or the rest of the world of Gold). That is clearly not sustainable. There is a problem with unbalanced trade if it is either direction. Under Bretton Woods there was no penalty for mercantilism. You just need to know history to no that financial crises are nothing new and that a gold standard didn't prevent them, but in fact exacerbated them. I don't where you get your ideas from, but you should go back and read some history.
David -> reason... , July 17, 2019 at 10:32 AM
Yes, this beats around the bush as they say.

The real questions are:
1) During Bretton-Woods worker compensation grew with growth in productivity, but since the withdrawal in 1971, worker compensation has been flat. Why? And how to re-mediate this?
2) Why has so much of GDP shifted to financial speculation and away from the productive economy? And how to shift economic activity back to the productive sector?
3) Given our use of fiat currency, what limits the growth of the money supply in the financial sector? That is, what prevents financial instruments that are disconnected from the productive economy from creating an endless cycle of: new instruments drives new money to buy them, rinse and repeat...

anne -> David ... , July 17, 2019 at 04:46 PM
https://fred.stlouisfed.org/graph/?g=lSfN

January 30, 2018

Nonfarm business productivity and real compensation, 1948-2018

(Percent change)


https://fred.stlouisfed.org/graph/?g=lSfP

January 30, 2018

Nonfarm business productivity and real compensation, 1948-2018

(Indexed to 1948)

David -> anne... , July 18, 2019 at 06:11 AM
Anne, thanks for the graphs.

The second one in particular lays out the issue quite clearly. It literally forms an arrow with the tip pointing to the divergent point where something major happened to create such a stark and durable systematic change.

reason -> David ... , July 19, 2019 at 02:19 AM
This is classical cargo cult thinking, these two things are correlated so one must have caused the other. There were lots of things changed at that time, I was there, I followed the debates (in which the world basically decided to follow some of what Milton Friedman said - and ignored some other things that he said - like negative interest rates and that money supply expansion should come mostly from expanding the central bank balance sheet - see also Robert Waldmann's explanation that Lucas and Friedman are methodical opposites and yet both belong to the "Chicago School"). You have to not only note a correlation, but also show the mechanism and control for other factors. Get to it.
reason -> reason... , July 19, 2019 at 02:37 AM
For your amusement.
http://ok-cleek.com/blogs/?p=27691
David -> reason... , July 19, 2019 at 04:31 AM
I agree, and am working on just that.
reason -> reason... , July 19, 2019 at 12:59 PM
oops - not negative interest rates - negative income tax.
reason -> David ... , July 18, 2019 at 12:19 AM
1. Other things happened at the same time (see tariffs, changes in laws related to unions, containerization and also relaxation of capital controls and banking regulation). You went from a world of relatively isolated economies (especially the US) to a world of tightly integrated economies. Bretton Woods fall had almost nothing to do with it.
2. Washington consensus that budget deficits are bad and monetary policy (i.e. encouraging private debt) are good. We need to expand the central bank balance sheet in line with nominal GDP and reduce private indebtedness again.

As I said read "Between Debt and the Devil".

reason -> reason... , July 18, 2019 at 12:27 AM
Not to mention what was happening demographically (which was massive). Sorry, I really should not have forgotten that. The real world matters.
David -> reason... , July 19, 2019 at 04:38 AM
True, but whatever the cause, to have such a sharp and clear divergence, one or more significant changes had to happen in a short span of time. Do those things mentioned above add up to enough of a cumulative durable change?
reason -> David ... , July 19, 2019 at 12:58 PM
But it wasn't a SHARP divergence at all. I actually wish that Anne had done the chart in terms of rates of change. Having it in terms of levels hides more than it shows. But think about this - there was a reason that Bretton Woods was abandoned - it didn't happen in a vacuum. Maybe you should ask why that happened.
Paine -> David ... , July 17, 2019 at 12:14 PM
Commodity money
Is our new friends preference

And as commodities go gold has a number of advantages
Over say concrete blocks or diamonds

Lots of clever souls would like to use an exchange medium that
Wasn't subject to modern state financial casuistry
And usually they aren't overly focused on the existing
Unregulated market systems hitches and loops
and
Perversities

Paine -> Paine ... , July 17, 2019 at 12:19 PM
The Recalcitrance of markets has always been a wish away reality

And price systems are often reified into angel dust

And shipped from Chicago FOB

mulp -> RC (Ron) Weakley... , July 17, 2019 at 04:15 PM
Cold mining costs have always tracked the monetary price of gold. Aka, the marginal price of a new ounce is the monetary price.

To get the cost of mining goold down to $20 in the late 20s, food, housing prices had tlo fall by slashing wages which cut demand for food forcing prices of food down by forcing wages down, thus gold miners could eat enough food to mine an ounce of gold.

When FDR set the price government paid for gold to $35 dollars, the number of gold miners, and gold ounces mined doubled in less than a year, and stayed up until government prohibited gold mining to reallocate labor to the war industrial production.

What we don't see is the actual marginal costs of gold mining in either the short or long run. The global gold mining cartel keeps all the data secret, eg, South Africa, Russia, which produce about half the gold aannually. They can easily bankrupt a big corporation investing in a new big mineing and refining operation by releasing some of their massive gold hoard at prices just below the corporation marginal cost plus debt service. The big driver of gold demand is Asia and Muslim consumption for gold hoops and rings so people, especially women have their wealth with them at all times.

anne -> mulp ... , July 17, 2019 at 04:40 PM
Aside:

MULP made an assertion a couple of days ago that there were far more empty beds in the country now that several decades ago. I questioned the assertion, since there was no supporting data, but now I am finding the data in Census tracts and know MULP was correct. Family and household sizes have been declining for decades.

Thank you MULP.

[Jul 29, 2019] Michael Hudson Trump s Brilliant Strategy to Dismember US Dollar Hegemony by Michael Hudson

Highly recommended!
Looks like the world order established after WWIII crumbed with the USSR and now it is again the law if jungles with the US as the biggest predator.
Notable quotes:
"... The root cause is clear: After the crescendo of pretenses and deceptions over Iraq, Libya and Syria, along with our absolution of the lawless regime of Saudi Arabia, foreign political leaders are coming to recognize what world-wide public opinion polls reported even before the Iraq/Iran-Contra boys turned their attention to the world's largest oil reserves in Venezuela: The United States is now the greatest threat to peace on the planet. ..."
"... Calling the U.S. coup being sponsored in Venezuela a defense of democracy reveals the Doublethink underlying U.S. foreign policy. It defines "democracy" to mean supporting U.S. foreign policy, pursuing neoliberal privatization of public infrastructure, dismantling government regulation and following the direction of U.S.-dominated global institutions, from the IMF and World Bank to NATO. For decades, the resulting foreign wars, domestic austerity programs and military interventions have brought more violence, not democracy ..."
"... A point had to come where this policy collided with the self-interest of other nations, finally breaking through the public relations rhetoric of empire. Other countries are proceeding to de-dollarize and replace what U.S. diplomacy calls "internationalism" (meaning U.S. nationalism imposed on the rest of the world) with their own national self-interest. ..."
"... For the past half-century, U.S. strategists, the State Department and National Endowment for Democracy (NED) worried that opposition to U.S. financial imperialism would come from left-wing parties. It therefore spent enormous resources manipulating parties that called themselves socialist (Tony Blair's British Labour Party, France's Socialist Party, Germany's Social Democrats, etc.) to adopt neoliberal policies that were the diametric opposite to what social democracy meant a century ago. But U.S. political planners and Great Wurlitzer organists neglected the right wing, imagining that it would instinctively support U.S. thuggishness. ..."
"... Perhaps the problem had to erupt as a result of the inner dynamics of U.S.-sponsored globalism becoming impossible to impose when the result is financial austerity, waves of population flight from U.S.-sponsored wars, and most of all, U.S. refusal to adhere to the rules and international laws that it itself sponsored seventy years ago in the wake of World War II. ..."
"... Here's the first legal contradiction in U.S. global diplomacy: The United States always has resisted letting any other country have any voice in U.S. domestic policies, law-making or diplomacy. That is what makes America "the exceptional nation." But for seventy years its diplomats have pretended that its superior judgment promoted a peaceful world (as the Roman Empire claimed to be), which let other countries share in prosperity and rising living standards. ..."
"... Inevitably, U.S. nationalism had to break up the mirage of One World internationalism, and with it any thought of an international court. Without veto power over the judges, the U.S. never accepted the authority of any court, in particular the United Nations' International Court in The Hague. Recently that court undertook an investigation into U.S. war crimes in Afghanistan, from its torture policies to bombing of civilian targets such as hospitals, weddings and infrastructure. "That investigation ultimately found 'a reasonable basis to believe that war crimes and crimes against humanity." ..."
"... This showed that international finance was an arm of the U.S. State Department and Pentagon. But that was a generation ago, and only recently did foreign countries begin to feel queasy about leaving their gold holdings in the United States, where they might be grabbed at will to punish any country that might act in ways that U.S. diplomacy found offensive. So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. U.S. officials pretended to feel shocked at the insult that it might do to a civilized Christian country what it had done to Iran, and Germany agreed to slow down the transfer. ..."
"... England refused to honor the official request, following the direction of Bolton and U.S. Secretary of State Michael Pompeo. As Bloomberg reported: "The U.S. officials are trying to steer Venezuela's overseas assets to [Chicago Boy Juan] Guaido to help bolster his chances of effectively taking control of the government. The $1.2 billion of gold is a big chunk of the $8 billion in foreign reserves held by the Venezuelan central bank." ..."
"... But now, cyber warfare has become a way of pulling out the connections of any economy. And the major cyber connections are financial money-transfer ones, headed by SWIFT, the acronym for the Society for Worldwide Interbank Financial Telecommunication, which is centered in Belgium. ..."
"... On January 31 the dam broke with the announcement that Europe had created its own bypass payments system for use with Iran and other countries targeted by U.S. diplomats. Germany, France and even the U.S. poodle Britain joined to create INSTEX -- Instrument in Support of Trade Exchanges. The promise is that this will be used only for "humanitarian" aid to save Iran from a U.S.-sponsored Venezuela-type devastation. But in view of increasingly passionate U.S. opposition to the Nord Stream pipeline to carry Russian gas, this alternative bank clearing system will be ready and able to become operative if the United States tries to direct a sanctions attack on Europe ..."
"... The U.S. overplaying its position is leading to the Mackinder-Kissinger-Brzezinski Eurasian nightmare that I mentioned above. In addition to driving Russia and China together, U.S. diplomacy is adding Europe to the heartland, independent of U.S. ability to bully into the state of dependency toward which American diplomacy has aimed to achieve since 1945. ..."
"... By following U.S. advice, countries have left themselves open to food blackmail – sanctions against providing them with grain and other food, in case they step out of line with U.S. diplomatic demands. ..."
"... It is worthwhile to note that our global imposition of the mythical "efficiencies" of forcing Latin American countries to become plantations for export crops like coffee and bananas rather than growing their own wheat and corn has failed catastrophically to deliver better lives, especially for those living in Central America. The "spread" between the export crops and cheaper food imports from the U.S. that was supposed to materialize for countries following our playbook failed miserably – witness the caravans and refugees across Mexico. Of course, our backing of the most brutal military dictators and crime lords has not helped either. ..."
"... But a few years ago Ukraine defaulted on $3 billion owed to Russia. The IMF said, in effect, that Ukraine and other countries did not have to pay Russia or any other country deemed to be acting too independently of the United States. The IMF has been extending credit to the bottomless it of Ukrainian corruption to encourage its anti-Russian policy rather than standing up for the principle that inter-government debts must be paid. ..."
"... It is as if the IMF now operates out of a small room in the basement of the Pentagon in Washington. ..."
"... Anticipating just such a double-cross, President Chavez acted already in 2011 to repatriate 160 tons of gold to Caracas from the United States and Europe. ..."
"... It would be good for Americans, but the wrong kind of Americans. For the Americans that would populate the Global Executive Suite, a strong US$ means that the stipends they would pay would be worth more to the lackeys, and command more influence. ..."
"... Dumping the industrial base really ruined things. America is now in a position where it can shout orders, and drop bombs, but doesn't have the capacity to do anything helpful. They have to give up being what Toynbee called a creative minority, and settle for being a dominant minority. ..."
"... Having watched the 2016 election closely from afar, I was left with the impression that many of the swing voters who cast their vote for Trump did so under the assumption that he would act as a catalyst for systemic change. ..."
"... Now we know. He has ripped the already transparent mask of altruism off what is referred to as the U.S.-led liberal international order and revealed its true nature for all to see, and has managed to do it in spite of the liberal international establishment desperately trying to hold it in place in the hope of effecting a seamless post-Trump return to what they refer to as "norms". Interesting times. ..."
"... Exactly. He hasn't exactly lived up to advanced billing so far in all respects, but I suspect there's great deal of skulduggery going on behind the scenes that has prevented that. ..."
"... To paraphrase the infamous Rummy, you don't go to war with the change agent and policies you wished you had, you go to war with the ones you have. That might be the best thing we can say about Trump after the historic dust of his administration finally settles. ..."
"... Yet we find out that Venezuela didn't managed to do what they wanted to do, the Europeans, the Turks, etc bent over yet again. Nothing to see here, actually. ..."
"... So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging by some pygmy leaders (Merkel) does not signal a global change. ..."
"... Currency regime change can take decades, and small percentage differences are enormous because of the flows involved. USD as reserve for 61% of global sovereigns versus 64% 15 years ago is a massive move. ..."
"... I discovered his Super Imperialism while looking for an explanation for the pending 2003 US invasion of Iraq. If you haven't read it yet, move it to the top of your queue if you want to have any idea of how the world really works. ..."
"... If it isn't clear to the rest of the world by now, it never will be. The US is incapable of changing on its own a corrupt status quo dominated by a coalition of its military industrial complex, Wall Street bankers and fossil fuels industries. As long as the world continues to chase the debt created on the keyboards of Wall Street banks and 'deficits don't matter' Washington neocons – as long as the world's 1% think they are getting 'richer' by adding more "debts that can't be repaid (and) won't be" to their portfolios, the global economy can never be put on a sustainable footing. ..."
"... In other words, after 2 World Wars that produced the current world order, it is still in a state of insanity with the same pretensions to superiority by the same people, to get number 3. ..."
"... Few among Washington's foreign policy elite seem to fully grasp the complex system that made U.S. global power what it now is, particularly its all-important geopolitical foundations. As Trump travels the globe, tweeting and trashing away, he's inadvertently showing us the essential structure of that power, the same way a devastating wildfire leaves the steel beams of a ruined building standing starkly above the smoking rubble." ..."
"... He's draining the swamp in an unpredicted way, a swamp that's founded on the money interest. I don't care what NYT and WaPo have to say, they are not reporting events but promoting agendas. ..."
"... The financial elites are only concerned about shaping society as they see fit, side of self serving is just a historical foot note, Trumps past indicates a strong preference for even more of the same through authoritarian memes or have some missed the OT WH reference to dawg both choosing and then compelling him to run. ..."
"... Highly doubt Trump is a "witting agent", most likely is that he is just as ignorant as he almost daily shows on twitter. On US role in global affairs he says the same today as he did as a media celebrity in the late 80s. Simplistic household "logics" on macroeconomics. If US have trade deficit it loses. Countries with surplus are the winners. ..."
"... Anyhow frightening, the US hegemony have its severe dark sides. But there is absolutely nothing better on the horizon, a crash will throw the world in turmoil for decades or even a century. A lot of bad forces will see their chance to elevate their influence. There will be fierce competition to fill the gap. ..."
"... On could the insane economic model of EU/Germany being on top of global affairs, a horribly frightening thought. Misery and austerity for all globally, a permanent recession. Probably not much better with the Chinese on top. I'll take the USD hegemony any day compared to that prospect. ..."
"... Former US ambassador, Chas Freeman, gets to the nub of the problem. "The US preference for governance by elected and appointed officials, uncontaminated by experience in statecraft and diplomacy, or knowledge of geography, history and foreign affairs" https://www.youtube.com/watch?annotation_id=annotation_882041135&feature=iv&src_vid=Ge1ozuXN7iI&v=gkf2MQdqz-o ..."
"... Michael Hudson, in Super Imperialism, went into how the US could just create the money to run a large trade deficit with the rest of the world. It would get all these imports effectively for nothing, the US's exorbitant privilege. I tied this in with this graph from MMT. ..."
"... The Government was running a surplus as the economy blew up in the early 1990s. It's the positive and negative, zero sum, nature of the monetary system. A big trade deficit needs a big Government deficit to cover it. A big trade deficit, with a balanced budget, drives the private sector into debt and blows up the economy. ..."
Feb 01, 2019 | www.nakedcapitalism.com

The end of America's unchallenged global economic dominance has arrived sooner than expected, thanks to the very same Neocons who gave the world the Iraq, Syria and the dirty wars in Latin America. Just as the Vietnam War drove the United States off gold by 1971, its sponsorship and funding of violent regime change wars against Venezuela and Syria – and threatening other countries with sanctions if they do not join this crusade – is now driving European and other nations to create their alternative financial institutions.

This break has been building for quite some time, and was bound to occur. But who would have thought that Donald Trump would become the catalytic agent? No left-wing party, no socialist, anarchist or foreign nationalist leader anywhere in the world could have achieved what he is doing to break up the American Empire. The Deep State is reacting with shock at how this right-wing real estate grifter has been able to drive other countries to defend themselves by dismantling the U.S.-centered world order. To rub it in, he is using Bush and Reagan-era Neocon arsonists, John Bolton and now Elliott Abrams, to fan the flames in Venezuela. It is almost like a black political comedy. The world of international diplomacy is being turned inside-out. A world where there is no longer even a pretense that we might adhere to international norms, let alone laws or treaties.

The Neocons who Trump has appointed are accomplishing what seemed unthinkable not long ago: Driving China and Russia together – the great nightmare of Henry Kissinger and Zbigniew Brzezinski. They also are driving Germany and other European countries into the Eurasian orbit, the "Heartland" nightmare of Halford Mackinder a century ago.

The root cause is clear: After the crescendo of pretenses and deceptions over Iraq, Libya and Syria, along with our absolution of the lawless regime of Saudi Arabia, foreign political leaders are coming to recognize what world-wide public opinion polls reported even before the Iraq/Iran-Contra boys turned their attention to the world's largest oil reserves in Venezuela: The United States is now the greatest threat to peace on the planet.

Calling the U.S. coup being sponsored in Venezuela a defense of democracy reveals the Doublethink underlying U.S. foreign policy. It defines "democracy" to mean supporting U.S. foreign policy, pursuing neoliberal privatization of public infrastructure, dismantling government regulation and following the direction of U.S.-dominated global institutions, from the IMF and World Bank to NATO. For decades, the resulting foreign wars, domestic austerity programs and military interventions have brought more violence, not democracy.

In the Devil's Dictionary that U.S. diplomats are taught to use as their "Elements of Style" guidelines for Doublethink, a "democratic" country is one that follows U.S. leadership and opens its economy to U.S. investment, and IMF- and World Bank-sponsored privatization. The Ukraine is deemed democratic, along with Saudi Arabia, Israel and other countries that act as U.S. financial and military protectorates and are willing to treat America's enemies are theirs too.

A point had to come where this policy collided with the self-interest of other nations, finally breaking through the public relations rhetoric of empire. Other countries are proceeding to de-dollarize and replace what U.S. diplomacy calls "internationalism" (meaning U.S. nationalism imposed on the rest of the world) with their own national self-interest.

This trajectory could be seen 50 years ago (I described it in Super Imperialism [1972] and Global Fracture [1978].) It had to happen. But nobody thought that the end would come in quite the way that is happening. History has turned into comedy, or at least irony as its dialectical path unfolds.

For the past half-century, U.S. strategists, the State Department and National Endowment for Democracy (NED) worried that opposition to U.S. financial imperialism would come from left-wing parties. It therefore spent enormous resources manipulating parties that called themselves socialist (Tony Blair's British Labour Party, France's Socialist Party, Germany's Social Democrats, etc.) to adopt neoliberal policies that were the diametric opposite to what social democracy meant a century ago. But U.S. political planners and Great Wurlitzer organists neglected the right wing, imagining that it would instinctively support U.S. thuggishness.

The reality is that right-wing parties want to get elected, and a populist nationalism is today's road to election victory in Europe and other countries just as it was for Donald Trump in 2016.

Trump's agenda may really be to break up the American Empire, using the old Uncle Sucker isolationist rhetoric of half a century ago. He certainly is going for the Empire's most vital organs. But it he a witting anti-American agent? He might as well be – but it would be a false mental leap to use "quo bono" to assume that he is a witting agent.

After all, if no U.S. contractor, supplier, labor union or bank will deal with him, would Vladimir Putin, China or Iran be any more naïve? Perhaps the problem had to erupt as a result of the inner dynamics of U.S.-sponsored globalism becoming impossible to impose when the result is financial austerity, waves of population flight from U.S.-sponsored wars, and most of all, U.S. refusal to adhere to the rules and international laws that it itself sponsored seventy years ago in the wake of World War II.

Dismantling International Law and Its Courts

Any international system of control requires the rule of law. It may be a morally lawless exercise of ruthless power imposing predatory exploitation, but it is still The Law. And it needs courts to apply it (backed by police power to enforce it and punish violators).

Here's the first legal contradiction in U.S. global diplomacy: The United States always has resisted letting any other country have any voice in U.S. domestic policies, law-making or diplomacy. That is what makes America "the exceptional nation." But for seventy years its diplomats have pretended that its superior judgment promoted a peaceful world (as the Roman Empire claimed to be), which let other countries share in prosperity and rising living standards.

At the United Nations, U.S. diplomats insisted on veto power. At the World Bank and IMF they also made sure that their equity share was large enough to give them veto power over any loan or other policy. Without such power, the United States would not join any international organization. Yet at the same time, it depicted its nationalism as protecting globalization and internationalism. It was all a euphemism for what really was unilateral U.S. decision-making.

Inevitably, U.S. nationalism had to break up the mirage of One World internationalism, and with it any thought of an international court. Without veto power over the judges, the U.S. never accepted the authority of any court, in particular the United Nations' International Court in The Hague. Recently that court undertook an investigation into U.S. war crimes in Afghanistan, from its torture policies to bombing of civilian targets such as hospitals, weddings and infrastructure. "That investigation ultimately found 'a reasonable basis to believe that war crimes and crimes against humanity." [1]

Donald Trump's National Security Adviser John Bolton erupted in fury, warning in September that: "The United States will use any means necessary to protect our citizens and those of our allies from unjust prosecution by this illegitimate court," adding that the UN International Court must not be so bold as to investigate "Israel or other U.S. allies."

That prompted a senior judge, Christoph Flügge from Germany, to resign in protest. Indeed, Bolton told the court to keep out of any affairs involving the United States, promising to ban the Court's "judges and prosecutors from entering the United States." As Bolton spelled out the U.S. threat: "We will sanction their funds in the U.S. financial system, and we will prosecute them in the U.S. criminal system. We will not cooperate with the ICC. We will provide no assistance to the ICC. We will not join the ICC. We will let the ICC die on its own. After all, for all intents and purposes, the ICC is already dead to us."

What this meant, the German judge spelled out was that: "If these judges ever interfere in the domestic concerns of the U.S. or investigate an American citizen, [Bolton] said the American government would do all it could to ensure that these judges would no longer be allowed to travel to the United States – and that they would perhaps even be criminally prosecuted."

The original inspiration of the Court – to use the Nuremburg laws that were applied against German Nazis to bring similar prosecution against any country or officials found guilty of committing war crimes – had already fallen into disuse with the failure to indict the authors of the Chilean coup, Iran-Contra or the U.S. invasion of Iraq for war crimes.

Dismantling Dollar Hegemony from the IMF to SWIFT

Of all areas of global power politics today, international finance and foreign investment have become the key flashpoint. International monetary reserves were supposed to be the most sacrosanct, and international debt enforcement closely associated.

Central banks have long held their gold and other monetary reserves in the United States and London. Back in 1945 this seemed reasonable, because the New York Federal Reserve Bank (in whose basement foreign central bank gold was kept) was militarily safe, and because the London Gold Pool was the vehicle by which the U.S. Treasury kept the dollar "as good as gold" at $35 an ounce. Foreign reserves over and above gold were kept in the form of U.S. Treasury securities, to be bought and sold on the New York and London foreign-exchange markets to stabilize exchange rates. Most foreign loans to governments were denominated in U.S. dollars, so Wall Street banks were normally name as paying agents.

That was the case with Iran under the Shah, whom the United States had installed after sponsoring the 1953 coup against Mohammed Mosaddegh when he sought to nationalize Anglo-Iranian Oil (now British Petroleum) or at least tax it. After the Shah was overthrown, the Khomeini regime asked its paying agent, the Chase Manhattan bank, to use its deposits to pay its bondholders. At the direction of the U.S. Government Chase refused to do so. U.S. courts then declared Iran to be in default, and froze all its assets in the United States and anywhere else they were able.

This showed that international finance was an arm of the U.S. State Department and Pentagon. But that was a generation ago, and only recently did foreign countries begin to feel queasy about leaving their gold holdings in the United States, where they might be grabbed at will to punish any country that might act in ways that U.S. diplomacy found offensive. So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. U.S. officials pretended to feel shocked at the insult that it might do to a civilized Christian country what it had done to Iran, and Germany agreed to slow down the transfer.

But then came Venezuela. Desperate to spend its gold reserves to provide imports for its economy devastated by U.S. sanctions – a crisis that U.S. diplomats blame on "socialism," not on U.S. political attempts to "make the economy scream" (as Nixon officials said of Chile under Salvador Allende) – Venezuela directed the Bank of England to transfer some of its $11 billion in gold held in its vaults and those of other central banks in December 2018. This was just like a bank depositor would expect a bank to pay a check that the depositor had written.

England refused to honor the official request, following the direction of Bolton and U.S. Secretary of State Michael Pompeo. As Bloomberg reported: "The U.S. officials are trying to steer Venezuela's overseas assets to [Chicago Boy Juan] Guaido to help bolster his chances of effectively taking control of the government. The $1.2 billion of gold is a big chunk of the $8 billion in foreign reserves held by the Venezuelan central bank."

Turkey seemed to be a likely destination, prompting Bolton and Pompeo to warn it to desist from helping Venezuela, threatening sanctions against it or any other country helping Venezuela cope with its economic crisis. As for the Bank of England and other European countries, the Bloomberg report concluded: "Central bank officials in Caracas have been ordered to no longer try contacting the Bank of England. These central bankers have been told that Bank of England staffers will not respond to them."

This led to rumors that Venezuela was selling 20 tons of gold via a Russian Boeing 777 – some $840 million. The money probably would have ended up paying Russian and Chinese bondholders as well as buying food to relieve the local famine. [4] Russia denied this report, but Reuters has confirmed is that Venezuela has sold 3 tons of a planned 29 tones of gold to the United Arab Emirates, with another 15 tones are to be shipped on Friday, February 1. [5] The U.S. Senate's Batista-Cuban hardliner Rubio accused this of being "theft," as if feeding the people to alleviate the U.S.-sponsored crisis was a crime against U.S. diplomatic leverage.

If there is any country that U.S. diplomats hate more than a recalcitrant Latin American country, it is Iran. President Trump's breaking of the 2015 nuclear agreements negotiated by European and Obama Administration diplomats has escalated to the point of threatening Germany and other European countries with punitive sanctions if they do not also break the agreements they have signed. Coming on top of U.S. opposition to German and other European importing of Russian gas, the U.S. threat finally prompted Europe to find a way to defend itself.

Imperial threats are no longer military. No country (including Russia or China) can mount a military invasion of another major country. Since the Vietnam Era, the only kind of war a democratically elected country can wage is atomic, or at least heavy bombing such as the United States has inflicted on Iraq, Libya and Syria. But now, cyber warfare has become a way of pulling out the connections of any economy. And the major cyber connections are financial money-transfer ones, headed by SWIFT, the acronym for the Society for Worldwide Interbank Financial Telecommunication, which is centered in Belgium.

Russia and China have already moved to create a shadow bank-transfer system in case the United States unplugs them from SWIFT. But now, European countries have come to realize that threats by Bolton and Pompeo may lead to heavy fines and asset grabs if they seek to continue trading with Iran as called for in the treaties they have negotiated.

On January 31 the dam broke with the announcement that Europe had created its own bypass payments system for use with Iran and other countries targeted by U.S. diplomats. Germany, France and even the U.S. poodle Britain joined to create INSTEX -- Instrument in Support of Trade Exchanges. The promise is that this will be used only for "humanitarian" aid to save Iran from a U.S.-sponsored Venezuela-type devastation. But in view of increasingly passionate U.S. opposition to the Nord Stream pipeline to carry Russian gas, this alternative bank clearing system will be ready and able to become operative if the United States tries to direct a sanctions attack on Europe.

I have just returned from Germany and seen a remarkable split between that nation's industrialists and their political leadership. For years, major companies have seen Russia as a natural market, a complementary economy needing to modernize its manufacturing and able to supply Europe with natural gas and other raw materials. America's New Cold War stance is trying to block this commercial complementarity. Warning Europe against "dependence" on low-price Russian gas, it has offered to sell high-priced LNG from the United States (via port facilities that do not yet exist in anywhere near the volume required). President Trump also is insisting that NATO members spend a full 2 percent of their GDP on arms – preferably bought from the United States, not from German or French merchants of death.

The U.S. overplaying its position is leading to the Mackinder-Kissinger-Brzezinski Eurasian nightmare that I mentioned above. In addition to driving Russia and China together, U.S. diplomacy is adding Europe to the heartland, independent of U.S. ability to bully into the state of dependency toward which American diplomacy has aimed to achieve since 1945.

The World Bank, for instance, traditionally has been headed by a U.S. Secretary of Defense. Its steady policy since its inception is to provide loans for countries to devote their land to export crops instead of giving priority to feeding themselves. That is why its loans are only in foreign currency, not in the domestic currency needed to provide price supports and agricultural extension services such as have made U.S. agriculture so productive. By following U.S. advice, countries have left themselves open to food blackmail – sanctions against providing them with grain and other food, in case they step out of line with U.S. diplomatic demands.

It is worthwhile to note that our global imposition of the mythical "efficiencies" of forcing Latin American countries to become plantations for export crops like coffee and bananas rather than growing their own wheat and corn has failed catastrophically to deliver better lives, especially for those living in Central America. The "spread" between the export crops and cheaper food imports from the U.S. that was supposed to materialize for countries following our playbook failed miserably – witness the caravans and refugees across Mexico. Of course, our backing of the most brutal military dictators and crime lords has not helped either.

Likewise, the IMF has been forced to admit that its basic guidelines were fictitious from the beginning. A central core has been to enforce payment of official inter-government debt by withholding IMF credit from countries under default. This rule was instituted at a time when most official inter-government debt was owed to the United States. But a few years ago Ukraine defaulted on $3 billion owed to Russia. The IMF said, in effect, that Ukraine and other countries did not have to pay Russia or any other country deemed to be acting too independently of the United States. The IMF has been extending credit to the bottomless it of Ukrainian corruption to encourage its anti-Russian policy rather than standing up for the principle that inter-government debts must be paid.

It is as if the IMF now operates out of a small room in the basement of the Pentagon in Washington. Europe has taken notice that its own international monetary trade and financial linkages are in danger of attracting U.S. anger. This became clear last autumn at the funeral for George H. W. Bush, when the EU's diplomat found himself downgraded to the end of the list to be called to his seat. He was told that the U.S. no longer considers the EU an entity in good standing. In December, "Mike Pompeo gave a speech on Europe in Brussels -- his first, and eagerly awaited -- in which he extolled the virtues of nationalism, criticised multilateralism and the EU, and said that "international bodies" which constrain national sovereignty "must be reformed or eliminated." [5]

Most of the above events have made the news in just one day, January 31, 2019. The conjunction of U.S. moves on so many fronts, against Venezuela, Iran and Europe (not to mention China and the trade threats and moves against Huawei also erupting today) looks like this will be a year of global fracture.

It is not all President Trump's doing, of course. We see the Democratic Party showing the same colors. Instead of applauding democracy when foreign countries do not elect a leader approved by U.S. diplomats (whether it is Allende or Maduro), they've let the mask fall and shown themselves to be the leading New Cold War imperialists. It's now out in the open. They would make Venezuela the new Pinochet-era Chile. Trump is not alone in supporting Saudi Arabia and its Wahabi terrorists acting, as Lyndon Johnson put it, "Bastards, but they're our bastards."

Where is the left in all this? That is the question with which I opened this article. How remarkable it is that it is only right-wing parties, Alternative for Deutschland (AFD), or Marine le Pen's French nationalists and those of other countries that are opposing NATO militarization and seeking to revive trade and economic links with the rest of Eurasia.

The end of our monetary imperialism, about which I first wrote in 1972 in Super Imperialism, stuns even an informed observer like me. It took a colossal level of arrogance, short-sightedness and lawlessness to hasten its decline -- something that only crazed Neocons like John Bolton, Elliot Abrams and Mike Pompeo could deliver for Donald Trump.

Footnotes

[1] "It Can't be Fixed: Senior ICC Judge Quits in Protest of US, Turkish Meddling," January 31, 2019.

[2] Patricia Laya, Ethan Bronner and Tim Ross, "Maduro Stymied in Bid to Pull $1.2 Billion of Gold From U.K.," Bloomberg, January 25, 2019. Anticipating just such a double-cross, President Chavez acted already in 2011 to repatriate 160 tons of gold to Caracas from the United States and Europe.

[3] ibid

[4] Corina Pons, Mayela Armas, "Exclusive: Venezuela plans to fly central bank gold reserves to UAE – source," Reuters, January 31, 2019.

[5] Constanze Stelzenmüller, "America's policy on Europe takes a nationalist turn," Financial Times, January 31, 2019.

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< Jointly posted with Hudson's website


doug , February 1, 2019 at 8:03 am

We see the Democratic Party showing the same colors. Yes we do. no escape? that I see

drumlin woodchuckles , February 1, 2019 at 9:43 am

Well, if the StormTrumpers can tear down all the levers and institutions of international US dollar strength, perhaps they can also tear down all the institutions of Corporate Globalonial Forced Free Trade. That itself may BE our escape . . . if there are enough millions of Americans who have turned their regionalocal zones of habitation into economically and politically armor-plated Transition Towns, Power-Down Zones, etc. People and places like that may be able to crawl up out of the rubble and grow and defend little zones of semi-subsistence survival-economics.

If enough millions of Americans have created enough such zones, they might be able to link up with eachother to offer hope of a movement to make America in general a semi-autarchik, semi-secluded and isolated National Survival Economy . . . . much smaller than today, perhaps likelier to survive the various coming ecosystemic crash-cramdowns, and no longer interested in leading or dominating a world that we would no longer have the power to lead or dominate.

We could put an end to American Exceptionalism. We could lay this burden down. We could become American Okayness Ordinarians. Make America an okay place for ordinary Americans to live in.

drumlin woodchuckles , February 1, 2019 at 2:27 pm

I read somewhere that the Czarist Imperial Army had a saying . . . "Quantity has a Quality all its own".

... ... ...

Cal2 , February 1, 2019 at 2:54 pm

Drumlin,

If Populists, I assume that's what you mean by "Storm Troopers", offer me M4A and revitalized local economies, and deliver them, they have my support and more power to them.

That's why Trump was elected, his promises, not yet delivered, were closer to that then the Democrats' promises. If the Democrats promised those things and delivered, then they would have my support.

If the Democrats run a candidate, who has a no track record of delivering such things, we stay home on election day. Trump can have it, because it won't be any worse.

I don't give a damn about "social issues." Economics, health care and avoiding WWIII are what motivates my votes, and I think more and more people are going to vote the same way.

drumlin woodchuckles , February 1, 2019 at 8:56 pm

Good point about Populist versus StormTrumper. ( And by the way, I said StormTRUMper, not StormTROOper). I wasn't thinking of the Populists. I was thinking of the neo-etc. vandals and arsonists who want us to invade Venezuela, leave the JCPOA with Iran, etc. Those are the people who will finally drive the other-country governments into creating their own parallel payment systems, etc.

And the midpoint of those efforts will leave wreckage and rubble for us to crawl up out of. But we will have a chance to crawl up out of it.

My reason for voting for Trump was mainly to stop the Evil Clinton from getting elected and to reduce the chance of near immediate thermonuclear war with Russia and to save the Assad regime in Syria from Clintonian overthrow and replacement with an Islamic Emirate of Jihadistan.

Much of what will be attempted " in Trump's name" will be de-regulationism of all kinds delivered by the sorts of basic Republicans selected for the various agencies and departments by Pence and Moore and the Koch Brothers. I doubt the Populist Voters wanted the Koch-Pence agenda. But that was a risky tradeoff in return for keeping Clinton out of office.

The only Dems who would seek what you want are Sanders or maybe Gabbard or just barely Warren. The others would all be Clinton or Obama all over again.

Quanka , February 1, 2019 at 8:29 am

I couldn't really find any details about the new INSTEX system – have you got any good links to brush up on? I know they made an announcement yesterday but how long until the new payment system is operational?

The Rev Kev , February 1, 2019 at 8:43 am

Here is a bit more info on it but Trump is already threatening Europe if they use it. That should cause them to respect him more:

https://www.dw.com/en/instex-europe-sets-up-transactions-channel-with-iran/a-47303580

LP , February 1, 2019 at 9:14 am

The NYT and other have coverage.

https://www.google.com/amp/s/www.nytimes.com/2019/01/31/world/europe/europe-trade-iran-nuclear-deal.amp.html

Louis Fyne , February 1, 2019 at 8:37 am

arguably wouldn't it be better if for USD hegemony to be dismantled? A strong USD hurts US exports, subsidizes American consumption (by making commodities cheaper in relative terms), makes international trade (aka a 8,000-mile+ supply chain) easier.

For the sake of the environment, you want less of all three. Though obviously I don't like the idea of expensive gasoline, natural gas or tube socks either.

Mel , February 1, 2019 at 9:18 am

It would be good for Americans, but the wrong kind of Americans. For the Americans that would populate the Global Executive Suite, a strong US$ means that the stipends they would pay would be worth more to the lackeys, and command more influence.

Dumping the industrial base really ruined things. America is now in a position where it can shout orders, and drop bombs, but doesn't have the capacity to do anything helpful. They have to give up being what Toynbee called a creative minority, and settle for being a dominant minority.

integer , February 1, 2019 at 8:43 am

Having watched the 2016 election closely from afar, I was left with the impression that many of the swing voters who cast their vote for Trump did so under the assumption that he would act as a catalyst for systemic change.

What this change would consist of, and how it would manifest, remained an open question. Would he pursue rapprochement with Russia and pull troops out of the Middle East as he claimed to want to do during his 2016 campaign, would he doggedly pursue corruption charges against Clinton and attempt to reform the FBI and CIA, or would he do both, neither, or something else entirely?

Now we know. He has ripped the already transparent mask of altruism off what is referred to as the U.S.-led liberal international order and revealed its true nature for all to see, and has managed to do it in spite of the liberal international establishment desperately trying to hold it in place in the hope of effecting a seamless post-Trump return to what they refer to as "norms". Interesting times.

James , February 1, 2019 at 10:34 am

Exactly. He hasn't exactly lived up to advanced billing so far in all respects, but I suspect there's great deal of skulduggery going on behind the scenes that has prevented that. Whether or not he ever had or has a coherent plan for the havoc he has wrought, he has certainly been the agent for change many of us hoped he would be, in stark contrast to the criminal duopoly parties who continue to oppose him, where the daily no news is always bad news all the same. To paraphrase the infamous Rummy, you don't go to war with the change agent and policies you wished you had, you go to war with the ones you have. That might be the best thing we can say about Trump after the historic dust of his administration finally settles.

drumlin woodchuckles , February 1, 2019 at 2:39 pm

Look on some bright sides. Here is just one bright side to look on. President Trump has delayed and denied the Clinton Plan to topple Assad just long enough that Russia has been able to help Assad preserve legitimate government in most of Syria and defeat the Clinton's-choice jihadis.

That is a positive good. Unless you are pro-jihadi.

integer , February 1, 2019 at 8:09 pm

Clinton wasn't going to "benefit the greater good" either, and a very strong argument, based on her past behavior, can be made that she represented the greater threat. Given that the choice was between her and Trump, I think voters made the right decision.

Stephen Gardner , February 1, 2019 at 9:02 am

Excellent article but I believe the expression is "cui bono": who benefits.

hemeantwell , February 1, 2019 at 9:09 am

Hudson's done us a service in pulling these threads together. I'd missed the threats against the ICC judges. One question: is it possible for INSTEX-like arrangements to function secretly? What is to be gained by announcing them publicly and drawing the expected attacks? Does that help sharpen conflicts, and to what end?

Oregoncharles , February 1, 2019 at 3:23 pm

Maybe they're done in secret already – who knows? The point of doing it publicly is to make a foreign-policy impact, in this case withdrawing power from the US. It's a Declaration of Independence.

whine country , February 1, 2019 at 9:15 am

It certainly seems as though the 90 percent (plus) are an afterthought in this journey to who knows where? Like George C.Scott said while playing Patton, "The whole world at economic war and I'm not part of it. God will not let this happen." Looks like we're on the Brexit track (without the vote). The elite argue with themselves and we just sit and watch. It appears to me that the elite just do not have the ability to contemplate things beyond their own narrow self interest. We are all deplorables now.

a different chris , February 1, 2019 at 9:30 am

Unfortunately this

The end of America's unchallenged global economic dominance has arrived sooner than expected

Is not supported by this (or really the rest of the article). The past tense here, for example, is unwarranted:

At the United Nations, U.S. diplomats insisted on veto power. At the World Bank and IMF they also made sure that their equity share was large enough to give them veto power over any loan or other policy.

And this

So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. Germany agreed to slow down the transfer.

Doesn't show Germany as breaking free at all, and worse it is followed by the pregnant

But then came Venezuela.

Yet we find out that Venezuela didn't managed to do what they wanted to do, the Europeans, the Turks, etc bent over yet again. Nothing to see here, actually.

So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging by some pygmy leaders (Merkel) does not signal a global change.

orange cats , February 1, 2019 at 11:22 am

"So what I'm saying is he didn't make his point. I wish it were true. But a bit of grumbling and (a tiny amount of) foot-dragging by some pygmy leaders (Merkel) does not signal a global change."

I'm surprised more people aren't recognizing this. I read the article waiting in vain for some evidence of "the end of our monetary imperialism" besides some 'grumbling and foot dragging' as you aptly put it. There was some glimmer of a buried lede with INTEX, created to get around U.S. sanctions against Iran ─ hardly a 'dam-breaking'. Washington is on record as being annoyed.

OpenThePodBayDoorsHAL , February 1, 2019 at 1:41 pm

Currency regime change can take decades, and small percentage differences are enormous because of the flows involved. USD as reserve for 61% of global sovereigns versus 64% 15 years ago is a massive move. World bond market flows are 10X the size of world stock market flows even though the price of the Dow and Facebook shares etc get all of the headlines.

And foreign exchange flows are 10-50X the flows of bond markets, they're currently on the order of $5 *trillion* per day. And since forex is almost completely unregulated it's quite difficult to get the data and spot reserve currency trends. Oh, and buy gold. It's the only currency that requires no counterparty and is no one's debt obligation.

orange cats , February 1, 2019 at 3:47 pm

That's not what Hudson claims in his swaggering final sentence:

"The end of our monetary imperialism, about which I first wrote in 1972 in Super Imperialism, stuns even an informed observer like me."

Which is risible as not only did he fail to show anything of the kind, his opening sentence stated a completely different reality: "The end of America's unchallenged global economic dominance has arrived sooner than expected" So if we hold him to his first declaration, his evidence is feeble, as I mentioned. As a scholar, his hyperbole is untrustworthy.

No, gold is pretty enough lying on the bosom of a lady-friend but that's about its only usefulness in the real world.

skippy , February 1, 2019 at 8:09 pm

Always bemusing that gold bugs never talk about gold being in a bubble . yet when it goes south of its purchase price speak in tongues about ev'bal forces.

timbers , February 1, 2019 at 12:26 pm

I don't agree, and do agree. The distinction is this:

If you fix a few of Hudson's errors, and take him as making the point that USD is losing it's hegemony, IMO he is basically correct.

Brian (another one they call) , February 1, 2019 at 9:56 am

thanks Mr. Hudson. One has to wonder what has happened when the government (for decades) has been shown to be morally and otherwise corrupt and self serving. It doesn't seem to bother anyone but the people, and precious few of them. Was it our financial and legal bankruptcy that sent us over the cliff?

Steven , February 1, 2019 at 10:23 am

Great stuff!

Indeed! It is to say the least encouraging to see Dr. Hudson return so forcefully to the theme of 'monetary imperialism'. I discovered his Super Imperialism while looking for an explanation for the pending 2003 US invasion of Iraq. If you haven't read it yet, move it to the top of your queue if you want to have any idea of how the world really works. You can find any number of articles on his web site that return periodically to the theme of monetary imperialism. I remember one in particular that described how the rest of the world was brought on board to help pay for its good old-fashioned military imperialism.

If it isn't clear to the rest of the world by now, it never will be. The US is incapable of changing on its own a corrupt status quo dominated by a coalition of its military industrial complex, Wall Street bankers and fossil fuels industries. As long as the world continues to chase the debt created on the keyboards of Wall Street banks and 'deficits don't matter' Washington neocons – as long as the world's 1% think they are getting 'richer' by adding more "debts that can't be repaid (and) won't be" to their portfolios, the global economy can never be put on a sustainable footing.

Until the US returns to the path of genuine wealth creation, it is past time for the rest of the world to go its own way with its banking and financial institutions.

Oh , February 1, 2019 at 3:52 pm

The use of the stick will only go so far. What's the USG going to do if they refuse?

Summer , February 1, 2019 at 10:46 am

In other words, after 2 World Wars that produced the current world order, it is still in a state of insanity with the same pretensions to superiority by the same people, to get number 3.

Yikes , February 1, 2019 at 12:07 pm

UK withholding Gold may start another Brexit? IE: funds/gold held by BOE for other countries in Africa, Asian, South America, and the "stans" with start to depart, slowly at first, perhaps for Switzerland?

Ian Perkins , February 1, 2019 at 12:21 pm

Where is the left in all this? Pretty much the same place as Michael Hudson, I'd say. Where is the US Democratic Party in all this? Quite a different question, and quite a different answer. So far as I can see, the Democrats for years have bombed, invaded and plundered other countries 'for their own good'. Republicans do it 'for the good of America', by which the ignoramuses mean the USA. If you're on the receiving end, it doesn't make much difference.

Michael A Gualario , February 1, 2019 at 12:49 pm

Agreed! South America intervention and regime change, Syria ( Trump is pulling out), Iraq, Middle East meddling, all predate Trump. Bush, Clinton and Obama have nothing to do with any of this.

Oregoncharles , February 1, 2019 at 2:12 pm

" So last year, Germany finally got up the courage to ask that some of its gold be flown back to Germany. "

What proof is there that the gold is still there? Chances are it's notional. All Germany, Venezuela, or the others have is an IOU – and gold cannot be printed. Incidentally, this whole discussion means that gold is still money and the gold standard still exists.

Oregoncharles , February 1, 2019 at 3:41 pm

Wukchumni beat me to the suspicion that the gold isn't there.

The Rev Kev , February 1, 2019 at 7:40 pm

What makes you think that the gold in Fort Knox is still there? If I remember right, there was a Potemkin visit back in the 70s to assure everyone that the gold was still there but not since then. Wait, I tell a lie. There was another visit about two years ago but look who was involved in that visit-

https://www.whas11.com/article/news/local/after-40-years-fort-knox-opens-vault-to-civilians/466441331

And I should mention that it was in the 90s that between 1.3 and 1.5 million 400 oz tungsten blanks were manufactured in the US under Clinton. Since then gold-coated tungsten bars have turned up in places like Germany, China, Ethiopia, the UK, etc so who is to say if those gold bars in Fort Knox are gold all the way through either. More on this at -- http://viewzone2.com/fakegoldx.html

Summer , February 1, 2019 at 5:44 pm

A non-accountable standard. It's more obvious BS than what is going on now.

jochen , February 2, 2019 at 6:46 am

It wasn't last year that Germany brought back its Gold. It has been ongoing since 2013, after some political and popular pressure build up. They finished the transaction in 2017. According to an article in Handelblatt (but it was widely reported back then) they brought back pretty much everything they had in Paris (347t), left what they had in London (perhaps they should have done it in reverse) and took home another 300t from the NY Fed. That still leaves 1236t in NY. But half of their Gold (1710t) is now in Frankfurt. That is 50% of the Bundesbanks holdings.

They made a point in saying that every bar was checked and weighed and presented some bars in Frankfurt. I guess they didn't melt them for assaying, but I'd expect them to be smart enough to check the density.

Their reason to keep Gold in NY and London is to quickly buy USD in case of a crisis. That's pretty much a cold war plan, but that's what they do right now.

Regarding Michal Hudsons piece, I enjoyed reading through this one. He tends to write ridiculously long articles and in the last few years with less time and motivation at hand I've skipped most of his texts on NC as they just drag on.

When I'm truly fascinated I like well written, long articles but somehow he lost me at some point. But I noticed that some long original articles in US magazines, probably research for a long time by the journalist, can just drag on for ever as well I just tune out.

Susan the Other , February 1, 2019 at 2:19 pm

This is making sense. I would guess that tearing up the old system is totally deliberate. It wasn't working so well for us because we had to practice too much social austerity, which we have tried to impose on the EU as well, just to stabilize "king dollar" – otherwise spread so thin it was a pending catastrophe.

Now we can get out from under being the reserve currency – the currency that maintains its value by financial manipulation and military bullying domestic deprivation. To replace this old power trip we are now going to mainline oil. The dollar will become a true petro dollar because we are going to commandeer every oil resource not already nailed down.

When we partnered with SA in Aramco and the then petro dollar the dollar was only backed by our military. If we start monopolizing oil, the actual commodity, the dollar will be an apex competitor currency without all the foreign military obligations which will allow greater competitive advantages.

No? I'm looking at PdVSA, PEMEX and the new "Energy Hub for the Eastern Mediterranean" and other places not yet made public. It looks like a power play to me, not a hapless goofball president at all.

skippy , February 2, 2019 at 2:44 am

So sand people with sociological attachment to the OT is a compelling argument based on antiquarian preferences with authoritarian patriarchal tendencies for their non renewable resource . after I might add it was deemed a strategic concern after WWII .

Considering the broader geopolitical realities I would drain all the gold reserves to zero if it was on offer . here natives have some shiny beads for allowing us to resource extract we call this a good trade you maximize your utility as I do mine .

Hay its like not having to run C-corp compounds with western 60s – 70s esthetics and letting the locals play serf, blow back pay back, and now the installed local chiefs can own the risk and refocus the attention away from the real antagonists.

ChrisAtRU , February 1, 2019 at 6:02 pm

Indeed. Thanks so much for this. Maybe the RICS will get serious now – can no longer include Brazil with Bolsonaro. There needs to be an alternate system or systems in place, and to see US Imperialism so so blatantly and bluntly by Trump admin – "US gives Juan Guaido control over some Venezuelan assets" – should sound sirens on every continent and especially in the developing world. I too hope there will be fracture to the point of breakage. Countries of the world outside the US/EU/UK/Canada/Australia confraternity must now unite to provide a permanent framework outside the control of imperial interests. The be clear, this must not default to alternative forms of imperialism germinating by the likes of China.

mikef , February 1, 2019 at 6:07 pm

" such criticism can't begin to take in the full scope of the damage the Trump White House is inflicting on the system of global power Washington built and carefully maintained over those 70 years. Indeed, American leaders have been on top of the world for so long that they no longer remember how they got there.

Few among Washington's foreign policy elite seem to fully grasp the complex system that made U.S. global power what it now is, particularly its all-important geopolitical foundations. As Trump travels the globe, tweeting and trashing away, he's inadvertently showing us the essential structure of that power, the same way a devastating wildfire leaves the steel beams of a ruined building standing starkly above the smoking rubble."

http://www.tomdispatch.com/blog/176373/tomgram%3A_alfred_mccoy%2C_tweeting_while_rome_burns

Rajesh K , February 1, 2019 at 7:23 pm

I read something like this and I am like, some of these statements need to be qualified. Like: "Driving China and Russia together". Like where's the proof? Is Xi playing telephone games more often now with Putin? I look at those two and all I see are two egocentric people who might sometimes say the right things but in general do not like the share the spotlight. Let's say they get together to face America and for some reason the later gets "defeated", it's not as if they'll kumbaya together into the night.

This website often points out the difficulties in implementing new banking IT initiatives. Ok, so Europe has a new "payment system". Has it been tested thoroughly? I would expect a couple of weeks or even months of chaos if it's not been tested, and if it's thorough that probably just means that it's in use right i.e. all the kinks have been worked out. In that case the transition is already happening anyway. But then the next crisis arrives and then everyone would need their dollar swap lines again which probably needs to cleared through SWIFT or something.

Anyway, does this all mean that one day we'll wake up and a slice of bacon is 50 bucks as opposed to the usual 1 dollar?

Keith Newman , February 2, 2019 at 1:12 am

Driving Russia and China together is correct. I recall them signing a variety of economic and military agreement a few years ago. It was covered in the media. You should at least google an issue before making silly comments. You might start with the report of Russia and China signing 30 cooperation agreements three years ago. See https://www.rbth.com/international/2016/06/27/russia-china-sign-30-cooperation-agreements_606505 . There are lots and lots of others.

RBHoughton , February 1, 2019 at 9:16 pm

He's draining the swamp in an unpredicted way, a swamp that's founded on the money interest. I don't care what NYT and WaPo have to say, they are not reporting events but promoting agendas.

skippy , February 2, 2019 at 1:11 am

The financial elites are only concerned about shaping society as they see fit, side of self serving is just a historical foot note, Trumps past indicates a strong preference for even more of the same through authoritarian memes or have some missed the OT WH reference to dawg both choosing and then compelling him to run.

Whilst the far right factions fight over the rudder the only new game in town is AOC, Sanders, Warren, et al which Trumps supporters hate with Ideological purity.

/lasse , February 2, 2019 at 7:50 am

Highly doubt Trump is a "witting agent", most likely is that he is just as ignorant as he almost daily shows on twitter. On US role in global affairs he says the same today as he did as a media celebrity in the late 80s. Simplistic household "logics" on macroeconomics. If US have trade deficit it loses. Countries with surplus are the winners.

On a household level it fits, but there no "loser" household that in infinity can print money that the "winners" can accumulate in exchange for their resources and fruits of labor.

One wonder what are Trumps idea of US being a winner in trade (surplus)? I.e. sending away their resources and fruits of labor overseas in exchange for what? A pile of USD? That US in the first place created out of thin air. Or Chinese Yuan, Euros, Turkish liras? Also fiat-money. Or does he think US trade surplus should be paid in gold?

When the US political and economic hegemony will unravel it will come "unexpected". Trump for sure are undermining it with his megalomaniac ignorance. But not sure it's imminent.

Anyhow frightening, the US hegemony have its severe dark sides. But there is absolutely nothing better on the horizon, a crash will throw the world in turmoil for decades or even a century. A lot of bad forces will see their chance to elevate their influence. There will be fierce competition to fill the gap.

On could the insane economic model of EU/Germany being on top of global affairs, a horribly frightening thought. Misery and austerity for all globally, a permanent recession. Probably not much better with the Chinese on top. I'll take the USD hegemony any day compared to that prospect.

Sound of the Suburbs , February 2, 2019 at 10:26 am

Former US ambassador, Chas Freeman, gets to the nub of the problem. "The US preference for governance by elected and appointed officials, uncontaminated by experience in statecraft and diplomacy, or knowledge of geography, history and foreign affairs" https://www.youtube.com/watch?annotation_id=annotation_882041135&feature=iv&src_vid=Ge1ozuXN7iI&v=gkf2MQdqz-o

Sound of the Suburbs , February 2, 2019 at 10:29 am

When the delusion takes hold, it is the beginning of the end.

The British Empire will last forever
The thousand year Reich
American exceptionalism

As soon as the bankers thought they thought they were "Master of the Universe" you knew 2008 was coming. The delusion had taken hold.

Sound of the Suburbs , February 2, 2019 at 10:45 am

Michael Hudson, in Super Imperialism, went into how the US could just create the money to run a large trade deficit with the rest of the world. It would get all these imports effectively for nothing, the US's exorbitant privilege. I tied this in with this graph from MMT.

This is the US (46.30 mins.) https://www.youtube.com/watch?v=ba8XdDqZ-Jg

The trade deficit required a large Government deficit to cover it and the US government could just create the money to cover it.

Then ideological neoliberals came in wanting balanced budgets and not realising the Government deficit covered the trade deficit.

The US has been destabilising its own economy by reducing the Government deficit. Bill Clinton didn't realize a Government surplus is an indicator a financial crisis is about to hit. The last US Government surplus occurred in 1927 – 1930, they go hand-in-hand with financial crises.

Richard Koo shows the graph central bankers use and it's the flow of funds within the economy, which sums to zero (32-34 mins.).

https://www.youtube.com/watch?v=8YTyJzmiHGk

The Government was running a surplus as the economy blew up in the early 1990s. It's the positive and negative, zero sum, nature of the monetary system. A big trade deficit needs a big Government deficit to cover it. A big trade deficit, with a balanced budget, drives the private sector into debt and blows up the economy.

skippy , February 2, 2019 at 5:28 pm

It should be remembered Bill Clinton's early meeting with Rubin, where in he was informed that wages and productivity had diverged – Rubin did not blink an eye.

[Jul 28, 2019] Goodbye Dollar, It Was Nice Knowing You! by Philip Giraldi

This might be not the end, but it is definitely the beginning of the decline of the dollar
Jul 04, 2019 | www.strategic-culture.org

Over the past two years, the White House has initiated trade disputes, insulted allies and enemies alike, and withdrawn from or refused to ratify multinational treaties and agreements. It has also expanded the reach of its unilaterally imposed rules, forcing other nations to abide by its demands or face economic sanctions. While the stated Trump Administration intention has been to enter into new arrangements more favorable to the United States, the end result has been quite different, creating a broad consensus within the international community that Washington is unstable, not a reliable partner and cannot be trusted. This sentiment has, in turn, resulted in conversations among foreign governments regarding how to circumvent the American banking system, which is the primary offensive weapon apart from dropping bombs that Washington has to force compliance with its dictates.

Consequently, there has been considerable blowback from the Make America Great Again campaign, particularly as the flip side of the coin appears to be that the "greatness" will be obtained by making everyone else less great. The only country in the world that currently regards the United States favorably is Israel, which certainly has good reason to do so given the largesse that has come from the Trump Administration. Everyone else is keen to get out from under the American heel.

Well the worm has finally turned, maybe. Even the feckless Angela Merkel's Germany now understands that national interests must prevail when the United States is demanding that it do the unspeakable. At the recently concluded G20 meeting in Tokyo Britain, France and Germany announced that the special trade mechanism that they have been working on this year is now up and running. It is called the Instrument in Support of Trade Exchanges (Instex) and it will permit companies in Europe to do business with countries like Iran, avoiding American sanctions by trading outside the SWIFT system, which is dollar denominated and de facto controlled by the US Treasury.

The significance of the European move cannot be understated. It is the first major step in moving away from the dominance of the dollar as the world's trading and reserve currency. As is often the case, the damage to US perceived interests is self-inflicted. There has been talk for years regarding setting up trade mechanisms that would not be dollar based, but they did not gain any momentum until the Trump Administration abruptly withdrew from the Joint Comprehensive Plan of Action (JCPOA) with Iran over a year ago.

There were other signatories to the JCPOA, all of whom were angered by the White House move, because they believed correctly that it was a good agreement, preventing Iranian development of a nuclear weapon while also easing tensions in the Middle East. Major European powers Germany, France and Great Britain, as well as Russia and China, were all signatories and the agreement was endorsed by the United Nations Security Council. The US withdrawal in an attempt to destroy the "plan of action" was therefore viewed extremely negatively by all the other signatories and their anger increased when Washington declared that it would reinstate sanctions on Iran and also use secondary sanctions to punish any third party that did not comply with the restrictions on trade.

Instex is an upgrade of a previous "Special Purpose Vehicle" set up by the Europeans a year ago to permit trading with Iran without any actual money transfers, something like a barter system based on balancing payments by value. The announcement regarding Instex came as a result of last week's meeting in Vienna in which the JCPOA signatories minus the US got together with Iranian ministry spokesman Abbas Mousavi, who called the gathering "the last chance for the remaining parties to gather and see how they can meet their commitments towards Iran."

Iran is quietly pleased by the development, even though there are critics of the arrangement and the government is officially declaring that Instex is not enough and it will proceed with plans to increase its uranium production. This produced an immediate response from Secretary of State Mike Pompeo last week speaking in New Delhi "If there is conflict, if there is war, if there is a kinetic activity, it will be because the Iranians made that choice." Nevertheless, Instex could possibly be a model for mechanisms that will allow Iran to sell its oil without hindrance from Washington. But a sharp reaction from the White House is expected. While Instex was in the development phase, US observers noted that the Iranian Special Trade and Finance Instrument, that will do the actual trading, includes government agencies that are already under US sanctions. That likely means that Washington will resort to secondary sanctions on the Europeans, a move that will definitely make the bilateral relationship even more poisonous than it already is. A global trade war is a distinct possibility and, as observed above, the abandonment of the dollar as the international reserve currency is a possible consequence.

Trump has already been "threatening penalties against the financial body created by Germany, the U.K. and France to shield trade with the Islamic Republic from US sanctions." The Treasury's undersecretary for terrorism and financial intelligence, Israeli Sigal Mandelker, warned in a May 7 th letter that "I urge you to carefully consider the potential sanctions exposure of Instex. Engaging in activities that run afoul of US sanctions can result in severe consequences, including a loss of access to the US financial system."

Indeed, the White House appears to be willing to engage in economic warfare with Europe over the issue of punishing Iran. The Treasury Department issued a statement regarding the Mandelker letter, saying "entities that transact in trade with the Iranian regime through any means may expose themselves to considerable sanctions risk, and Treasury intends to aggressively enforce our authorities." Mike Pompeo also was explicit during a visit to London on May 8 th when he stated that " it doesn't matter what vehicle's out there, if the transaction is sanctionable, we will evaluate it, review it, and if appropriate, levy sanctions against those that were involved in that transaction. It's very straightforward."

It is perhaps not unreasonable to wish the Europeans success, as they are supporting free trade while also registering their opposition to the White House's bullying tactics using the world financial system. And if the dollar ceases to be the world's trade and reserve currency, what of it? It would mean that the Treasury might have to cease printing surplus dollars and the US ability to establish global hegemony on a credit card might well be impeded. Those would be good results and one might also hope that some day soon the United States might once again become a normal country that Americans would be proud to call home.

[Jul 24, 2019] Russia Urges Independence From Imposed World Order Of US Financial System

Jul 24, 2019 | www.zerohedge.com

Following Russia signalling last week, its willingness to join the controversial payments channel Instex - designed to circumvent both SWIFT as well as US sanctions banning trade with Iran - new statements from Russian Deputy Foreign Minister Sergei Ryabkov called on the international community to free itself from a purely US-controlled international financial system and US dollar dominance.

"We must protect ourselves from political abuses made with the help of the US dollar and the American banking system," he said while addressing a ministerial meeting of the Non-Aligned Movement held in Venezuela, according to TASS . "We must turn our dependence in this sphere into independence," he added.

"Let us be multipolar in the spheres of finance and currency," he said.

Image via Newsmax

The senior diplomat was specifically addressing US-led sanctions and the tightening economic noose, including a near total oil export blockade, on the Maduro government in Caracas.

The comments also come after early this year the Maduro regime was stymied in its bid to pull $1.2 billion worth of gold out of the Bank of England , according to a January Bloomberg report . The Bank of England's (BoE) decision to deny Maduro officials' withdrawal request was a the height of US coup efforts targeting Maduro.

Specifically top US officials, including Secretary of State Michael Pompeo and National Security Adviser John Bolton, had lobbied their UK counterparts to help cut off the regime from its overseas assets, as we reported at the time. Washington has further lobbied other international institutions, and especially its Latin American allies, to seize Venezuelan assets and essentially hold them for control of Juan Guaido's opposition government in exile.

Russian Deputy Foreign Minister Sergei Ryabkov. Image source: TASS

Deputy FM Ryabkov held up the Venezuela situation as an example of "barefaced misappropriation of assets kept at Western banks."

He described further :

"This is just one of the examples of a wider policy of deliberate instigation of crises to change government, to replace legitimately elected politician with American stooges ."

Despite western capitals virtue-signaling their "rules-based order" approach, Ryabkov said instead, "We think that it is not a rule-based world order, it is rather a foisted and imposed world order ."

Meanwhile, the establishment of the 'SWIFT-alternative' Instex - now online as of three weeks ago - constitutes the biggest threat the dollar as a reserve currency to date, especially if Russia follows through on its signalling it could join.


CashMcCall , 39 minutes ago link

DeDollarization is inevitable. The US has abused the dollar reserve currency by weaponizing it first under FDR when he dropped the price of gold from $50 to 35 over night, a violation of Bretton Woods.

Then Nixon devalued three times

The worst infraction of all was Obama Sanctioning Russia and weaponizing the dollar reserve.

Trump who knows nothing at all except bullyism, then used Obama weaponizing sanctions and now covers nearly 50% of the global population. Trump is dumber than dirt.

It is now inevitable that the rest of the world will find methods to trade outside of the dollar. That is currently being done with Iron ore and coal with China in Yuan and this will spread.

The present system of demigod dollars is not sustainable. Maynard Keynes proposed a synthetic currency called the Bancor comprise of five of the world's leading currencies. New technology in Cryptos may at last be a method of trade that cannot be weaponized. Obviously a global currency that could not be manipulated is necessary. A crypto could be instantly valued correctly based on real instant transactions not speculators buying and selling.

Bitcoin is unsatisfactory for many reasons, primarily because the developers gave themselves lots of free bitcoins and its circulation is so limited that its value cannot be determined due to volatility. It's worthless. But the idea is the future.

Until then the best alternative is competing currencies. Let buyers and sellers determine the currency to be used.

Ignorance is bliss , 46 minutes ago link

The big question on my mind is how long before all confidence in the Dollar is lost? Foreign central banks are buying gold which leaves the U.S. government with a funding problem. Just this year the U.S. has to roll over 11 Trillion in debt. Without central banks adding Dollars to their core reserves who's going to fund U.S. deficits ? certainly not the domestic financial economy. Then you have INSTEX bypassing the petro Dollar with Iran and now potentially with Russia. We know Russia and China are trading directly and bypassing the Dollar. We're also losing weapons sales and Boeing aircraft sales to competitors. These are Dollar denominated big ticket items that support the Dollar. How long before people start getting rid of Dollars in mass? When is the confidence lost?

Blankone , 1 hour ago link

According to all the expert articles written on ZH both Russia and China had fully functioning alternatives to SWIFT several years ago.

And they were going to facilitate the abandonment of the dollar, with the dollars demise any day.

Now, the experts tell us Russia wants to join the Instex club, which was created by Europe and controlled by Europe and has very limited abilities to handle international trade.

The inability of Russia to avoid SWIFT and having to use the dollar in much of Russia's trade is a huge tactical error in this financial war.

EHM , 1 hour ago link

"The Bank of the United States is one of the most deadly hostilities existing, against the principles and form of our Constitution. An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile?" –Thomas Jefferson to Albert Gallatin, 1803. ME 10:437

PKKA , 1 hour ago link

When you are going to war, dig two graves for yourself too.
American sanctions undermine the hegemony of the dollar.
Russia, Iran, China, North Korea, Venezuela, Cuba and those many others who are tired of the hegemony of the dollar. The total population of these countries exceeds two billion people, and the cumulative GDP is over 15 trillion.

[Jul 24, 2019] JPMorgan We Believe The Dollar Could Lose Its Status As World s Reserve Currency

Jul 24, 2019 | www.zerohedge.com

JPMorgan: We Believe The Dollar Could Lose Its Status As World's Reserve Currency

by Tyler Durden Tue, 07/23/2019 - 12:55 0 SHARES

Almost eight year ago , we first presented a chart first created by JPMorgan's Michael Cembalest, which showed very simply and vividly that reserve currencies don't last forever, and that in the not too distant future, the US Dollar would also lose its status as the world's most important currency, since it is never different this time.

As Cembalest put it back in January 2012, "I am reminded of the following remark from late MIT economist Rudiger Dornbusch: 'Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.'"

Perhaps it is not a coincidence then that in light of the growing number of mentions of MMT and various other terminal, destructive monetary policies that have been proposed to kick on the current financial system the can just a little bit longer, that the topic of longevity of reserve currency status is once again becoming all the rage, and none other than JPMorgan's Private Bank ask in this month's investment strategy note whether "the dollar's "exorbitant privilege" is coming to an end?"

So why is JPM, after first creating the iconic chart above which has since spread virally across all financial corners of the internet, not only worried that the dollar's reserve status may be coming to an end, but in fact goes so far as to state that "we believe the dollar could lose its status as the world's dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments."

Read on to learn why even the largest US bank has started to lose faith in the world's most powerful currency.

Is the dollar's "exorbitant privilege" coming to an end?

In Brief

The U.S. dollar (USD) has been the world's dominant reserve currency for almost a century. As such, many investors today, even outside the United States, have built and become comfortable with sizable USD overweights in their portfolios. However, we believe the dollar could lose its status as the world's dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments .

As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well as precious metals makes sense today. This diversification can be achieved with a strategy that maintains the underlying assets in an investment portfolio, but changes the mix of currencies within that portfolio. This is a completely bespoke approach that can be customized to meet the unique needs of individual clients.

The rise of the U.S. dollar

It is commonly perceived that the U.S. dollar overtook the Great British Pound (GBP) as the world's international reserve currency with the signing of the Bretton Woods Agreements after World War II. The reality is that sterling's value was eroded for many decades prior to Bretton Woods. The dollar's rise to international prominence was fueled by the establishment of the Federal Reserve System a little over a century ago and U.S. economic emergence after World War I. The Federal Reserve System aided in the establishment of more mature capital markets and a nationally coordinated monetary policy, two important pillars of reserve-currency countries. Being the world's unit of account has given the United States what former French Finance Minister Valery d'Estaing called an "exorbitant privilege" by being able to purchase imports and issue debt in its own currency and run persistent deficits seemingly without consequence.

The shifting center

There is nothing to suggest that the dollar dominance should remain in perpetuity . In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world's economic center has shifted.

After the end of World War II, the U.S. accounted for biggest share of world GDP at more than 25%. This number is brought to more than 40% when we include Western European powers. Since then, the main driver of economic growth has shifted eastwards towards Asia at the expense of the U.S. and the West. China is at the epicenter of this recent economic shift driven by the country's strong growth and commitment to domestic reforms. Over the last 70 years, China has quadrupled its share of global GDP to around 20% -- roughly the same share as the U.S. -- and this share is expected to continue to grow in the years ahead. China is no longer just a manufacturer of low cost goods as a growing share of corporate earnings is coming from "high value add" sectors like technology.

China regaining its status as a global superpower

Source: Angus Maddison Database, IMF, J.P. Morgan Private Bank Economics. Data as of June 14, 2019

Earnings in China are becoming more balanced

Source: Bloomberg, J.P. Morgan Private Bank Economics. Data as of September 30, 2018. The low-value added sectors series is HP filtered to smooth over cyclical volatility. Low-value added includes materials and industrials. High-value added includes tech, health care, consumer staples, and consumer discretionary.

In addition to China, the economies of Southeast Asia, including India, have strong secular tailwinds driven by younger demographics and proliferating technological know-how. Specifically, the Asian economic zone -- from the Arabian Peninsula and Turkey in the West to Japan and New Zealand in the East and from Russia in the North and Australia in the South -- now represents 50% of global GDP and two-thirds of global economic growth. Of the estimated $30 trillion in middle-class consumption growth between 2015 and 2030, only $1 trillion is expected to come from today's Western economies. As this region grows, the share of non-USD transactions will inevitably increase which will likely erode the dollar's "reserveness", even if the dollar isn't replaced as the dominant international currency.

In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.

Dollar's declining role already under way?

Recent data on currency reserve holdings among global central banks suggests this shift may already be under way. As a share of overall central bank reserves, the USD's role has been declining ever since the Great Recession (see chart). The most recent central bank reserve flow data also suggests that for the first time since the euro's introduction in 1999, central banks simultaneously sold dollars and bought euros.

Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.

USD share of central bank reserves, %

Source: Exante. Data as of September 30, 2018. The series is FX-adjusted.
Trade Wars have long-term consequences

The current U.S. administration has called into question agreements with nearly all of its largest partners -- tariffs on China, Mexico and the European Union, renegotiating NAFTA, as well as abandoning the Trans Pacific Partnership. A more adversarial U.S. administration could also encourage countries to reduce their reliance on USD in trade. Currently 85% of all currency transactions involve the USD despite the U.S. accounting for only roughly 25% of global GDP.

Countries around the world are already developing payment mechanisms that would avoid using the dollar. These systems are small and still developing but this is likely to be a structural story that will extend beyond one particular administration. In a recent speech on the international role of the euro, Bank for International Settlements Chief Economist Claudio Borio brought up the benefits of pricing oil in the euro saying, "Trading and settling oil in the euro would move payments from dollars to euros and thereby shift ultimate settlement to the euro's TARGET2 system. This could limit the reach of U.S. foreign policy insofar as it leverages dollar payments." The European Central Bank also alluded to this theme in a recent report saying that "growing concerns about the impact of international trade tensions and challenges to multilateralism, including the imposition of unilateral sanctions seem to have lent support to the euro's global standing."

We believe we are at an important juncture. On a real basis, the dollar stands currently more than 10% above its long-term average and on a nominal basis has actually been trending lower for 50 years (see chart below).

Source: Bloomberg as of June 13, 2019

Given the persistent -- and rising -- deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold . As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and gold (see chart).

FX exposure

Source: J.P. Morgan Private Bank as of June 13, 2019.

angle-asshole identity , 55 minutes ago link

The Spanish Piece of Eight (a silver coin) was in circulation until Mao's Long March (1934) and was legal tender in the US until 1857. Known as the Spanish dollar it was one of the few currencies accepted by the Chinese until the Opium Wars.

zeropol , 52 minutes ago link

Guess it was accepted not because it's a currency but because it is silver.

angle-asshole identity , 51 minutes ago link

It was silver and it was reliably minted. And as you prolly know, the Chinese only accepted silver or precious metals as currency. Then the British declared war on them bc ...reasons.

Meximus , 48 minutes ago link

Spanish pieces of eight is the modern day mexican 0.720 onza.

Spain ceased producing these once méxico won independence in 1821.

They all came from the national mint.

So for over 100 years the MXN was the world's reserve currency.

angle-asshole identity , 41 minutes ago link

Spain minted a huge ammount of Po8 in 300 years, that went on circulation for a long time. The coins were minted in Bolivia from Mexican and Peruvian mines. In that time Mexicans earned like 5 times the wage of most Europeans.

But I guess you're right in some way. However, Mexico was not the country that it is now.

ThomasEdmonds , 1 hour ago link

https://www.globalresearch.ca/world-dedollarizing/5684049

Let it Go , 1 hour ago link

The Fed has become the great enabler. A key role of a reserve currency is to force other currencies to toe the line or pay a stiff price. Ignoring this economic reality translates into pain for those holding the currency of any country that abuses this economic law.

The rapid expansion of debt and credit during the last decade could have occurred without the Fed being totally complicit and in agreement. It has been the Fed that decided to allow the dollar to be used as a global prop.

Trump's desire to manipulate the dollar lower to boost exports would take the world down a very slippery slope. The article below argues this is a destabilizing force.

https://Manipulating Value Of US Dollar is A Very Dangerous Policy .html

Let it Go , 1 hour ago link

Many of us see the introduction of a single "World Currency" as a major part of the economic endgame. This is something that will be forced on us as part of a "needed reset" to a global economy that has gone off track. The fact this issue is again in the news may be an indication we are getting closer to where currencies begin to fail.

The new world order and globalization which has been pushed by many world leaders and the rich elite touting that "larger, more cooperative governments under one financial unit will benefit us all" plays into the world currency scenario. The article below delves into how this might unfold.

http://World Currency Will Be Part Of The Financial Endgame.html

natxlaw , 1 hour ago link

Trump gets the weak dollar he always wanted. We can pay off our debts and buy $15/gallon gas.

HRH of Aquitaine 2.0 , 2 hours ago link

CIPS, the Chinese Interbank Payment System was created a few years ago, 2015 as I recall. https://en.wikipedia.org/wiki/Cross-Border_Inter-Bank_Payments_System

Most Americans are financial illiterates and easy prey for the wolves. How many know that the USD / FRN is the WRC? I am guessing five, or less, out of 100.

[Jul 22, 2019] Michael Hudson pointed out in Super Imperialism how the US can run a big trade deficit as it can just print dollars to cover it.

Jul 22, 2019 | www.nakedcapitalism.com

Sound of the Suburbs , July 22, 2019 at 7:57 am

This is the US (46.30 mins.)
https://www.youtube.com/watch?v=ba8XdDqZ-Jg

This comes from an MMT talk and you can see how the trade deficit balloons around 2000.

Michael Hudson pointed out in Super Imperialism how the US can run a big trade deficit as it can just print dollars to cover it.

Putting the two together.

It looks like the system used to work by allowing the Government deficit to cover the trade deficit.

Now, they have tried to balance the Government budget causing problems for the private sector and financial crises.

It all sums to zero and something needs to cover that trade deficit.

It worked when the Government deficit covered it, but not now.

[Jul 22, 2019] 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.

Jul 22, 2019 | www.nakedcapitalism.com

"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.

Ian Perkins , July 21, 2019 at 9:16 am

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.

Off The Street , July 21, 2019 at 9:19 am

Peripherally related MMT 2nd of 3 articles

[Jul 22, 2019] 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.

Jul 22, 2019 | www.moonofalabama.org

Grieved , Jul 22 2019 5:46 utc | 107

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 existence.

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 money.

The Finance Curse

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.

[Jul 22, 2019] T>here'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.

Notable quotes:
"... 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. ..."
Jul 22, 2019 | www.nakedcapitalism.com

"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.


Ian Perkins , July 21, 2019 at 9:16 am

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.

Off The Street , July 21, 2019 at 9:19 am

Peripherally related MMT 2nd of 3 articles

jsn , July 21, 2019 at 11:50 am

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.

Jonathan Holland Becnel , July 21, 2019 at 1:43 pm

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.

HUDSON 2024

softie , July 21, 2019 at 3:27 pm

I didn't know that until I read anthropologist David Graeber's Debt: The First 5,000 Years.

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.

Kurtismayfield , July 21, 2019 at 5:20 pm

And those corporations get favorable rates on money printed by the government.. and the government backs trillions in mortgage and student loans.

Not much different.

softie , July 21, 2019 at 10:22 pm

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.

Wukchumni , July 21, 2019 at 10:15 am

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.

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.

Clive , July 21, 2019 at 10:44 am

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 intact).

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 alternatives.

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.

barefoot charley , July 21, 2019 at 11:31 am

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 90s.

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 exceptional achievement.

Summer , July 21, 2019 at 1:20 pm

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 to heel.

hunkerdown , July 22, 2019 at 5:20 am

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.

Susan the other` , July 21, 2019 at 2:30 pm

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 fictitious obsessions.

karlof1 , July 21, 2019 at 4:56 pm

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.

[Jul 22, 2019] I think Calvin and his role in today's debt based monetary system is much underestimated

Jul 22, 2019 | www.moonofalabama.org

Alexander P , Jul 22 2019 13:09 utc | 138

@84 Karlof1

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 .

[Jul 22, 2019] The world is in WWIII which is between private and public finance. To characterize the private finance side as being just the US is obfuscation

Jul 22, 2019 | www.moonofalabama.org

psychohistorian , Jul 21 2019 15:20 utc | 2

I read the Michael Hudson piece and shake my head at the manifest obfuscation at play

The world is in WWIII which is between private and public finance. To characterize the private finance side as being just the US is obfuscation

Global private finance exists outside the bounds of any one nation state and the US is just the current face of the centuries of empires under this model.

Why is the West unable to have a discussion about the core component to the world war we are engaged in?

Sad comment on the successful brainwashing at work here.....that is why I call the web site Michael Hudson's writing is provided at ALMOST Naked Capitalism

Wake the rest of the way up fellow humans of the West.

John Merryman , Jul 21 2019 15:39 utc | 4

psychohistorian,

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 lots.

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 fringes.
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 societal collapse.

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.

John Merryman , Jul 21 2019 15:49 utc | 7
psycho,

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 moderation.

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 hole.

Bemildred , Jul 21 2019 16:06 utc | 8
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.
Russ , Jul 21 2019 16:17 utc | 11
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 liberation.

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.

bevin , Jul 21 2019 16:22 utc | 12
"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 societal collapse."
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 victims.

fastfreddy , Jul 21 2019 16:31 utc | 13
Predators and Prey. But the prey believe themselves to be predators also, or at least to have the potential to become predators should they win the lotto.

"Send Her Back!, Send Her Back!"

[Jul 21, 2019] Michael Hudson US Economic Warfare and Likely Foreign Defenses>

Jul 21, 2019 | www.nakedcapitalism.com

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."[1]

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."[2]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 fraud crisis.

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 economies.

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.[3]

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 Israeli expansionism.

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 banks.

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 United States.

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 foreign debt.

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 force.

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.[4]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 wars.

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 sabotage. Work with Huawei and other alternatives to US internet options.
Class War: austerity program for labor MMT, taxation of rentier income and capital gains.
Neoliberal monetarist doctrine of privatization and creditor-oriented rules 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.
Investment control 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. energy dominance.

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 needs.
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 profitable production.

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."[5]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.

Summary

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.

___________________

[1]Billy Bambrough, "Bitcoin Threatens To 'Take Power' From The U.S. Federal Reserve," Forbes , May 15, 2019. https://www.forbes.com/sites/billybambrough/2019/05/15/a-u-s-congressman-is-so-scared-of-bitcoin-and-crypto-he-wants-it-banned/#36b2700b6405.

[2]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 all."

[3]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,

[4] https://www.rt.com/business/464013-china-russia-cryptocurrency-dollar-dethrone/ . 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.

[5]Don Weinland, "WTO rules against US in tariff dispute with China," Financial Times , July 17, 2019.


Mael Colium , July 21, 2019 at 8:53 am

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.

timbers , July 21, 2019 at 9:13 am

"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 strengthening U.S.?).

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.

Synoia , July 21, 2019 at 11:57 am

Among the reports of companies leaving China, I've not seen any who declare they will return manufacturing to the US.

One of the major objectives of Tariffs, historically, is to favor local manufacture over imports. Other than defense, is that happening?

Boeing appears to be the poster child of how well a company with a large defense arm performs in the commercial sector.

Oh , July 21, 2019 at 12:44 pm

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.

lazycat1984 , July 21, 2019 at 12:23 pm

"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.

Oh , July 21, 2019 at 1:03 pm

Post WWII Japan kept away from the stranglehold of US Financiers by only purchasing technology and protecting their markets which other countries have to emulate.

Plenue , July 21, 2019 at 2:30 pm

"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.?)"

They have. Russia has dropped 84% of the Treasury Securities it held. https://money.cnn.com/2018/07/30/investing/russia-us-debt-treasury/index.html

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 dollars.

Roger Boyd , July 21, 2019 at 4:10 pm

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.

timbers , July 21, 2019 at 5:35 pm

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.

Ian Perkins , July 21, 2019 at 9:16 am

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.

flora , July 21, 2019 at 1:11 pm

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.

http://heteconomist.com/classical-vs-neoclassical-economics-tax-and-rent/

RBHoughton , July 21, 2019 at 9:42 pm

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

jsn , July 21, 2019 at 11:36 am

"Views from an economist who has been promoting neoclassical ideology for decades and then wonders when there are no alternatives to escape the narrative?"

Really, you should read the article you posted this note under. What text is this comment in reference to?

Vato , July 21, 2019 at 12:57 pm

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??

Thank you

Off The Street , July 21, 2019 at 9:19 am

Peripherally related MMT 2nd of 3 articles

Trey N , July 21, 2019 at 9:20 am

There are a number of such "unclear sentences" in the article. Is the original article so poorly written/edited, or is it errata in the transcription here?

Either way, it's a shame that such errors detract from the clarity of the ideas presented. Is there any way to go back and clean this mess up??

barefoot charley , July 21, 2019 at 10:05 am

Reading Michael's fascinating history of debt forgiveness isn't much different. I'm grateful for his writing but suffer from his typing. Have proofreaders gone the way of buggy whips?

(And we must stipulate that typos here on NC are so buggy they're a feature. Which makes me wonder if/when Roman inscriptions went illiterate–first century BC civil wars, or third century AD Christian takeover? Valuable historic perspective!)

ex-PFC Chuck , July 21, 2019 at 12:36 pm

" Have proofreaders gone the way of buggy whips?"

Yes. The job has been outsourced to Spellcheck.

Vato , July 21, 2019 at 1:04 pm

The translations of his books into German are even worse. Lots of typos and often contentual mistranslation.

Adams , July 21, 2019 at 10:09 am

Support. I would go further and say the article should be taken down for editing. Needs to be translated into English.

Also, too, the final sentence: "This dystopian scenario confirms Rosa Luxemburg's recognition that the ultimate choice facing nations in today's world is between socialism and barbarism." is a rather large jump from the text. While many regular NC readers will agree, the connection for others is obscure.

Monty , July 21, 2019 at 6:02 pm

You should ask for a refund!

Oh wait

Anon , July 21, 2019 at 8:42 pm

Wait the final sentence is what it is because it comes after everything before it. The quote distills much of what precedes it: The US is determined to be "the winner" in all dealings and nations acquiescing to US goals will likely lead to barbarism (austerity) for those populations.

Sometimes a phrase hits to the core of a wider meaning: "Send Her Back!" (a racist chant in any language).

jsn , July 21, 2019 at 11:50 am

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.

sporble , July 21, 2019 at 1:14 pm

+1

Jonathan Holland Becnel , July 21, 2019 at 1:43 pm

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.

HUDSON 2024

softie , July 21, 2019 at 3:27 pm

I didn't know that until I read anthropologist David Graeber's Debt: The First 5,000 Years.

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.

Stephen Gardner , July 21, 2019 at 4:45 pm

Uprising? Whatever it takes.

Kurtismayfield , July 21, 2019 at 5:20 pm

And those corporations get favorable rates on money printed by the government.. and the government backs trillions in mortgage and student loans.

Not much different.

softie , July 21, 2019 at 10:22 pm

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.

Oh , July 21, 2019 at 3:17 pm

I agree. I can read through typos, missing words, etc as long as the writing conveys the intended meaning. I think the criticism of the document for grammatical perfection is not warranted. I enjoyed the article myself anad I thank the author.

Wukchumni , July 21, 2019 at 10:15 am

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.

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.

Synoia , July 21, 2019 at 3:51 pm

I've used Copper .

Clive , July 21, 2019 at 10:44 am

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 intact).

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 alternatives.

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.

barefoot charley , July 21, 2019 at 11:31 am

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 90s. 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 exceptional achievement.

barefoot charley , July 21, 2019 at 11:41 am

Oops, and I meant to begin with strong agreement, Clive, just developing your point about the need for deficits to 'buy' control with unpayable debt. And it's an excellent point that "The US doesn't mind and doesn't care about the domestic repercussions." Just imagine if we did.

The Rev Kev , July 21, 2019 at 11:05 am

Oh man, this is definitely a two coffee cup read with a ton of material to absorb. Definitely a keeper this. I'll just make a brief comment as it is late here. Maybe what is key here is that there are so many trends working against the US as power shifts from a unipolar to a multipolar world that a determination has been made in Washington to try to set out a unilateral domineering position with regards the rest of the world to stop the loss of prestige and power. This is just not Trump but the Washington political establishment backing him up to put the US in a domineering position for at least the first half of this century.

Peter , July 21, 2019 at 12:29 pm

This is the first serious article I've seen linking opposition to climate action with the US strategic focus on securing oil. The current oil wars may have started in 2003, but we've really been fighting them for longer, at least since the Tanker War of the late 80s, which led into the first Gulf War (which was explicitly for oil). We've been openly preparing for such wars since the Carter Doctrine of the late 70s as well. Those dates matter because the public generally became aware of global warming with the congressional hearings in 1988, and the oil companies (and thus presumably the rest of the deep state) became aware of the science as early as the 70s.

US military strategy has been based around ensuring climate change happens for as long as climate change has been known about. Why isn't this more of a scandal? Why isn't this more openly discussed as a justification for changing US foreign policy? Why isn't reducing imperial adventures discussed as a side benefit of any policy, like a Green New Deal, that seriously attempted to cut carbon emissions? It boggles the mind, and seems like the sort of thing that'll be obvious to future generations so long as civilization hasn't collapsed by then.

Daniel Rich , July 21, 2019 at 8:57 pm

@ Peter,

Perhaps we'll get an 'Easter Island V2.0 – The Extended Edition' rehash

Summer , July 21, 2019 at 1:20 pm

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 to heel.

Susan the other` , July 21, 2019 at 2:30 pm

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 fictitious obsessions.

karlof1 , July 21, 2019 at 4:56 pm

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.

Jonathan Holland Becnel , July 21, 2019 at 6:56 pm

Thanks for the link!

flora , July 21, 2019 at 10:25 pm

One quibble with the closing Summary:

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.

US Naval base in Subic Bay, Philippines was closed in 1992 after a leasing disagreement with the Philippine govt .
https://www.nytimes.com/1991/12/28/world/philippines-orders-us-to-leave-strategic-navy-base-at-subic-bay.html

Clark Air Force base in Angeles City, Philippines had closed the year earlier in 1991.

China is growing power and challenger to shipping freedom of the South China Sea trading route, building artificial fortified islands and aircraft carriers. History has not ended. Power abhors a vacuum.

I agree with Hudson's point about the dangers of misdirected militarism, but I don't think closing military bases around the world necessarily guarantees the end of military adventurism dangers by other rising powers.

ElViejito , July 21, 2019 at 10:50 pm

Subic Bay is back in business as a resupply port for U.S. exercises in the Phillipines. https://www.csmonitor.com/World/Asia-Pacific/2015/1112/US-Navy-edges-back-to-Subic-Bay-in-Philippines-under-new-rules

[Jul 06, 2019] >Neoliberal economics and other fairytales about money by Peter McKenna

Notable quotes:
"... Aditya Chakrabortty ( It's reckless. But a Tory cash splurge could win an election , 3 July) is right to point out the hypocrisy of the political right about public expenditure. While progressive proposals for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to use public money to rescue the banks or boost their electoral chances. ..."
"... As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built on a fairytale about money that distorts our view of how a contemporary public money system operates. It is assumed that public spending depends on extracting money from the market and that money (like gold) is always in short supply. Neither is true. Both the market and the state generate money – the market through bank lending and the state through public spending. Both increase the money supply, while bank loan repayments and taxation reduce it. There is no natural shortage of money – which today mainly exists only as data. ..."
Jul 04, 2019 | www.theguardian.com

Neoliberal economics and other fairytales about money Politics is not about a struggle over a fixed pot of money, says Mary Mellor, and the best way to end austerity is to reject it as an ideology, says Peter McKenna

Aditya Chakrabortty ( It's reckless. But a Tory cash splurge could win an election , 3 July) is right to point out the hypocrisy of the political right about public expenditure. While progressive proposals for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to use public money to rescue the banks or boost their electoral chances.

As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built on a fairytale about money that distorts our view of how a contemporary public money system operates. It is assumed that public spending depends on extracting money from the market and that money (like gold) is always in short supply. Neither is true. Both the market and the state generate money – the market through bank lending and the state through public spending. Both increase the money supply, while bank loan repayments and taxation reduce it. There is no natural shortage of money – which today mainly exists only as data.

ss="rich-link tone-news--item rich-link--pillar-news"> Business Today: sign up for a morning shot of financial news Read more

The case for austerity missed the point. Politics is not about a struggle over a fixed pot of money. What is limited are resources (particularly the environment) and human capacity. How these are best used should be a matter of democratic debate. The allocation of money should depend on the priorities identified. In this the market has no more claim than the public economy to be the source of sustainable human welfare.
Professor Mary Mellor
Newcastle upon Tyne

• Over the years Aditya Chakrabortty has provided us with powerful critiques of austerity. His message now – that EU membership "is the best way to end austerity" – overlooks the fact that the UK was in the EU all that time.

Moreover, the EU's stability and growth pact requires that budget deficits and public debt be pegged below 3% and 60% of GDP respectively.

Such notions are the beating heart of austerity, and the European commission's excessive deficit procedure taken against errant states has almost universally resulted in swingeing austerity programmes. These were approved and monitored by the commission and council, with the UK only taken off the naughty step in 2017 after years of crippling austerity finally reduced the deficit to 2.3% of GDP.

The best way to end austerity – and to sway voters – is to reject austerity as an ideology regardless of remain or leave, and rehabilitate the concept of public investment in a people's economy.
Peter McKenna

[Jul 05, 2019] The World Bank and IMF 2019 by Michael Hudson and Bonnie Faulkner

Highly recommended!
Notable quotes:
"... The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute, or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers ..."
"... It was set up basically by the United States in 1944, along with its sister institution, the International Monetary Fund (IMF). Their purpose was to create an international order like a funnel to make other countries economically dependent on the United States ..."
"... American diplomats insisted on the ability to veto any action by the World Bank or IMF. The aim of this veto power was to make sure that any policy was, in Donald Trump's words, to put America first. "We've got to win and they've got to lose." ..."
"... The World Bank was set up from the outset as a branch of the military, of the Defense Department. John J. McCloy (Assistant Secretary of War, 1941-45), was the first full-time president ..."
"... Many countries had two rates: one for goods and services, which was set normally by the market, and then a different exchange rate that was managed for capital movements. That was because countries were trying to prevent capital flight. They didn't want their wealthy classes or foreign investors to make a run on their own currency – an ever-present threat in Latin America. ..."
"... The IMF and the World Bank backed the cosmopolitan classes, the wealthy. Instead of letting countries control their capital outflows and prevent capital flight, the IMF's job is to protect the richest One Percent and foreign investors from balance-of-payments problems ..."
"... The IMF enables its wealthy constituency to move their money out of the country without taking a foreign-exchange loss ..."
"... Wall Street speculators have sold the local currency short to make a killing, George-Soros style. ..."
"... When the debtor-country currency collapses, the debts that these Latin American countries owe are in dollars, and now have to pay much more in their own currency to carry and pay off these debts. ..."
"... Local currency is thrown onto the foreign-exchange market for dollars, lowering the exchange rate. That increases import prices, raising a price umbrella for domestic products. ..."
"... Instead, the IMF says just the opposite: It acts to prevent any move by other countries to bring the debt volume within the ability to be paid. It uses debt leverage as a way to control the monetary lifeline of financially defeated debtor countries. ..."
"... This control by the U.S. financial system and its diplomacy has been built into the world system by the IMF and the World Bank claiming to be international instead of an expression of specifically U.S. New Cold War nationalism. ..."
"... The same thing happened in Greece a few years ago, when almost all of Greece's foreign debt was owed to Greek millionaires holding their money in Switzerland ..."
"... The IMF could have seized this money to pay off the bondholders. Instead, it made the Greek economy pay. It found that it was worth wrecking the Greek economy, forcing emigration and wiping out Greek industry so that French and German bondholding banks would not have to take a loss. That is what makes the IMF so vicious an institution. ..."
"... America was able to grab all of Iran's foreign exchange just by the banks interfering. The CIA has bragged that it can do the same thing with Russia. If Russia does something that U.S. diplomats don't like, the U.S. can use the SWIFT bank payment system to exclude Russia from it, so the Russian banks and the Russian people and industry won't be able to make payments to each other. ..."
"... You can't create the money, especially if you're running a balance of payments deficit and if U.S. foreign policy forces you into deficit by having someone like George Soros make a run on your currency. Look at the Asia crisis in 1997. Wall Street funds bet against foreign currencies, driving them way down, and then used the money to pick up industry cheap in Korea and other Asian countries. ..."
"... This was also done to Russia's ruble. The only country that avoided this was Malaysia, under Mohamed Mahathir, by using capital controls. Malaysia is an object lesson in how to prevent a currency flight. ..."
"... Client kleptocracies take their money and run, moving it abroad to hard currency areas such as the United States, or at least keeping it in dollars in offshore banking centers instead of reinvesting it to help the country catch up by becoming independent agriculturally, in energy, finance and other sectors. ..."
"... But in shaping the World Trade Organization's rules, the United States said that all countries had to promote free trade and could not have government support, except for countries that already had it. We're the only country that had it. That's what's called "grandfathering". ..."
Jul 05, 2019 | www.unz.com

"The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute, or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers."

I'm Bonnie Faulkner. Today on Guns and Butter: Dr. Michael Hudson. Today's show: The IMF and World Bank: Partners In Backwardness . Dr. Hudson is a financial economist and historian. He is President of the Institute for the Study of Long-Term Economic Trend, a Wall Street Financial Analyst, and Distinguished Research Professor of Economics at the University of Missouri, Kansas City.

His most recent books include " and Forgive them Their Debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year "; Killing the Host: How Financial Parasites and Debt Destroy the Global Economy , and J Is for Junk Economics: A Guide to Reality in an Age of Deception . He is also author of Trade, Development and Foreign Debt , among many other books.

We return today to a discussion of Dr. Hudson's seminal 1972 book, Super Imperialism: The Economic Strategy of American Empire , a critique of how the United States exploited foreign economies through the IMF and World Bank, with a special emphasis on food imperialism.

... ... ...

Bonnie Faulkner : In your seminal work form 1972, Super-Imperialism: The Economic Strategy of American Empire , you write: "The development lending of the World Bank has been dysfunctional from the outset." When was the World Bank set up and by whom?

Michael Hudson : It was set up basically by the United States in 1944, along with its sister institution, the International Monetary Fund (IMF). Their purpose was to create an international order like a funnel to make other countries economically dependent on the United States. To make sure that no other country or group of countries – even all the rest of the world – could not dictate U.S. policy. American diplomats insisted on the ability to veto any action by the World Bank or IMF. The aim of this veto power was to make sure that any policy was, in Donald Trump's words, to put America first. "We've got to win and they've got to lose."

The World Bank was set up from the outset as a branch of the military, of the Defense Department. John J. McCloy (Assistant Secretary of War, 1941-45), was the first full-time president. He later became Chairman of Chase Manhattan Bank (1953-60). McNamara was Secretary of Defense (1961-68), Paul Wolfowitz was Deputy and Under Secretary of Defense (1989-2005), and Robert Zoellick was Deputy Secretary of State. So I think you can look at the World Bank as the soft shoe of American diplomacy.

Bonnie Faulkner : What is the difference between the World Bank and the International Monetary Fund, the IMF? Is there a difference?

Michael Hudson : Yes, there is. The World Bank was supposed to make loans for what they call international development. "Development" was their euphemism for dependency on U.S. exports and finance. This dependency entailed agricultural backwardness – opposing land reform, family farming to produce domestic food crops, and also monetary backwardness in basing their monetary system on the dollar.

The World Bank was supposed to provide infrastructure loans that other countries would go into debt to pay American engineering firms, to build up their export sectors and their plantation sectors by public investment roads and port development for imports and exports. Essentially, the Bank financed long- investments in the foreign trade sector, in a way that was a natural continuation of European colonialism.

In 1941, for example, C. L. R. James wrote an article on "Imperialism in Africa" pointing out the fiasco of European railroad investment in Africa: "Railways must serve flourishing industrial areas, or densely populated agricult5ural regions, or they must open up new land along which a thriving population develops and provides the railways with traffic. Except in the mining regions of South Africa, all these conditions are absent. Yet railways were needed, for the benefit of European investors and heavy industry." That is why, James explained "only governments can afford to operate them," while being burdened with heavy interest obligations. [1] What was "developed" was Africa's mining and plantation export sector, not its domestic economies. The World Bank followed this pattern of "development" lending without apology.

The IMF was in charge of short-term foreign currency loans. Its aim was to prevent countries from imposing capital controls to protect their balance of payments. Many countries had a dual exchange rate: one for trade in goods and services, the other rate for capital movements. The function of the IMF and World Bank was essentially to make other countries borrow in dollars, not in their own currencies, and to make sure that if they could not pay their dollar-denominated debts, they had to impose austerity on the domestic economy – while subsidizing their import and export sectors and protecting foreign investors, creditors and client oligarchies from loss.

The IMF developed a junk-economics model pretending that any country can pay any amount of debt to the creditors if it just impoverishes its labor enough. So when countries were unable to pay their debt service, the IMF tells them to raise their interest rates to bring on a depression – austerity – and break up the labor unions. That is euphemized as "rationalizing labor markets." The rationalizing is essentially to disable labor unions and the public sector. The aim – and effect – is to prevent countries from essentially following the line of development that had made the United States rich – by public subsidy and protection of domestic agriculture, public subsidy and protection of industry and an active government sector promoting a New Deal democracy. The IMF was essentially promoting and forcing other countries to balance their trade deficits by letting American and other investors buy control of their commanding heights, mainly their infrastructure monopolies, and to subsidize their capital flight.

BONNIE FAULKNER : Now, Michael, when you began speaking about the IMF and monetary controls, you mentioned that there were two exchange rates of currency in countries. What were you referring to?

MICHAEL HUDSON : When I went to work on Wall Street in the '60s, I was balance-of-payments economist for Chase Manhattan, and we used the IMF's monthly International Financial Statistics every month. At the top of each country's statistics would be the exchange-rate figures. Many countries had two rates: one for goods and services, which was set normally by the market, and then a different exchange rate that was managed for capital movements. That was because countries were trying to prevent capital flight. They didn't want their wealthy classes or foreign investors to make a run on their own currency – an ever-present threat in Latin America.

The IMF and the World Bank backed the cosmopolitan classes, the wealthy. Instead of letting countries control their capital outflows and prevent capital flight, the IMF's job is to protect the richest One Percent and foreign investors from balance-of-payments problems.

The World Bank and American diplomacy have steered them into a chronic currency crisis. The IMF enables its wealthy constituency to move their money out of the country without taking a foreign-exchange loss. It makes loans to support capital flight out of domestic currencies into the dollar or other hard currencies. The IMF calls this a "stabilization" program. It is never effective in helping the debtor economy pay foreign debts out of growth. Instead, the IMF uses currency depreciation and sell-offs of public infrastructure and other assets to foreign investors after the flight capital has left and currency collapses. Wall Street speculators have sold the local currency short to make a killing, George-Soros style.

When the debtor-country currency collapses, the debts that these Latin American countries owe are in dollars, and now have to pay much more in their own currency to carry and pay off these debts. We're talking about enormous penalty rates in domestic currency for these countries to pay foreign-currency debts – basically taking on to finance a non-development policy and to subsidize capital flight when that policy "fails" to achieve its pretended objective of growth.

All hyperinflations of Latin America – Chile early on, like Germany after World War I – come from trying to pay foreign debts beyond the ability to be paid. Local currency is thrown onto the foreign-exchange market for dollars, lowering the exchange rate. That increases import prices, raising a price umbrella for domestic products.

A really functional and progressive international monetary fund that would try to help countries develop would say: "Okay, banks and we (the IMF) have made bad loans that the country can't pay. And the World Bank has given it bad advice, distorting its domestic development to serve foreign customers rather than its own growth. So we're going to write down the loans to the ability to be paid." That's what happened in 1931, when the world finally stopped German reparations payments and Inter-Ally debts to the United States stemming from World War I.

Instead, the IMF says just the opposite: It acts to prevent any move by other countries to bring the debt volume within the ability to be paid. It uses debt leverage as a way to control the monetary lifeline of financially defeated debtor countries. So if they do something that U.S. diplomats don't approve of, it can pull the plug financially, encouraging a run on their currency if they act independently of the United States instead of falling in line. This control by the U.S. financial system and its diplomacy has been built into the world system by the IMF and the World Bank claiming to be international instead of an expression of specifically U.S. New Cold War nationalism.

BONNIE FAULKNER : How do exchange rates contribute to capital flight?

MICHAEL HUDSON : It's not the exchange rate that contributes. Suppose that you're a millionaire, and you see that your country is unable to balance its trade under existing production patterns. The money that the government has under control is pesos, escudos, cruzeiros or some other currency, not dollars or euros. You see that your currency is going to go down relative to the dollar, so you want to get our money out of the country to preserve your purchasing power.

This has long been institutionalized. By 1990, for instance, Latin American countries had defaulted so much in the wake of the Mexico defaults in 1982 that I was hired by Scudder Stevens, to help start a Third World Bond Fund (called a "sovereign high-yield fund"). At the time, Argentina and Brazil were running such serious balance-of-payments deficits that they were having to pay 45 percent per year interest, in dollars, on their dollar debt. Mexico, was paying 22.5 percent on its tesobonos .

Scudders' salesmen went around to the United States and tried to sell shares in the proposed fund, but no Americans would buy it, despite the enormous yields. They sent their salesmen to Europe and got a similar reaction. They had lost their shirts on Third World bonds and couldn't see how these countries could pay.

Merrill Lynch was the fund's underwriter. Its office in Brazil and in Argentina proved much more successful in selling investments in Scudder's these offshore fund established in the Dutch West Indies. It was an offshore fund, so Americans were not able to buy it. But Brazilian and Argentinian rich families close to the central bank and the president became the major buyers. We realized that they were buying these funds because they knew that their government was indeed going to pay their stipulated interest charges. In effect, the bonds were owed ultimately to themselves. So these Yankee dollar bonds were being bought by Brazilians and other Latin Americans as a vehicle to move their money out of their soft local currency (which was going down), to buy bonds denominated in hard dollars.

BONNIE FAULKNER : If wealthy families from these countries bought these bonds denominated in dollars, knowing that they were going to be paid off, who was going to pay them off? The country that was going broke?

MICHAEL HUDSON : Well, countries don't pay; the taxpayers pay, and in the end, labor pays. The IMF certainly doesn't want to make its wealthy client oligarchies pay. It wants to squeeze ore economic surplus out of the labor force. So countries are told that the way they can afford to pay their enormously growing dollar-denominated debt is to lower wages even more.

Currency depreciation is an effective way to do this, because what is devalued is basically labor's wages. Other elements of exports have a common world price: energy, raw materials, capital goods, and credit under the dollar-centered international monetary system that the IMF seeks to maintain as a financial strait jacket.

According to the IMF's ideological models, there's no limit to how far you can lower wages by enough to make labor competitive in producing exports. The IMF and World Bank thus use junk economics to pretend that the way to pay debts owed to the wealthiest creditors and investors is to lower wages and impose regressive excise taxes, to impose special taxes on necessities that labor needs, from food to energy and basic services supplied by public infrastructure.

BONNIE FAULKNER: So you're saying that labor ultimately has to pay off these junk bonds?

MICHAEL HUDSON: That is the basic aim of IMF. I discuss its fallacies in my Trade Development and Foreign Debt , which is the academic sister volume to Super Imperialism . These two books show that the World Bank and IMF were viciously anti-labor from the very outset, working with domestic elites whose fortunes are tied to and loyal to the United States.

BONNIE FAULKNER : With regard to these junk bonds, who was it or what entity

MICHAEL HUDSON : They weren't junk bonds. They were called that because they were high-interest bonds, but they weren't really junk because they actually were paid. Everybody thought they were junk because no American would have paid 45 percent interest. Any country that really was self-reliant and was promoting its own economic interest would have said, "You banks and the IMF have made bad loans, and you've made them under false pretenses – a trade theory that imposes austerity instead of leading to prosperity. We're not going to pay." They would have seized the capital flight of their comprador elites and said that these dollar bonds were a rip-off by the corrupt ruling class.

The same thing happened in Greece a few years ago, when almost all of Greece's foreign debt was owed to Greek millionaires holding their money in Switzerland. The details were published in the "Legarde List." But the IMF said, in effect that its loyalty was to the Greek millionaires who ha their money in Switzerland. The IMF could have seized this money to pay off the bondholders. Instead, it made the Greek economy pay. It found that it was worth wrecking the Greek economy, forcing emigration and wiping out Greek industry so that French and German bondholding banks would not have to take a loss. That is what makes the IMF so vicious an institution.

BONNIE FAULKNER : So these loans to foreign countries that were regarded as junk bonds really weren't junk, because they were going to be paid. What group was it that jacked up these interest rates to 45 percent?

MICHAEL HUDSON : The market did. American banks, stock brokers and other investors looked at the balance of payments of these countries and could not see any reasonable way that they could pay their debts, so they were not going to buy their bonds. No country subject to democratic politics would have paid debts under these conditions. But the IMF, U.S. and Eurozone diplomacy overrode democratic choice.

Investors didn't believe that the IMF and the World Bank had such a strangle hold over Latin American, Asian, and African countries that they could make the countries act in the interest of the United States and the cosmopolitan finance capital, instead of in their own national interest. They didn't believe that countries would commit financial suicide just to pay their wealthy One Percent.

They were wrong, of course. Countries were quite willing to commit economic suicide if their governments were dictatorships propped up by the United States. That's why the CIA has assassination teams and actively supports these countries to prevent any party coming to power that would act in their national interest instead of in the interest of a world division of labor and production along the lines that the U.S. planners want for the world. Under the banner of what they call a free market, you have the World Bank and the IMF engage in central planning of a distinctly anti-labor policy. Instead of calling them Third World bonds or junk bonds, you should call them anti-labor bonds, because they have become a lever to impose austerity throughout the world.

BONNIE FAULKNER : Well, that makes a lot of sense, Michael, and answers a lot of the questions I've put together to ask you. What about Puerto Rico writing down debt? I thought such debts couldn't be written down.

MICHAEL HUDSON : That's what they all said, but the bonds were trading at about 45 cents on the dollar, the risk of their not being paid. The Wall Street Journal on June 17, reported that unsecured suppliers and creditors of Puerto Rico, would only get nine cents on the dollar. The secured bond holders would get maybe 65 cents on the dollar.

The terms are being written down because it's obvious that Puerto Rico can't pay, and that trying to do so is driving the population to move out of Puerto Rico to the United States. If you don't want Puerto Ricans to act the same way Greeks did and leave Greece when their industry and economy was shut down, then you're going to have to provide stability or else you're going to have half of Puerto Rico living in Florida.

BONNIE FAULKNER : Who wrote down the Puerto Rican debt?

MICHAEL HUDSON : A committee was appointed, and it calculated how much Puerto Rico can afford to pay out of its taxes. Puerto Rico is a U.S. dependency, that is, an economic colony of the United States. It does not have domestic self-reliance. It's the antithesis of democracy, so it's never been in charge of its own economic policy and essentially has to do whatever the United States tells it to do. There was a reaction after the hurricane and insufficient U.S. support to protect the island and the enormous waste and corruption involved in the U.S. aid. The U.S. response was simply: "We won you fair and square in the Spanish-American war and you're an occupied country, and we're going to keep you that way." Obviously this is causing a political resentment.

BONNIE FAULKNER : You've already touched on this, but why has the World Bank traditionally been headed by a U.S. secretary of defense?

MICHAEL HUDSON : Its job is to do in the financial sphere what, in the past, was done by military force. The purpose of a military conquest is to take control of foreign economies, to take control of their land and impose tribute. The genius of the World Bank was to recognize that it's not necessary to occupy a country in order to impose tribute, or to take over its industry, agriculture and land. Instead of bullets, it uses financial maneuvering. As long as other countries play an artificial economic game that U.S. diplomacy can control, finance is able to achieve today what used to require bombing and loss of life by soldiers.

In this case the loss of life occurs in the debtor countries. Population growth shrinks, suicides go up. The World Bank engages in economic warfare that is just as destructive as military warfare. At the end of the Yeltsin period Russia's President Putin said that American neoliberalism destroyed more of Russia's population than did World War II. Such neoliberalism, which basically is the doctrine of American supremacy and foreign dependency, is the policy of the World Bank and IMF.

BONNIE FAULKNER : Why has World Bank policy since its inception been to provide loans for countries to devote their land to export crops instead of giving priority to feeding themselves? And if this is the case, why do countries want these loans?

MICHAEL HUDSON : One constant of American foreign policy is to make other countries dependent on American grain exports and food exports. The aim is to buttress America's agricultural trade surplus. So the first thing that the World Bank has done is not to make any domestic currency loans to help food producers. Its lending has steered client countries to produce tropical export crops, mainly plantation crops that cannot be grown in the United States. Focusing on export crops leads client countries to become dependent on American farmers – and political sanctions.

In the 1950s, right after the Chinese revolution, the United States tried to prevent China from succeeding by imposing grain export controls to starve China into submission by putting sanctions on exports. Canada was the country that broke these export controls and helped feed China.

The idea is that if you can make other countries export plantation crops, the oversupply will drive down prices for cocoa and other tropical products, and they won't feed themselves. So instead of backing family farms like the American agricultural policy does, the World Bank backed plantation agriculture. In Chile, which has the highest natural supply of fertilizer in the world from its guano deposits, exports guano instead of using it domestically. It also has the most unequal land distribution, blocking it from growing its own grain or food crops. It's completely dependent on the United States for this, and it pays by exporting copper, guano and other natural resources.

The idea is to create interdependency – one-sided dependency on the U.S. economy. The United States has always aimed at being self-sufficient in its own essentials, so that no other country can pull the plug on our economy and say, "We're going to starve you by not feeding you." Americans can feed themselves. Other countries can't say, "We're going to let you freeze in the dark by not sending you oil," because America's independent in energy. But America can use the oil control to make other countries freeze in the dark, and it can starve other countries by food-export sanctions.

So the idea is to give the United States control of the key interconnections of other economies, without letting any country control something that is vital to the working of the American economy.

There's a double standard here. The United States tells other countries: "Don't do as we do. Do as we say." The only way it can enforce this is by interfering in the politics of these countries, as it has interfered in Latin America, always pushing the right wing. For instance, when Hillary's State Department overthrew the Honduras reformer who wanted to undertake land reform and feed the Hondurans, she said: "This person has to go." That's why there are so many Hondurans trying to get into the United States now, because they can't live in their own country.

The effect of American coups is the same in Syria and Iraq. They force an exodus of people who no longer can make a living under the brutal dictatorships supported by the United States to enforce this international dependency system.

BONNIE FAULKNER : So when I asked you why countries would want these loans, I guess you're saying that they wouldn't, and that's why the U.S. finds it necessary to control them politically.

MICHAEL HUDSON : That's a concise way of putting it Bonnie.

BONNIE FAULKNER : Why are World Bank loans only in foreign currency, not in the domestic currency of the country to which it is lending?

MICHAEL HUDSON : That's a good point. A basic principle should be to avoid borrowing in a foreign currency. A country can always pay the loans in its own currency, but there's no way that it can print dollars or euros to pay loans denominated in these foreign currencies.

Making the dollar central forces other countries to interface with the U.S. banking system. So if a country decides to go its own way, as Iran did in 1953 when it wanted to take over its oil from British Petroleum (or Anglo Iranian Oil, as it was called back then), the United States can interfere and overthrow it. The idea is to be able to use the banking system's interconnections to stop payments from being made.

After America installed the Shah's dictatorship, they were overthrown by Khomeini, and Iran had run up a U.S. dollar debt under the Shah. It had plenty of dollars. I think Chase Manhattan was its paying agent. So when its quarterly or annual debt payment came due, Iran told Chase to draw on its accounts and pay the bondholders. But Chase took orders from the State Department or the Defense Department, I don't know which, and refused to pay. When the payment was not made, America and its allies claimed that Iran was in default. They demanded the entire debt to be paid, as per the agreement that the Shah's puppet government had signed. America simply grabbed the deposits that Iran had in the United States. This is the money that was finally returned to Iran without interest under the agreement of 2016.

America was able to grab all of Iran's foreign exchange just by the banks interfering. The CIA has bragged that it can do the same thing with Russia. If Russia does something that U.S. diplomats don't like, the U.S. can use the SWIFT bank payment system to exclude Russia from it, so the Russian banks and the Russian people and industry won't be able to make payments to each other.

This prompted Russia to create its own bank-transfer system, and is leading China, Russia, India and Pakistan to draft plans to de-dollarize.

BONNIE FAULKNER : I was going to ask you, why would loans in a country's domestic currency be preferable to the country taking out a loan in a foreign currency? I guess you've explained that if they took out a loan in a domestic currency, they would be able to repay it.

MICHAEL HUDSON : Yes.

BONNIE FAULKNER : Whereas a loan in a foreign currency would cripple them.

MICHAEL HUDSON : Yes. You can't create the money, especially if you're running a balance of payments deficit and if U.S. foreign policy forces you into deficit by having someone like George Soros make a run on your currency. Look at the Asia crisis in 1997. Wall Street funds bet against foreign currencies, driving them way down, and then used the money to pick up industry cheap in Korea and other Asian countries.

This was also done to Russia's ruble. The only country that avoided this was Malaysia, under Mohamed Mahathir, by using capital controls. Malaysia is an object lesson in how to prevent a currency flight.

But for Latin America and other countries, much of their foreign debt is held by their own ruling class. Even though it's denominated in dollars, Americans don't own most of this debt. It's their own ruling class. The IMF and World Bank dictate tax policy to Latin America – to un-tax wealth and shift the burden onto labor. Client kleptocracies take their money and run, moving it abroad to hard currency areas such as the United States, or at least keeping it in dollars in offshore banking centers instead of reinvesting it to help the country catch up by becoming independent agriculturally, in energy, finance and other sectors.

BONNIE FAULKNER : You say that: "While U.S. agricultural protectionism has been built into the postwar global system at its inception, foreign protectionism is to be nipped in the bud." How has U.S. agricultural protectionism been built into the postwar global system?

MICHAEL HUDSON : Under Franklin Roosevelt the Agricultural Adjustment Act of 1933 called for price supports for crops so that farmers could earn enough to invest in equipment and seeds. The Agriculture Department was a wonderful department in spurring new seed varieties, agricultural extension services, marketing and banking services. It provided public support so that productivity in American agriculture from the 1930s to '50s was higher over a prolonged period than that of any other sector in history.

But in shaping the World Trade Organization's rules, the United States said that all countries had to promote free trade and could not have government support, except for countries that already had it. We're the only country that had it. That's what's called "grandfathering". The Americans said: "We already have this program on the books, so we can keep it. But no other country can succeed in agriculture in the way that we have done. You must keep your agriculture backward, except for the plantation crops and growing crops that we can't grow in the United States." That's what's so evil about the World Bank's development plan.

BONNIE FAULKNER : According to your book: "Domestic currency is needed to provide price supports and agricultural extension services such as have made U.S. agriculture so productive." Why can't infrastructure costs be subsidized to keep down the economy's overall cost structure if IMF loans are made in foreign currency?

MICHAEL HUDSON : If you're a farmer in Brazil, Argentina or Chile, you're doing business in domestic currency. It doesn't help if somebody gives you dollars, because your expenses are in domestic currency. So if the World Bank and the IMF can prevent countries from providing domestic currency support, that means they're not able to give price supports or provide government marketing services for their agriculture.

America is a mixed economy. Our government has always subsidized capital formation in agriculture and industry, but it insists that other countries are socialist or communist if they do what the United States is doing and use their government to support the economy. So it's a double standard. Nobody calls America a socialist country for supporting its farmers, but other countries are called socialist and are overthrown if they attempt land reform or attempt to feed themselves.

This is what the Catholic Church's Liberation Theology was all about. They backed land reform and agricultural self-sufficiency in food, realizing that if you're going to support population growth, you have to support the means to feed it. That's why the United States focused its assassination teams on priests and nuns in Guatemala and Central America for trying to promote domestic self-sufficiency.

BONNIE FAULKNER : If a country takes out an IMF loan, they're obviously going to take it out in dollars. Why can't they take the dollars and convert them into domestic currency to support local infrastructure costs?

MICHAEL HUDSON : You don't need a dollar loan to do that. Now were getting in to MMT. Any country can create its own currency. There's no reason to borrow in dollars to create your own currency. You can print it yourself or create it on your computers.

BONNIE FAULKNER: Well, exactly. So why don't these countries simply print up their own domestic currency?

MICHAEL HUDSON : Their leaders don't want to be assassinated. More immediately, if you look at the people in charge of foreign central banks, almost all have been educated in the United States and essentially brainwashed. It's the mentality of foreign central bankers. The people who are promoted are those who feel personally loyal to the United States, because they that that's how to get ahead. Essentially, they're opportunists working against the interests of their own country. You won't have socialist central bankers as long as central banks are dominated by the International Monetary Fund and the Bank for International Settlements.

BONNIE FAULKNER : So we're back to the main point: The control is by political means, and they control the politics and the power structure in these countries so that they don't rebel.

MICHAEL HUDSON : That's right. When you have a dysfunctional economic theory that is destructive instead of productive, this is never an accident. It is always a result of junk economics and dependency economics being sponsored. I've talked to people at the U.S. Treasury and asked why they all end up following the United States. Treasury officials have told me: "We simply buy them off. They do it for the money." So you don't need to kill them. All you need to do is find people corrupt enough and opportunist enough to see where the money is, and you buy them off.

BONNIE FAULKNER : You write that "by following U.S. advice, countries have left themselves open to food blackmail." What is food blackmail?

MICHAEL HUDSON : If you pursue a foreign policy that we don't like -- for instance, if you trade with Iran, which we're trying to smash up to grab its oil -- we'll impose financial sanctions against you. We won't sell you food, and you can starve. And because you've followed World Bank advice and not grown your own food, you will starve, because you're dependent on us, the United States and our Free World Ó allies. Canada will no longer follow its own policy independently of the United States, as it did with China in the 1950s when it sold it grain. Europe also is falling in line with U.S. policy.

BONNIE FAULKNER : You write that: "World Bank administrators demand that loan recipients pursue a policy of economic dependency above all on the United States as food supplier." Was this done to support U.S. agriculture? Obviously it is, but were there other reasons as well?

MICHAEL HUDSON : Certainly the agricultural lobby was critical in all of this, and I'm not sure at what point this became thoroughly conscious. I knew some of the World Bank planners, and they had no anticipation that this dependency would be the result. They believed the free-trade junk economics that's taught in the schools' economics departments and for which Nobel prizes are awarded.

When we're dealing with economic planners, we're dealing with tunnel-visioned people. They stayed in the discipline despite its unreality because they sort of think that abstractly it makes sense. There's something autistic about most economists, which is why the French had their non-autistic economic site for many years. The mentality at work is that every country should produce what it's best at – not realizing that nations also need to be self-sufficient in essentials, because we're in a real world of economic and military warfare.

BONNIE FAULKNER : Why does the World Bank prefer to perpetrate world poverty instead of adequate overseas capacity to feed the peoples of developing countries?

MICHAEL HUDSON : World poverty is viewed as solution , not a problem. The World Bank thinks of poverty as low-priced labor, creating a competitive advantage for countries that produce labor-intensive goods. So poverty and austerity for the World Bank and IMF is an economic solution that's built into their models. I discuss these in my Trade, Development and Foreign Debt book. Poverty is to them the solution, because it means low-priced labor, and that means higher profits for the companies bought out by U.S., British, and European investors. So poverty is part of the class war: profits versus poverty.

BONNIE FAULKNER : In general, what is U.S. food imperialism? How would you characterize it?

MICHAEL HUDSON : Its aim is to make America the producer of essential foods and other countries producing inessential plantation crops, while remaining dependent on the United States for grain, soy beans and basic food crops.

BONNIE FAULKNER : Does World Bank lending encourage land reform in former colonies?

MICHAEL HUDSON : No. If there is land reform, the CIA sends its assassination teams in and you have mass murder, as you had in Guatemala, Ecuador, Central America and Columbia. The World Bank is absolutely committed against land reform. When the Forgash Plan for a World Bank for Economic Acceleration was proposed in the 1950s to emphasize land reform and local-currency loans, a Chase Manhattan economist to whom the plan was submitted warned that every country that had land reform turned out to be anti-American. That killed any alternative to the World Bank.

BONNIE FAULKNER : Does the World Bank insist on client governments privatizing their public domain? If so, why, and what is the effect?

MICHAEL HUDSON : It does indeed insist on privatization, pretending that this is efficient. But what it privatizes are natural monopolies – the electrical system, the water system and other basic needs. Foreigners take over, essentially finance them with foreign debt, build the foreign debt that they build into the cost structure, and raise the cost of living and doing business in these countries, thereby crippling them economically. The effect is to prevent them from competing with the United States and its European allies.

BONNIE FAULKNER : Would you say then that it is mainly America that has been aided, not foreign economies that borrow from the World Bank?

MICHAEL HUDSON : That's why the United States is the only country with veto power in the IMF and World Bank – to make sure that what you just described is exactly what happens.

BONNIE FAULKNER : Why do World Bank programs accelerate the exploitation of mineral deposits for use by other nations?

MICHAEL HUDSON : Most World Bank loans are for transportation, roads, harbor development and other infrastructure needed to export minerals and plantation crops. The World Bank doesn't make loans for projects that help the country develop in its own currency. By making only foreign currency loans, in dollars or maybe euros now, the World Bank says that its clients have to repay by generating foreign currency. The only way they can repay the dollars spent on American engineering firms that have built their infrastructure is to export – to earn enough dollars to pay back for the money that the World Bank or IMF have lent.

This is what John Perkins' book about being an economic hit man for the World Bank is all about. He realized that his job was to get countries to borrow dollars to build huge projects that could only be paid for by the country exporting more – which required breaking its labor unions and lowering wages so that it could be competitive in the race to the bottom that the World Bank and IMF encourage.

BONNIE FAULKNER : You also point out in Super Imperialism that mineral resources represent diminishing assets, so these countries that are exporting mineral resources are being depleted while the importing countries aren't.

MICHAEL HUDSON : That's right. They'll end up like Canada. The end result is going to be a big hole in the ground. You've dug up all your minerals, and in the end you have a hole in the ground and a lot of the refuse and pollution – the mining slag and what Marx called the excrements of production.

This is not a sustainable development. The World Bank only promotes the U.S. pursuit of sustainable development. So naturally, they call their "Development," but their focus is on the United States, not the World Bank's client countries.

BONNIE FAULKNER : When Super Imperialism: The Economic Strategy of American Empire was originally published in 1972, how was it received?

MICHAEL HUDSON : Very positively. It enabled my career to take off. I received a phone call a month later by someone from the Bank of Montreal saying they had just made $240 million on the last paragraph of my book. They asked what it would cost to have me come up and give a lecture. I began lecturing once a month at $3,500 a day, moving up to $6,500 a day, and became the highest-paid per diem economist on Wall Street for a few years.

I was immediately hired by the Hudson Institute to explain Super Imperialism to the Defense Department. Herman Kahn said I showed how U.S. imperialism ran rings around European imperialism. They gave the Institute an $85,000 grant to have me go to the White House in Washington to explain how American imperialism worked. The Americans used it as a how-to-do-it book.

The socialists, whom I expected to have a response, decided to talk about other than economic topics. So, much to my surprise, it became a how-to-do-it book for imperialists. It was translated by, I think, the nephew of the Emperor of Japan into Japanese. He then wrote me that the United States opposed the book being translated into Japanese. It later was translated. It was received very positively in China, where I think it has sold more copies than in any other country. It was translated into Spanish, and most recently it was translated into German, and German officials have asked me to come and discuss it with them. So the book has been accepted all over the world as an explanation of how the system works.

BONNIE FAULKNER : In closing, do you really think that the U.S. government officials and others didn't understand how their own system worked?

MICHAEL HUDSON : Many might not have understood in 1944 that this would be the consequence. But by the time 50 years went by, you had an organization called "Fifty Years Is Enough." And by that time everybody should have understood. By the time Joe Stiglitz became the World Bank's chief economist, there was no excuse for not understanding how the system worked. He was amazed to find that indeed it didn't work as advertised, and resigned. But he should have known at the very beginning what it was all about. If he didn't understand how it was until he actually went to work there, you can understand how hard it is for most academics to get through the vocabulary of junk economics, the patter-talk of free trade and free markets to understand how exploitative and destructive the system is.

BONNIE FAULKNER : Michael Hudson, thank you very much.

MICHAEL HUDSON : It's always good to be here, Bonnie. I'm glad you ask questions like these.

I've been speaking with Dr. Michael Hudson. Today's show has been: The IMF and World Bank: Partners in Backwardness. Dr. Hudson is a financial economist and historian. He is president of the Institute for the Study of Long-Term Economic Trend, a Wall Street financial analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972 book, Super Imperialism : The Economic Strategy of American Empire , a critique of how the United States exploited foreign economies through the IMF and World Bank, the subject of today's broadcast, is posted in PDF format on his website at michael-hudson.com. He is also author of Trade, Development and Foreign Debt , which is the academic sister volume to Super Imperialism. Dr. Hudson acts as an economic advisor to governments worldwide on finance and tax law. Visit his website at michael-hudson.com.

Guns and Butter is produced by Bonnie Faulkner, Yarrow Mahko and Tony Rango. Visit us at gunsandbutter.org to listen to past programs, comment on shows, or join our email list to receive our newsletter that includes recent shows and updates. Email us at faulkner@gunsandbutter.org . Follow us on Twitter at #gandbradio.

[Jul 04, 2019] The role of having world reserve currency in the unleashing the USA militarism

Jul 04, 2019 | www.unz.com

J. Gutierrez, July 2, 2019 at 5:49 pm GMT 600 Words @Commentator Mike

Hey Mike,

There is an article on here by Michael Hudson, an economist who wrote about U.S. control of the World Bank and IMF since 1948. He claims that the U.S. wages war because it gets other countries to unwittingly finance them and the trade deficit. After WWII the U.S. forced European countries to pay their war debt, by selling corporate assets, reducing barriers and reduce their social programs. They had 3/4 of the world gold reserves because of those loans during the war. Korea and Vietnam reduced their gold reserves to 10 billion by the late 60's and were forced to get out off the Gold Standard. The French Banks that had a big presense in Indochina sending their dollars to the French Central Bank and they were trading dollars for gold. Nixon stopped it.

The dollar gave U.S. the means to have other countries finance their trade deficit, all their wars and the military buildup. By ending the Gold backed dollar they forced the countries that had U.S. debt dollars to purchase U.S. Treasury Bonds. As the U.S. debt grew so did the dollars being held by those countries and the purchase of Treasury Bonds. The U.S. does not allow countries holding those dollars to buy US property or buy Corporations and risk being acused of commiting an act of war. So they are forced to buy U.S. debt while the US uses its dollars to buy other countries resources with those worthless dollars.

The U.S. forces countries that default on their loans to pay penalties and huge interest payments while the U.S. debt goes un checked and growing without the threat of being in default...

[Jun 26, 2019] Neoliberalism Has Tricked Us Into Believing a Fairytale About Where Money Comes From by Mary MELLOR

Jun 26, 2019 | www.strategic-culture.org

There is nothing natural about money. There is no link to some scarce essential form of money that sets a limit to its creation. It can be composed of base metal, paper or electronic data – none of which is in short supply. Similarly – despite what you may have heard about the need for austerity and a lack of certain cash-generating trees – there is no "natural" level of public expenditure. The size and reach of the public sector is a matter of political choice.

Which puts austerity, the culling of expenditure in the public economy, under some question. For some countries, such as Greece , the impact of austerity has been devastating. Austerity policies still persist despite numerous studies arguing that they were entirely misconceived, based on political choice rather than economic logic. But the economic case for austerity is equally mistaken: it is based on what can best be described as fairytale economics.

So what were the justifications? Britain, for example, has lived under an austerity regime since 2010, when the incoming Tory-Liberal Democrat government reversed the Labour policy of raising the level of public expenditure in response to the 2007-8 financial crisis. The crisis had created a perfect storm: bank rescue required high levels of public spending while economic contraction reduced tax income. The case for austerity was that the higher level of public expenditure could not be afforded by the taxpayer. This was supported by " handbag economics ", which adopts the analogy of states as being like households, dependent on a (private sector) breadwinner.

Under handbag economics, states are required to restrict their expenditure to what the taxpayer is deemed to be able to afford. States must not try to increase their spending by borrowing from the (private) financial sector or by "printing money" (although the banks were rescued by doing so by another name – quantitative easing , the creation of electronic money).

The ideology of handbag economics claims that money is to be generated only through market activity and that it is always in short supply. Request for increased public expenditure is almost invariably met with the response "where's the money to come from?" When confronted by low pay in the NHS, the British prime minister, Theresa May, famously declared, "there is no magic money tree".

So where does money come from? And what is money anyway? What is money?

Until the last 50 years or so the answer seemed to be obvious: money was represented by cash (notes and coin). When money was tangible, there seemed no question about its origin, or its value. Coins were minted, banknotes were printed. Both were authorised by governments or central banks. But what is money today? In richer economies the use of cash is declining rapidly . Most monetary transactions are based on transfers between accounts: no physical money is involved.

In the run up to the financial crisis, the state's role in relation to money held in bank accounts was ambiguous. Banking was a monitored and licensed activity with some level of state guarantee of bank deposits, but the actual act of creating bank accounts was, and is, seen as a private matter. There may be regulations and limitations, but there is no detailed scrutiny of bank accounts and bank lending.

Yet, as the 2007-8 financial crisis showed, when bank accounts came under threat as banks teetered on the edge of bankruptcy, states and central banks had to step in and guarantee the security of all deposit accounts. The viability of money in non-investment bank accounts was demonstrated to be as much a public responsibility as cash.

The magic money tree. © Kate Mc , Author provided

This raises fundamental questions about money as a social institution. Is it right that money can be generated by a private choice to take on debt, which then becomes a liability of the state to guarantee in a crisis?

But far from seeing money as a public resource, under neoliberal handbag economics, money creation and circulation has increasingly been seen as a function of the market. Money is "made" solely in the private sector. Public spending is seen as a drain on that money, justifying austerity to make the public sector as small as possible.

This stance, however, is based on a complete misunderstanding of the nature of money, sustained by a series of deeply embedded myths.

Myths about money

Neoliberal handbag economics is derived from two key myths about the origin and nature of money. The first is that money emerged from a previous market economy based on barter. The second is that money was originally made from precious metal.

It is claimed that bartering proved to be very inefficient as each buyer-seller needed to find another person who exactly matched their requirements. A hat maker might barter a hat for some shoes she needs – but what if the shoe maker is in no need of a hat? The solution to this problem, so the story goes, was to choose one commodity that everyone desired, to act as a medium of exchange. Precious metal (gold and silver) was the obvious choice because it had its own value and could be easily divided and carried. This view of the origin of money goes back to at least the 18th century: the time of economist Adam Smith .

The 'father of capitalism' Adam Smith, 1723-1790. Matt Ledwinka/Shutterstock.com

These myths led to two assumptions about money that are still current today. First, that money is essentially connected to, and generated by, the marketplace. Second that modern money, like its original and ideal form, is always in short supply. Hence the neoliberal claim that public spending is a drain on the wealth-creating capacity of the market and that public spending must always be as limited as possible. Money is seen as a commercial instrument, serving a basic, market, technical, transactional function with no social or political force.

But the real story of money is very different. Evidence from anthropology and history shows that there was no widespread barter before markets based on money developed, and precious metal coinage emerged long before market economies. There are also many forms of money other than precious metal coins.

Money as custom

Something that acts as money has existed in most, if not all, human societies. Stones, shells, beads, cloths, brass rods and many other forms have been the means of comparing and acknowledging comparative value. But this was rarely used in a market context. Most early human communities lived directly off the land – hunting, fishing, gathering and gardening. The customary money in such communities was used mainly to celebrate auspicious social events or serve as a way of resolving social conflict.

For example, the Lele people, who lived in what is now the Democratic Republic of Congo in the 1950s, calculated value in woven raffia cloths . The number of cloths required for different occasions was fixed by custom. Twenty cloths should be given to a father by a son on achieving adulthood and a similar amount given to a wife on the birth of a child. The anthropologist Mary Douglas, who studied the Lele, found they were resistant to using the cloths in transactions with outsiders, indicating that the cloths had a specific cultural relevance.

Even stranger is the large stone money of the Yap people of Micronesia. Huge circular discs of stone could weigh up to four metric tons . Not something to put in your pocket for a trip to the shops.

Try lugging that to the market. Evenfh/Shutterstock.com

There is plenty of other anthropological evidence such as this all over the world, all pointing to the fact that money, in its earliest form, served a social rather than market-based purpose.

Money as power

For most traditional societies, the origin of the particular money form has been lost in the mist of time. But the origin and adoption of money as an institution became much more obvious with the emergence of states. Money did not originate as precious metal coinage with the development of markets. In fact, the new invention of precious metal coinage in around 600BC was adopted and controlled by imperial rulers to build their empires by waging war.

Most notable was Alexander the Great, who ruled from 336–323BC. He is said to have used half a ton of silver a day to fund his largely mercenary army rather than a share of the spoils (the traditional payment). He had more than 20 mints producing coins, which had images of gods and heroes and the word Alexandrou (of Alexander). From that time, new ruling regimes have tended to herald their arrival by a new coinage.

Alexandrou. Alex Coan/Shutterstock.com

More than a thousand years after the invention of coinage, the Holy Roman Emperor Charlemagne (742-814), who ruled most of western and central Europe, developed what became the basis of the British pre-decimal money system: pounds, shillings and pence. Charlemagne set up a currency system based on 240 pennies minted from a pound of silver. The pennies became established as the denier in France, the pfennig in Germany, the dinero in Spain, the denari in Italy and the penny in Britain.

So the real story of money as coinage was not one of barterers and traders: it emerged instead from a long history of politics, war and conflict. Money was an active agent in state and empire building, not a passive representation of price in the market. Control of the money supply was a major power of rulers: a sovereign power. Money was created and spent into circulation by rulers either directly, like Alexander, or through taxation or seizure of private holdings of precious metal.

Nor was early money necessarily based on precious metal. In fact, precious metal was relatively useless for building empires, because it was in short supply. Even in the Roman era, base metal was used, and Charlemagne's new money eventually became debased. In China, gold and silver did not feature and paper money was being used as early as the 9th century.

A coin from the time of Charlemagne, 768-814 AD. Classical Numismatic Group, CC BY-SA

What the market economy did introduce was a new form of money: money as debt.

Money as debt

If you look at a £20 banknote you will see it says: "I promise to pay the bearer on demand the sum of twenty pounds." This is a promise originally made by the Bank of England to exchange notes for the sovereign currency. The banknote was a new form of money. Unlike sovereign money it was not a statement of value, but a promise of value. A coin, even if made of base metal, was exchangeable in its own right: it did not represent another, superior, form of money. But when banknotes were first invented, they did.

The new invention of promissory notes emerged through the needs of trade in the 16th and 17th centuries. Promissory notes were used to acknowledge receipt of loans or investments and the obligation to repay them through the fruits of future transactions. A major task of the emerging profession of banking was to periodically set all these promises against each other and see who owed what to whom. This process of "clearing" meant that a great amount of paper commitments was reduced to relatively less actual transfer of money. Final settlement was either by payment with sovereign money (coins) or another promissory note (banknote).

Eventually, the banknotes became so trusted that they were treated as money in their own right. In Britain they became equivalent to the coinage, particularly when they were united under the banner of the Bank of England. Today, if you took a banknote to the Bank of England, it would merely exchange your note for one that is exactly the same. Banknotes are no longer promises, they are the currency. There is no other "real" money behind them.

What promissory notes became. Wara1982/Shutterstock.com

What modern money does retain is its association with debt. Unlike sovereign money, which was created and spent directly into circulation, modern money is largely borrowed into circulation through the banking system. This process shelters behind another myth, that banks merely act as a link between savers and borrowers. In fact, banks create money. And it is only in the last decade that this powerful myth has been finally put to rest by banking and monetary authorities.

It is now acknowledged by monetary authorities such as the IMF, the US Federal Reserve and the Bank of England, that banks are creating new money when they make loans. They don't lend the money of other account holders to those who want to borrow.

Bank loans consist of money conjured out of thin air, whereby new money is credited to the borrowers account with the agreement that the amount will eventually be repaid with interest.

The policy implications of the public currency being created out of nowhere and lent to borrowers on a purely commercial basis have still not been taken on board. Nor has basing a public currency on debt as opposed to the sovereign power to create and directly circulate money free of debt.

The result is that rather than using their own sovereign power over money creation, as Alexander the Great did, states have become borrowers from the private sector. Where there are public spending deficits or the need for large scale future expenditure, there is an expectation that the state will borrow the money or increase taxation, rather than create the money itself.

Creators of cash. Creative Lab/Shutterstock.com

Dilemmas of debt

But basing a money supply on debt is ecologically, socially and economically problematic.

Ecologically, there is a problem because the need to pay off debt could drive potentially damaging growth : money creation based on repaying debt with interest must imply constant growth in the money supply. If this is achieved through increasing productive capacity, there will inevitably be pressure on natural resources.

Basing the money supply on debt is also socially discriminatory because not all citizens are in a position to take on debt. The pattern of the money supply will tend to favour the already rich or the most speculative risk-taker. Recent decades, for example, have seen a huge amount of borrowing by the financial sector to enhance their investments.

The economic problem is that the money supply depends on the capacity of the various elements of the economy (public and private) to take on more debt. And so as countries have become more dependent upon bank-created money, debt bubbles and credit crunches have become more frequent.

This is because handbag economics creates an impossible task for the private sector. It has to create all new money through bank-issued debt and repay it all with interest. It has to completely fund the public sector and generate a profit for investors.

But when the privatised bank-led money supply flounders, the money creating powers of the state come back into clear focus. This was particularly plain in the 2007-8 crisis, when central banks created new money in the process known as quantitative easing. Central banks used the sovereign power to create money free of debt to spend directly into the economy (by buying up existing government debt and other financial assets, for example).

The question then becomes: if the state as represented by the central bank can create money out of thin air to save the banks – why can't it create money to save the people?

It's a mistake to think of the state as a piggybank or handbag. ColorMaker/Shutterstock.com

Money for the people

The myths about money have led us to look at public spending and taxation the wrong way around. Taxation and spending, like bank lending and repayment, is in a constant flow. Handbag economics assumes that it is taxation (of the private sector) that is raising the money to fund the public sector. That taxation takes money out of the taxpayer's pocket.

But the long political history of sovereign power over money would indicate that the flow of money can be in the opposite direction. In the same way that banks can conjure money out of thin air to make loans, states can conjure money out of thin air to fund public spending. Banks create money by setting up bank accounts, states create money by allocating budgets.

When governments set budgets they do not see how much money they have in a pre-existing taxation piggybank. The budget allocates spending commitments that may, or may not, match the amount of money coming in through taxation. Through its accounts in the treasury and the central bank, the state is constantly spending out and taking in money. If it spends more money than it takes in, it leaves more money in people's pockets. This creates a budget deficit and what is effectively an overdraft at the central bank.

Is this a problem? Yes, if the state is treated as if it was any other bank account holder – the dependent household of handbag economics. No, if it is seen as an independent source of money. States do not need to wait for handouts from the commercial sector. States are the authority behind the money system. The power exercised by the banks to create the public currency out of thin air is a sovereign power.

It is no longer necessary to mint coins like Alexander, money can be created by keystrokes. There is no reason why this should be monopolised by the banking sector to create new public money as debt. Deeming public spending as being equivalent to bank borrowing denies the public, the sovereign people in a democracy, the right to access its own money free of debt.

Money should be designed for the many, not the few. Varavin88/Shutterstock.com

Redefining money

This foray into the historical and anthropological stories about money shows that long-held conceptions – that money emerged from a previous market economy based on barter, and that it was originally made from precious metal – are fairytales. We need to recognise this. And we need to capitalise on the public ability to create money.

But it is also important to recognise that the sovereign power to create money is not a solution in itself. Both the state and bank capacity to create money have advantages and disadvantages. Both can be abused. The reckless lending of the banking sector, for example, led to the near meltdown of the American and European monetary and financial system. On the other hand, where countries do not have a developed banking sector, the money supply remains in the hands of the state, with massive room for corruption and mismanagement.

The answer must be to subject both forms of money creation – bank and state – to democratic accountability. Far from being a technical, commercial instrument, money can be seen as a social and political construct that has immense radical potential. Our ability to harness this is hampered if we do not understand what money is and how it works . Money must become our servant, rather than our master.

theconversation.com The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation. Tags: Capitalism Neoliberalism Print this article June 24, 2019 | Editor's Сhoice Neoliberalism Has Tricked Us Into Believing a Fairytale About Where Money Comes From Mary MELLOR

There is nothing natural about money. There is no link to some scarce essential form of money that sets a limit to its creation. It can be composed of base metal, paper or electronic data – none of which is in short supply. Similarly – despite what you may have heard about the need for austerity and a lack of certain cash-generating trees – there is no "natural" level of public expenditure. The size and reach of the public sector is a matter of political choice.

Which puts austerity, the culling of expenditure in the public economy, under some question. For some countries, such as Greece , the impact of austerity has been devastating. Austerity policies still persist despite numerous studies arguing that they were entirely misconceived, based on political choice rather than economic logic. But the economic case for austerity is equally mistaken: it is based on what can best be described as fairytale economics.

So what were the justifications? Britain, for example, has lived under an austerity regime since 2010, when the incoming Tory-Liberal Democrat government reversed the Labour policy of raising the level of public expenditure in response to the 2007-8 financial crisis. The crisis had created a perfect storm: bank rescue required high levels of public spending while economic contraction reduced tax income. The case for austerity was that the higher level of public expenditure could not be afforded by the taxpayer. This was supported by " handbag economics ", which adopts the analogy of states as being like households, dependent on a (private sector) breadwinner.

Under handbag economics, states are required to restrict their expenditure to what the taxpayer is deemed to be able to afford. States must not try to increase their spending by borrowing from the (private) financial sector or by "printing money" (although the banks were rescued by doing so by another name – quantitative easing , the creation of electronic money).

The ideology of handbag economics claims that money is to be generated only through market activity and that it is always in short supply. Request for increased public expenditure is almost invariably met with the response "where's the money to come from?" When confronted by low pay in the NHS, the British prime minister, Theresa May, famously declared, "there is no magic money tree".

me title=

So where does money come from? And what is money anyway? What is money?

Until the last 50 years or so the answer seemed to be obvious: money was represented by cash (notes and coin). When money was tangible, there seemed no question about its origin, or its value. Coins were minted, banknotes were printed. Both were authorised by governments or central banks. But what is money today? In richer economies the use of cash is declining rapidly . Most monetary transactions are based on transfers between accounts: no physical money is involved.

In the run up to the financial crisis, the state's role in relation to money held in bank accounts was ambiguous. Banking was a monitored and licensed activity with some level of state guarantee of bank deposits, but the actual act of creating bank accounts was, and is, seen as a private matter. There may be regulations and limitations, but there is no detailed scrutiny of bank accounts and bank lending.

Yet, as the 2007-8 financial crisis showed, when bank accounts came under threat as banks teetered on the edge of bankruptcy, states and central banks had to step in and guarantee the security of all deposit accounts. The viability of money in non-investment bank accounts was demonstrated to be as much a public responsibility as cash.

The magic money tree. © Kate Mc , Author provided

This raises fundamental questions about money as a social institution. Is it right that money can be generated by a private choice to take on debt, which then becomes a liability of the state to guarantee in a crisis?

But far from seeing money as a public resource, under neoliberal handbag economics, money creation and circulation has increasingly been seen as a function of the market. Money is "made" solely in the private sector. Public spending is seen as a drain on that money, justifying austerity to make the public sector as small as possible.

This stance, however, is based on a complete misunderstanding of the nature of money, sustained by a series of deeply embedded myths.

Myths about money

Neoliberal handbag economics is derived from two key myths about the origin and nature of money. The first is that money emerged from a previous market economy based on barter. The second is that money was originally made from precious metal.

It is claimed that bartering proved to be very inefficient as each buyer-seller needed to find another person who exactly matched their requirements. A hat maker might barter a hat for some shoes she needs – but what if the shoe maker is in no need of a hat? The solution to this problem, so the story goes, was to choose one commodity that everyone desired, to act as a medium of exchange. Precious metal (gold and silver) was the obvious choice because it had its own value and could be easily divided and carried. This view of the origin of money goes back to at least the 18th century: the time of economist Adam Smith .

The 'father of capitalism' Adam Smith, 1723-1790. Matt Ledwinka/Shutterstock.com

These myths led to two assumptions about money that are still current today. First, that money is essentially connected to, and generated by, the marketplace. Second that modern money, like its original and ideal form, is always in short supply. Hence the neoliberal claim that public spending is a drain on the wealth-creating capacity of the market and that public spending must always be as limited as possible. Money is seen as a commercial instrument, serving a basic, market, technical, transactional function with no social or political force.

But the real story of money is very different. Evidence from anthropology and history shows that there was no widespread barter before markets based on money developed, and precious metal coinage emerged long before market economies. There are also many forms of money other than precious metal coins.

Money as custom

Something that acts as money has existed in most, if not all, human societies. Stones, shells, beads, cloths, brass rods and many other forms have been the means of comparing and acknowledging comparative value. But this was rarely used in a market context. Most early human communities lived directly off the land – hunting, fishing, gathering and gardening. The customary money in such communities was used mainly to celebrate auspicious social events or serve as a way of resolving social conflict.

For example, the Lele people, who lived in what is now the Democratic Republic of Congo in the 1950s, calculated value in woven raffia cloths . The number of cloths required for different occasions was fixed by custom. Twenty cloths should be given to a father by a son on achieving adulthood and a similar amount given to a wife on the birth of a child. The anthropologist Mary Douglas, who studied the Lele, found they were resistant to using the cloths in transactions with outsiders, indicating that the cloths had a specific cultural relevance.

Even stranger is the large stone money of the Yap people of Micronesia. Huge circular discs of stone could weigh up to four metric tons . Not something to put in your pocket for a trip to the shops.

Try lugging that to the market. Evenfh/Shutterstock.com

There is plenty of other anthropological evidence such as this all over the world, all pointing to the fact that money, in its earliest form, served a social rather than market-based purpose.

Money as power

For most traditional societies, the origin of the particular money form has been lost in the mist of time. But the origin and adoption of money as an institution became much more obvious with the emergence of states. Money did not originate as precious metal coinage with the development of markets. In fact, the new invention of precious metal coinage in around 600BC was adopted and controlled by imperial rulers to build their empires by waging war.

Most notable was Alexander the Great, who ruled from 336–323BC. He is said to have used half a ton of silver a day to fund his largely mercenary army rather than a share of the spoils (the traditional payment). He had more than 20 mints producing coins, which had images of gods and heroes and the word Alexandrou (of Alexander). From that time, new ruling regimes have tended to herald their arrival by a new coinage.

Alexandrou. Alex Coan/Shutterstock.com

More than a thousand years after the invention of coinage, the Holy Roman Emperor Charlemagne (742-814), who ruled most of western and central Europe, developed what became the basis of the British pre-decimal money system: pounds, shillings and pence. Charlemagne set up a currency system based on 240 pennies minted from a pound of silver. The pennies became established as the denier in France, the pfennig in Germany, the dinero in Spain, the denari in Italy and the penny in Britain.

So the real story of money as coinage was not one of barterers and traders: it emerged instead from a long history of politics, war and conflict. Money was an active agent in state and empire building, not a passive representation of price in the market. Control of the money supply was a major power of rulers: a sovereign power. Money was created and spent into circulation by rulers either directly, like Alexander, or through taxation or seizure of private holdings of precious metal.

Nor was early money necessarily based on precious metal. In fact, precious metal was relatively useless for building empires, because it was in short supply. Even in the Roman era, base metal was used, and Charlemagne's new money eventually became debased. In China, gold and silver did not feature and paper money was being used as early as the 9th century.

A coin from the time of Charlemagne, 768-814 AD. Classical Numismatic Group, CC BY-SA

What the market economy did introduce was a new form of money: money as debt.

Money as debt

If you look at a £20 banknote you will see it says: "I promise to pay the bearer on demand the sum of twenty pounds." This is a promise originally made by the Bank of England to exchange notes for the sovereign currency. The banknote was a new form of money. Unlike sovereign money it was not a statement of value, but a promise of value. A coin, even if made of base metal, was exchangeable in its own right: it did not represent another, superior, form of money. But when banknotes were first invented, they did.

The new invention of promissory notes emerged through the needs of trade in the 16th and 17th centuries. Promissory notes were used to acknowledge receipt of loans or investments and the obligation to repay them through the fruits of future transactions. A major task of the emerging profession of banking was to periodically set all these promises against each other and see who owed what to whom. This process of "clearing" meant that a great amount of paper commitments was reduced to relatively less actual transfer of money. Final settlement was either by payment with sovereign money (coins) or another promissory note (banknote).

Eventually, the banknotes became so trusted that they were treated as money in their own right. In Britain they became equivalent to the coinage, particularly when they were united under the banner of the Bank of England. Today, if you took a banknote to the Bank of England, it would merely exchange your note for one that is exactly the same. Banknotes are no longer promises, they are the currency. There is no other "real" money behind them.

What promissory notes became. Wara1982/Shutterstock.com

What modern money does retain is its association with debt. Unlike sovereign money, which was created and spent directly into circulation, modern money is largely borrowed into circulation through the banking system. This process shelters behind another myth, that banks merely act as a link between savers and borrowers. In fact, banks create money. And it is only in the last decade that this powerful myth has been finally put to rest by banking and monetary authorities.

It is now acknowledged by monetary authorities such as the IMF, the US Federal Reserve and the Bank of England, that banks are creating new money when they make loans. They don't lend the money of other account holders to those who want to borrow.

Bank loans consist of money conjured out of thin air, whereby new money is credited to the borrowers account with the agreement that the amount will eventually be repaid with interest.

The policy implications of the public currency being created out of nowhere and lent to borrowers on a purely commercial basis have still not been taken on board. Nor has basing a public currency on debt as opposed to the sovereign power to create and directly circulate money free of debt.

The result is that rather than using their own sovereign power over money creation, as Alexander the Great did, states have become borrowers from the private sector. Where there are public spending deficits or the need for large scale future expenditure, there is an expectation that the state will borrow the money or increase taxation, rather than create the money itself.

Creators of cash. Creative Lab/Shutterstock.com

Dilemmas of debt

But basing a money supply on debt is ecologically, socially and economically problematic.

Ecologically, there is a problem because the need to pay off debt could drive potentially damaging growth : money creation based on repaying debt with interest must imply constant growth in the money supply. If this is achieved through increasing productive capacity, there will inevitably be pressure on natural resources.

Basing the money supply on debt is also socially discriminatory because not all citizens are in a position to take on debt. The pattern of the money supply will tend to favour the already rich or the most speculative risk-taker. Recent decades, for example, have seen a huge amount of borrowing by the financial sector to enhance their investments.

The economic problem is that the money supply depends on the capacity of the various elements of the economy (public and private) to take on more debt. And so as countries have become more dependent upon bank-created money, debt bubbles and credit crunches have become more frequent.

This is because handbag economics creates an impossible task for the private sector. It has to create all new money through bank-issued debt and repay it all with interest. It has to completely fund the public sector and generate a profit for investors.

But when the privatised bank-led money supply flounders, the money creating powers of the state come back into clear focus. This was particularly plain in the 2007-8 crisis, when central banks created new money in the process known as quantitative easing. Central banks used the sovereign power to create money free of debt to spend directly into the economy (by buying up existing government debt and other financial assets, for example).

The question then becomes: if the state as represented by the central bank can create money out of thin air to save the banks – why can't it create money to save the people?

It's a mistake to think of the state as a piggybank or handbag. ColorMaker/Shutterstock.com

Money for the people

The myths about money have led us to look at public spending and taxation the wrong way around. Taxation and spending, like bank lending and repayment, is in a constant flow. Handbag economics assumes that it is taxation (of the private sector) that is raising the money to fund the public sector. That taxation takes money out of the taxpayer's pocket.

But the long political history of sovereign power over money would indicate that the flow of money can be in the opposite direction. In the same way that banks can conjure money out of thin air to make loans, states can conjure money out of thin air to fund public spending. Banks create money by setting up bank accounts, states create money by allocating budgets.

When governments set budgets they do not see how much money they have in a pre-existing taxation piggybank. The budget allocates spending commitments that may, or may not, match the amount of money coming in through taxation. Through its accounts in the treasury and the central bank, the state is constantly spending out and taking in money. If it spends more money than it takes in, it leaves more money in people's pockets. This creates a budget deficit and what is effectively an overdraft at the central bank.

Is this a problem? Yes, if the state is treated as if it was any other bank account holder – the dependent household of handbag economics. No, if it is seen as an independent source of money. States do not need to wait for handouts from the commercial sector. States are the authority behind the money system. The power exercised by the banks to create the public currency out of thin air is a sovereign power.

It is no longer necessary to mint coins like Alexander, money can be created by keystrokes. There is no reason why this should be monopolised by the banking sector to create new public money as debt. Deeming public spending as being equivalent to bank borrowing denies the public, the sovereign people in a democracy, the right to access its own money free of debt.

Money should be designed for the many, not the few. Varavin88/Shutterstock.com

Redefining money

This foray into the historical and anthropological stories about money shows that long-held conceptions – that money emerged from a previous market economy based on barter, and that it was originally made from precious metal – are fairytales. We need to recognise this. And we need to capitalise on the public ability to create money.

But it is also important to recognise that the sovereign power to create money is not a solution in itself. Both the state and bank capacity to create money have advantages and disadvantages. Both can be abused. The reckless lending of the banking sector, for example, led to the near meltdown of the American and European monetary and financial system. On the other hand, where countries do not have a developed banking sector, the money supply remains in the hands of the state, with massive room for corruption and mismanagement.

The answer must be to subject both forms of money creation – bank and state – to democratic accountability. Far from being a technical, commercial instrument, money can be seen as a social and political construct that has immense radical potential. Our ability to harness this is hampered if we do not understand what money is and how it works . Money must become our servant, rather than our master.

[Apr 18, 2019] My advice is to drop the idea of acquiring gold. There are just too many issues for the small buyer to safely overcome.

Apr 18, 2019 | www.moonofalabama.org

james , Apr 17, 2019 7:30:29 PM | link

@ christian - find a place like this in some city close by to where you live - it will be easier in person and avoid shipping and insurance costs..

https://www.jandm.com/systemhome.htm


Zachary Smith , Apr 17, 2019 9:11:34 PM | link

@ Christian J Chuba #37

My advice is to drop the idea of acquiring gold. There are just too many issues for the small buyer to safely overcome.

1) If gold prices ever shoot through the roof (as the seller sites keep hinting at) I'd expect the US government to politely invite you to sell them your stocks. This happened in the Thirties, and can certainly happen again. It is probably impossible to accumulate anything more than a few pieces of jewelry without being put on somebody's list. The Feds closely monitor virtually every financial transaction made in this country.

2) How will you know you're getting pure 24k gold vs 23 or 18k stuff? Worse than that, the Chinese have become VERY good at gilding Tungsten bars or disks. Even central Banks have been taken in by this scam, and what do you suppose your chances are? The 19.25 gm/cubic cm. density of Tungsten is very, very close to the 19.3 density of Gold. I'd imagine with a bit of powder metallurgy work involving a speck of 22.5 Osmium, the numbers could be exactly matched. There are a few other tests, but nobody outside of the huge dealers or central banks can afford to do them.

3) come the financial disaster, how will you "spend" your gold? Even if you're certain you have the genuine product, how will you convince me? Or anybody else, for that matter. It'll come down to what the guy at the pawn shop will give you for it, and that'll probably be on the order of 1/3 the value. (there is always the Official Government purchasers, and at their price and their penalties for holding out)

I'd suggest you buy US "junk silver" in small cash deals - the old silver coins minted up to 1964. The odds are much higher somebody will understand these have a superior value, and they're in sizes suitable for small purchases. Even so, would you reasonably expect anybody to accept a couple Ben Franklin half dollars in exchange for a sack of food - especially if there is a severe food shortage going on? If your kids know about this acquisition, you'd better prepare for the burglars - they talk about everything to everybody. Come to think of it, I know of an adult who lost tens of thousands worth of silver because he was motor mouth about it. Total loss. BTW, telling your insurance guy is the same as putting it on a billboard - this information gets shared!

Hmpf , Apr 17, 2019 10:29:49 PM | link
@ Christian J Chuba | Apr 17, 2019 7:22:58 PM | 37

Do as Karlof1 suggested - find a reputable coin dealer in your vicinity. Don't buy at Amazon, Ebay et al..

Also, if manageable buy 1 ounce coins only as this will save you surcharge that always comes with the smaller ones. Stick with well known brands - Canadian Maple Leaf, Austrian Philharmonics, Australian Kangaroo, Britannia, American Eagle - and stay away from collector items.
Notional value of the coins:
Britannia 100 GBP, Philharmonics 100 Euro, Maple Leaf 50 CAD, American Eagle 50 US, Kangaroo 50 AUS.

Watch Gold spot price prior to any purchase at barchart.com (ticker ^XAUUSD - ^XAUCAD), stockcharts.com (ticker $Gold), investing.com etc (ticker XAU/CAD - XAU/US).

[Feb 27, 2019] It's Just Wrong - Fed Chair Powell Destroys MMT Dreams

Feb 27, 2019 | www.zerohedge.com

We can already hear the whining from the uber-left's ivory tower as Fed Chair Jerome Powell unleashed some common-sense on the latest fraud being thrust upon Americans - that of Modern Monetary Theory (MMT).

As Bloomberg reminds, MMT argues that because America borrows in its own currency, it can always print more dollars to cover its obligations. As a result, the thinking goes, the U.S. can always run sustained budget deficits and rack up an ever-increasing debt burden. Helping grease the wheels for some MMTers is the expectation that the Fed would keep rates low to contain the cost of servicing America's obligations . With that in mind, Sen. David Perdue, R-Ga., asked Powell about the theory, saying its advocates back a "spend-now spend-later spend-often policy that would use massive annual deficits to fund these tremendously expensive policy proposals." MMT advocates figure the Fed would be a partner in funding these programs through easy monetary policy.

Powell's response was brief and to the point:

"The idea that deficits don't matter for countries that can borrow in their own currency I think is just wrong..."

"And to the extent that people are talking about using the Fed -- our role is not to provide support for particular policies," Powell said.

"Decisions about spending, and controlling spending and paying for it, are really for you."

Simply put, Powell explained that the increasingly popular theory espoused by progressives that the government can continue to borrow to fund social programs such as Medicare for everyone, free college tuition and a conversion to renewable energy in the next decade is unworkable and makes some "pretty extreme claims."

Earlier in the hearing Powell also noted that "U.S. debt is fairly high to the level of GDP -- and much more importantly -- it's growing faster than GDP, really significantly faster. We are going to have to spend less or raise more revenue."


Let it Go , 10 hours ago link

In his book "A Time For Action" written in 1980 William Simon, a former Secretary of the Treasury tells how he was "frightened and angry". In short, he sounded the trumpet about how he saw the country was heading down the wrong path. William Simon (1927 – 2000) was a businessman and a philanthropist.

Simon became the Secretary of the Treasury on May 8, 1974, during the Nixon administration and was reappointed by President Ford and served until 1977. I recently picked up a copy of the book that I had read decades ago and while re-reading it I reflected on and tried to evaluate the events that brought us to today.

Out of this came an article reflecting on how the economy of today had been greatly shaped by the actions that took place starting around 1979. Interest rates, inflation, and debt do matter and are more significant than most people realize. Rewarding savers and placing a value on the allocation of financial assets is important.

The path has again become unsustainable and many people will be shocked when the reality hits, this is not the way it has always been. The day of reckoning may soon be upon us, how it arrives is the question. Many of us see it coming, but the one thing we can bank on is that after it arrives many people will be caught totally off guard. The piece below explores how we reached this point.

http://brucewilds.blogspot.com/2015/04/interest-rates-inflation-and-debt-matter.html

Condor_0000 , 14 hours ago link

The Fed loved MMT when it was called quantitative easing and all the trillions were going to the one-percenters. They proved MMT works beautifully.

It's funny how the ruling-class talks so differently depending upon whether the 1% are benefiting or the 99% are benefiting.

"Reagan proved deficits don't matter." - greedy capitalist-**** **** Cheney as the 1% were looting the public till for tax cuts.

alfbell , 15 hours ago link

This is not fair to MMT for two reasons...

1) It isn't a theory, just an explanation of the US monetary system and how it works. It isn't advocating the system, it is just stating how it works and how one would need to operate within it.

2) MMT states that money shouldn't be created (spent into the economy by the gov) unless the necessary capacity, productivity, workers, resources and assets existed in the economy. And, if they didn't, they'd have to be created first. This would prevent inflation, not create it.

Most everyone is misinformed and hasn't done their homework as to what MMT is. The Libtards have taken an MMT point out of context and run with it. PRINT MONEY! But they omit the key MMT policy point of... "Print/spend ONLY ONLY ONLY if the productive capacity and resources are already in the economy to balance any gov spending out." A slightly important point that they conveniently overlooked due to their 2nd grade understanding of finance, economics and accounting.

HamburgerToday , 16 hours ago link

MMT simply doesn't work if a nation 'borrows' its own currency. However, if it does not, then MMT would at least theoretically be correct because the issue of 'printing money' (or creating credit) would not be tied to debt but would entail a balancing of the beneficial and adverse effects of monetary inflation.

Batman11 , 17 hours ago link

Alan Greenspan tells Paul Ryan the Government can create all the money it wants and there is no need to save for pensions.

https://www.youtube.com/watch?v=DNCZHAQnfGU

What matters is whether the goods and services are there for them to buy with that money.

Money comes out of nothing and is just numbers typed in at a keyboard.

Too much and you get inflation (consumer price and/or asset price inflation), too little and you get deflation.

The true nature of money is revealed with hyper inflation.

Wheel barrows of the stuff won't buy you anything, it has no intrinsic value.

yogibear , 16 hours ago link

Hence state bailouts of NJ, IL, CA, etc. Money from helicopters coming to those that are broke!

Freebies from the Fed.

JD59 , 17 hours ago link

It is all FIAT CURRENCY, the debt is WORTHLESS, and means nothing.

Rusty Pipes , 16 hours ago link

Tell that to future (unaborted) generations. $10 billion a week in interest payments now, at relatively low rates, and rising.

Stuck on Zero , 17 hours ago link

There is some evidence that you can print money and spend it and have a vibrant, powerful economy. It depends on how you spend it. If it's spent on supportive infrastructure such as energy, transportation, utilities, communications, etc. it's all upwards. If it's spent on welfare, war machinery, and supporting the bureaucracy the system fails in one generation.

brushhog , 17 hours ago link

Underlying the whole premise of MMT is the question; Does the market determine interest rates or does the fed?

I know the fed determines the federal funds rate but are they the sole dictator of interest rates? A large portion of our debt is purchased by both domestic and foreign investors. These are independent people....as well as governments. Will they continue to buy bonds at 2% interest from a country that has a debt-to-GDP ration of 300% and 10 trillion dollar yearly deficits??

If US debt gets downgraded, can the fed over-ride the tide of reality and dictate low interest rates? Can they print enough to buy them all or do they have to maintain a functioning balance sheet as well?

daveeemc2 , 17 hours ago link

cut spending - why does usa need fbi branches in every foreign country?

why do we need so many outdated military machines (ahem aircraft carriers)

why does health care and education cost so much (ahem we forget to talk about cost, only how to pay the fee imposed by the business)

Much of our debt is result of party over country, pointless wars (that Iraq oil is now controlled by Russia and china..so much for the return on investment there), Afghanistan is a failed and foolish intervention - just ask russia, syria is a soverign nation leave them alone, same as venezuala.

Retrench and let the world figure itself out - after pakistan and india nuke each other back to stone age, lets hope for humanities sake we can get real global cooperative leadership that doesnt include the capitalist big read white and blue **** smacking foreign nations on the forehead to further the elites agenda.

[Feb 09, 2019] Large Excess Reserves and the Relationship between Money and Prices - FRB Richmond

Notable quotes:
"... But otherwise, quite correct. Raise payments on deposits and get more deposits. Raise charges on loans and get fewer loans. I might note that the Fed has supposedly paused rate hikes, but deposits are still exiting the system faster than loans. This result can be had via Fred. Thus the curve is getting more3 inverted. ..."
Feb 09, 2019 | economistsview.typepad.com

Joe , February 06, 2019 at 04:54 PM

Large Excess Reserves and the Relationship between Money and Prices - FRB Richmond

At the same time that it has been normalizing its balance sheet, the Fed also has been raising its target for interest rates. The ability to pay interest on reserves has been crucial to allowing the Fed to raise its target rate while there are still significant excess reserves in the banking system. Despite these rate increases, due to various secular reasons, interest rates are expected to remain historically low for a long time.

--------------

I sample the current expectation, and it is a bit more detailed. The expectation is that the curve will remain inverted, generally with a zero near the five yer mark, if I judge from the Treasury curve where the curve has been inverted with a zero near the five yer mark.

The ten year rate will remain historically higher than the five year rate for some time, evidently. If we measure interest rate as the per annum percent of Real GDP devoted to nominal federal interest charges, then the interest rate was higher than it has ever been going back to 1972, briefly (four months ago) , and now occupies the second highest level since just before the 92 recession, at about 3.5% of GDP. These result can be had in Fred by dividing nominal interest payments by real GDP.

But otherwise, quite correct. Raise payments on deposits and get more deposits. Raise charges on loans and get fewer loans. I might note that the Fed has supposedly paused rate hikes, but deposits are still exiting the system faster than loans. This result can be had via Fred. Thus the curve is getting more3 inverted.

Why do we know the curve will invert? It is the law, when the Fed loses deposits, loan charges drop, not rise as would be normal. That is why we all expect the curve to remain inverted, the law. The law is specifically designed so the Fed holds the current low rate as long as possible, then does the sudden regime change. The law, written into the law, a rule requires that we spend time with an inverted yield curve before price adjustment. I emphasis the law because it is actually typed out, signed and enforced publicly.

The law requires the Fed hold the curve as long as possible, mainly so the pres and Congress have time to react to changes in term of trade. So, like under Obama, we hold the line on rates until Obama and the Repubs agree on a tax and spending plan going forward, then the treasury curve gains traction again. Te law, it is not under debate unless you want to be arreswted.

[Feb 05, 2019] Money's true nature is law. When a country collapses, then its money collapses.

Feb 05, 2019 | www.unz.com

MEFOBILLS , says: February 3, 2019 at 8:07 pm GMT

@nsa Sorry, not true.

The original bronze disks of Rome circulated as currency. The metal money of U.S. Confederacy circulated that is until the Confederacy became no more.

The point? Money's true nature is law. When a country collapses, then its money collapses.

Paper money that was good? Lincoln's greenbacks circulated at par. Massachusetts Bills circulated as money and prevented Oligarchs from England and their attempted takeover. The colony used the money to make iron goods (like Cannons) and do commerce.

The real statement is this: Money when it becomes unlawful, always collapses.

Massive money printing can happen when too many loans are made, as in the case today as all private bank credit notes come into being with loan activity -- a little more that 98%.

Driving a currency down with shorts causes new money to be loaned into existence, which in turn is the underlying cause of hyperinflations. The new credit creation covers the short. This mechanism always goes along with exchange rate pressures, where your country has to pay a debt in a foreign currency.

If you had an internal gold currency, which is recognized internationally, then your debts would be paid in gold, which would collapse your country into depression instead of inflation.

Bottom line is that money's true nature is law, and making claims about "paper" or "metal" obscures this fact.

cassandra , says: February 3, 2019 at 8:38 pm GMT
@eah

Since both the Fed and your local bank create money from nothing

They also impose some obligations: repayment of principle and interest. Since we can't create money from nothing, this payback has to come from money somehow created by the banks as well.

I'm less worried about "disappearing" tax money than I am about misallocated spending and its consequences -- eg the 'black budget' of the NSA and 'deep state' generally.

Can't we worry about everything ?

Good point about the 'black budget'. But the last time some sort of DOD audit was attempted the Pentagon accountants' offices got hit by a missile, I mean airliner, on 911.

[Feb 04, 2019] Externally, a nation's currency usually has value to the extent that a nation has something to offer others, which makes the currency useful for making a desired purchase. Today, the "desired purchase" is oil.

Feb 04, 2019 | www.unz.com

cassandra , says: February 4, 2019 at 9:43 pm GMT

@MEFOBILLS +++++

I'd extend your comment a bit.

Internally, a national currency has a value corresponding to demand placed by the government, such as money for the taxes the state requires of its people. The ups and downs of Lincoln's Greenback fiat currency, especially its interaction with the value of gold, demonstrates how currency is tied to confidence in the government, as you suggest.

Externally, a nation's currency usually has value to the extent that a nation has something to offer others, which makes the currency useful for making a desired purchase. Today, the "desired purchase" is oil. The dollar is valued because you need dollars to buy oil, as formerly enforced by diplomatic pressure. Because of US sanctions, trade in oil is now beginning using rubles, yuan, and most unforgivably, Venezuelan currency! (Like Iraq, Libya and Syria). If this keeps up, countries will no longer need dollars for their oil, and $ will have to compete internationally based on other considerations. That won't be pretty. IMHO, US leaders have dangerously eroding the dollar's pre-eminence by profligate use of sanctions.

I need to remedy my own deficiencies in this area, but advocates of Modern Monetary Theory, like Michael Hudson, Steve Keene, and like-minded economists who often post at nakedcapitalism, make a strong case for a fiat money system, issued and controlled by state banks, in contrast to the private banks as now.

But objecting to the fact that private bankers charge us interest, and act above the law and democratic accountability, is such a quaint complaint.

[Feb 03, 2019] Neoliberalism and Christianity

Highly recommended!
Money quote: " neoliberalism is the fight of finance to subdue society at large, and to make the bankers and creditors today in the position that the landlords were under feudalism."
Notable quotes:
"... ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. ..."
"... neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism. ..."
"... They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ..."
"... Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc. ..."
"... The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries. ..."
"... Now Christianity has itself long given up on the tradition teaching against usury of course. ..."
"... In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans. ..."
May 02, 2018 | www.moonofalabama.org

karlof1 , May 1, 2018 2:27:06 PM | 13

Just finished reading the fascinating Michael Hudson interview I linked to on previous thread; but since we're discussing Jews and their religion in a tangential manner, I think it appropriate to post here since the history Hudson explains is 100% key to the ongoing pain us humans feel and inflict. My apologies in advance, but it will take this long excerpt to explain what I mean:

"Tribes: When does the concept of a general debt cancellation disappear historically?

"Michael: I guess in about the second or third century AD it was downplayed in the Bible. After Jesus died, you had, first of all, St Paul taking over, and basically Christianity was created by one of the most evil men in history, the anti-Semite Cyril of Alexandria. He gained power by murdering his rivals, the Nestorians, by convening a congress of bishops and killing his enemies. Cyril was really the Stalin figure of Christianity, killing everybody who was an enemy, organizing pogroms against the Jews in Alexandria where he ruled.

"It was Cyril that really introduced into Christianity the idea of the Trinity. That's what the whole fight was about in the third and fourth centuries AD. Was Jesus a human, was he a god? And essentially you had the Isis-Osiris figure from Egypt, put into Christianity. The Christians were still trying to drive the Jews out of Christianity. And Cyril knew the one thing the Jewish population was not going to accept would be the Isis figure and the Mariolatry that the church became. And as soon as the Christian church became the establishment rulership church, the last thing it wanted in the West was debt cancellation.

"You had a continuation of the original Christianity in the Greek Orthodox Church, or the Orthodox Church, all the way through Byzantium. And in my book And Forgive Them Their Debts, the last two chapters are on the Byzantine echo of the original debt cancellations, where one ruler after another would cancel the debts. And they gave very explicit reason for it: if we don't cancel the debts, we're not going to be able to field an army, we're not going to be able to collect taxes, because the oligarchy is going to take over. They were very explicit, with references to the Bible, references to the jubilee year. So you had Christianity survive in the Byzantine Empire. But in the West it ended in Margaret Thatcher. And Father Coughlin.

"Tribes: He was the '30s figure here in the States.

"Michael: Yes: anti-Semite, right-wing, pro-war, anti-labor. So the irony is that you have the people who call themselves fundamentalist Christians being against everything that Jesus was fighting for, and everything that original Christianity was all about."

Hudson says debt forgiveness was one of the central tenets of Judaism: " ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. "

Looks like I'll be purchasing Hudson's book as he's essentially unveiling a whole new, potentially revolutionary, historical interpretation.

psychohistorian , May 1, 2018 3:31:50 PM | 26
@ karlof1 with the Michale Hudson link....thanks!!

Here is the quote that I really like from that interview
"
Michael: No. You asked what is the fight about? The fight is whether the state will be taken over, essentially to be an extension of Wall Street if you do not have government planning. Every economy is planned. Ever since the Neolithic (era), you've had to have (a form of) planning. If you don't have a public authority doing the planning, then the financial authority becomes the planners. So globalism is in the financial interest –Wall Street and the City of London, doing the planning, not governments. They will do the planning in their own interest. So neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism.
"

karlof1, please email me as I would like to read the book as well and maybe we can share a copy.

And yes, it is relevant to Netanyahoo and his ongoing passel of lies because humanity has been told and been living these lives for centuries...it is time to stop this shit and grow up/evolve

james , May 1, 2018 10:30:01 PM | 96
@13 / 78 karlof1... thanks very much for the links to michael hudson, alastair crooke and the bruno maraces articles...

they were all good for different reasons, but although hudson is being criticized for glossing over some of his talking points, i think the main thrust of his article is very worthwhile for others to read! the quote to end his article is quite good "The question is, who do you want to run the economy? The 1% and the financial sector, or the 99% through politics? The fight has to be in the political sphere, because there's no other sphere that the financial interests cannot crush you on."

it seems to me that the usa has worked hard to bad mouth or get rid of government and the concept of government being involved in anything.. of course everything has to be run by a 'private corp' - ie corporations must run everything.. they call them oligarchs when talking about russia, lol - but they are corporations when they are in the usa.. slight rant..

another quote i especially liked from hudson.. " They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ." that sounds about right...

@ 84 juliania.. aside from your comments on hudsons characterization of st paul "the anti-Semite Cyril of Alexandria" further down hudson basically does the same with father coughlin - https://en.wikipedia.org/wiki/Charles_Coughlin.. he gets the anti-semite tag as well.. i don't know much about either characters, so it's mostly greek to me, but i do find some of hudsons views especially appealing - debt forgiveness being central to the whole article as i read it...

it is interesting my own view on how money is so central to the world and how often times I am incapable of avoiding the observation of the disproportionate number of Jewish people in banking.. I guess that makes me anti-semite too, but i don't think of myself that way.. I think the obsession with money is killing the planet.. I don't care who is responsible for keeping it going, it is killing us...

WJ | May 1, 2018 10:48:58 PM | 100

James @96,

Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc.

The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries.

Now Christianity has itself long given up on the tradition teaching against usury of course.

WJ , May 1, 2018 8:23:40 PM | 88
Juliana @84,

I too greatly admire the work of Hudson but he consistently errs and oversimplifies whenever discussing the beliefs of and the development of beliefs among preNicene followers of the way (as Acts puts is) or Christians (as they came to be known in Antioch within roughly eight or nine decades after Jesus' death.) Palestinian Judaism in the time of Jesus was much more variegated than scholars even twenty years ago had recognized. The gradual reception and interpretation of the Dead Sea Scrolls in tandem with renewed research into Phili of Alexandria, the Essenes, the so-called Sons of Zadok, contemporary Galilean zealot movements styles after the earlier Maccabean resistance, the apocalyptism of post exilic texts like Daniel and (presumably) parts of Enoch--all paint a picture of a highly diverse group of alternatives to the state-Church once known as Second Temple Judaism that has been mistaken as undisputed Jewish "orthodoxy" since the advent of historical criticism.

The Gospel of John, for example, which dates from betweeen 80-120 and is the record of a much earlier oral tradition, is already explicitly binitarian, and possibly already trinitarian depending on how one understands the relationship between the Spirit or Advocate and the Son. (Most ante-Nicene Christians understood the Spirit to be *Christ's* own spirit in distributed form, and they did so by appeal to a well-developed but still largely under recognized strand in Jewish angelology.)

The "theological" development of Christianity occurred much sooner that it has been thought because it emerged from an already highly theologized strand or strands of Jewish teaching that, like Christianity itself, privileged the Abrahamic covenant over the Mosaic Law, the testament of grace over that of works, and the universal scope of revelation and salvation as opposed to any political or ethnic reading of the "Kingdom."

None of these groups were part of the ruling class of Judaean priests and levites and their hangers on the Pharisees.

In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans.

So the anti-Judaism/Semiti of John's Gispel largely rests on a mistranslation. In any event, everything is much more complex than Hudson makes it out to be. Christian economic radicalism is alive and well in the thought of Gregory of Nysa and Basil the Great, who also happened to be Cappadocian fathers highly influential in the development of "orthodox" Trinitarianism in the fourth century.

I still think that Hudson's big picture critique of the direction later Christianity took is helpful and necessary, but this doesn't change the fact that he simplifies the origins, development, and arguably devolution of this movement whenever he tries to get specific. It is a worthwhile danger given the quality of his work in historical economics, but still one has to be aware of.

[Jan 29, 2019] Modern Monetary Theory A Cargo Cult

Jan 29, 2019 | www.zerohedge.com

Newly elected Representative Alexandria Ocasio-Cortez recently said that Modern Monetary Theory (MMT) absolutely needed to be "a larger part of our conversation." Her comment shines a spotlight on MMT. So what is it? According to Wikipedia , it is:

"a macroeconomic theory that describes the currency as a public monopoly and unemployment as the evidence that a currency monopolist is restricting the supply of the financial assets needed to pay taxes and satisfy savings desires."

It is uncontroversial to say that the Federal Reserve has a monopoly on the dollar. So let's look at the second proposition. Unemployment, MMT holds, is evidence that the supply of dollars is restricted.

In other words, more money causes more employment!

This does not sound very different from what the New Keynesians say. Keith analyzed former Fed Chair Janet Yellen's seminal paper on the economics of labor for Forbes :

"Here is their [Yellen and co-author Ackerloff] tenuous chain of logic:

  1. Disgruntled employees don't work hard, and may even sabotage machinery.
  2. So companies must overpay to keep them from slacking.
  3. Higher pay per worker means fewer workers, because companies have a finite budget.

Yellen concludes -- you guessed it:

  1. inflation provides corporations with more money to hire more people."

As a footnote, MMT is referred to as neo-Chartalism, and there is some evidence that Keynes was influenced by Chartalism (which goes back to at least 1905).

On Thursday, Marketplace published a piece on MMT . Things are heating up for this hot new (old) idea. Marketplace presented a "bathroom sink" model of the economy (yes, really!)

To wrap your brain around this concept, picture a bathroom sink. Think of the government and its ability to create more money whenever it needs to as the faucet and that bucket area of the sink where the water goes as the economy.

The government controls how much money, or water, is flowing into the economy. It spends money into the economy by building interstates or paying farm subsidies or funding programs.

"And so as those dollars reach the economy, they begin to fill up that bucket, and what you want to do is be very mindful about how full that bucket is getting or you're going to get an inflation problem," [Bernie Sanders economic advisor Stephanie] Kelton said.

Inflation is where the sink overflows. If that happens, Kelton said there are two ways to fix it: "You can slow the flow of dollars coming into that bucket. That means the government then has to start slowing it's [sic] rate of spending, or you can open up the drain and let some of those dollars out of the economy. And that's what we do when we collect taxes."

This sounds a lot like the Quantity Theory of Money (QTM). This view often paints a picture of pouring water into a container. The higher the water level, the higher the general price level.

QTM by itself does not promote the idea that more money causes more employment. Only that more money causes more rising prices. But Keynes did. And the New Keynesians like Yellen do.

So what makes MMT unique?

According to Stephanie Kelton, in the Marketplace article:

"If you control your own currency and you have bills that are coming due, it means you can always afford to pay the bills on time," Kelton said. "You can never go broke, you can never be forced into bankruptcy. You're nothing like a household."

Keynes taught us about government deficits to bolster employment and government deficits to respond to a crisis. MMT teaches us how to get to the next level. The voters want free goodies. Traditional economics says "there ain't no such thing as a free lunch."

MMT says "oh yes there is!"

At least until you get to too much inflation . The Monetarists would agree, don't print too much money or you get too much inflation . Much of the gold community also agrees. If you print too much money, then you get skyrocketing inflation .

Never mind that this prediction was proven wrong in the post-2008 policy response. We want to highlight that the Keyesians, the Monetarists, the MMTers, and even many Austrians largely agree. The problem with too much money printing is too much inflation . They quibble about what is too much, but they agree on the "bathroom sink" model of the economy.

In the words of early 20 th century physicist Wolfgang Pauli, QTM "is not even wrong ."

We define inflation as the counterfeiting of credit. That is, fraudulently taking money from a saver. It is called borrowing , but the borrower hasn't got the means or intent to repay. Additionally, when everyone thinks that the government's debt paper is money , the saver doesn't even know or consent to the borrowing.

There are lies, damnlies, and statistics. Then there are a few pugnacious, in your face, gaslighting make-you-believe-in-unreality cargo cults. We will explore this in full, below.

During World War II, the US military set up operations on certain Pacific islands. They built landing strips, where they landed planes bringing in supplies and men. They hired the local tribesmen as labor, and paid them stuff that was ordinary to Americans, but wondrous to the islanders. Like canned food. The islanders really looked forward to when a plane would land, and they would get some cargo.

After the war, the US military pulled up stakes and left. But the islanders still wanted the cargos. So they set up these elaborate charades, with tiki torches instead of flashlights, and coconut shell mockup headphones. They went through the motions that they thought the Americans did. To try to bring back the cargos.

Huh. What does that remind you of? An elaborate charade, with bogus props, going through the motions of a civilization they don't understand to try to produce desired results -- free goodies?

Modern Monetary Theory is a cargo cult.

It's ironic that the name includes the word modern . If we said that a pile of greasy rags sealed in a dark closet would spontaneously generate rats, would you call that a modern theory? If we said that sickness is caused by bad humors, and the cure is bloodletting by leaches, would you say this is modern ? How about the idea that the Sun and the planets orbit the Earth. Is this modern , too?

Not only are these not modern -- they are, in fact, old ideas that were tossed into the garbage heap -- they are not theories either. A theory is an explanation of reality, which integrates many observed facts and contradicts none. Modern Monetary Theory is neither modern nor a theory .

MMT is not an attempt to explain reality, but to deny it.

Even a child understands something. Even people in the ancient world understood it, too. If you lend a bushel of wheat to your neighbor, and he does not repay it, you suffer a loss. You are worse off, compared to before. And so is the borrower (who at the least ruins his credit).

MMT is based on denying this universal truth. Common sense says that if Peter lends to Paul, and Paul does not repay, then Peter is impoverished. Common sense says that Peter would not lend to Paul if he knew that Paul would renege on his obligation.

MMT says that a modern economy has a modern currency, which is just the state's paper. And in a modern economy, the modern state can print more with no concerns other than "overflowing the bathroom sink". Get that, the only concern is prices could rise too fast. And so long as this does not occur, then the state can get away with it. Only, there is nothing to get away with. It's perfectly fine.

In a cargo cult, the people did not recognize the difference between fake coconut shell headphones, and real headphones. Or flashlights and tiki torches. So they made crude copies as best they could. They went through the motions to summon the sky gods to come down to earth, with cargo.

Let's look at the mental gymnastics. They imbued magical -- that is outside the principle of cause and effect -- characteristics to their props. Failing to understand that airplanes are created by men, and that it takes a great deal of planning (not to mention wealth) to fly a plane full of cargo from America to the middle of the Pacific, they imagined that, somehow, the act of using the headphones and the flashlights caused the plane and its cargo to come. The headset is tokenized, viewed as a magical talisman.

What a cargo cult does to headphones, MMT does to money. First, the cargo cult substitutes coconut shells held together with twisted vine for headphones. What they wear when attempting to summon the sky gods is not a headset, but a surrogate. MMT (as does Keynesianism and Monetarism) substitutes government debt paper for money.

As an aside, even a gold-redeemable certificate is not money. Think about it. You can bring this piece of paper to the teller window. You push it across the counter. The teller pushes back the gold coin. If the word for the paper is money, then what is the word for the gold for which it redeems?

Anyways, modern monetary systems use irredeemable paper. It's not gold-redeemable, but even worse. And they treat this paper as if it were money .

And it goes even farther. Previous theories felt the need to at least pay lip service to repaying debt. They couldn't quite get to the point of openly admitting that the debt is never to be repaid. Keynes famously quipped that, "in the long run, we are all dead," creating ambiguity about the intention to repay. Monetarists generally promote the idea that if the economy grows fast enough, the debt will shrink as a proportion of GDP.

The Keynesians don't have the intention to repay. And the Monetarists don't look at Marginal Productivity of Debt , which would show them that their idea isn't working. But they don't go as far as the MMT'ers.

MMT says that the government is unlike deadbeat-debtor Paul. There is no need for the government to repay. It's the same as the cargo cult. The cargo cult has no concept for capital. The islanders do not produce in excess of what they consume, accumulating tools and technology to increase their productivity. They subsist, and assume that this is how the world works.

MMT has no concept for capital either. It puts blinders on, declaring that consumer prices are the only thing to measure. The only risk is if they rise too fast. And the MMT'ers refuse to see anything else.

In our discussion of Yield Purchasing Power , we introduced a farmer who sells off the back 40 (acres), chops down the apple orchard to sell the fruitwood, tears down the old barn to sell the planks, and even dismantles the tractor. And why does he do this? He gets cash in exchange. And the cash is far in excess of his crop yield. Why struggle and sweat to produce $20,000 a year by growing food, when you can sell off the piece of the farm for $20,000,000.

The monetary system incentivizes the farmer to trade productive capital for paper credit slips. The incentive is that this paper has a greater purchasing power than what he can earn by operating the farm. He can trade his farm for far more groceries, than the food he could grow on it.

This is the same old game. But MMT gives it a new name -- and asserts a bolder defense. MMT'ers don't want to see, and they want you not to see, that the lender gives up good capital but the borrower is just consuming it.

MMT justifies the naked consumption of capital.

Supply and Demand Fundamentals

The prices of the metals rose this week, especially on Friday. The exchange rate of gold went up twenty two US dollars, and that of silver 41 US cents.

As we will discuss below, we think that there is a rethinking of gold occurring in the market. And we don't just mean celebrities like Sam Zell buying gold for the first time.

There is a sense of déjà vu. Starting in mid-2004, the Fed went on one of its rate-hiking sprees. It did not manage to get as high as the previous peak of 6.5%, set prior to the previous crisis. In 2006, this rate topped out at 5.25%. In both the crisis of 2001, and the crisis of 2008, the Fed had begun cutting rates before the official indication of recession , and the cuts occurred more rapidly than the preceding hikes.

The cuts were too little and/or too late to avert disaster.

The problem is that during the period of low rates, firms are incentivized to borrow. They finance projects which generate a low rate of return. These projects would not be financed, but for the even-lower cost of borrowing. When rates rise, it does not increase the rate of return produced by marginal projects (likely the opposite). So borrowers are squeezed.

The Fed eventually comes along with its fix -- even lower rates. While this is too late to save firms that are teetering into default, it does enable the next wave of borrowing for even-poorer-projects.

And now, here we are. Since its first tepid hike in December 2005, the Fed has been hiking for just over three years so far. It has hit a rate well under half of the peak of 2006-2007. The president has publicly urged the Fed to reverse policy course. And the Fed said it is listening to the market, and may have paused hiking for now.

Meanwhile, the Fed Funds rate may be lower than the previous peak but it is much higher than it was from the end of 2008 through the end of 2015. For seven years, it was basically zero. Nobody knows how many dollars' worth of projects were financed that were only justified, only possible, due to this zero interest-rate policy. But it was surely a lot (we would guess at least trillions).

And now the rate is up to 2.25%. Many of those projects are no longer justified, and can no longer service the debt that finances them.

And none of this is a secret. It is well known to the borrowers, of course. And their creditors. And the Fed. And hedge funds and other sophisticated speculators. And not just in general theory, but lists of specific companies and the rollover dates of their bond issues.

Rollover is key to this. After decades of falling interest, everyone has learned the game of using short-term financing. But the risk is that it must be rolled over. And when it is rolled, the previous low-rate is replaced with the higher, current rate. And that's when we find out which businesses can still pay.

So what will the Fed do? The next programs will have a new name, but the Fed must lower the cost of capital if it wants to keep the game going.

Is this time going to be the total collapse of the dollar? We don't believe so, as there is still a lot of capital remaining and more is flooding in as people abandon the dollar-derivative currencies. So we think of it as déjà vu, the Fed is likely to do something similar to last time.

And that is an environment where even the non-goldbugs see clear and compelling arguments for owning gold.

It could be that the timing is not now. It could be that it will take months or years to arrive at this point. We make no predictions of timing. However, we note that the Monetary Metals Gold Fundamental Price has been in a rising trend since mid-October. Its low was on October 9 ($1,266).

Silver is similar, but a bit different. The low in its fundamental occurred in late November ($14.37). But it's up like a rocket since then, now about two bucks higher.

We are at an interesting point.

Let's take a look at the only true picture of the supply and demand fundamentals of gold and silver. But, first, here is the chart of the prices of gold and silver.

[Nov 20, 2018] The Torah, biblical and Quran stories were written in agrarian societies where capitalistic enterprise hardly existed. Loans were for not dying of hunger in the period between when the food of the last harvest had been used completely, and the new harvest was still in the future.

Nov 20, 2018 | www.unz.com

jilles dykstra , says: November 14, 2018 at 12:21 pm GMT

@tac The Torah, biblical and Quran stories were written in agrarian societies where capitalistic enterprise hardly existed.
Loans were for not dying of hunger in the period between when the food of the last harvest had been used completely, and the new harvest was still in the future.
Thus interest was seen as blackmailing people, they needed money to prevent dying of starvation.
There was enterprise long ago, and trade over long distances, in the early centuries for example swords from Damascus were famous in Europe, and exported to Europe.
Investment for business was the exception, even the first iron smelting installations were simple, those who wanted them could build them by themselves.
The idea that invested money could yield money came later, when installations became more complex, ships bigger, etc.
With investment came risk, there was not much risk in consumptive loans, they normally could paid out of the coming harvest.
And so the problem began, a church not understanding capitalism, an agrarian society based on barter changing into a money using capitalistic society.
Commercial people had no problem with interest, even now Muslims do not have problems with interest.
What they do is simply giving interest other names, such as a fine for repaying late.
It has been agreed that the repayment will be late, so anybody is happy.

[Nov 20, 2018] It is an interesting side-note that both Christianity and Islam both prohibit the use of usury

Nov 20, 2018 | www.unz.com

tac , says: November 14, 2018 at 6:35 am GMT

@renfro And there you have it in a nutshell: usary -- the usurper of civilization, the enslaver of humanity, the seed of ultimate degeneracy. It seems humanity is adverse to learn from history. It is an interesting side-note that both Christianity and Islam both prohibit the use of usury (a consideration worthy of mention when one contemplates the ongoing wars in the ME) and some who here take shots at Farakhann, 'neo-nazis', blue-hair and other deplorables.

Our dilemma today is the same that occurred in Rome. Our country and people will suffer the same fate if usury continues as it has. From the onset of history, it has been the moneychangers, who have exploited mankind for pure profit. Usury is an abomination against God's statutes, which manipulates and destroys people, families, and nations. It is by the profits made from usury used to attack Christianity. One needs only to ask- who is in control of usury worldwide? Didn't Rome suffer from these same people? Usury brings forth an insidious side to all people. The temptation to borrow is powerful, and it always polarizes lender against borrower where the former becomes the master and the later, the slave. As a vice, neighbor is pitted against his neighbor, and nation against nation.

[...]

The Roman government was far too corrupt already with its politicians bought by moneychangers for any fledgling Christian sect to have an affect on its decline. The moneychanger's demand was perpetually self-serving, which was disparate to the common good of the populace. Originally, Rome was founded as a republic. The unchecked influence of the moneychangers caused it to change into a democracy. A republic is derived through the election of public officials whose attitude toward property is respected in terms of law for individual rights. A democracy is derived through the election of public officials whose attitude toward property is communistic and respects the "collective good" of the population instead of the individual. This is the resultant system that moneychangers bring to civilization. The subversion of power is a sleight of hand that changes the right of the individual into what is often called the "collective good" of the people (communistic), which is always controlled by an alliance of powerful interests.

There is no reference in the article to the moneychangers and their lawyers sowing the seeds for Roman society to suffocate under its own lethargic weight. Lawyers were indeed a problem to Rome. The Romans were so concerned by lawyers' opprobrious effect on public morale that they attempted to curb their influence. In 204 BC, the Roman Senate passed a law prohibiting lawyers from plying their trade for money. As the Roman republic declined and became more democratic, it became increasingly difficult to keep lawyers in check and prevent them from accepting fees under the table. Indeed, they were very useful to the moneychangers. The lawyers fed upon corruption and accelerated the downward plunge of Roman civilization. Some wealthy Romans began sending their sons to Greece to finish their schooling, to learn rhetoric (Julius Caesar was one example) -- a lawyer's cleverness in oration. This compounded Rome's growing woes.
[...]
The moneychangers destroyed Rome from within by first monopolizing usury, monopolizing the precious mineral trade and then disproportionately magnifying the temporal businesses of prostitution (including pedophilia and homosexuality), and slavery. Constantine (306-337 AD) was the first Roman emperor to issue laws, which radically limited the rights of Jews as citizens of the Roman Empire, a privilege conferred upon them by Caracalla in 212 AD. The laws of Constantius (337-361 AD) recognized the Jewish domination of the slave trade and acted to greatly curtail it. A law of Theodosius II (408-410 AD), prohibited Jews from holding any advantageous office of honor in the Roman state. Always the impetus was buying influence concerning their trade.
[...]
Usury has been the opiate that has ruined the ingenuity of many of its civilizations. As this Jewish craft spread, the people increasingly suffered from the burdens of indebtedness. So troubling was the effects of usury that Lex Genucia outlawed usury in 342 BC. Nevertheless, ways of evading such legislation were found and by the last period of the Republic, usury was once again rife. Emperors like Julius Caesar and Justinian tried to limit the interest rate and control its devastating effects (Birnie, 1958). Entertainment was a way to temporarily set aside the burdens of indebtedness. It was a way to festively indulge in all the glory that Rome had to offer. Rome soon became drunk on hedonism. Collectively, entertainment helped disguise the collapsing of a great power. Spectator blood sports, brothels, carnivals, festivals, and parties substituted for everything that was wrong with Rome.
[...]
Rome became a multi-cultural state much like our own in the United States. Indeed, it was truly an international city. Foreigners of every nation resided and worked there. The Romans soon intermarried and had children with the many foreigners. This included concubines from the numerous slaves won through war. Rome had an extraordinary large slave population and was estimated to make up about two-thirds of its population at one time.
[...]
Eventually, the Romans lost their tribal cohesion and identity. The population of Rome had changed and so did its character. Increasing demands were made of the ruling patricians. The aristocrats tried to appease the masses, but eventually those demands could not be sustained. Rome had become bankrupt. The effects of usury polarized the patrician class against an increasingly dispossessed and burdened class of citizens.
[...]
Rome was bankrupt and was collapsing. The parasitic nature of usury and its effect on government was too complex for the uneducated plebeians to understand (see Addendum for an illustration of usury's power). Indeed, it was the moneychangers with the use of their lawyers that destroyed pagan Rome. The Jewish interests did not control all usury. However, they were a people well recognized as being extremely loyal to each other and adept in the black craft of usury. To all others (gentiles) they showed hate and enmity. Throughout history the weapon of usury is used again and again to destroy nations.
[...]
Fortunately, the writings of Cicero survived the burning of libraries. In the case against Faccus, we can see the crafts of the Jews are the same today. The Jews clearly held great influence in politics as a result of their professions and profited immensely at the expense of Rome. We can further deduce by the case of Faccus that the Jews were not concerned with the interests of Rome, but rather for their own interests. The Jewish gold was being shipped from Rome and its provinces throughout the empire to Jerusalem. Why? We also know that the Jews had utter contempt and hatred of the Romans. This contempt is demonstrated by their breaking of Roman law, which Faccus tried to uphold. If we look closer, we see that gold has a very special meaning to all Jewry unlike any other people.
[...]
There are enough records for us to piece together what actually occurred in Rome that led to its downfall. Rome fell as a result of corruption and the lack of cohesion of its own people. But, it was the instrument of usury that brought about this corruption and allowed its gold and silver to be controlled by Jewish interests.
[...]
It was Christianity that put an end to the destructive nature of usury on its people (see addendum for usury example). Rome's treasury became barren as a result of the moneychangers. It weakened the Roman Empire immeasurably, and thrust untold millions in poverty, debt, and in prison. It was Christianity that halted the influence of the Jews and their destructive trades and practices. And, the Christian faith spread throughout the former Roman Empire. All of the European people eventually became Christianity's vanguard and champion. Without the strict adherence to the moral ethos, any civilization will devolve into the religion of Nimrod.

http://www.vanguardnewsnetwork.com/v1/index274.htm

[Oct 25, 2018] Should we trust MMT?

Oct 25, 2018 | www.nakedcapitalism.com

Tvc15 , October 23, 2018 at 2:34 pm

I apologize in advance to Lambert for adding this link to his terrific daily water cooler topics, but since Yves and NC were specifically mentioned I thought it would be interesting to share. The video is titled, "Should we trust MMT?" with Joe Bongiovanni. It is 48 minutes long and I only made it about 20 minutes after becoming too annoyed. Yves/NC are mentioned at 18 minutes and 40 seconds in. Joe says he was part of the NC commentariat for years, but was banned due to his thoughts that MMT proponents are misleading and don't "tell the real truth".

https://youtu.be/jvunhn47F20

Tvc15 , October 23, 2018 at 3:31 pm

Not being an economist or comfortable enough with my understanding of MMT to know if what he was saying had merit. Plus the style and lack of preparation from the interviewer other than wanting her expert to debunk MMT for her right wing followers.

JohnnyGL , October 23, 2018 at 6:45 pm

I'm 30 min in .skip ahead to that point to get to the meat of his discussion.

He keeps repeating that he wants monetary "reform", so that the money system 'works for the people'. But he doesn't say what that change is or why MMT gets it wrong in its understanding of how the system works.

He says "govt doesn't create money by spending". Except, yes, it does. It then chooses to offset that spending later with bond auctions.

He doesn't make a distinction between public and private debt, doesn't distinguish between currency users and issuers. No distinction between stocks and flows. No discussion of capacity constraints, inflation.

He actually fear-mongers about the debt around the 38-39 min mark. Says there's going to be tough times when we get austerity (in addition to environment collapsing).

He talks a lot about how 'the monetary system works', but it's clear to me he doesn't get how the banking system works. I don't think you can understand one without the other very well.

MMT can offer a clear explanation of why:

1) 30 yr treasury bond yields fell rapidly in the 1980s while deficits were exploding.
2) 30 yr treasury bond yields rose in 2000, hitting 7% on the 30 yr at one point, when the government was running surpluses.
3) Japan has a functional currency and economy with massive debts and deficits for many years.

Conventional economics has NO explanation for the above phenomenon.

ChristopherJ , October 23, 2018 at 7:33 pm

Cheers Johnny – he's been here before and took umbrage to the NC crew saying that taxation for revenue is obsolete. Don't make me go there.

Said NC doesn't like criticism and Yves had banned him I'd be banned too if I thought that!!

Got some trolls on Youtube worked up. I'll go and finish them off after I do a little more digging on Joe and his Kettle Pond Institute for Debt Free Money.

He had a go at Bill Mitchell on this post recently:

http://bilbo.economicoutlook.net/blog/?p=39889

IMO, Tvc, if you want some relevant stuff, look at how Jimmy Dore (a comedian turned activist) gets his head around MMT – Stephanie Kelton was good and has been linked here and also Chris Hedges

People like JD are very influential and I can see a heightened awareness out there that we are not going to get anywhere now by being polite and civil.

That's how we got here in the first place

Plenue , October 23, 2018 at 8:18 pm

"he's been here before and took umbrage to the NC crew saying that taxation for revenue is obsolete."

It's not just obsolete as in "we don't need to do this anymore". Instead it literally doesn't happen at the federal level.

Yves Smith , October 23, 2018 at 9:36 pm

I don't remember the details, but he was banned for behavior. The problem that so often happens is that the people on losing sides of arguments here (as in not just the moderators but the commentariat does a good job of debunking their claims) is they don't give up and start going into various forms of bad faith argumentation: broken record, straw manning, or just plain getting abusive. Then they try to claim they were banned due to their position, as opposed to how they started carrying on when they couldn't make their case.

ChrisAtRU , October 23, 2018 at 7:19 pm

Joe B. is part of AMI (American Monetary Institute). This installment from NEP should sort you out.

#MMT v #AMI/#PositiveMoney

Yves Smith , October 23, 2018 at 9:43 pm

The AMI people are a real problem, and the worst is that they use enough lingo that sounds MMT-like that they confuse people about MMT. They are also presumptuous as hell. I was part of an Occupy Wall Street group, Alternative Banking. Every week, a group came and kept trying to hijack the discussion to be about Positive Money. They got air time because that's Occupy but everyone else regarded them as an annoyance.

One Sunday, the president of AMI showed up in a suit, uninvited, and expected to be able to take over the group and lecture. The rules were everyone on stack got only 2 or 3 minutes each (I forget how long) and then had to cede the floor. Since everyone else was too polite, I was the one who had to shut him up by blowing up at him and telling him he was totally out of line and had no business abusing the group's rules. That is the only time in my WASPy life I have carried on like that in a public setting. Broke up the meeting, which reconvened only after he left.

ChrisAtRU , October 24, 2018 at 12:22 pm

#Yikes I learned early on to avoid the #PositiveMoney trap, and this anecdote should convince others of the same.

skippy , October 24, 2018 at 12:41 am

All part of the broader sound money camp, not unlike Mr. Volcker's recent NYT piece.

[Oct 09, 2018] US Russia Sanctions Are 'A Colossal Strategic Mistake', Putin Warns

Oct 09, 2018 | russia-insider.com

Russian President Vladimir Putin accused Washington of making a "colossal" but "typical" mistake by exploiting the dominance of the dollar by levying economic sanctions against regimes that don't bow to its whims.

"It seems to me that our American partners make a colossal strategic mistake," Putin said.

"This is a typical mistake of any empire," Putin said, explaining that the US is ignoring the consequences of its actions because its economy is strong and the dollar's hegemonic grasp on global markets remains intact. However "the consequences come sooner or later."

These remarks echoed a sentiment expressed by Putin back in May, when he said that Russia can no longer trust the US dollar because of America's decisions to impose unilateral sanctions and violate WTO rules.

... ... ...

With the possibility of being cut off from the dollar system looming, a plan prepared by Andrei Kostin, the head of Russian bank VTB, is being embraced by much of the Russian establishment. Kostin's plan would facilitate the conversion of dollar settlements into other currencies which would help wean Russian industries off the dollar. And it already has the backing of Russia's finance ministry, central bank and Putin.

Meanwhile, the Kremlin is also working on deals with major trading partners to accept the Russian ruble for imports and exports.

In a sign that a united front is forming to help undermine the dollar, Russia's efforts have been readily embraced by China and Turkey, which is unsurprising, given their increasingly fraught relationships with the US. During joint military exercises in Vladivostok last month, Putin and Chinese President Xi Jinping declared that their countries would work together to counter US tariffs and sanctions.

"More and more countries, not only in the east but also in Europe, are beginning to think about how to minimise dependence on the US dollar," said Dmitry Peskov, Mr Putin's spokesperson. "And they suddenly realise that a) it is possible, b) it needs to be done and c) you can save yourself if you do it sooner."

[Oct 09, 2018] The Continuing Dominance of the Dollar by Josepth Joyce

Notable quotes:
"... Financial Times ..."
"... Global Financial Stability ..."
Oct 09, 2018 | angrybearblog.com

Why does the dollar continue to possess a hegemonic status a decade after the crisis that seemed to signal an end to U.S.-U.K. dominated finance? Gillian Tett of the Financial Times offers several reasons. The first is the global reach of U.S. based banks. U.S. banks are seen as stable, particularly when compared to European banks. Any listing of the largest international banks will be dominated by Chinese banks, and these institutions have expanded their international business . But the Chinese banks will conduct business in dollars when necessary. Tett's second reason is the relative strength of the U.S. economy, which grew at a 4.1% pace in the second quarter. The third reason is the liquidity and credibility of U.S. financial markets, which are superior to those of any rivals.

The U.S. benefits from its financial dominance in several ways. Jeff Sachs of Columbia University points out that the cost of financing government deficits is lower due to the acceptance of U.S. Treasury securities as "riskless assets." U.S. banks and other institutions earn profits on their foreign operations. In addition, the use of our banking network for international transactions provides the U.S. government with a powerful foreign policy tool in the form of sanctions that exclude foreign individuals, firms or governments from this network .

There are risks to the system with this dependence. As U.S. interest rates continue to rise, loans that seemed reasonable before now become harder to finance. The burden of dollar-denominated debt also increases as the dollar appreciates. These developments exacerbate the repercussions of policy mistakes in Argentina and Turkey, but also affect other countries as well.

The IMF in its latest Global Financial Stability (see also here ) identifies another potential destabilizing feature of the current system. The IMF reports that the U.S. dollar balance sheets of non-U.S. banks show a reliance on short-term or wholesale funding. This reliance leaves the banks vulnerable to a liquidity freeze. The IMF is particularly concerned about the use of foreign exchange swaps, as swap markets can be quite volatile. While central banks have stablished their own network of swap lines , these have been criticized .

The status of the dollar as the primary international currency is not welcomed by foreign governments. The Russian government, for example, is seeking to use other currencies for its international commerce. China and Turkey have offered some support, but China is invested in promoting the use of its own currency. In addition, Russia's dependence on its oil exports will keep it tied to the dollar.

But interest in formulating a new international payments system has now spread outside of Russia and China. Germany's Foreign Minister Heiko Maas has called for the establishment of "U.S. independent payment channels" that would allow European firms to continue to deal with Iran despite the U.S. sanctions on that country. Chinese electronic payments systems are being used in Europe and the U.S. The dollar may not be replaced, but it may have to share its role as an international currency with other forms of payment if foreign nations calculate that the benefits of a new system outweigh its cost. Until now that calculation has always favored the dollar, but the reassessment of globalization initiated by the Trump administration may have lead to unexpected consequences.

[Oct 08, 2018] The city of Los Angeles has on its ballot for the November elections a measure to create a city-owned bank.

Oct 08, 2018 | www.moonofalabama.org

Grieved , Oct 7, 2018 4:13:53 PM | link

Our commenter psychohistorian and others interested in public banking, and the concept of money as a public utility rather than a private (and profit-gouging) instrument, may want to watch the latest Keiser Report, which has an interview with Ellen Brown.

Brown relates that the city of Los Angeles has on its ballot for the November elections a measure to create a city-owned bank. This was put on the ballot by the city council itself, prompted by a groundswell of support coming from constituents.

The rapid-fire interview doesn't go deeply into the politics behind this citizen initiative, but it seems like a happy story of young millennials looking for an alternative to Wall Street banks, and learning from Brown and others about the strong value of the public bank.

An interesting turn of events. The interview starts in the second half of the show at 14:40:

Episode 1289 Keiser Report

[Oct 02, 2018] Randy Wray Modern Monetary Theory How I Came to MMT and What I Include in MMT naked capitalism

Notable quotes:
"... By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives ..."
"... Treatise on Money ..."
"... State Theory of Money ..."
"... Money and Credit in Capitalist Economies ..."
"... Understanding Modern Money ..."
"... Modern Money Theory ..."
"... Payback: Debt and the shadow side of wealth ..."
"... Reclaiming the State ..."
"... Austerity: The History of a Dangerous Idea ..."
"... permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. ..."
"... that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. ..."
"... income inequality ..."
"... even after paying interest ..."
"... It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945). ..."
"... After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received. ..."
"... See: https://mythfighter.com/2018/08/27/ten-answers-that-are-contrary-to-popular-wisdom/ ..."
"... There is no avoiding bad government. ..."
"... "Taxes or other obligations (fees, fines, tribute, tithes) drive the currency." ..."
"... "JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability." ..."
Oct 02, 2018 | www.nakedcapitalism.com

Randy Wray: Modern Monetary Theory – How I Came to MMT and What I Include in MMT Posted on October 2, 2018 by Yves Smith By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives

I was asked to give a short presentation at the MMT conference. What follows is the text version of my remarks, some of which I had to skip over in the interests of time. Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT.

I'd also like to quickly respond to some comments that were made at the very last session of the conference -- having to do with "approachability" of the "original" creators of MMT. Like Bill Mitchell, I am uncomfortable with any discussion of "rockstars" or "heroes". I find this quite embarrassing. As Bill said, we're just doing our job. We are happy (or, more accurately pleasantly surprised) that so many people have found our work interesting and useful. I'm happy (even if uncomfortable) to sign books and to answer questions at such events. I don't mind emailed questions, however please understand that I receive hundreds of emails every day, and the vast majority of the questions I get have been answered hundreds, thousands, even tens of thousands of times by the developers of MMT. A quick reading of my Primer or search of NEP (and Bill's blog and Warren's blogs) will reveal answers to most questions. So please do some homework first. I receive a lot of "questions" that are really just a thinly disguised pretense to argue with MMT -- I don't have much patience with those. Almost every day I also receive a 2000+ word email laying out the writer's original thesis on how the economy works and asking me to defend MMT against that alternative vision. I am not going to engage in a debate via email. If you have an alternative, gather together a small group and work for 25 years to produce scholarly articles, popular blogs, and media attention -- as we have done for MMT -- and then I'll pay attention. That said, here you go: wrayr@umkc.edu .

******************************************************************************

As an undergraduate I studied psychology and social sciences -- but no economics, which probably gave me an advantage when I finally did come to economics. I began my economics career in my late 20's studying mostly Institutionalist and Marxist approaches while working for the local government in Sacramento. However, I did carefully read Keynes's General Theory at Sacramento State and one of my professors -- John Henry -- pushed me to go to St. Louis to study with Hyman Minsky, the greatest Post Keynesian economist.

I wrote my dissertation in Bologna under Minsky's direction, focusing on private banking and the rise of what we called "nonbank banks" and "off-balance sheet operations" (now called shadow banking). While in Bologna, I met Otto Steiger -- who had an alternative to the barter story of money that was based on his theory of property. I found it intriguing because it was consistent with some of Keynes's Treatise on Money that I was reading at the time. Also, I had found Knapp's State Theory of Money -- cited in both Steiger and Keynes–so I speculated on money's origins (in spite of Minsky's warning that he didn't want me to write Genesis ) and the role of the state in my dissertation that became a book in 1990 -- Money and Credit in Capitalist Economies -- that helped to develop the Post Keynesian endogenous money approach.

What was lacking in that literature was an adequate treatment of the role of the state–which played a passive role -- supplying reserves as demanded by private bankers -- that is the Post Keynesian accommodationist or Horzontalist approach. There was no discussion of the relation of money to fiscal policy at that time. As I continued to read about the history of money, I became more convinced that we need to put the state at the center. Fortunately I ran into two people that helped me to see how to do it.

First there was Warren Mosler, who I met online in the PKT discussion group; he insisted on viewing money as a tax-driven government monopoly. Second, I met Michael Hudson at a seminar at the Levy Institute, who provided the key to help unlock what Keynes had called his "Babylonian Madness" period -- when he was driven crazy trying to understand early money. Hudson argued that money was an invention of the authorities used for accounting purposes. So over the next decade I worked with a handful of people to put the state into monetary theory.

As we all know, the mainstream wants a small government, with a central bank that follows a rule (initially, a money growth rate but now some version of inflation targeting). The fiscal branch of government is treated like a household that faces a budget constraint. But this conflicts with Institutionalist theory as well as Keynes's own theory. As the great Institutionalist Fagg Foster -- who preceded me at the University of Denver–put it: whatever is technically feasible is financially feasible. How can we square that with the belief that sovereign government is financially constrained? And if private banks can create money endogenously -- without limit -- why is government constrained?

My second book, in 1998, provided a different view of sovereign spending. I also revisited the origins of money. By this time I had discovered the two best articles ever written on the nature of money -- by Mitchell Innes. Like Warren, Innes insisted that the dollar's value is derived from the tax that drives it. And he argued this has always been the case. This was also consistent with what Keynes claimed in the Treatise, where he said that money has been a state money for the past four thousand years, at least. I called this "modern money" with intentional irony -- and titled my 1998 book Understanding Modern Money as an inside joke. It only applies to the past 4000 years.

Surprisingly, this work was more controversial than the earlier endogenous money research. In my view it was a natural extension -- or more correctly, it was the prerequisite to a study of privately created money. You need the state's money before you can have private money. Eventually our work found acceptance outside economics -- especially in law schools, among historians, and with anthropologists.

For the most part, our fellow economists, including the heterodox ones, attacked us as crazy.

I benefited greatly by participating in law school seminars (in Tel Aviv, Cambridge, and Harvard) on the legal history of money -- that is where I met Chris Desan and later Farley Grubb, and eventually Rohan Grey. Those who knew the legal history of money had no problem in adopting MMT view -- unlike economists.

I remember one of the Harvard seminars when a prominent Post Keynesian monetary theorist tried to argue against the taxes drive money view. He said he never thinks about taxes when he accepts money -- he accepts currency because he believes he can fob it off on Buffy Sue. The audience full of legal historians broke out in an explosion of laughter -- yelling "it's the taxes, stupid". All he could do in response was to mumble that he might have to think more about it.

Another prominent Post Keynesian claimed we had two things wrong. First, government debt isn't special -- debt is debt. Second, he argued we don't need double entry book-keeping -- his model has only single entry book-keeping. Years later he agreed that private debt is more dangerous than sovereign debt, and he's finally learned double-entry accounting. But of course whenever you are accounting for money you have to use quadruple entry book-keeping. Maybe in another dozen years he'll figure that out.

As a student I had read a lot of anthropology -- as most Institutionalists do. So I knew that money could not have come out of tribal economies based on barter exchange. As you all know, David Graeber's book insisted that anthropologists have never found any evidence of barter-based markets. Money preceded market exchange.

Studying history also confirmed our story, but you have to carefully read between the lines. Most historians adopt monetarism because the only economics they know is Friedman–who claims that money causes inflation. Almost all of them also adopt a commodity money view -- gold was good money and fiat paper money causes inflation. If you ignore those biases, you can learn a lot about the nature of money from historians.

Farley Grubb -- the foremost authority on Colonial currency -- proved that the American colonists understood perfectly well that taxes drive money. Every Act that authorized the issue of paper money imposed a Redemption Tax. The colonies burned all their tax revenue. Again, history shows that this has always been true. All money must be redeemed -- that is, accepted by its issuer in payment. As Innes said, that is the fundamental nature of credit. It is written right there in the early acts by the American colonies. Even a gold coin is the issuer's IOU, redeemed in payment of taxes. Once you understand that, you understand the nature of money.

So we were winning the academic debates, across a variety of disciplines. But we had a hard time making progress in economics or in policy circles. Bill, Warren, Mat Forstater and I used to meet up every year or so to count the number of economists who understood what we were talking about. It took over decade before we got up to a dozen. I can remember telling Pavlina Tcherneva back around 2005 that I was about ready to give it up.

But in 2007, Warren, Bill and I met to discuss writing an MMT textbook. Bill and I knew the odds were against us -- it would be for a small market, consisting mostly of our former students. Still, we decided to go for it. Here we are -- another dozen years later -- and the textbook is going to be published. MMT is everywhere. It was even featured in a New Yorker crossword puzzle in August. You cannot get more mainstream than that.

We originally titled our textbook Modern Money Theory , but recently decided to just call it Macroeconomics . There's no need to modify that with a subtitle. What we do is Macroeconomics. There is no coherent alternative to MMT.

A couple of years ago Charles Goodhart told me: "You won. Declare victory but be magnanimous about it." After so many years of fighting, both of those are hard to do. We won. Be nice.

Let me finish with 10 bullet points of what I include in MMT:

1. What is money: An IOU denominated in a socially sanctioned money of account. In almost all known cases, it is the authority -- the state -- that chooses the money of account. This comes from Knapp, Innes, Keynes, Geoff Ingham, and Minsky.

2. Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability to impose such obligations is an important aspect of sovereignty; today states alone monopolize this power. This comes from Knapp, Innes, Minsky, and Mosler.

3. Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU denominated in the recognized money of account; but acceptance can be hard to get unless you have the state backing you up. This is Minsky.

4. The word "redemption" is used in two ways -- accepting your own IOUs in payment and promising to convert your IOUs to something else (such as gold, foreign currency, or the state's IOUs).

The first is fundamental and true of all IOUs. All our gold bugs mistakenly focus on the second meaning -- which does not apply to the currencies issued by most modern nations, and indeed does not apply to most of the currencies issued throughout history. This comes from Innes and Knapp, and is reinforced by Hudson's and Grubb's work, as well as by Margaret Atwood's great book: Payback: Debt and the shadow side of wealth .

5. Sovereign debt is different. There is no chance of involuntary default so long as the state only promises to accept its currency in payment. It could voluntarily repudiate its debt, but this is rare and has not been done by any modern sovereign nation.

6. Functional Finance: finance should be "functional" (to achieve the public purpose), not "sound" (to achieve some arbitrary "balance" between spending and revenues). Most importantly, monetary and fiscal policy should be formulated to achieve full employment with price stability. This is credited to Abba Lerner, who was introduced into MMT by Mat Forstater.

In its original formulation it is too simplistic, summarized as two principles: increase government spending (or reduce taxes) and increase the money supply if there is unemployment (do the reverse if there is inflation). The first of these is fiscal policy and the second is monetary policy. A steering wheel metaphor is often invoked, using policy to keep the economy on course. A modern economy is far too complex to steer as if you were driving a car. If unemployment exists it is not enough to say that you can just reduce the interest rate, raise government spending, or reduce taxes. The first might even increase unemployment. The second two could cause unacceptable inflation, increase inequality, or induce financial instability long before they solved the unemployment problem. I agree that government can always afford to spend more. But the spending has to be carefully targeted to achieve the desired result. I'd credit all my Institutionalist influences for that, including Minsky.

7. For that reason, the JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability. This comes from Minsky's earliest work on the ELR, from Bill Mitchell's work on bufferstocks and Warren Mosler's work on monopoly price setting.

8. And also for that reason, we need Minsky's analysis of financial instability. Here I don't really mean the financial instability hypothesis. I mean his whole body of work and especially the research line that began with his dissertation written under Schumpeter up through his work on Money Manager Capitalism at the Levy Institute before he died.

9. The government's debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balances sheets because what you are saying is nonsense. Fortunately, I had learned T-accounts from John Ranlett in Sacramento (who also taught Stephanie Kelton from his own, great, money and banking textbook -- it is all there, including the impact of budget deficits on bank reserves). Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.

10. Rejection of the typical view of the central bank as independent and potent. Monetary policy is weak and its impact is at best uncertain -- it might even be mistaking the brake pedal for the gas pedal. The central bank is the government's bank so can never be independent. Its main independence is limited to setting the overnight rate target, and it is probably a mistake to let it do even that. Permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. I credit Keynes, Minsky, Hudson, Mosler, Eric Tymoigne, and Scott Fullwiler for much of the work on this.

That is my short list of what MMT ought to include. Some of these traditions have a very long history in economics. Some were long lost until we brought them back into discussion. We've integrated them into a coherent approach to Macro. In my view, none of these can be dropped if you want a macroeconomics that is applicable to the modern economy. There are many other issues that can be (often are) included, most importantly environmental concerns and inequality, gender and race/ethnicity. I have no problem with that.

Hilary Barnes , October 2, 2018 at 3:01 am

Out of my depth: "7. For that reason, the JG is a critical component of MMT." The JG?

BillC , October 2, 2018 at 3:07 am

Job guarantee (especially as distinguished from a basic income guarantee). See here for fairly recent coverage by Lambert.

Epistrophy , October 2, 2018 at 6:16 am

I had exactly the same question. Thank you.

skippy , October 2, 2018 at 7:04 am

A JG is to discontinue NAIRU or structural under-unemployment with attendant monetarist/quasi inflation views. Something MMT has be at pains to point out wrt fighting a nonexistent occurrence due to extended deflationary period.

dcrane , October 2, 2018 at 5:31 am

The paragraph on "double entry book-keeping" is also a bit too inside-baseball. Otherwise I enjoyed the essay.

PlutoniumKun , October 2, 2018 at 6:11 am

Yup, he lost me on quadruple entry book-keeping, thats the first time I ever heard of that concept.

Quanka , October 2, 2018 at 8:02 am

Its double entry accounting counting both sides of the equation. Fed deposits money into bank requires 4 entries, a double entry for the Fed and for the bank. Typical double entry accounting only looks at the books of 1 entity at a time. Quadruple Entry accounting makes the connection between the government monetary policy and private business accounting. I'm not an accountant, I may have butchered that.

todde , October 2, 2018 at 12:15 pm

that's pretty much it

Peter Pan , October 2, 2018 at 1:37 pm

Does Steve Keen's "Minsky" program utilize quadruple-entry bookkeeping?

Todde , October 2, 2018 at 1:47 pm

Double entry

Grebo , October 2, 2018 at 3:12 pm

Yes it does. Double entry for each party to the transaction.

todde , October 2, 2018 at 3:29 pm

you are right – it does give each parties transactions.

horostam , October 2, 2018 at 8:43 am

think about banks and reserves, your money is on the bank's liability side (and your asset), while the reserves are on the bank's asset side (and gov't or fed's liability.)

i think its the reserves that quadruple it, reserves are confusing because when you move $5 from a bank account to buy ice cream its not just one copy of the $5 that moves between checking accounts, there is another $5 that moves "under the hood" so to speak in reserve world

HotFlash , October 2, 2018 at 12:10 pm

Very briefly, double entry bookkeeping keeps track of how money comes in/out, and where it came from/went. Cash is the determining item (although there may be a few removes). Hence, say I buy a $20 dollar manicure from you. I record my purchase as "Debit (increase) expense: manicure $20, credit (decrease) cash, $20". Bonus! If my bookkeeping is correct, my debits and credits are equal and if I add them up (credits are minus and debits are plus) the total is zero – my books "balance". So, double-entry bookkeeping is also a hash-total check on my accounting accuracy. But I digress.

On your books, the entry would be "Debit (increase) cash $20, credit (decrease) sales, $20".

So, your double-entry book plus my double-entry books would be quadruple-entry accounting.

JCC , October 2, 2018 at 9:40 am

#7 was my immediate stopper, too. It drives me nuts when people introduce 2-3-4 letter acronyms with no explanation (I work for the DoD and I'm surrounded by these "code words". I rarely know what people are talking about and when I ask, the people talking rarely know what these TLAs – T hree L etter A cronyms – stand for either!).

Next question regarding #7: What is ELR?

Other than #7, I really appreciate this article. NC teaches and/or clarifies on a daily basis.

Mel , October 2, 2018 at 10:11 am

Employer of Last Resort? (Wikipedia)

Matthew Platte , October 2, 2018 at 11:29 am

DoD?

JCC , October 2, 2018 at 2:45 pm

Guilty as charged :-)

For non-US readers, DoD is D epartment o f D efense, the undisputed-by-many home of TLAs.

lyman alpha blob , October 2, 2018 at 3:10 pm

Ha! I really love this blog.

somecallmetim , October 2, 2018 at 12:51 pm

NC?

;)

Bill C , October 2, 2018 at 3:02 am

Thank you for this post!

This quick, entertaining read is IMHO nothing less than a "Rosetta Stone" that can bring non-specialists to understand MMT: not just how , but why it differs from now-conventional neoliberal economics. I hope it finds a wide readership and that its many references to MMT's antecedents inspire serious study by the unconvinced (and I hope they don't take Wray's invitation to skip the 10 bullet points).

This piece is a fine demonstration of why I've missed Wray as he seemed to withdraw from public discourse for the last few years.

HotFlash , October 2, 2018 at 12:14 pm

No no! He said "Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT."

el_tel , October 2, 2018 at 4:55 am

Thank you! The (broad) analogies with my own experience are there. I had a decidedly "mainstream" macro education at Cambridge (UK); though many of the "old school" professors/college Fellows who, although not MMT people as we'd currently understand (or weren't at *that* stage – Godley lectured a module I took but this was in the early 1990s) were still around, in hindsight the "university syllabus" (i.e. what you needed to regurgitate to pass exams) had already steered towards neoliberalism. I never really understood why I never "got" macro and it was consistently my weakest subject.

It was later, having worked in the City of London, learned accountancy in my actuarial training, and then most crucially starting reading blogs from people who went on to become MMT leading lights, that I realised the problem wasn't ME, it was the subject matter. So I had to painfully unlearn much of what I was taught and begin the difficult process of getting my head around a profoundly different paradigm. I still hesitate to argue the MMT case to friends, since I don't usually have to hand the "quick snappy one liners" that would torpedo their old discredited understanding.

I'm still profoundly grateful for the "old school" Cambridge College Fellows who were obviously being sidelined by the University and who taught me stuff like the Marxist/Lerner critiques, British economic history, political economy of the system etc. Indeed whilst I had "official" tutorials with a finance guy who practically came whenever Black-Scholes etc was being discussed, an old schooler was simultaneously predicting that it would blow the world economy up at some point (and of course he was in the main , correct). I still had to fill in some gaps in my knowledge (anthropology was not a module, though Marxist economics was), with hindsight I appreciate so much more of what the "old schoolers" said on the sly during quiet points in tutorials – Godley being one, although he wasn't ready at that time to release the work he subsequently published and was so revolutionary. Having peers educated elsewhere during my Masters and PhD who knew nothing of the subjects that – whilst certainly not the "key guide" to "proper macro" described in the article – began to horrify me later in my career.

skippy , October 2, 2018 at 5:07 am

Thanks for your efforts Mr Wray, your provide a rich resource to familiarize most and in some cases refute doctrinaire attitudes. Kudos.

BTW completely agree with the perspective against PR marketing of the topic or individuals wrt MMT or PK.

Lambert Strether , October 2, 2018 at 5:23 am

This is really great. Thanks a ton, as Yves would say.

I know I have used to "rock star" metaphor on occasion, so let me explain that to me what is important in excellent (i.e., live) rock and roll is improvisational interplay among the group members -- the dozen or so who understood MMT in the beginning, in this case -- who know the tune, know each other, and yet manage to make the song a little different each time. It's really spectacular to see in action. Nothing to do with spotlights, or celebrity worship, or fandom!

DavidEG , October 2, 2018 at 5:54 am

I'm no MMT expert, but I think this article does a good job of juxtaposing MMT with classic (non-advanced) macroeconomics. I quote:

In the language of Tinbergen (1952), the debate between MMT and mainstream macro can be thought of as a debate over which instrument should be assigned to which target. The consensus assignment is that the interest rate, under the control of an independent central bank, should be assigned to the output gap target, while the fiscal position, under control of the elected budget authorities, should be assigned to the debt sustainability target. [ ] The functional finance assignment is the reverse -- the fiscal balance under the budget authorities is assigned to the output target, while any concerns about debt sustainability are the responsibility of the monetary authority.

What about interest rate fixing? The central bank would remain in charge of that, but in an MMT context this instrument would lose most of its relevance:

[W]hile a simple swapping of instruments and targets is one way to think about functional finance, this does not describe the usual MMT view of how the policy interest rate should be set. What is generally called for, rather, is that the interest rate be permanently kept at a very low level, perhaps zero. In an orthodox policy framework, of course, this would create the risk of runaway inflation; but keep in mind that in the functional framework, the fiscal balance is set to whatever level is consistent with price stability.

It may be a partial reconstruction of MMT, but to me this seems to be a neat way to present MMT to most people. Saying that taxes are there just to remove money from the economy or to provide incentives is a rather extreme statement that is bound to elicit some fierce opposition.

Having said that, I've never seen anyone address what I think are two issues to MMT: how to make sure that the power to create money is not exploited by a political body in order to achieve consensus, and how to assure that the idea of unlimited monetary resources do not lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry would probably be a good example).

larry , October 2, 2018 at 6:14 am

The best comparison of MMT with neoliberal neoclassical economics, in my view, is Bill Mitchell's blog post, "How to Discuss Modern Monetary Theory" ( http://bilbo.economicoutlook.net/blog/?p=25961 ). I especially recommend the table near the end as a terrific summary of the differences between the mainstream narrative and MMT.

el_tel , October 2, 2018 at 8:53 am

Thanks! I have enormous respect for Mitchell, given the quantity and quality of his blogging. However, my only nitpick is that a lot of his blog entries are quite long and "not easily digestible". I have long thought that one of those clever people who can do those 3 minute rapid animation vids we see on youtube is needed to "do a Lakoff" and change the metaphors/language. But this post of Mitchell (which I missed, since I don't read all his stuff) is, IMHO, his best at "re-orienting us".

kgw , October 2, 2018 at 11:15 am

I get this "http's server IP address could not be found." I'll try, gasp, googling it

el_tel , October 2, 2018 at 11:24 am

FWIW I mucked around with the link in Firefox (although I typically use Opera, which gave me that same error) and could read it.

Epistrophy , October 2, 2018 at 6:34 am

Saying that taxes are there just to remove money from the economy or to provide incentives is a rather extreme statement that is bound to elicit some fierce opposition.

Yes this is a frightening statement. The power to tax is the power to destroy. If this is a foundation point of the proposal then

Having said that, I've never seen anyone address what I think are two issues to MMT: how to make sure that the power to create money is not exploited by a political body in order to achieve consensus, and how to assure that the idea of unlimited monetary resources do not lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry would probably be a good example).

Bingo. My thoughts exactly. Too much power in the hands of the few. Easy to slide into Orwell's Animal Farm – where some people are more equal than others.

MMT is based upon very good intentions but, in my view, there is a moral rot at the root of the US of A's problems, not sure this can be solved by monetary policy and more centralized control.

And the JG? Once the government starts to permanently guarantee jobs

skippy , October 2, 2018 at 7:12 am

I suggest you delve into what is proposed by the MMT – PK camp wrt a JG because its not centralized in the manner you suggest. It would be more regional and hopefully administrated via social democratic means e.g. the totalitarian aspect is moot.

I think its incumbent on commenters to do at least a cursory examination before heading off on some deductive rationalizations, which might have undertones of some book they read e.g. environmental bias.

Epistrophy , October 2, 2018 at 7:38 am

Skippy, I read the article, plus the links, including those links of the comments. I will admit that I am a little more right of center in my views than many on the website.

The idea is interesting, but the administration of such a system would require rewriting the US Constitution, or an Amendment to it if one thinks the process through, would it not? I think of the Amendment required to create the Federal Reserve System when I say this.

skippy , October 2, 2018 at 7:45 am

I think WWII is instructive here.

Clive , October 2, 2018 at 7:58 am

One thing I really don't like at all -- and I've crossed swords with many over this -- is that we do tend to take (not just in the US, this is prevalent in far too many places) things like the constitution, or cultural norms, or traditions or other variants of "that's the way we've always done this" and elevate them to a level of sacrosanctity.

Not for one moment am I suggesting that we should ever rush into tweaking such devices lightly nor without a great deal of analysis and introspective consultations.

Constitutions get amended all the time. The Republic of Ireland changed its to renounce a territorial claim on Northern Ireland. The U.K. created a right for Scotland to secede from the Union. There's even a country in Europe voting whether to formally change its name right now. Britain "gave up" its empire territories (not, I would add speedily, without a lot of prodding, but still, we got there in the end). All of which were, at one time or another, "unthinkable". Even the US, perhaps the most inherently resistant to change country when it thinks it's being "forced" to do so, begrudgingly acknowledged Cuba.

If something is necessary, it should be done.

vlade , October 2, 2018 at 8:06 am

Human laws (any and all, for simplicity I include culture, customs etc.. here) are not laws of nature.

They change over time to survive. The easy way, or the hard way.

Or they don't survive at all, that's an option too.

witters , October 2, 2018 at 9:09 am

"Human laws (any and all, for simplicity I include culture, customs etc.. here) are not laws of nature."

Wave Function Collapse?

voteforno6 , October 2, 2018 at 8:14 am

Why would a jobs guarantee require a constitutional amendment? The federal government creates jobs all the time, with certain defined benefits. This would merely expand upon that, to potentially include anyone who wants a job.

Epistrophy , October 2, 2018 at 8:26 am

I was thinking of implementing the whole concept of MMT, of which the JG is but one part, with this statement. Perhaps I did not make that clear.

voteforno6 , October 2, 2018 at 8:36 am

There are a couple different aspects of this that people are getting mixed together, I think. The core of MMT is not a proposal for government to implement. Rather, it is simply a description of how sovereign currencies actually operate, as opposed by mainstream economics, which has failed in this regard. In other words, we don't need any new laws to implement MMT – we need a paradigm shift.

The Jobs Guarantee is a policy proposal that flows from this different paradigm.

skippy , October 2, 2018 at 3:16 pm

It has been stated many times that it is to inform policy wrt to potential and not some booming voice from above dictating from some ridged ideology.

Persoanly as a capitalist I can't phantom why anyone would want structural under – unemployment. Seems like driving around with the hand brake on and then wondering why performance is restricted or parts wear out early.

todde , October 2, 2018 at 4:37 pm

Power.

I want 12 people lined up at the door to take your job, and then you will know where the power lies

Carla , October 2, 2018 at 11:18 am

Re-writing the U.S. Constitution is something people think about and talk about all the time, FYI.

todde , October 2, 2018 at 1:08 pm

the Amendment required to create the Federal Reserve System

What Amendment was that?

And since the Constitution gives Congress the power to coin money I am unaware of any reason an amendment would be necessary.

Epistrophy , October 2, 2018 at 3:43 pm

Thinking of the Federal Reserve Act being enabled by the Federal Income Tax of the 16th Amendment.

Using Federal taxes to fund the JG; I do not think that this aspect of it (and others) would survive a Constitutional challenge. Therefore ultimately an Amendment might be needed.

Then again I may be wrong. Technically Obamacare should have been implemented by an Amendment were strict Constitutional law applied.

Rights to health care and jobs are not enumerated in either the Constitution or Bill of Rights, as far as I am aware.

todde , October 2, 2018 at 4:05 pm

16th Amendment had nothing to do with the Federal Reserve.

And I think you are confusing 'you must buy health insurance or face a tax", with "You have a right to have healthcare".

If the government forced you to work, you may have a case.

There are 3 things the feds can spend federal funds on, pay debt, provide for the common defense, and the general welfare clause.

The General Welfare clause has been interpreted very widely in regards to Government spending.

New Deal, Social Security, Medicare/aid all survived court challenges, or if they lost, they lost on regulatory issues, and not 'spending' issues

Epistrophy , October 2, 2018 at 7:28 am

Not opposed to some of the principles of MMT, just don't understand, in this modern age where effectively all currency is electronic digits in a banking computer system, the issue of a currency must be tied to taxes. In years past, where currency was printed and in one's pocket, or stuffed under a mattress, or couriered by stagecoach, then yes – taxes would be needed. But today can we not just print (electronically) the cash needed for government operations each year based upon a fixed percentage of private sector GDP? Why therefore do we need government debt? Why do we need an income tax?

skippy , October 2, 2018 at 7:37 am

A. GDP is non distributional.

B. Had taxation not been promoted as theft in some camps Volcker would have not had to jack IR to such a upper bound during the Vietnam war.

C. Government Debt allocated to socially productive activities is a long term asset with distributional income vectors.

D. Ask the Greeks.

Epistrophy , October 2, 2018 at 7:48 am

Skippy, I have lived and worked in countries without income tax (but instead indirect tax) and where government operating revenue was based upon a percentage of projected national revenue. I have been involved in the administration of such budgets.

I am in favor of government spending, or perhaps more accurately termed investing, public money on long-term, economically beneficial projects. But this is not happening. The reality is that government priorities can easily be hijacked by political interests, as we currently witness.

larry , October 2, 2018 at 7:58 am

While I agree that political highjacking is possible and must be dealt with, this is not strictly speaking part of an economic theory, which is what MMT is. While MMT authors may take political positions, the theory itself is politically neutral.

Income taxes, tithes, or any other kind of driver is what drives the monetary circuit. Consider it from first principles. You have just set up a new government with a new currency where this government is the monopoly issuer. No one else has any money yet. So, the government must be the first spender. However, how is this nascent government going to motivate anyone to use this new currency? Via taxation, or like means, that can only be met by using the national currency, whatever form that currency may take, marks on a stick, paper, an entry in a ledger, or the like.

Epistrophy , October 2, 2018 at 8:34 am

Thank you for this explanation. I understand that, for example, this is why the Federal Reserve Act of 1913, I believe, created the Federal Reserve and Federal Income Tax at the same time.

But the US economy functioned adequately, survived a civil war, numerous banking crises, experienced industrialization, national railways, etc without a central bank or federal income tax from the 1790's to 1913.

To me, the US's state of perpetual war is enabled by Federal Income Tax. Without it the MIC would collapse, I am certain.

John k , October 2, 2018 at 10:31 am

Functioned adequately
During the 150 yr hard money period we had recessions/depressions that we're both far more frequent (every three years) and on avg far deeper than what we have had since fdr copied the brits and took us off the gold standard. Great deprecession was neither the longest or deepest.
Two reasons
Banks used to fail frequently, a run on one bank typically leading to runs on other banks, spreading across regions like prairie fires if your bank failed you lost all your money. Consequences were serious.
During GR so many banks failed in the Midwest, leading to farm foreclosures, the region was near armed insurrection in 1932. Fiat meant that the fed can supply unlimited liquidity. Since then banks have failed but immediately taken over by another. Critically, no depositor has lost a penny, even those with far more exposed than the deposit insurance limit. No runs on us banks since 1933.
Second, we now have auto stabilizers, spending continues during downturns because gov has no spending limit. Note previously in an emergency gov borrowed. 10 mil from J.P. Morgan.

Brian , October 2, 2018 at 11:30 am

But at what cost? no depositor loses money, yet huge amounts are required to be printed, thus devaluing the "currency". So is the answer inflation that must by necessity become hyperinflation?
I don't understand why it is important to protect a bank vs. making it perform its function without risking collapse. This is magical thinking as we have found very few banks in this world not ready and willing to pillage their clients, be it nations or just the little folk.
Why would anyone trust a government to do the right thing by its population? When has that ever worked out in favor of the people?
I can not understand the trust being demanded by this concept. It wants trust for the users, but in no way can it expect trust or virtue from the issuer of the "currency"

also, I can't help but think MMT is for growth at all costs. Hasn't the growth shown that it is pernicious in itself? Destroy the planet for the purpose of stabilizing "currency".

Our federal reserve gave banks trillions of dollars, and then demanded they keep much of it with the Fed and are paid interest not to use it. It inflated the "currency" in circulation yet again and now it is becoming clear a great percentage of people in our country can no longer eat, no longer purchase medications, a home, a business

If being on a hard money system as we were causes recessions and depressions, would we find that it was a natural function to cut off the speculators at their knees?

How does MMT promote and retain value for the actual working and producing people that have no recourse with their government? I would like to read about what is left out of this monumental equation.

TroyMcClure , October 2, 2018 at 12:10 pm

Money is not a commodity and does not "lose value" the more of it there is.

todde , October 2, 2018 at 12:57 pm

we used to protect the banks depositors and the government put the the bank in receivership.

That went away in the 21st century for some reason.

Now we protect the bank and put the Government in receivership (Greece).

todde , October 2, 2018 at 12:08 pm

Some points:

US had a federal income tax during the civil war and for a decade or so after.

I have always assumed that mass conscription and the Dreadnought arms race led to the implementation of the modern taxing/monetary system. (gov't needed both warfare and welfare)

Taxes, just as debt, create an artificial demand for currency as one must pay back their taxes in {currency}, and one must pay back debt in {currency}. It doesn't have to be an income tax, and I think a sales tax would be a better driver of demand than an income tax.

The US had land sales that helped fund government expenditures in the 1800s.

HotFlash , October 2, 2018 at 12:32 pm

Not all taxes are income taxes. Back in the day (20's/30's/40's),my grandfather could pay off the (county) property taxes on his farm by plowing snow for the county in the winter -- and he was damned careful to make sure that the county commissioners' driveways were plowed out as early as possible after a storm.

In the 30's/40's the property tax laws were changed to be payable only in dollars.

So Grandpa had to make cash crops. Things changed and money became necessary.

Benjamin Wolf , October 2, 2018 at 7:44 am

But today can we not just print (electronically) the cash needed for government operations each year based upon a fixed percentage of private sector GDP?

The élites could, but it would be totally undemocratic and the economics profession's track record of forecasting growth is no better than letting a cat choose a number written on an index card.

Why therefore do we need government debt?

There is no government debt. It's just a record of interest payments Congress has agreed to make because the wealthy wanted another welfare program.

Why do we need an income tax?

The only logically consistent purpose is because people have too much income.

voteforno6 , October 2, 2018 at 8:19 am

I think the point they're driving at, is that by requiring the payment of taxes in a particular currency, a government creates demand for that currency. There are other uses for federal taxes, not the least of which is to keep inflation in check.

Government debt is not needed, at least not at the federal level. My understanding of it is that it's a relic from the days of the gold standard. It's also very useful to some rather large financial institutions, so eliminating it would be politically difficult.

WobblyTelomeres , October 2, 2018 at 9:23 am

Wray has said in interviews that the debt (and associated treasury bonds), while not strictly necessary in a fiat currency, is of use in that it provides a safe base for investment, for pensioners and retirees, etc.

Sure, it could be eliminated by (a) trillion dollar platinum coins deposited at the Federal Reserve followed by (b) slowly paying off the existing debt when the bonds mature or (c) simply decreeing that the Fed must go to a terminal and type in 21500000000000 as the US Gov account balance (hope I got the number of zeroes correct!).

It could be argued that the US doesn't strictly need taxes to drive currency demand as long as our status as the world reserve currency is maintained (see oft-discussed petrodollar, Libya, etc). If that status is imperiled, say by an push by a coalition of nations to establish a different currency as the "world reserve currency") taxes would be needed to drive currency demand.

I think most of this is covered in one way or another here:

http://neweconomicperspectives.org/modern-monetary-theory-primer.html

HotFlash , October 2, 2018 at 12:39 pm

Government debt is not actually a 'real thing'. It is a residue of double-entry bookkeeping, as is net income (income minus expenses, that's a credit in the double-entry system). It could as well be called 'retained earnings (also a 'book' credit in the double-entry system). If everybody had to take bookkeeping in high school there would be far few knickers in knots!

Todde , October 2, 2018 at 3:10 pm

Its real if you pay an interest rate on it

Grebo , October 2, 2018 at 3:48 pm

There are two kinds of government 'debt': the accumulated deficit which is the money in circulation not a real debt, and outstanding bonds which is real in the sense that it must be repaid with interest.

However, the government can choose the interest rate and pay it (or buy back the bonds at any time) with newly minted money at no cost to itself, cf. QE.

Neither kind warrant bunched panties.

todde , October 2, 2018 at 4:39 pm

no panties bunched.

horostam , October 2, 2018 at 8:51 am

seems to me that the guaranteed jobs would be stigmatized, and make it harder for people to get private sector jobs. "once youre in the JG industry, its hard to get out" etc.

how much of a guarantee is the job guarantee supposed to be? ie. at what point can you get fired from a guaranteed job?

Epistrophy , October 2, 2018 at 9:31 am

Yes, my mind wandered into the same territory. While I agree that something needs to be done, it also has the potential to strike at the heart of a lean, merit-based system by introducing another layer of bureaucracy. In principle, I am not against the idea, but as they say, "God (or the Devil – take your pick) is in the details ".

The Rev Kev , October 2, 2018 at 9:48 am

Is there any point in working for a jobs guarantee when the only sort of jobs that would probably be guaranteed would be MacJobs and Amazon workers?

Newton Finn , October 2, 2018 at 11:23 am

If you haven't already read it, "Reclaiming the State" by Mitchell and Fazi (Pluto Press 2017) provides a detailed and cogent analysis of how neoliberalism came into ascendency, and how the principles of MMT can be used to pave the way to a more humane and sustainable economic system. A new political agenda for the left, drawing in a different way upon the nationalism that has energized the right, is laid out for those progressives who understand the necessity of broadening their appeal. And the jobs guarantee that MMT proposes has NOTHING to do with MacJobs and Amazon workers. It has to do with meeting essential human and environmental needs which are not profitable to meet in today's private sector.

HotFlash , October 2, 2018 at 12:51 pm

Job guarantee, or govt as employer of last resort -- now there is a social challenge/opportunity if there ever was one.

Well managed, it would guarantee a living wage to anyone who wants to work, thereby setting a floor on minimum wages and benefits that private employers would have to meet or exceed. These minima would also redound to the benefit of self-employed persons by setting standards re income and care (health, vacations, days off, etc) *and* putting money in the pockets of potential customers.

Poorly managed it could create the 'digging holes, filling them in' programs of the Irish Potato Famine ore worse (hard to imagine, but still ). It has often been remarked that the potato blight was endemic across Europe, it was only a famine in Ireland -- through policy choices.

So, MMT aside (as being descriptive, rather than prescriptive), we are down to who controls policy. And that is *really* scary.

Todde , October 2, 2018 at 3:11 pm

Government job guarantees is an idea as old as the pyramids.

Frankly so is mmt

Mel , October 2, 2018 at 11:34 am

In terms of power, the government has the power to shoot your house to splinters, or blow it up, with or without you in it. We say they're not supposed to, but they have the ability, and it has been done.
The question of how to hold your government to the things it's supposed to do applies to issues beyond money. We'd best deal with government power as an issue in itself. I should buckle down and get Mitchell's next-to-newest book Reclaiming the State .

HotFlash , October 2, 2018 at 12:56 pm

Ding ding ding!

Grebo , October 2, 2018 at 3:23 pm

Bill Mitchell was not too impressed with the INET paper: Part 1 .
There's three parts! Mitchell rarely has the time to be brief.

Tinky , October 2, 2018 at 6:02 am

I don't claim to fully understand MMT yet, but I find Wray's use of the derogatory term "gold bugs" to be both disappointing and revealing. To lump those, some of whom are quite sophisticated, who believe that currencies should be backed by something of tangible value (and no, "the military" misses the point), or those who hold physical gold as an insurance policy against political incompetence, and the inexorable degradation of fiat currencies, in with those who promote or hold gold in the hopes of hitting some type of lottery, is disingenuous at best.

Wukchumni , October 2, 2018 at 7:06 am

OMT seemingly has no reason to exist being old school, but for what it's worth, the almighty dollar has lost over 95% of it's value when measured against something that matters, since the divorce in 1971.

I found this passage funny, as in flipping the dates around to 1791, is when George Washington set an exchange rate of 1000-1 for old debauched Continental Currency, in exchange for newly issued specie. (there was no Federal currency issued until 1861)

So yeah, they burned all of their tax revenue, because the money wasn't worth jack.

Farley Grubb -- the foremost authority on Colonial currency -- proved that the American colonists understood perfectly well that taxes drive money. Every Act that authorized the issue of paper money imposed a Redemption Tax. The colonies burned all their tax revenue.

skippy , October 2, 2018 at 7:30 am

Gold bug is akin to money crank e.g. money = morals. That's not to mention all the evidence to date does not support the monetarist view nor how one gets the value into the inanimate object or how one can make it moral.

Benjamin Wolf , October 2, 2018 at 8:01 am

Gold doesn't historically perform as a hedge but as a speculative trade. Those who think it can protect them from political events typically don't realize that a gold standard means public control of the gold industry, thereby cutting any separation from the political process off at the knees.

When a government declares that $20 is equal in value to one ounce of gold, it also declares an ounce of gold is equal to $20 dollars. It is therefore fixing, through a political decision subject to political changes, the price of the commodity.

Tinky , October 2, 2018 at 9:44 am

Nonsense. When fiat currencies invariably degrade, and especially at a fast rate, gold has proven to be a relative store of value for millennia . All one need do is to look at Venezuela, Argentina, Turkey, etc., to see that ancient dynamic in action today.

You, and others who have replied to my comment, are using the classical gold standard as a straw man, as well. Neither I, nor many other gold "bugs" propose such a simple solution to the obviously failed current economy, which is increasingly based on mountains of debt that can never be repaid.

WobblyTelomeres , October 2, 2018 at 9:48 am

gold has proven to be a relative store of value for millennia.

As long as one is mindful that gold is just another commodity, subject to the same speculative distortions as any other commodity (see Hunt brothers and silver).

Tinky , October 2, 2018 at 9:54 am

But that is obviously false, given that no other commodity has remotely performed with such stability over such a long period of time.

It is true that over short periods distortions can appear, and the *true* value of gold has been suppressed in recent years through the use of fraudulent paper derivatives. But again, I'm not arguing for the return of a classical gold standard.

Wukchumni , October 2, 2018 at 10:13 am

The only way the gold standard returns, is if it's forced on the world on account of massive fraud in terms of fiat money, but that'll never happen.

WobblyTelomeres , October 2, 2018 at 10:56 am

Tinky:

I'm curious as to what you consider the "*true* value of gold". Could you elaborate?

I'm dense/obtuse and thus not an economist!

Tinky , October 2, 2018 at 11:18 am

Don't worry, I'm likely to be at least equally dense!

I didn't mean to suggest that there is some formula from which a *true* value of precious metals might be derived. I simply meant that gold has clearly been the object of price suppression in recent years through the use of paper derivatives (i.e. future contracts). The reason for such suppression, aside from short-term profits to be made, is that gold has historically acted as a barometer relating to political and economic stability, and those in power have a particular interest in suppressing such warning signals when the system becomes unstable.

So, while the Central Banks created previously unimaginable mountains of debt, it was important not to alarm the commoners.

The suppression schemes have become less effective of late, and will ultimately fail when the impending crisis unfolds in earnest.

Wukchumni , October 2, 2018 at 10:00 am

As long as one is mindful that gold is just another commodity, subject to the same speculative distortions as any other commodity

It sounds good in theory, but history says otherwise.

The value remained more or less the same for well over 500 years as far as an English Pound was concerned, the weight and value of a Sovereign hardly varied, and the exact weight and fineness of one struck today or any time since 1817, is the same, no variance whatsoever.

Thus there was no speculative distortions in terms of value, the only variance being the value of the Pound (= 1 Sovereign) itself.

https://en.wikipedia.org/wiki/Sovereign_(British_coin)

Benjamin Wolf , October 2, 2018 at 12:23 pm

When fiat currencies invariably degrade, and especially at a fast rate, gold has proven to be a relative store of value for millennia.

Currencies do not degrade. Political systems degrade.

Bridget , October 2, 2018 at 8:25 am

" who believe that currencies should be backed by something of tangible value"

As I understand it, MMT also requires that currency be backed by something of tangible value: a well managed and productive economy. It doesn't matter in the least if your debt is denominated in your own currency if you have the economy of Zimbabwe.

Tinky , October 2, 2018 at 9:48 am

Sounds reasonable in theory, but that was supposed to be the case with the current economic system, as well, and we can all see where that has led.

I'm not arguing that there isn't a theoretically better way to create and use "modern" money, but rather doubt that those empowered to create it out of thin air will ever do so without abusing such power.

Bridget , October 2, 2018 at 10:10 am

Oh, I agree with you. In no universe that I am aware of would the temptation to create money beyond the productive capacity of the economy to back it up be resisted. I think Zimbabwe is a pretty good example of where the theory goes in practice.

TroyMcClure , October 2, 2018 at 12:20 pm

That's exactly wrong. Zimbabwe had a production collapse. Same amount of money to buy a much smaller amount of goods. The gov responded not by increasing goods, but increasing money supply.

Bridget , October 2, 2018 at 1:30 pm

Maybe because the economy did not have the productive capacity to increase goods? It takes more than a magic wand and wishful thinking.

voteforno6 , October 2, 2018 at 8:29 am

Mark Blyth has a good discussion of the gold standard in his book Austerity: The History of a Dangerous Idea . He makes the point that, in imposing the adjustments necessary to keep the balance of payments flowing, the measures imposed by a government would be so politically toxic, that no elected official in his or her right mind would implement them, and expect to remain in office. In short, you can have either democracy, or a gold standard, but you can't have both.

Also, MMT does recognize that there are real world constraints on a currency, and that is represented by employment, not some artificially-imposed commodity such as gold (or bitcoin, or seashells, etc). The Jobs Guarantee flows out of this.

Tinky , October 2, 2018 at 9:50 am

As mentioned above, you, among others who have replied to my original comment, are using the classical gold standard as a straw manl. Neither I, nor many other gold "bugs", propose such a simple solution for the failed current economic system, which is increasingly based on mountains of debt that can never be repaid.

WobblyTelomeres , October 2, 2018 at 11:35 am

increasingly based on mountains of debt that can never be repaid.

Huh? I listed two ways they could be repaid above. In the US, the national debt is denominated in dollars, of which we have an infinite supply (fiat). In addition, the Federal Reserve could buy all the existing debt by [defer to quad-entry accounting stuff from Wray's primer] and then figuratively burn it. Sure, the rest of the world would be pissed and inflation *may* run amok, but "can never" is just flat out wrong.

Tinky , October 2, 2018 at 1:59 pm

Of course it can be extinguished through hyperinflation. I didn't think that it would be necessary to point that out. No "may" about it, though, as if the U.S. prints tens of trillions of dollars to extinguish the debt, hyperinflation will be assured.

todde , October 2, 2018 at 2:14 pm

not if it would be done over time, as the debt comes due.

We could also tax the excess dollars from the system with a large capital gains tax rate.

todde , October 2, 2018 at 3:04 pm

so I don't believe there will be a hyper-inflation of goods, but in asset prices. That is why I would raise the capital gains rate.

The failure of MMT is when the hyper-inflation occurs in goods and services.

Taxing a middle class person while his cost of living is rising will be a tough political act to do.

WobblyTelomeres , October 2, 2018 at 2:19 pm

I didn't think that it would be necessary to point that out.

Sorry, but I'm an old programmer; logic rules the roost. When one's software is expected to execute billions of times a day without fail for years (and this post is very likely routed through a device running an instance of something I've written). Always means every time, no exceptions; never means not ever, no matter what.

You said never.

Tinky , October 2, 2018 at 3:30 pm

Yes I did. I was simply being lazy, as I typically do add "except via hyperflation", when discussing debts that can only be repaid in that manner.

That "solution" is obviously no solution at all, as it would lead to chaos.

Interpret it any way that you wish.

todde , October 2, 2018 at 11:37 am

So what is the new solution proposed by 'gold bugs'?

Tinky , October 2, 2018 at 2:06 pm

I'm sure that there is no one solution proposed, though an alternative to the current system which seems plausible would be a currency backed by a basket of commodities, including gold.

todde , October 2, 2018 at 2:26 pm

and when commodity prices fluctuate you will still have government printing and eliminating money to maintain the price.

I would say, if that was the argument, stick to gold as it is one of the more stable commodities.

AlexHache , October 2, 2018 at 11:43 am

Can I ask what your solution would be? I don't think you've mentioned it.

HotFlash , October 2, 2018 at 1:08 pm

Hi Tinky, much late but still. Gold will have value as long as people believe it has value. But what will they trade it for? The bottom line is your life.

I don't have any gold, too expensive, and it really has no use. But I remember Dimitri Orlov's advice : I am long in needles, pins, thread, nails and screws, drill bits, saws, files, knives, seeds, manual tools of many sorts, mechanical skills and beer recipes. Plus I can sing.

Bridget , October 2, 2018 at 1:31 pm

Don't forget a nice supply of 30 year old single malt scotch!

Tinky , October 2, 2018 at 2:04 pm

The vast majority of people who hold physical gold are well aware of the value of having skills and supplies, etc., in case of a serious meltdown. But it's not a zero-sum game, as you suggest. Gold will inexorably rise sharply in value when today's fraudulent markets crash, and there will be plenty of opportunities for those who own it to trade it for other assets.

Furthermore, as previously mentioned, gold's utility is already on full display, to those who are paying attention, and not looking myopically through a USD lens.

Wukchumni , October 2, 2018 at 2:19 pm

Why not the GOILD standard?, one mineral moves everything, while the other just sits around gathering dust, after being extracted.

David Swan , October 2, 2018 at 2:28 pm

"Mountains of debt that can never be repaid" is a propaganda statement with no reference to any economic fact. Why do you feel that this "debt" needs to be "repaid"? It is simply an accounting artifact. The "debt" is all of the dollars that have been spent *into* the economy without having been taxed back *out*. The word "debt" activates your feels, but has no intrinsic meaning in this context. Please step back from your indoctrinated emotional reaction and understand that the so-called national "debt" is nothing more than money that has been created via public spending, and "repaying" it would be an act of destruction.

WobblyTelomeres , October 2, 2018 at 3:27 pm

THIS!!!

I keep telling (boring, annoying, infuriating) people that, in the simplest terms, the national debt is the money supply and they won't grasp that simple declaration. When I said it to my Freedom Caucus congress critter (we were seated next to each other on an exit aisle) his head started spinning, reminding me of Linda Blair in The Exorcist.

Tinky , October 2, 2018 at 3:44 pm

The debt may not have to be repaid, but the interest does have to be serviced. Good luck with that in the long run.

WobblyTelomeres , October 2, 2018 at 4:18 pm

As I said to my congress critter, if the debt bother's y'all so much, why not just pay it off, dust off your hands, and be done with it?

Personally, if I were President for a day, I'd have the mint stamp out 40 or so trillion dollar platinum coins just to fill the top right drawer of the Resolute desk. Would give me warm fuzzy feelings all day long.

p.s. I also told him that the man with nothing cares not about inflation. He didn't like that either.

MisterMr , October 2, 2018 at 8:46 am

"those, some of whom are quite sophisticated, who believe that currencies should be backed by something of tangible value (and no, "the military" misses the point), or those who hold physical gold as an insurance policy against political incompetence, and the inexorable degradation of fiat currencies"

I suspect that Wray exactly means that these people are the goldbugs, not the ones who speculate on gold.

The whole point that currencies should be backed by something of tangible value IMO is wrong, and I think the MMTers agree with me on this.

Tinky , October 2, 2018 at 9:56 am

If so, then he should clarify his position, as again, lumping the billions – literally – of people who consider gold to be economically important, together as one, is disingenuous.

skippy , October 2, 2018 at 3:55 pm

I think people that consider gold to be a risk hedge understand its anthro, per se an early example of its use was a fleck of golds equal weight to a few grains of wheat e.g. the gold did not store value, but was a marker – token of the wheat's value – labour inputs and utility. Not to mention its early use wrt religious iconography or vis-à-vis the former as a status symbol. Hence many of the proponents of a gold standard are really arguing for immutable labour tokens, problem here is scalability wrt high worth individuals and resulting distribution distortions, unless one forwards trickle down sorts of theory's.

Not to mention in times of nascent socioeconomic storms many that forward the idea of gold safety are the ones selling it. I think as such the entire thing is more a social psychology question than one of factual natural history e.g. the need to feel safe i.e. like commercials about "peace of mind". I think a reasonably stable society would provide more "peace of mind" than some notion that an inanimate object could lend too – in an atomistic individualistic paradigm.

WobblyTelomeres , October 2, 2018 at 4:26 pm

I once had an co-worker that was a devout Christian. When he realized I wasn't religious, he asked me, incredulously, how I was able to get out of bed in the morning. Meaning, he couldn't face a world without meaning.

I think a lot of people feel that same way about money. They fight over it, lie for it, steal it, kill for it, go to war over it, and most importantly, slave for it. Therefore, it must have intrinsic value. I think gold bugs are in this camp.

Fried , October 2, 2018 at 6:06 am

Talking about Warren's blog ( http://moslereconomics.com/ ), everytime I try to go there, Cloudflare asks me to prove that I am human. Anyone know what's up with that? It's the only website I've ever seen do that.

Tinky , October 2, 2018 at 6:13 am

No such prompt for me (using Mac desktop computer, OS 10.11.6 and Safari browser.

Fried , October 2, 2018 at 7:35 am

Thanks. It seems to be blocking my IP address, no idea why. Not sure why I have to be human to look at a website.

Epistrophy , October 2, 2018 at 8:46 am

Try running your IP address through a blacklist checker maybe it's been flagged

Fried , October 2, 2018 at 10:03 am

Hm, I can't find anything that would explain it. Maybe the website just generally blocks Austrians. ;-)

el_tel , October 2, 2018 at 10:10 am

That's a good suggestion. Unfortunately, as I sometimes find, you can pass ALL the major test-sites but something (a minor, less-used site using out-of-date info?) can give you grief. NC site managers once (kindly) took the time to explain to me why I might have problems that they had no ability to address at their end. I had to muck around with a link given earlier to Bill Mitchell's blog before my browser would load it.
I think there can be quirks that are beyond our control (unfortunately) – for instance I think a whole block of IP addresses (including mine) used by my ISP have been flagged *somewhere* – no doubt due to another customer doing stuff that the checker(s) don't like. (The issue I mentioned above was more likely due to a strict security protocol in my browser, however.)

kgw , October 2, 2018 at 11:57 am

I ended up physically typing in the url to Bill Mitchell's blog: that worked.

el_tel , October 2, 2018 at 12:43 pm

yeah think that's what I did

larry , October 2, 2018 at 6:45 am

Monetary policy in terms of interest rates is not just weak, it also tends to treat all targets the same. Fiscal policy can be targetted to where it is felt it can do the most good.

William Beyer , October 2, 2018 at 7:00 am

Christine Desan's book, "Making Money," exhaustively documents the history of money as a creature of the state. Recall as well that creating money and regulating its value are among the enumerated POWERS granted to our government by we, the people. Money, indeed, is power.

Grumpy Engineer , October 2, 2018 at 8:26 am

Hmmm Randy Wray states that " permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. "

But just last week, Yves stated that " that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. " [ https://www.nakedcapitalism.com/2018/09/crisis-caused-pension-train-wreck.html ]

So are interest rates today too high, or too low? We're getting mixed messages here.

IMO, interest rates are too low . Beyond the harmful effect to savers, it also drives income inequality . How? When interest rates are less than inflation, it is trivial to borrow money, buy some assets, wait for the assets to appreciate, sell the assets, repay the debt, and still have profit left over even after paying interest . Well, it's trivial if you're already rich and have a line of credit that is both large and low-interest. If you're poor with a bad FICO score, you don't get to play the asset appreciation game at all.

I can't think of another reason inequality skyrocketed so badly during the Obama years: https://www.newsweek.com/2013/12/13/two-numbers-rich-are-getting-richer-faster-244922.html . Other than interest rates, his policies weren't all that different from Clinton or Bush.

Tinky , October 2, 2018 at 10:38 am

Not to mention that interest rates are designed to reflect risk . Artificially suppressed rates mask risk, and inevitably lead to gross malinvestment.

todde , October 2, 2018 at 12:31 pm

The rates between riskier and less risky borrowers will still be reflected in the different rates given to each.

The low rates encourage greater risk taking to increase the reward(a higher rate of return). This is what leads to the gross malinvestment.

Case in point: the low rates led to more investments into the stock market, where the returns are unlimited. This is what led to the income inequality of Obama's term, as mentioned above.

todde , October 2, 2018 at 3:07 pm

if government creates money to lend to borrowers it should be at a zero interest rate.

The loans would be based on public policy decisions, and not business decisions.

HotFlash , October 2, 2018 at 1:36 pm

I cannot speak for Yves, nor or Randy, but IMO, interest rates are too low for people who depend on interest for their living -- as an old person, I have seen my expected income drop to about zilch when I had expected 7 to 10% on my savings. Haha! So yeah, too low for us who saved for 'retirement'.

Too high for people financing on credit, since a decent mortgage on a modestly-priced house will cost you almost the same as the house . And that doesn't even begin to look at unsecured consumer credit (ie, credit card debt), which is used in the US and other barbaric countries for medical expenses, not to mention student debt. The banks can create the principal with their keystrokes, but they don't create the interest. Where do you suppose that comes from? Hint: nowhere, as in foreclosures and bankruptcies.

Adam1 , October 2, 2018 at 3:12 pm

Wray's statement reflects his preferences from an operational policy perspective. Sovereign government debt cares no risk and therefore should not pay interest. The income earned from that interest is basically a subsidy and all income when spent caries a risk of inflation induced excess demand. Therefore who unnecessarily add the risk to the economy and potential risk needing to reduce other policy objectives to accommodate unnecessary interest income subsidies to mostly rich people?

Yves comment reflects the reality of prior decades of economic history. Even if Wray's policy perspective is optimal, there are decades of people with pensions and retirement savings designed around the assumption of income from risk-free government debt. It's this legacy that Yves is commenting on and is a real problem that current policy makers are just ignoring.

As for your comments on how low cost credit can be abused, I believe you'll find most MMT practitioners would recommend far more regulation on the extension of credit for non-productive purposes.

michael hudson , October 2, 2018 at 8:38 am

I just wrote a note to Randy:
The origin of money is not merely for accounting, but specifically for accounting for DEBT -- debt owed to the palatial economy and temples.
I make that clear in my Springer dictionary of money that will come out later this year: Origins of Money and Interest: Palatial Credit, not Barter

horostam , October 2, 2018 at 8:57 am

The Babylonian Madness is contagious thanks prof hudson

gramsci , October 2, 2018 at 9:22 am

Can somebody help me out here? It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945).

Since then, insofar as I understand MMT, fiat has been printed and distributed to flow primarily through the MIC and certain other periodically favored sectors (e.g. the Interstate Highway System). Then, rather than destroying this fiat through taxation, the sectoral balances have been kept deliberately out of balance: Taxes on unearned income have been almost eliminated with an eye to not destroying fiat, but to sequestering as much as possible in the private hands of the 1%. This accumulating fiat cannot be productively invested because that would cause overproduction, inflation, and reduce the debt burden by which the 1% retains power over the 99%. So the new royalists, as FDR would have styled them, keep their hoard as a war chest against "socialists".

I get all this, more or less, and I appreciate that it is well and good and important that MMTers insistently point out that the emperor has no clothes. This is a necessary first step in educating the 99%.

But I don't see MMT types discussing the fact that US (and NATO) macroeconomic policy already has a Job Guarantee: if you don't want to work alongside undocumented immigrants on a roof or in a slaughterhouse or suffer the humiliation of US welfare, such as it is, you can always get a job with the army, or the TSA, or the police, or as a prison guard, or if you have some education, with a health unsurance company or pushing drone buttons. You only have to be willing to follow orders to kill–or at least help to kill–strangers.

(Okay, perhaps I overstate. If you're a medical doctor or an "educator" with university debt you don't have to actively kill. You can decline scant Medicaid payments and open a concierge practice, or you can teach to the test in order that nobody learns anything moral.)

It is difficult to get a man to understand something, when his salary depends on his not understanding it. Wouldn't it be clarified matters if MMTers acknowledged that we already have a JG?

Wukchumni , October 2, 2018 at 12:50 pm

We have been operating on MMT since the end of WW2, with 2 exceptions in 1968 when Silver Certificate banknotes no longer were redeemable for silver, and in 1971 when foreign central banks (not individuals!) weren't allowed to exchange FRN's for gold @ $35 an ounce anymore.

It's been full on fiat accompli since then and to an outsider looks absurd in that money is entirely a faith-based agenda, but it's worked for the majority of all of lives, so nobody squawks.

It's an economic "the emperor has no clothes" gig.

HotFlash , October 2, 2018 at 1:54 pm

It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945).

Yup, you are correct, IMO. And about the jobs guarantee, too. The point of MMT is not that we have to adopt, believe in, or implement it, but that *this is how things work* and we need to get a %&*^* handle on it *STAT* or they will ride it and us to the graveyard. The conservatives and neo-cons are already on to this, long-time.

I believe the chant is:

We can have anything we want that is available in our (sovereign) currency and for which there are resources

What we get depends on what we want and how well we convince/coerce our 'leaders' to make it so.

David Swan , October 2, 2018 at 2:43 pm

JG is geared toward community involvement to create an open-ended collection of potential work assignments, not top-down provision of a limited number of job slots determined by bureaucrats on a 1% leash.

Wukchumni , October 2, 2018 at 9:31 am

About every 80 years, there has been a great turning in terms of money in these United States

Might as well start with 1793 and the first Federal coins, followed in 1861 by the first Federal paper money, and then the abandonment of the gold standard (a misnomer, as it was one of many money standards @ era, most of them fiat) in 1933.

We're a little past our use-by date for the next incarnation of manna, or is it already here in the guise of the great giveaway orchestrated since 2008 to a selected few?

Adam1 , October 2, 2018 at 9:40 am

After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received. One of the primary mainstream teachings that I now readily see as false is the concept of money being a vale over a barter economy. It's lazy, self-serving analysis. It doesn't even pass a basic logical analysis let alone archeological history. Even in a very primitive economy it would be virtually impossible for barter to be the main form of transaction. The strawberry farmer can't barter with the apple farmer. His strawberries will be rotten before the apples are ripe. He could give the apple farmer strawberries in June on the promise of receiving apples in October, but that's not barter that's credit. The apple farmer could default of his own free will or by happenstance (he dies, his apple harvest is destroyed by an act of god, etc ). How does the iron miner get his horse shoed if the blacksmith needs iron before he can make the horse show? Credit has to have always been a key component of any economy and therefore barter could never have been the original core.

HotFlash , October 2, 2018 at 2:00 pm

After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received.

Agreed. Richard Wolff notes that in most Impressive Universities there are two schools, one for Economics (theory) and another for Business (practice). Heh. I say, go for the refund, you was robbed.

Wukchumni , October 2, 2018 at 10:11 am

Take Indians for instance

All the Rupee* has done over time is go down in value against other currencies, and up in the spot price measured in Rupees even as gold is trending down now, and that whole stupid demonetization of bank notes gig, anybody on the outside of the fiat curtain looking in, had to be laughing, and ownership there is no laughing matter, as it's almost a state financial religion, never seen anything like it.

* A silver coin larger than a U.S. half dollar pre-post WW2, now worth a princely 1.4 cents U.S.

Chauncey Gardiner , October 2, 2018 at 12:34 pm

Not an economist, but I appreciate both the applicability of MMT and the fierce, but often subtle resistance its proponents have encountered academically, institutionally and politically. However, I have questioned to what extent MMT is uniquely applicable to a nation with either a current account surplus or that controls access to a global reserve currency.

How does a nation that is sovereign in its own currency, say Argentina for example (there are many such examples), lose 60 percent of its value in global foreign exchange markets in a very short time period?

Is this due primarily to private sector debts denominated in a foreign currency (and if so, what sectors of the Argentine economy undertook those debts, for what purposes, and to whom are they owed?), foreign exchange market manipulation by external third parties, the effective imposition of sanctions by those who control the global reserve currency and international payments system, or some combination of those or other factors?

Mel , October 2, 2018 at 12:53 pm

Michael Hudson described some of it earlier this year:
https://www.nakedcapitalism.com/2018/07/michael-hudson-argentina-gets-biggest-imf-loan-history.html

Rodger Malcolm Mitchell , October 2, 2018 at 3:48 pm

All hyperinflations are caused by shortages, usually shortages of food. See: https://mythfighter.com/2018/08/27/ten-answers-that-are-contrary-to-popular-wisdom/

There is no avoiding bad government.

PKMKII , October 2, 2018 at 1:57 pm

MMT makes more sense than orthodox neoliberal accounts of currency and sovereign spending to me, as it does a better job of acknowledging reality. MMT recognizes that currency is an artifice and that imagined limitations on it are just that, and real resources are the things which are limited. Neoliberal economics acts as if all sorts of byzantine factors mean currency must be limited, but we can think of resources, and the growth machine they feed, as being infinite.

Rodger Malcolm Mitchell , October 2, 2018 at 3:41 pm

"Taxes or other obligations (fees, fines, tribute, tithes) drive the currency."

Specifically, what does "drive" mean? Does it mean:
1. When taxes are reduced, the value of money falls?
2. If taxes were zero, the value of money would be zero?
3. Cryptocurrencies, which are not supported by taxes, have no value?

"JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability."

Specifically, what do "anchors" and "critical component" mean? Do they mean:
1. Since JG does not exist, the U.S. dollar is unanchored and MMT does not exist?
2. Providing college graduates with ditch-digging jobs enhances price and financial stability?
3. Forcing people to work is both morally and economically superior to giving them money and benefits?

Grebo , October 2, 2018 at 4:20 pm

"Drive" means "creates initial demand for":
1. No, not for an established currency.
2. See 1.
3. Crypto is worth what you can buy with it.

"Anchors" means it acts against inflation and deflation. "Critical component" means the economy works better if it has it.
1. Yes and no.
2. Yes, if no-one else will hire them.
3. No element of force is implied.

[Sep 27, 2018] Even those nations desirous of undoing dollar hegemony have said it cannot be done overnight as the overall system is both too complex and too fragile for hasty adjustments to be made stably. Moreover, for better or worse, the Outlaw US Empire's an integral component of the global economy, which motivates those changing the system to arrive at a Soft Landing, not a Hard Crash.

Sep 27, 2018 | www.moonofalabama.org

Sunny Runny Burger , Sep 26, 2018 4:06:24 PM | link

Karlof1 I could be wrong of course but one example of why none of that would matter is when the US dollar for all practical purposes winks out of existence and that could happen right now as we speak. Why would that happen you may ask? It would happen whenever someone "beyond personal wealth" like the usual finance suspects decides it is the way for them to make enormous amounts of profit out of the resulting worldwide instability before any of their competitors beat them to it. The longer they wait the more likely someone else will jump the gun and surprise them.

I don't think the US has two years worth of "blood" left in it before that happens.

In a sense nothing will be left when each and every dollar becomes at least 20 trillion times less valuable. If the response to that happening is the same as the early 20ieth century response (Germany) then nothing will be left at all considering the difference in technology and differences in circumstance (everybody already have the weapons ready). If the response is the late 20ieth century response (USSR) then maybe something will be left but the USSR was both lucky and relatively solvent in comparison to the current US. The starting point for the US is several magnitudes worse in both examples. The world can't afford to carry the US at cost any more than the US can't right now and like the US haven't been able to for decades, the required wealth doesn't exist.

karlof1 , Sep 26, 2018 5:13:27 PM | link

Sunny Runny Burger @24--

The nascent USA had its national capital sacked and presidential residence burnt during what's known as the War of 1812, yet it continued to exist politically. Same during Civil War. During the Revolutionary War, the USA had a national government and 13 separate state governments, all of which continued to function as the war raged. There've been at least two Coups--1963 and 2000--but the USA continued its political existence. Even the Germany destroyed by WW2 still existed politically. Destroying political entities is very--extremely--difficult, which is why it seldom occurs. Rome's central authority ceased in the mid 6th century but its provinces continued as did the Eastern portion of the Roman Empire. Russia's governmental system was drastically altered during and after Russia's Civil War, but Russia continued to exists as a political entity. The USSR was an imperial governing edifice built atop numerous national political entities. It did vanish, but the nations comprising it didn't; indeed, new nations were born as a result.

As for the dollar and its international position, even those nations desirous of undoing dollar hegemony have said it cannot be done overnight as the overall system is both too complex and too fragile for hasty adjustments to be made stably . Moreover, for better or worse, the Outlaw US Empire's an integral component of the global economy, which motivates those changing the system to arrive at a Soft Landing, not a Hard Crash.

Catastrophism belongs in the realm of Geology, not Geopolitics, although the former will certainly affect the latter. Geopolitics can certainly enable an ecological crisis such as the Overshoot we're now entering, but that's several magnitudes less than what rates as a geological catastrophe--and not all such catastrophes are global.

[Sep 21, 2018] The Dollar Shortage China's Bond Selling Are About To Corner the Fed Zero Hedge Zero Hedge

Sep 21, 2018 | www.zerohedge.com

The Dollar Shortage & China's Bond Selling Are About To Corner the Fed

by Palisade Research Fri, 09/21/2018 - 19:22 8 SHARES

Via Adem Tumerkan @ Palisade-Research.com

- This is a repost of the recent Palisade Weekly Letter –

Earlier this week – news went by relatively unnoticed by the ' mainstream ' financial media (CNCB and such) that Beijing's started selling their U.S. debt holdings.

Putting it another way – they're dumping U.S. bonds. . .

"China's ownership of U.S. bonds, bills and notes slipped to $1.17 trillion, the lowest level since January and down from $1.18 trillion in June."

Remember – dumping U.S. debt is China's nuclear option (which I wrote about back in April – click here to read if you missed it ).

And although they're starting to sell U.S. bonds – expect it to be at a slow and steady pace. They don't want to risk hurting themselves over this.

I believe China may be selling just enough to get the attention of Trump and the Treasury. A soft warning for them not to take things too far with tariffs and trade.

Yet already just as news hit the wire that China was selling bonds a few days ago – U.S. yields spiked above 3%. . .


Don't forget that China's the U.S.'s largest foreign creditor. And this is an asset for them.

And although them selling is worrisome – the real problems started months ago. . .

Over the last few months, my macro research and articles are all finally coming together. This thesis we had is finally taking shape in the real world.

I wrote in a detailed piece a few months back that foreigners just aren't lending to the U.S. as much anymore ( you can read that here ).

I called this the 'silent problem'. . .

Long story short: the U.S. is running huge deficits. They haven't been this big since the Great Financial Recession of 08.

And it shouldn't come as a surprise to many.

Because of Trump's tax cuts, there's less government revenue coming in. And that means the increased military spending and other Federal spending has to be paid for on someone else's tab.

The U.S. does 'bond auctions' all the time where banks and foreigners buy U.S. debt – giving the Treasury cash to spend now.

But like I highlighted in the 'silent problem' article (seriously, read it if you haven't) – foreigners are buying less U.S. debt recently. . .

This is a serious problem because if the Treasury wants to spend more while collecting less taxes, they need to borrow heavily.

This trend's continued since 2016 and it's getting worse. And with the mounting liabilities (like pensions and social security and medicare), they'll need to borrow trillions more in the coming years.


So, in summary – the U.S. has less interested foreign creditors at a time when they need them more than ever.

But wait, it gets worse. . .

The Federal Reserve's currently tightening – they're raising rates and selling bonds via Quantitative Tightening (QT – fancy word for sucking money out of system).

This is the second big problem – and I wrote about in 'Anatomy of a Crisis' ( read here ). And even earlier than that here .

So, while the Fed does this tightening, they're creating a global dollar shortage. . .

As I wrote. . . "This is going to cause an evaporation of dollar liquidity – making the markets extremely fragile. Putting it simply – the soaring U.S. deficit requires an even greater amount dollars from foreigners to fund the U.S. Treasury . But if the Fed is shrinking their balance sheet , that means the bonds they're selling to banks are sucking dollars out of the economy (the reverse of Quantitative Easing which was injecting dollars into the economy). This is creating a shortage of U.S. dollars – the world's reserve currency – therefore affecting every global economy."

The Fed's tightening is sucking money – the U.S. dollar – out of the global economy and banks. And they're doing this at a time when Foreigners need even more liquidity so that they can buy U.S. debt.

How is the Treasury supposed to get funding if there's less dollars out there available? And how can they entice investors if Foreigners don't have enough liquidity to fund U.S. debt?

These Emerging Markets must use their dollar reserves to prop up their own currencies and economies today. They can't be worrying about funding U.S. pensions and other bloated spending when their economies are crumbling.

These two themes I've written about extensively – the decline of foreign investors and the Fed's tightening – have gotten us to this point today.

And the U.S. is extremely fragile because of both problems. . .

Here's the worst part – China probably knows this . That's why they're selling just enough U.S. bonds to spook markets.

But if the trade war and soon-to-be a currency war continues, no doubt China will sell more of their debt – sending yields soaring.

I just got done last week detailing how U.S. debt servicing costs (interest payments) are already becoming very unsustainable ( click here if you missed it ).

At this point they're literally borrowing money just to pay back old debts – that's known as a 'ponzi scheme'.

This is why I believe the Fed will eventually cut rates back to 0% – and then into negative territory. And instead of sucking money out of the economy via QT, they're going to start printing trillions more.

How else will the Treasury be able to get the funding they need?

I'll continue to keep you up to date with what's going on and how it all fits together.

But I think the two big problems I wrote about above are now converging into a new massive problem. And I don't see any way out of it unless the Fed monetizes the U.S. Treasury and outstanding debts. And that will cause massive moves in the markets.

I'm sure Trump will eventually tweet , "Oh Yeah? Foreigners don't want to buy the U.S. debt? Blasphemy! Who needs you all when we have a printing press!"

Or something like that. . .

TimeTraveller , 1 hour ago

I'm really starting to get sick of these crap reports from Palisade Research. Again they are totally wrong on so many levels.

1. China is selling Treasuries, because they are pre-empting a debt crisis in their own country and need Dollar financing for their overleveraged companies and their banking sector. Also, China is lending money to every 3rd world country that needs infrustructure for it's Belt and Road Initiative. Building ports, bridges and railways across Asia and Africa, costs money.

2. Selling Treasuries will weaken the Dollar, so making the RMB stronger. China does NOT want the RMB stronger because it erodes their exporters margins and competetiveness. Why would they want to hurt themselves just to punish their biggest customer?

To even suggest China is "using the Nuclear option" of dumping Treasuries just shows your total ignorance of the real world.

Palisade are clueless

ConanTheContrarian1 , 1 hour ago

OTOH, the crisis in Emerging Markets and the effect of capital flight on China are just two of the MANY things not mentioned in this article. There has been tension building into financial warfare between China and the US ever since they pegged the yuan low to the dollar in 1987. The US is doing things under the table to China, China to the US, and they're both quite capable of paying Adam Tumerkan (and others) to write hit pieces against the other side. Think deeply before choosing a side.

[Sep 15, 2018] Has that system dynamic changed/evolved seriously since the Roman era? We have usury. We have inheritance. We have banking. The concept of private property evolved along with the mythical moral fig leaf of rule-of-law. We call it the Western form of "civilization".

Sep 15, 2018 | www.moonofalabama.org

psychohistorian , Sep 15, 2018 7:51:52 PM | link

@ Lochearn who is correcting my genealogical representation of empire

Yes, you are more correct than I. That said, does it go back even further to the founding of monotheistic religions? We are referring to social control by an elite in my mind more than the Jewish bankers part of your genealogy. I admit to the bankers part but see that bankers group as the encourage/control entity for the other monotheistic religions.

Has that system dynamic changed/evolved seriously since the Roman era? We have usury. We have inheritance. We have banking. The concept of private property evolved along with the mythical moral fig leaf of rule-of-law. We call it the Western form of "civilization".

Jen , Sep 15, 2018 8:01:37 PM | link

Psycho Historian: I have been reading a Great Courses book on the history of the Achaemenid rmpire that ruled Persia and one interesting tidbit from my reading is that temples and their priests made loans to property (though turned did not accept deposits). So religious institutions got into the banking business early.

karlof1 , Sep 15, 2018 8:13:22 PM | link

Jen @27--

In his talks about his upcoming book, Hudson has said that besides the Palace the Temples were the first sources of credit. But their relation to society then vastly differs from what evolved as both Palace and Temple become corrupted by greed.

jrkrideau , Sep 15, 2018 9:03:58 PM | link

@ 27 Jen

So religious institutions got into the banking business early.

Achaemenids? I think this was rather late. IIRC temples in Ur, Sumer and Babylon were in the business long before the Achaemenid period.

However Ur, Sumer and Babylon also seem to have had a general debt amnesty about every 7 years. There was a sound political or economic rationale for this. Something about the idea that one was not supposed to grind the faces of the poor into the gravel, nor destroy the fabric of society.

The temples were the only organizations that had the administrative ability to do this. Temple, at least in Mesopotamia is a bit of a misnomer. As I understand it, the "temple" was the home of the god, the royal palace and the seat of the civil service all rolled into one.

You might find David Graeber's book Debt : The First 5,000 Years interesting. He discusses why the temples were in the money lending business. It's a rather fun read and comes in hard cover and completely free pdf.
https://libcom.org/files/__Debt__The_First_5_000_Years.pdf

did not accept deposits

I never thought of it, but yes of course. Given their functions they would not take deposits. They were loaning from state resources and did not need deposits. They would not have even understood the concept.

I am not sure if this applies during the Achaemenid period but it seems likely.

[Aug 13, 2018] The Annals of Roacheforque Back That A$$et Up ...

Aug 13, 2018 | roacheforque.blogspot.com

Sunday, August 12, 2018 Back That A$$et Up ... From the first sentence of Michael Sproul's There's No Such Thing as Fiat Money (2007) :

I make the claim that fiat money does not exist, and that the money that is commonly called fiat money is actually backed by the assets of its issuer.
Who would argue against the premise that modern currencies are backed by the issuer's assets? The questions that remain are: How broad a definition of "assets" is being considered? And does "asset backing" justifiably negate the meaning of "fiat", or is this mere semantics?

In any event, I would counter argue that the meaning of "fiat" is possibly in need of clarification. And such clarification would then allow for the sensible conclusion that fiat money does indeed exist. Sproul's premise is a good launch pad for clarifying just what it is that backs the US Dollar.

Many have said that the US military "backs" the dollar. And indeed, the US Deep State and its Military Industrial Corporatist alliance represents a huge investment in strategic worldwide military deployment. That investment is an asset, and it does in part back the dollar. There are other factors, that are considered in the foreign exchange marketplace, and there are varying opinions as to which factors bear such weight upon the prime factor : relative changes in purchasing power.

As we have discussed before, usage is a considerable factor in determining a currency's relative purchasing power, which in turn supports further usage, in a circular fashion. In times past, there were set fundamentals that established relative fiat currency exchange value: the country's stability, its industrial base, trade practices and metrics, population demographics and economic condition, debt to GDP, and so on.

As our real world has progressed into a world of derivative statistic and valuation, through the rise of financialization, those fundamental factors have evolved to include other factors that are brought to bear upon a modern digital currency's backing.

Does the depth of a currency in global derivative positions act as a form of backing? This is a factor which did not exist prior to the existence of derivatives. Does that depth not guarantee further usage, and that further usage not create greater depth? Does the currency function successfully as a systemic weapon against other currency issuers? Again, relatively recent dollar era phenomena.

But there is an incredibly powerful, hugely overlooked factor which begins only around 2008, which backs the US dollar. I will tell you now that it is the US Government's control over its people which gives the US dollar the largest share of "asset backing" of any other factor under consideration - in the FX market and otherwise.

When the US Government publicly bailed out the global banking system and made the American people the guarantor of that bailout, an incredible precedent was set. It proved to the families that the issuer of the US Dollar could obligate its tax base to an unrepayable debt, and that tax base would neither understand, nor care enough about the consequences of that precedent ... to stand up and fight against the fraud and thievery that keeps the 99% in perpetual bondage, and the 1% in a risk free position to do as they please.

The issuer has proven to generational wealth that it can divert the attention of the tax base from the world's most egregious robbery, and do it again every so often, including to other middle classes who hold wealth, as it moves from country to country. And they will do so in equally powerful police states, combined with well developed welfare states, as the fiat wealth concept manages the debt slaves of any culture, keeping them pacified under the doctrine of "debt as wealth".

You will watch in amazement as China eventually "becomes" the USA in this regard. To the North, there is one proud people, who thrive on the adversity which shapes their strong cultural identity - who will be a thorn in the dollar's side - but they will be dealt with, as opportunity allows.

This modern state of affairs is an incredible asset which the global corporatist banking cartel (the BIS led global central banking system) has endowed upon the US Dollar - and it's rival issuers are part and parcel to that system. Until China, India and Russia's central banks (along with their strategic but smaller allied CBs) achieve a true Coup d'etat (either publicly - or more likely privately) and begin to act independently from BIS mandate, the world's middle classes will never have any enduring prosperity - only the fleeting type that comes with targeted booms, busts and the fraud and bailouts they enable.

Much more importantly ... that Coup will NEVER HAPPEN as long as the American people agree to the dollar contract they are so deeply sworn to. Americans have been taught to accept the double standard they now live by. They can default on debt and lose everything they own, but their lenders can never default - they will be bailed out by whatever wealth remains. There is no other society on earth who have been so culturally conditioned to accept slavery and socialism as the generation of Americans whose OBEDIENCE backs the dollar today. That compliance, coupled with contempt for the wealth of their fellow man, and the social justice herd mentality, makes the family's smile with exceeding confidence ... that this dollar empire can milk much more middle class wealth across the globe as it spreads its "debt as wealth" religion even further into systemic entrenchment.

And this Trump fellow. He and Wilbur are doing well to earn the trust of generational wealth.

An unexpected wildcard can always be drawn, including an international war. But the Roacheforque's will profit from war as well - nonetheless, and just the same. Generational wealth aways profits from the spread of global corporatism, as they are both the authors and benefactors of it.

This we learn ... from the flower of understanding.

https://i.ytimg.com/vi/tuzJadb4vm8/0.jpg

Roacheforque at Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest

https://apis.google.com/se/0/_/+1/fastbutton?usegapi=1&annotation=inline&width=300&size=medium&source=blogger%3Ablog%3Aplusone&hl=en&origin=https%3A%2F%2Froacheforque.blogspot.com&url=http%3A%2F%2Froacheforque.blogspot.com%2F2018%2F08%2Fback-that-aet-up.html&gsrc=3p&ic=1&jsh=m%3B%2F_%2Fscs%2Fapps-static%2F_%2Fjs%2Fk%3Doz.gapi.en_US.A0tZbbhuWGM.O%2Fam%3DwQ%2Frt%3Dj%2Fd%3D1%2Frs%3DAGLTcCNG73IWE-GDAUeNK0mN2s9b1KDujQ%2Fm%3D__features__#_methods=onPlusOne%2C_ready%2C_close%2C_open%2C_resizeMe%2C_renderstart%2Concircled%2Cdrefresh%2Cerefresh&id=I0_1534139117216&_gfid=I0_1534139117216&parent=https%3A%2F%2Froacheforque.blogspot.com&pfname=&rpctoken=35383810

No comments:

[Aug 03, 2018] The "accounting view" of money: money as equity

Aug 03, 2018 | www.nakedcapitalism.com

Marco Saba , August 2, 2018 at 6:11 pm

It seems that bad debts can be composed with fake liabilities, here:
The "accounting view" of money: money as equity (Part I)
http://blogs.worldbank.org/allaboutfinance/node/916
The "accounting view" of money: money as equity (Part II)
http://blogs.worldbank.org/allaboutfinance/node/917
The "accounting view" of money: money as equity (Part III)
http://blogs.worldbank.org/allaboutfinance/node/918

[Jul 28, 2018] Putin The US Is Making A Big Mistake By Weaponizing The Dollar Zero Hedge

Jul 28, 2018 | www.zerohedge.com

After the liquidation of its US Treasury holdings, surging gold reserves, and switching to a non-SWIFT payment system , Russian President Putin attempted to quell general concerns noting that "Russia isn't abandoning the dollar."

In a press conference this morning, the Russian president said his country doesn't plan to abandon holding reserves in U.S. dollars though he said that the risk of sanctions is prompting Russia to diversify its foreign currency assets.

"Russia isn't abandoning the dollar," Putin said in answer to a question about the sharp decline in its holdings of U.S. Treasuries in April and May.

"We need to minimize risks, we see what's happening with sanctions."

"As for our American partners and the restrictions they impose involving the dollar," he added,

"I think that is a major strategic mistake because they're undermining confidence in the dollar as a reserve currency."

Putin did however caution that the US is making a big mistake if it hopes to use the dollar as a political weapon:

" Regarding our American partners placing limitations, including those on dollar transactions, I believe is a big strategic mistake . By doing so, they are undermining the trust in the dollar as a reserve currency"

In this vein, Putin added that many countries are discussing the creation of new reserve currencies, noting that China's yuan is a potential reserve currency, but concluded:

"We will continue to use the US dollar unless the United States prevents us from doing so."

The Russian president also emphasized the need for other currencies in global trade and the emergence of new reserve currencies like the ruble.

Just last night we laid out the four major moves that Russia seems to be taking to de-dollarize so we suspect this comment by Putin is lipstick on that pig so that the rest of the world doesn't front-run him.

Additionally, President Putin said he's ready to hold a new summit with U.S. counterpart Donald Trump in either Moscow or Washington, praising him for sticking to his election promises to improve ties with Russia.

"One of President Trump's big pluses is that he strives to fulfill the promises he made to voters, to the American people," Putin told a press conference at the BRICS summit in Johannesburg.

"As a rule, after the elections some leaders tend to forget what they promised the people but not Trump."

Putin, who said he expects to meet Trump on the sidelines of the G-20


strannick -> BaBaBouy Fri, 07/27/2018 - 10:11 Permalink

Putin: "Russia isnt abandoning the dollar"

Russia's just selling all its US Treauries and then using the cash to buy gold.

"The first to sell is a rat. The last to sell is a fool"

beemasters -> strannick Fri, 07/27/2018 - 10:19 Permalink

"Regarding our American partners placing limitations, including those on dollar transactions, I believe is a big strategic mistake. "

It's been going on for a long time (with other weaker nations) and he is just voicing it now?

Brazen Heist II -> beemasters Fri, 07/27/2018 - 10:23 Permalink

The Anglo Zionist empire not only weaponizes the USD, but also "democracy" and "human rights".

The golden days of the 1990s where Uncle Scam could enjoy unrivalled power are gone. Like all greedy full spectrum empires, abusing unipolar power with wild abandon and arrogance is now starting to hurt.

Sandbox the Zionist infil traitors and take down the tentacles of the Deep State, and let America join the global polity of great nations in a new paradigm of peaceful coexistence, rather than following the directives of that small, paranoid tribe bent on full spectrum dominance.

One thing that makes me optimistic is that more people are becoming aware and are questioning the apparatus and narratives of the old world order. It was alot different 10 years ago, when I felt like I was a very small minority with a multipolar view, drowned out in a sea of denial.

Klassenfeind -> Brazen Heist II Fri, 07/27/2018 - 10:53 Permalink

As always, Putin is spot on!

Trump and his ZH crybabies whine on about how "unfairly the rest of the world has been treating the US" but they 'conveniently' forget that most of today's problems (wars, financial instability, fiat currency) originate from the US Reserve Currency Status and the Breton Woods system which the US has been using UNFAIRLY to it's advantage for Many DECADES in order to finance wars and manipulate the price of commodities.

But that's too difficult to grasp for most Trumptards... They're too busy screaming "sieg heil" for the Orange Jew!

Brazen Heist II -> Klassenfeind Fri, 07/27/2018 - 10:58 Permalink

Charles de Gaulle called that the exorbitant privilege

Bokkenrijder -> Brazen Heist II Fri, 07/27/2018 - 11:00 Permalink

These ZH Trump fanboys are the biggest idiots.

Really, you couldn't make this shit up;

*) They complain about foreign wars and the MIC, yet vote for someone who promised to INCREASE the Pentagon's already enormous budget

*) The complain about "the Jews," "Israhell," and "the ZOG," and yet they vote for someone who is in bed with Israel and Netanyahu and has a Jewish-American lawyer who fucks him over

*) They complain about the "banksters," and yet they vote for someone who makes a Deep State Goldmanite (Mnuchin) his Treasure Secretary

*) They complain about The Deep State and The Swamp, and they vote for someone who hires Pompeo, Haspel and Bolton

*) They complain about the massive amounts of debt and the fiat currency system, and yet they vote for someone who calls himself "The King of Debt" and calls for a massive increase in military spending

I guess now the ZH Trumptards only have one 'weapon' left: downvotes!

Brazen Heist II -> Bokkenrijder Fri, 07/27/2018 - 11:11 Permalink

I'm not your classic fanboy of Trump, but he has to work with those cretins somehow, and not turn into a degenerate pedophile in the process. He was the lesser of two evils presented in the 2 party duopoly, sadly, that's what modern 'democracy' has become; a Hobson's choice.

So far, he's doing alright, given the circumstances, and everything stacked against him.

Klassenfeind -> Brazen Heist II Fri, 07/27/2018 - 11:13 Permalink

"He was the lesser of two evils presented in the 2 party duopoly,..."

I completely agree with that assessment, but what I fail to understand is how the supposedly "highly educated readers of ZH," can be so fucking stupid to blindly believe all the Trump bullshit.

Being the lesser of two evils is still not being very good I'm afraid, and being the lesser of two evils means that he still kinda sucks.

That is what we're witnessing every day: a stupid narcissistic idiot who can barely play 0,5D chess, let alone 4D chess...

Brazen Heist II -> Klassenfeind Fri, 07/27/2018 - 11:26 Permalink

The system that churns out leadership in America is fundamentally flawed and corrupted to the bone, yet once in a blue moon, an "insider outsider" as I like to call them, like Jackson, Kennedy and Trump, slips through. And that's when decades happen in a few years.

Money_for_Nothing -> Klassenfeind Fri, 07/27/2018 - 11:47 Permalink

Who blindly believes bs? Trump is provably the most honest politician since the invention of recording devices. Just having an uncontested birth certification and school records is a big head start. Who do you think would make your paycheck (subsidy?) go higher than President Trump. Trump is threatening a lot of people's sinecures and subsidies. Who wants to guarantee more NPR wannabee hacks a good paycheck?

Giant Meteor -> Klassenfeind Fri, 07/27/2018 - 12:05 Permalink

What a lot of folks seeem to overlook is that the lesser of two evils is still, wait for it, ... evil. This is a highly subjective measurement of course, the beauty of all that evil being in the minds eye, of the beholder ..

HardAssets -> Klassenfeind Fri, 07/27/2018 - 13:12 Permalink

'Stupid' ?, no I highly doubt that.

What do we have ? IMO the jury is still out on that one. I had hoped that President Trump would talk straight to the American people. Particularly in regards to the true state of the overall economy. But those of us who have tried to inform friends & family on these subjects have run up against that solid wall of denial. Most people don't want to hear the truth. They fight against it with everything they've got. Between the Deep State attacking Trump to maintain their privileges & power, and a dumbed down population aggressively in denial - the president has a Herculean challenge.

Scipio Africanuz -> Klassenfeind Fri, 07/27/2018 - 13:49 Permalink

Fine, we are Trump fan boyz and Putin fan boyz, and we'll believe whatever we choose to believe, for our own reasons, and we don't owe anyone a stinkin explanation why!

You can open your eyes, and see why we support, fight for, defend, and will keep fighting for Trump! He's the Hope that we can Change the vampirous system that's defenestrated everyone playing by the rules!

He's a narcissistic idiot who can barely play multidimensional chess? You don't say! Anyhow, even if he were, and he isn't, he's OUR narcissistic idiot who beat the living daylights, out of the prissy, elitist, wicked, and thieving a**holes arrayed against him!

So how come your folks couldn't win against a narcissistic idiot? Because your folks are the narcissistic idiots, who can't come to terms with the reality that Hope of True Change is here, and embodied in Trumpus Maximus Magnus!!

You don't like that he's a Maximux Magnus? Fine, you can suck my pinkie!...

Consuelo -> Brazen Heist II Fri, 07/27/2018 - 11:27 Permalink

+1

There is a clear battle going on and at 70+ years of age, I give President Trump a huge helping of credit just to deal with it all, without going insane in the process. One thing though... He had better corral the dirty-dealers around him, along with the hag and those involved from the previous administration, or it will eventually overwhelm him. Guaranteed.

Brazen Heist II -> Consuelo Fri, 07/27/2018 - 11:32 Permalink

Indeed, its a battle for the soul of America. The pedophiles, degenerates, Zionists, imperialists must not win. A purge is needed and coming. I hope he survives like Jackson, and doesn't go the way of Kennedy. In any case, he has a big following, but I fear a civil war type scenario is coming no matter what happens. The vitriol and partizanship is at toxic levels.

HardAssets -> Brazen Heist II Fri, 07/27/2018 - 13:24 Permalink

It's obvious that the NWO crowd weaponizes populations. Obummer wanted his internal force 'as well funded & equipped as the military '. And, theyve been working hard with their propaganda machine to overturn the American people's 2nd Amendment.

This is likely one of the most delicate & dangerous times in American history.

Vendetta -> Bokkenrijder Fri, 07/27/2018 - 12:32 Permalink

So let's see ... Hillary in conjunction with obama demonized Iran and Russia (Crimea... have you forgotten?) for years prior to trump ... overthrew Libya and stirred the pot in Syria via proxies ... and Bernie Sanders was against these wars AND against unfettered globalization ... all part and parcel of the neoconservative PNAC doctrine .... but trump trying to implement peace and diplomacy with Russia and North Korea is 'bad' ... but since at the same time he increases the budget for the MIC and he is 'bad' for doing so and he is pissing off our so-called 'trade partners' as manufacturing has essentially left the US ... so he is to pick a fight with the MIC internally to the nation on top of everything else including pissing of the globalist cretins in our so called intelligence (where are those WMDs) ... okie dokie ...

[Jul 14, 2018] Beyond Money

Notable quotes:
"... Kevin Shipp, former Central Intelligence Agency (CIA) officer, intelligence and counter terrorism expert, held several high-level positions in the CIA. His assignments included protective agent for the Director of the CIA, counterintelligence investigator searching for moles inside the CIA, overseas counter terrorism operations officer, internal security investigator, assistant team leader for the antiterrorism tactical assault team, chief of training for the CIA federal police force and polygraph examiner. Mr. Shipp was the senior program manager for the Department of State, Diplomatic Security, Anti-Terrorism Assistance global police training program. He is the recipient of two CIA Meritorious Unit Citations, three Exceptional Performance Awards and a Medallion for high risk overseas operations. Website/book: fortheloveoffreedom.net ..."
Jul 14, 2018 | beyondmoney.net

Fake News, Fake Money, How to Tell the Difference Posted on February 21, 2018 | Leave a comment Why is it so hard these days to tell fact from fiction? Who can be trusted to tell us what's really going on? Can the New York Times and Washington Post still be believed? And what about money? Can we still trust the dollar, the euro, the pound sterling? What supports national currencies, anyway? Is this Bitcoin thing real or fake money, and should I buy some?

Here's a compelling presentation by Andreas Antonopoulos, that addresses all of these questions. Antonopoulos is a technologist and entrepreneur and probably the most knowledgeable and insightful expert on bitcoin, blockchain technology and the profound changes that lie just ahead.

MUST WATCH!

https://www.youtube.com/embed/i_wOEL6dprg?version=3&rel=1&fs=1&autohide=2&showsearch=0&showinfo=1&iv_load_policy=1&wmode=transparent

Here's the YouTube link: https://youtu.be/i_wOEL6dprg

Now take a deep dive into the political realities of our time by watching this presentation by CIA officer Kevin Shipp, in which he exposes the Shadow Government and the Deep State. If you question his credibility here is a brief bio from Information Clearing House:

Kevin Shipp, former Central Intelligence Agency (CIA) officer, intelligence and counter terrorism expert, held several high-level positions in the CIA. His assignments included protective agent for the Director of the CIA, counterintelligence investigator searching for moles inside the CIA, overseas counter terrorism operations officer, internal security investigator, assistant team leader for the antiterrorism tactical assault team, chief of training for the CIA federal police force and polygraph examiner. Mr. Shipp was the senior program manager for the Department of State, Diplomatic Security, Anti-Terrorism Assistance global police training program. He is the recipient of two CIA Meritorious Unit Citations, three Exceptional Performance Awards and a Medallion for high risk overseas operations. Website/book: fortheloveoffreedom.net

https://www.youtube.com/embed/rQouKi7xDpM?version=3&rel=1&fs=1&autohide=2&showsearch=0&showinfo=1&iv_load_policy=1&wmode=transparent

Here's the YouTube link: https://youtu.be/rQouKi7xDpM

[Jul 04, 2018] Dollar Hegemony

Jul 04, 2018 | www.henryckliu.com
Dollar Hegemony

By
Henry C K Liu

(Originally published as [US Dollar Hegemony has to go] in AToL on April 11. 2002)


There is an economics-textbook myth that foreign-exchange rates are determined by supply and demand based on market fundamentals. Economics tends to dismiss socio-political factors that shape market fundamentals that affect supply and demand.

The current international finance architecture is based on the US dollar as the dominant reserve currency, which now accounts for 68 percent of global currency reserves, up from 51 percent a decade ago. Yet in 2000, the US share of global exports (US$781.1 billon out of a world total of $6.2 trillion) was only 12.3 percent and its share of global imports ($1.257 trillion out of a world total of $6.65 trillion) was 18.9 percent. World merchandise exports per capita amounted to $1,094 in 2000, while 30 percent of the world's population lived on less than $1 a day, about one-third of per capita export value.

Ever since 1971, when US president Richard Nixon took the dollar off the gold standard (at $35 per ounce) that had been agreed to at the Bretton Woods Conference at the end of World War II, the dollar has been a global monetary instrument that the United States, and only the United States, can produce by fiat. The dollar, now a fiat currency, is at a 16-year trade-weighted high despite record US current-account deficits and the status of the US as the leading debtor nation. The US national debt as of April 4 was $6.021 trillion against a gross domestic product (GDP) of $9 trillion.

World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.

By definition, dollar reserves must be invested in US assets, creating a capital-accounts surplus for the US economy. Even after a year of sharp correction, US stock valuation is still at a 25-year high and trading at a 56 percent premium compared with emerging markets.

The Quantity Theory of Money is clearly at work. US assets are not growing at a pace on par with the growth of the quantity of dollars. US companies still respresent 56 percent of global market capitalization despite recent retrenchment in which entire sectors suffered some 80 percent a fall in value. The cumulative return of the Dow Jones Industrial Average (DJIA) from 1990 through 2001 was 281 percent, while the Morgan Stanley Capital International (MSCI) developed-country index posted a return of only 12.4 percent even without counting Japan. The MSCI emerging-market index posted a mere 7.7 percent return. The US capital-account surplus in turn finances the US trade deficit. Moreover, any asset, regardless of location, that is denominated in dollars is a US asset in essence. When oil is denominated in dollars through US state action and the dollar is a fiat currency, the US essentially owns the world's oil for free. And the more the US prints greenbacks, the higher the price of US assets will rise. Thus a strong-dollar policy gives the US a double win.

Historically, the processes of globalization has always been the result of state action, as opposed to the mere surrender of state sovereignty to market forces. Currency monopoly of course is the most fundamental trade restraint by one single government. Adam Smith published Wealth of Nations in 1776, the year of US independence. By the time the constitution was framed 11 years later, the US founding fathers were deeply influenced by Smith's ideas, which constituted a reasoned abhorrence of trade monopoly and government policy in restricting trade. What Smith abhorred most was a policy known as mercantilism, which was practiced by all the major powers of the time. It is necessary to bear in mind that Smith's notion of the limitation of government action was exclusively related to mercantilist issues of trade restraint. Smith never advocated government tolerance of trade restraint, whether by big business monopolies or by other governments.

A central aim of mercantilism was to ensure that a nation's exports remained higher in value than its imports, the surplus in that era being paid only in specie money (gold-backed as opposed to fiat money). This trade surplus in gold permitted the surplus country, such as England, to invest in more factories to manufacture more for export, thus bringing home more gold. The importing regions, such as the American colonies, not only found the gold reserves backing their currency depleted, causing free-fall devaluation (not unlike that faced today by many emerging-economy currencies), but also wanting in surplus capital for building factories to produce for export. So despite plentiful iron ore in America, only pig iron was exported to England in return for English finished iron goods.

In 1795, when the Americans began finally to wake up to their disadvantaged trade relationship and began to raise European (mostly French and Dutch) capital to start a manufacturing industry, England decreed the Iron Act, forbidding the manufacture of iron goods in America, which caused great dissatisfaction among the prospering colonials. Smith favored an opposite government policy toward promoting domestic economic production and free foreign trade, a policy that came to be known as "laissez faire" (because the English, having nothing to do with such heretical ideas, refuse to give it an English name). Laissez faire, notwithstanding its literal meaning of "leave alone", meant nothing of the sort. It meant an activist government policy to counteract mercantilism. Neo-liberal free-market economists are just bad historians, among their other defective characteristics, when they propagandize "laissez faire" as no government interference in trade affairs.

A strong-dollar policy is in the US national interest because it keeps US inflation low through low-cost imports and it makes US assets expensive for foreign investors. This arrangement, which Federal Reserve Board chairman Alan Greenspan proudly calls US financial hegemony in congressional testimony, has kept the US economy booming in the face of recurrent financial crises in the rest of the world. It has distorted globalization into a "race to the bottom" process of exploiting the lowest labor costs and the highest environmental abuse worldwide to produce items and produce for export to US markets in a quest for the almighty dollar, which has not been backed by gold since 1971, nor by economic fundamentals for more than a decade. The adverse effect of this type of globalization on the developing economies are obvious. It robs them of the meager fruits of their exports and keeps their domestic economies starved for capital, as all surplus dollars must be reinvested in US treasuries to prevent the collapse of their own domestic currencies.

The adverse effect of this type of globalization on the US economy is also becoming clear. In order to act as consumer of last resort for the whole world, the US economy has been pushed into a debt bubble that thrives on conspicuous consumption and fraudulent accounting. The unsustainable and irrational rise of US equity prices, unsupported by revenue or profit, had merely been a devaluation of the dollar. Ironically, the current fall in US equity prices reflects a trend to an even stronger dollar, as it can buy more deflated shares.

The world economy, through technological progress and non-regulated markets, has entered a stage of overcapacity in which the management of aggregate demand is the obvious solution. Yet we have a situation in which the people producing the goods cannot afford to buy them and the people receiving the profit from goods production cannot consume more of these goods. The size of the US market, large as it is, is insufficient to absorb the continuous growth of the world's new productive power. For the world economy to grow, the whole population of the world needs to be allowed to participate with its fair share of consumption. Yet economic and monetary policy makers continue to view full employment and rising fair wages as the direct cause of inflation, which is deemed a threat to sound money.

The Keynesian starting point is that full employment is the basis of good economics. It is through full employment at fair wages that all other economic inefficiencies can best be handled, through an accommodating monetary policy. Say's Law (supply creates its own demand) turns this principle upside down with its bias toward supply/production. Monetarists in support of Say's Law thus develop a phobia against inflation, claiming unemployment to be a necessary tool for fighting inflation and that in the long run, sound money produces the highest possible employment level. They call that level a "natural" rate of unemployment, the technical term being NAIRU (non-accelerating inflation rate of unemployment).

It is hard to see how sound money can ever lead to full employment when unemployment is necessary to maintain sound money. Within limits and within reason, unemployment hurts people and inflation hurts money. And if money exists to serve people, then the choice becomes obvious. Without global full employment, the theory of comparative advantage in world trade is merely Say's Law internationalized.

No single economy can profit for long at the expense of the rest of an interdependent world. There is an urgent need to restructure the global finance architecture to return to exchange rates based on purchasing-power parity, and to reorient the world trading system toward true comparative advantage based on global full employment with rising wages and living standards. The key starting point is to focus on the hegemony of the dollar.

To save the world from the path of impending disaster, we must:

# promote an awareness among policy makers globally that excessive dependence on exports merely to service dollar debt is self-destructive to any economy;

# promote a new global finance architecture away from a dollar hegemony that forces the world to export not only goods but also dollar earnings from trade to the US;

# promote the application of the State Theory of Money (which asserts that the value of money is ultimately backed by a government's authority to levy taxes) to provide needed domestic credit for sound economic development and to free developing economies from the tyranny of dependence on foreign capital;

# restructure international economic relations toward aggregate demand management away from the current overemphasis on predatory supply expansion through redundant competition; and restructure world trade toward true comparative advantage in the context of global full employment and global wage and environmental standards.

This is easier done than imagained. The starting point is for the major exporting nations each to unilaterally require that all its exports be payable only in its currency, so that the global finance architecture will turn into a multi-currency regime overnight. There would be no need for reserve currencies and exchange rates would reflect market fundamentals of world trade.

As for aggregate demand management, Asia leads the world in both overcapacity and underconsumption. It is high time for Asia to realize the potential of its market power. If the people of Asia are to be compensated fairly for their labor, the global economy will see its fastest growth ever.

[Jun 10, 2018] The Battle for Money Has Begun naked capitalism

Notable quotes:
"... If Money=Debt, the battle over money can only be won by individuals wisely choosing whom they become indebted too. As the wise Michael Hudson points out, "Debts that can't be paid, won't be paid." ..."
"... Money is the creation of the elite to control the rest of the masses. It screws the rest of the masses by constraining what they can get their hands on while the elite can get their hands on anything they want. ..."
"... IMO the point of the article was to hint that objections (or refusal to engage with) MMT is largely political in nature. ..."
"... Skippy said it above: these are likely bad faith actors who disguise their classism and political desires with talk of "positive money" and the like. Debate clubs won't win this one. ..."
"... As I understand it, MMT is simply a more honest way of explaining the current reality, the problem being that the 1% would like to keep that a secret so that money is only created for the things that they can profit from, like war. ..."
"... MMT necessarily requires the exorbitant privilege of having the US dollar accounting for 60% of world trade & financial transactions with the US economy representing only 20% of world GDP. ..."
"... The Entrepreneurial State ..."
"... money and credit are used almost entirely for speculation, usury, and rent extraction ..."
"... In a normal economy, government spending is financed by taxes and borrowing, meaning that no new spending power has been created, as IS the case with new bank loans. ..."
"... You can fool part of the people all of the time, and all of the people part of the time. ..."
"... handing all credit creation to the central banks is not only technically impossible in a modern economy, it's a dangerous folly ..."
"... Wealth, Virtual Wealth and Debt, 2nd edition. ..."
"... The Order of Time ..."
"... "The debts are owed to government banks. A government can do what the U.S. can't do. The government can forgive debts, at least those that are owed to itself, without creating a political backlash. If a viable corporation has run up too much debt, the government can forgive it. This is better than letting the debt close down a factory or force it be sold to a predatory asset management firm as occurs in the United States. That is the advantage of having public credit and why credit should be public. That's how it was in Babylonia. Rulers were able to cancel debts all the time in the 3rd millennium and 2nd millennium BC, because most debts were owed to the palace or the temples. Rulers were cancelling debts owed to themselves. ..."
"... China can cancel business debt owed to itself. It can proclaim a clean slate. It can minimize debt service to whatever it chooses. But imagine if Chase Manhattan and Goldman Sachs are let in. It would be much harder for the government to raise real estate taxes leading to defaults on the banks. It could save the occupants by making new loans to those who default – based on lower land prices. ..."
"... Well, you can imagine the international furor that would erupt. Trump would threaten to atom bomb Peking and Shanghai to save his constituency. His constituency and that of the Democrats are the same: Wall Street and the One Percent. So China may lose its ability to write down debts if it lets in foreign banks." ..."
"... that this is a Chicago School / Friedmanesque monetary policy is made clear by Positive Money ..."
"... It seems there are greater similarities between China and the US than may be visible at first glance. China builds real estate for a shrinking population, invests for an over-indebted client (the US, which even insists on a drastic reduction of the bilateral trade deficit) and finances all this with money it does not have ..."
Jun 10, 2018 | www.nakedcapitalism.com

Disturbed Voter , June 8, 2018 at 6:30 am

Perhaps the cost of the 2008/2009 bailout was too high? And I don't mean quantitively. It seems modern man has no sense of the qualitative.

Odysseus , June 8, 2018 at 5:22 pm

The same money that went into TARP would have bought a whole lot of nonperforming mortgages. You wouldn't have needed a large bailout if the money actually made it's way to main street.

PlutoniumKun , June 8, 2018 at 6:32 am

Slightly off-topic, but if its true that this is a right wing proposal using naïve left/Green supporters to give a progressive fig leaf, it wouldn't be the first time this has happened. You can see the same phenomenon with Brexit, where many supposed left wingers have often bought unthinkingly into many right/libertarian memes about 'freedom' from the EU. The core reason they could do this is the effective abandonment by the left of arguments about money and capital to the conservative and libertarian right from the 1980's onward.

One of the many reasons I love NC so much is that it has tried to fill the gap left by so much of the mainstream left and much of the Greens in analysing economics issues in forensic technical detail. Articles like this are absolutely invaluable in building up a proper intellectual program in understanding the central importance of macroeconomics in building a fairer society.

Watt4Bob , June 8, 2018 at 8:08 am

God, country, apple pie, balanced budget, freedom, democracy, pay-as-you-go, ingredients in the hash of right/libertarian memes, all supposedly 'common sense' but actually nonsense, spread thick, intended to distract us while our ruling class steals everything not tied down.

I think the left saw its audience washed away by a tidal wave of this clever, well-funded nonsense, so they stopped arguing about money and capital because they found it embarrassing to be caught talking to themselves.

Of course back in the 1970s, much of the working-class had was doing well enough that they thought the argument about money had been settled, and in their favor. Little did they know that their 'betters' were planning on clawing-back every penny of wealth that they'd managed to accumulate in the post-war years.

So here we are, the working class that was formerly convinced that anyone could live well if they just worked hard, are finding that you can tug on your boot-straps with all your might, and get no where.

Morty , June 9, 2018 at 12:18 pm

I think you're right in that the wrong narrative is now dominant.

I don't think this was done intentionally – I think the people pulling the strings don't know for sure what will happen, either.

The 'common sense' you mention is the best explanation most people have available. They look at macroeconomics through the lens of their own household budget. Of course a balanced budget responsible application of money makes sense Most people don't have a money printer in their basement.

Norb , June 8, 2018 at 7:27 am

The battle is for the soul of humanity. A leadership that is working toward reducing inequality and injustice in the world will adopt policies reflecting a more positive outlook on the human condition. Those implementing austerity revile the masses of humanity, wether stated or not. The masses are to be controlled, not enlightened or cared for.

The West has gained supremacy in the world by using the strategy of Divide and Conquer. This thought process is so engrained in the psyche, that it heavily influences every form of problem solving by using outright war and financial oppression as primary tools to achieve these ends.

There would need to be a fundamental shift in thinking from Western leadership in order to bring about a change that would focus on wellbeing over profit, which does not seem forthcoming.

If Money=Debt, the battle over money can only be won by individuals wisely choosing whom they become indebted too. As the wise Michael Hudson points out, "Debts that can't be paid, won't be paid."

The main problem I see is the definition of what "Winning" would be. The definition determines the policy.

Summer , June 8, 2018 at 1:54 pm

"There would need to be a fundamental shift in thinking from Western leadership in order to bring about a change that would focus on wellbeing over profit, which does not seem forthcoming."

Akin to a religious conversion.

DHG , June 8, 2018 at 3:47 pm

Money is the creation of the elite to control the rest of the masses. It screws the rest of the masses by constraining what they can get their hands on while the elite can get their hands on anything they want. The tipping point will be when there are sufficient numbers who understand money isnt necessary to live and have nice things, it actually exists to deprive them of such.

Paul L. , June 8, 2018 at 7:58 pm

What is your alternative?

Watt4Bob , June 8, 2018 at 7:34 am

We've been fighting this same 'war' for a very long time.

Everybody now just has to make up their mind. Is money money or isn't money money. Everybody who earns it and spends it every day in order to live knows that money is money, anybody who votes it to be gathered in as taxes knows money is not money. That is what makes everybody go crazy. -Gertrude Stein – All About Money

As far as I can tell, about 1% of us believe that money is not money, and the rest of us believe that money is money.

Most of us believe that money is money because as Gertrude Stein said: Everybody who earns it and spends it every day in order to live knows that money is money

So here's the problem: the 1% of the people, the ones who believe that money is not money, are in charge of everything.

It's not natural that so few people should be in charge of so much, and that they should be in charge of 'everything' is truly crazy. (Please excuse the slight digression)

The people who are in charge of everything believe that it's right, proper, indeed 'natural' that they be in charge of everything because they believe that no one could do as good a job of being in charge of everything because they think they are smarter than everybody else.

The reason that the 1% of people believe they are smarter than everybody else is rooted largely in what they believe is their self-evident, superior understanding of money; that is to say, the understanding that money is not money.

The trouble is, the difference between the 1%'s understanding of money, and the common man's understanding of money is not evidence of the 1%'s superior intellect, so much as of their lack of a moral compass and their ability to rationalize the depraved indifference they show to their fellow man.

Read more;

Watt4Bob FDL June 2014

perpetualWAR , June 8, 2018 at 10:32 am

I don't believe money is money. Pretty certain I am in the 99%. "Money" or currency says right on the face that it is a debt instrument.

Samuel Conner , June 8, 2018 at 7:54 am

Maybe this thought is callous, but perhaps it would be useful to have a real-world demonstration that this is a bad idea. How systemically important is the Swiss economy? US abandoned its monetarist "quantity of reserves" experiment after a relatively short time. Again, it sounds callous, but perhaps a year or two of distress in a small test environment

(that is starting from a pretty good place and has a good social safety net

http://siteresources.worldbank.org/SAFETYNETSANDTRANSFERS/Resources/281945-1124119303499/SSNPrimerNote25.pdf

)

would be helpful to the world at large in terms of deprecating a bad idea. Perhaps MMT will be the last approach standing?

Could it be that Wolf's "we need experiments" rhetoric is actually opposed to "positive money", but he recognizes that the idea won't go away until it is badly spanked? Even if not, maybe there is something to the idea that experimentation could be used to distinguish bad ideas from less bad (the good ideas won't be tested, I reckon, until all the various flavors of "bad" have been tried and rejected).

TroyMcClure , June 8, 2018 at 8:11 am

IMO the point of the article was to hint that objections (or refusal to engage with) MMT is largely political in nature. See Marriner Eccles and his observation regarding the political enemies of full employment.

Skippy said it above: these are likely bad faith actors who disguise their classism and political desires with talk of "positive money" and the like. Debate clubs won't win this one.

If the Swiss go through with it and it inevitably fails there will always be an excuse. They didn't do positive money "hard enough" or whatever.

liam , June 8, 2018 at 10:22 am

What I'd like to know is if the Swiss go through with it and it fails, is there anything other than central bank independence that needs to be changed? Fundamentally it's still fiat, operating within a democracy. Does it not come down to who decides how much and for what purpose?

Maybe I'm missing something, but it strikes me as the elites getting their revenge in first. There go my people and all that. Maybe I am missing it.

Watt4Bob , June 8, 2018 at 8:18 am

the good ideas won't be tested, I reckon, until all the various flavors of "bad" have been tried and rejected.

So, you don't think current conditions are convincing enough?

As for me, I'm more than convinced, that left to themselves, our elites have an endless bag of bad ideas, and every one of them results in their further enrichment at our expense.

Samuel Conner , June 8, 2018 at 9:57 am

I'm convinced; have been persuaded that MMT is the right way to think about "money" since shortly after I encountered it almost a decade ago.

As I understand it, this is a referendum. If the people don't like the outcome, they presumably would have power to reverse it. Throw the bastards out and replace with new bastards who will try something different.

Watt4Bob , June 8, 2018 at 1:19 pm

As I understand it, MMT is simply a more honest way of explaining the current reality, the problem being that the 1% would like to keep that a secret so that money is only created for the things that they can profit from, like war.

So the issue is that since enough money can be created for the needs of the rest of us, why is that not happening?

It would appear to me that almost any efforts by the 1% to create a 'new' plan is in reality, an effort to make sure that the 99% never reap any advantage even if we were to unanimously come to understand the MMT is really the most realistic perspective.

It's almost as if the 1% has decided to change the rules because the rest of us are starting to understand that there is no technical reason we can't finance a more equitable economy.

MyLessThanPrimeBeef , June 8, 2018 at 2:03 pm

It's good to explain the current reality more honestly.

Even more honestly would be to explain that reality, which is a man-made system, doesn't have to be that way, unlike scientific explanations, for example, one for how gravity works. That particular physics explanation comes with the understanding that we can't change how gravity works.

The word 'theory' in the sense most people with more than 10 years of education associate with it is that

1. You will fail to advance to the next grade, or the next class if you don't understand it.
2. If you don't understand it, you are under pressure to show you agree with the theory, lest you fail the exam.
3. The reality described by the theory is unalterable, which is often the case with natural science theories, but not really the case with social/economic/political theories, unless they deal with human nature, which is hard to change.

If I say there is a theory to explain that on Mars, you drive on the right side of the road on odd-numbered days, and on the left side on even-numbered days, you would say, I appreciate the clear explanation of your wonderful theory, but I don't like it, I don't like how that system is designed. And I want to change it!!!!!!!!!!!!

bruce wilder , June 8, 2018 at 7:03 pm

Yesterday, I watched one of many Mark Blyth videos on YouTube where he was talking about why people hold on to stupid economic ideas. He offered a variety of interesting hypotheses, most of which were not necessarily mutually exclusive.

Even a theory that fails basic tests of correspondence with reality -- neoclassical economics being the prime example -- may prove to be a reliable means of coordinating behavior on a huge scale. That we indoctrinate people in colleges and business schools in neoclassical economics has been the foundation for neoliberal politics; even if the theory is largely rubbish by any scientific standard, the rhetorical engine is easy to operate once you have a few basic concepts down. And, immunity to evidence or critical reason may actually be politically advantageous.

Econ 101 is taught as a dogma. The student is under pressure to learn the answers for the exam, as you say. All the rhetorical tropes -- not just deficit hysteria, but regulatory burdens, tax incentives, "free markets" (you see many actual markets? no, I didn't think so) and on and on -- are as easy to recite mindlessly as it is to ride a bicycle.

We have an ideology that prevents thinking or even seeing, collectively.

Paul L. , June 8, 2018 at 8:34 pm

Well, your wish has been answered – about 160 years ago. Lincoln's issuance of Greenback's allowed the Union Army to exist. No borrowing, no MMT debt incurred.

Alejandro , June 9, 2018 at 1:06 pm

Why were they accepted as payment?

Yves Smith Post author , June 9, 2018 at 9:43 pm

"MMT debt" is a non-sequitur..

MMT experts point out regularly that the Federal government spends out of nothing. Issuing bonds is a political holdover from the Gold Standard era, but separately, those bonds do have some use because a lot of investors like holding a risk free asset.

The government spends by the Fed debiting the Treasury's account. That's it.

We don't go around worrying about issuing bonds to pay for the next bombing run in the Middle East. The US has all sort of official off budget activity as well as unofficial (why do you think the DoD is not able to account for $21 trillion of spending over time? No one points out this $21 trillion mystery is proof the USG actually runs on MMT principles).

Older & Wiser , June 9, 2018 at 10:58 pm

MMT necessarily requires the exorbitant privilege of having the US dollar accounting for 60% of world trade & financial transactions with the US economy representing only 20% of world GDP.

Such impunity is changing as we speak so for that reason only (there are others) MMT should soon find itself non-viable.

Yves Smith Post author , June 10, 2018 at 1:08 am

That is not correct. Any government that issues its own currency is a sovereign currency issuer and operates on MMT principles. Canada, Japan, England, Australia, New Zealand .the constraint on their ability to run deficits is inflation. They will never go bankrupt in their own currencies. They can create too much inflation.

Adam1 , June 8, 2018 at 8:17 am

I have the same reaction to Positive Money ideas as I do to someone who talks about "parallel currencies". They don't understand money, banking and central banking.

While I agree whole heartedly with Clive that establishing the mini-bot currency is subject to the law of un-intended consequences and would no doubtedly have a bumpy start and might not even survive; but it's just another currency. Yes it would likely be subject to a discount versus the Euro, but so what. From a banking perspective there is nothing magical about state money or central bank money. These are the dominate means of clearing and settling payments today, but that's because it's currently cheaper, easier and less risky. But banking predates central banks by at least one or two hundred years (if not more). Thinking that if you put an iron fist on the usage of state/central bank money is going to stop banking only shows you don't understand banking. Most economies already have dual currencies – state money and bank money – but nobody thinks of them that way because they trade one for one. But locking the banking system out of using state money to clear and settle payments created by lending only forces the banking system to find a new means of acquiring liabilities (I'd suspect they get called something other than "deposits" of course) and clearing and settling payments. It wouldn't happen overnight but it most certainly would happen – there's too much "money" to be made.

Paul L. , June 8, 2018 at 8:36 pm

"Most economies already have dual currencies – state money and bank money" Give me the ratio please. Other than feeding the parking meter or doing your laundry what else do you use state money for?

Alejando , June 9, 2018 at 1:10 pm

Paying taxes. Unpaid parking tickets are debts, no borrowing involved.

voteforno6 , June 8, 2018 at 8:40 am

It's not exactly the gold standard, but it would have the same impact, I think. You have to give them credit, though – they keep finding new ways to dress up this very old idea.

OpenThePodBayDoorsHAL , June 8, 2018 at 7:16 pm

Hard to get to a new answer if you don't even start with the right question.
Wolf asserts his obvious and unquestionable truth: "Money is debt".

Really?

J. P. Morgan didn't think so. When he was asked:

"But the basis of banking is credit, is it not?" , Morgan replied:
"Not always. That is an evidence of banking, but it is not the money itself. Money is gold, and nothing else" .

Ah yes, the shiny rare metal that served mankind as money for millennia.
I have a gold coin in my hand. I can exchange it for goods and services. But I can't for the life of me figure out whose debt it is.

And no less than The Maestro (Alan Greenspan) opined the following last month:

"The gold standard was operating at its peak in the late 19th and early 20th centuries, a period of extraordinary global prosperity, characterised by firming productivity growth and very little inflation.

But today, there is a widespread view that the 19th century gold standard didn't work. I think that's like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn't the gold standard that failed; it was politics. World War I disabled the fixed exchange rate parities and no country wanted to be exposed to the humiliation of having a lesser exchange rate against the US dollar than it enjoyed in 1913.

Britain, for example, chose to return to the gold standard in 1925 at the same exchange rate it had in 1913 relative to the US dollar (US$4.86 per pound sterling). That was a monumental error by Winston Churchill, then Chancellor of the Exchequer. It induced a severe deflation for Britain in the late 1920s, and the Bank of England had to default in 1931. It wasn't the gold standard that wasn't functioning; it was these pre-war parities that didn't work.

Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line."

So let's start with a simpler definition of money: "Money stores labor so it can be transported across space and time" .

I grew some wheat, and want to store my wheat-labor so I can use it later, or spend it somewhere that is nowhere near my wheat pile.

But this points out why money that took no labor to produce cannot reliably store labor. Our system materializes money from thin air. Which is precisely the point of gold: it takes alot of labor to produce, so it has reliably stored labor for centuries. In A.D. 250 if I wanted a good-quality men's costume (toga, sash, sandals) the cost was one ounce of gold. Today one ounce of gold is +/-$1300, probably enough for a pretty good suit and pair of shoes. That fact is incredible: every other currency, money, government, and country have come and gone in the interim but gold reliably stored labor across the ages.

Cue the haters: "But gold money allows deadly deflation!!!". Yes, that scourge, when people benefit from rising productivity (lower costs of goods and services) in what used to be termed "Progress". Instead we're supposed to love being on a debt treadmill where everything costs more every year, on purpose .

https://mises.org/library/deflating-deflation-myth

Free your mind.

OpenThePodBayDoorsHAL , June 8, 2018 at 7:21 pm

Just to be clear, I'm not arguing that credit should somehow be abolished. Credit is critical, and hence so is banking. But separating money and credit would mean that every banking crisis (extending too much credit) is not automatically also a monetary crisis, affecting everyone, including people who had nothing to do with extending or accepting too much debt.

Paul L. , June 8, 2018 at 8:39 pm

Yes, you are correct. No one in the monetary reform movement wants to abolish credit – an agreement between two entities – but to have that "credit" backed by the US government as real money – what a racket!

skippy , June 9, 2018 at 3:02 am

Sigh no such thingy as "real" money, same issue with using terms like "natural" as a quantifier.

This also applies to say pods above statement about "freeing the mind", especially when referencing Mises.org or other AET affiliates.

The Rev Kev , June 8, 2018 at 8:48 pm

Of course it should be noted that if you dig up a gold coin from two thousand years ago or even older, it still has value just for its metal content alone. It still holds value. This is never true of fiat currencies. In fact, it had never occurred to me before, but when you think about it – the history of money over the past century has been to get actual gold, gold coins, gold certificates, silver coins, etc. out of the hands of the average people and to give them pieces of paper and now plastic as substitutes. Even the coins in circulation today are only cheap remnants of coins of earlier eras that held value in itself. I would call that a remarkable achievement.

skippy , June 9, 2018 at 3:13 am

Uh .

I think you should avail yourself wrt the history of gold and how humans viewed it over time, then again you could look at say South America from an anthro observation and the social changes that occurred between Jade and Gold eras.

As far as value goes that is determined at the moment of price taking which can get blurry over time and space.

Gold was used as religious iconography for a reason imo.

Just from the stand point that gold was in one anthropological observation – a flec of gold to equal weight of wheat means the gold got its "value" from the wheat and had nothing to do with some concept of gold having intrinsic value.

The Rev Kev , June 9, 2018 at 10:51 pm

Not particularly in love with gold nor am I a gold bug. My own particular prejudice is that any money system needs an anchor that will set some sort of boundaries to its growth. Something that will not blow through the physical laws of natural growth and will acknowledge that resources can and will be exhausted by limitless credit and growth. Personally I don't care if it is gold or Electrum or Latinum or even Tribbles so long as it is something.

skippy , June 9, 2018 at 11:56 pm

Yet MMT clearly states that growth is restricted to resources full stop. So I don't understand your issues with anchor points, its right there in black and white.

Look I think there is a huge difference between informal credit [Greaber] and formal credit [institutional] and the risk factors that they present. This is also complicated by not all economies are the same e.g. steady state. In facilitating up lift [social cohesion with benefits of currant knowlage] vs putting some arbitrary limit on credit because it suits the perspective of those already with claims on wealth.

skippy , June 10, 2018 at 12:43 am

In addition I would proffer that MMT is not supply side dependent, just the opposite. Economics would be much more regional in reference to resources and how that relates to its populations needs, especially considering the democratic governance of those finite resources without making money the linchpin to how distribution is afforded.

Older & Wiser , June 8, 2018 at 9:03 pm

OpenThePodBayDoorsHAL
How dare you submit such irreverent goldbuggery ?
Your line of thought is not politically correct Sir.
Something for nothing is easier to sell and to live by, don´t you know ? as long as it lasts.
Problem is ( as HAL would say ? ) the 50 years are almost through, so it just can´t last much longer no matter how much we pussyfoot around reality.

Plenue , June 10, 2018 at 1:04 am

It has nothing to do with being 'politically incorrect'. It has to do with goldbuggery being completely ignorant of actual history and facts. It ascribes to gold attributes which it never truly had even in the West, much less globally.

Some examples from objective reality:

When the Conquistadors arrived in the 'New World', they discovered an entire continent filled with easily accessible gold and silver, and yet neither was treated by the natives as money. They were shiny trinkets. Money was cocoa beans and pieces of linen.

When the Vikings reached the Eastern Mediterranean, the Byzantines had a hard time getting them to accept gold as payment. Before that, the only 'precious' metal they had any interest in was silver.

Going eastward, in feudal Japan currency was based on rice, not precious metals. Gold and silver were used as representative tokens of large values of rice. The source of value wasn't felt to be the metal, it was what the metal represented.

If civilization were to end today, the most well off survivors aren't going to be the ones who stockpiled gold. It's going to be the ones who stockpiled food and water (and/or the weapons to protect/seize such stockpiles). Gold has exactly zero inherent value. It's a luxury item at best, in the same way fine art is. No one in the post-apocalyptic wasteland is going to be impressed by your lumps of heavy, soft metal.

There's plenty of information available from historians, archaeologists, and anthropologists (but emphatically not from mainstream economists) on the history of money. If you want to 'free your mind', you'd best start with one of these fields. Not some libertarian cesspit, where the 'intellectuals' are even more delusional than mainstream neoclassicals.

skippy , June 10, 2018 at 1:39 am

Concur.

Pespi , June 9, 2018 at 3:19 am

That all sounds very neat but is not true. Money is not a labor token, it is not a token of anything but an act of accounting.

templar99 , June 8, 2018 at 9:12 am

' Everybody needs money, that's why they call it money ' David Mamet ' Heist '

The Rev Kev , June 8, 2018 at 9:52 am

I'll probably get slammed here for this but to tell you the truth, I see no justification for the shape and character of the present money system in use around the world. In fact, I absolutely refuse to believe that There Is No Alternative. The present system is one that has evolved over the centuries and for the greater part was designed by those with wealth to either solidify or expand their wealth.
Yesterday, in a comment, I made the point that for an economic and financial system to work it has to be sustainable. Call that General Order Number One. But a survey of the present system shows a system that by its very nature is seeking to transfer the bulk majority of wealth to about 1% of the population while pushing about 90% of the population into a neo-feudal poverty. This is nothing short of self-destructive and is certainly not sustainable.
We tend to think of money as something permanent but the different currencies in existence today make up only a fraction of the currencies that have ever existed. All the rest have gone extinct. I am given to understand that when the US Federal Reserve meets, it is in a room whose walls are adorned with examples of these extinct currencies. In fact, I even own a few German Reichsmarks from the hyperinflation era of the early 1920s for an occaisional bit of perspective.
OK, maybe the Swiss referendum is being used, misused and abused but it is a sign of an arising discontent. It certainly surprises me that it was the Swiss as when I visited that country, they were the most conservative people that I have ever met as far as money was concerned. In any case, perhaps it is time that we all sat down and designed a money system from the ground up. Throw away the rule book and just take a pragmatic approach. Forget theories and justifications, just look for stuff that works.

JEHR , June 8, 2018 at 11:44 am

There is no need to "experiment" with other systems of money use: we just need to regulate the system we have but, unfortunately at present, we are in the midst of de-regulating everything–finance, environmental protections, healthcare, education, etc., and getting rid of other groups such as unions. The undermining of many (public) institutions is well on its way and I do not see it ending well. I think the rich have won this round just as they planned in the 1970's.

MyLessThanPrimeBeef , June 8, 2018 at 12:14 pm

We have to consider, think or experiment with other systems. The comment below by Anarcissie is a good start.

Anarcissie , June 8, 2018 at 11:53 am

I imagine you would want to start from value (a mental state of persons) and labor, things persons do to achieve stuff which they value. It would be convenient to have tokens which represented social agreement about value, valued stuff, and labor. The social agreement could be brought about by cooperative voluntary institutions ('credit unions') which would oversee and guarantee the issuance of tokens (debts) by members (persons). We already do this on a modest scale by writing checks, so it's not unheard-of.

If you want a system which doesn't just feed the elites, you have to create one which doesn't rely on institutions dominated by or entirely controlled by the elites, such as the government, the major corporations, large banks, and so on. You want something egalitarian, democratic, and cooperative. It's not impossible.

bruce wilder , June 8, 2018 at 6:46 pm

Indeed it is possible and has been done in the recent past.

A key insight behind credit unions, mutual insurance and savings and loans back in the day was that these institutions were loaning people their own money savings and should be run without assigning hotshot managers the dubious incentive of a profit-motive or talking up "innovation".

One of the things I object to in Richard Murphy's rhetoric and that of more careless MMT'ers is that they implicitly concede the premise that Money is usefully thought of as a quantitative thing, a pile of tokena circulating at some velocity. Financial intermediaries (and yes, Richard, they are intermediaries) do create "money" in the form of credit by matching ledger entries. For a savings and loan, which gives a mortgage to a depositor or just a checking account to a saver, this can be a key idea supporting mutual assistance in cooperative finance.

But, if you insist that the bank is "creating" a quantity of money that is then set loose to drive up house prices or some similar narrative scenario, I do not see that your storytelling is doing anyone any good.

Credit from institutions of cooperative finance -- shorn as they must be of the incentive toward usury and rent extraction -- is actually a very useful application of money, enabling people to take reasonable risks over their lifetimes. For example, to enable a young couple to form a household and buy a house and gradually build up equity in home ownership against later days. This is sensible and prosaic, a standard use of money to insure by letting a bank or similar institution help individuals or small businesses to transform the maturities of their assets and prospects, while certifying their credit. If your understanding of money does not encompass such prosaic ideas as leverage and portfolios or their application to improving the general welfare, then the "left" is up a creek without a paddle.

Paul L. , June 8, 2018 at 8:44 pm

"Financial intermediaries (and yes, Richard, they are intermediaries) do create "money" in the form of credit by matching ledger entries. "
That is NOT what is meant by the term,"intermediaries" here. The common belief is that banks merely take in a depositor's money and, as an intermediary, lend that money out. An intermediary, by definition, does not create anything. That is the accepted meaning of the term when discussing banking. You are free to use your own definition but it will lead to confusion.

bruce wilder , June 9, 2018 at 12:47 am

What is the accepted meaning of the term, "intermediary", when discussing banking?

I am unclear what definition you are referencing.

Yves Smith Post author , June 9, 2018 at 10:08 pm

You are incorrect as to how banking works, and you have also jalbroken moderation, which is grounds for banning, as is clearly stated in our Site Policies, which you did not bother to read.

Per your comments on banking, you are also engaging in agnotology, another violation of site Policies.

Banks do not intermediate. They do not lend out of existing savings. Their loans create new deposits. Not only has MMT demonstrated, and this has been confirmed empirically, but the Bank of England has endorsed this explanation as correct.

You are presenting the loanable funds fallacy, a pet idea of monetarists. It was first debunked by Keynes and later by Kaldor.

Your idea of "accepted meaning" is further confirmation you are way out of your depth here and are a textbook case of Dunning Kruger syndrome.

Anthony K Wikrent , June 8, 2018 at 9:59 am

The matter of who or what controls money is actually secondary to the matter of what money is used for. Positive Money correctly identifies the fact that under our present arrangements in the USA, UK, and most of the West, money and credit are used almost entirely for speculation, usury, and rent extraction (though they do not, so far as I know, use the terms). If "the people" somehow were able to gain control of money and credit, and money and credit continued to be used almost entirely for speculation, usury, and rent extraction, society and the people would see no net advance economically.

That's the simple overview. Allow me to lay out a couple scenarios to show why just solving the problem of who controls money and credit does not really address our most urgent problems.

For the first scenario, assume that it is right wing populists who have triumphed in the fight to seize control of money and credit. Recall that in the first and second iterations of the bank bailout proposals in USA, Congress was deluged by overwhelming public opposition to the bailout. But in the second iteration, the Democrats mostly folded, while on the Republican side, the closer you got to the Tea Party extreme, the stauncher the opposition to the bailout you found. So, under right-wing populist control, we would probably see prosecutions and imprisonment of banksters, which would likely have the intended effect of lessening rent extraction. But we would probably also see that right-wing populists are not much concerned about speculation and usury, so those would continue relatively unscathed.

More importantly, we could expect right-wing populist control to result in severe cutbacks to both government and private funding of scientific research, most especially on climate change. We would be hurried forward on our course toward climate disaster, not turned away from it.

For the second scenario, let us assume it is a left-wing populist surge that achieves control over money and credit. In this scenario, speculation and usury would be suppressed as well as rent extraction. On science, there would no doubt be a surge in funding for climate research. But I would greatly fear what left-wing populists might do to funding of space exploration and hard sciences such as the large Hadron collider at CERN. And what would happen to funding for military research programs like DARPA?

Can you imagine the implications of cutting those kinds of science programs? Try to think of doing without all the spinoffs from the NASA Apollo moon landing program and the original ARPAnet, which includes much of the capability of the miniaturized electronics in the computer, servers, modems, and routers you are now using.

The point is, that without restoring an understanding of republican (NOT capital R "R"epublican Party) statecraft, its focus on promoting the general welfare, and the understanding that promoting the general welfare ALWAYS involves identifying and promoting the leading edges of science and technology, any success in seizing control of money and credit away from bankers (whether private or central) does not necessarily result in victory. For an extended discussion of science and republicanism, see my The Higgs boson and the purpose of a republic .

MyLessThanPrimeBeef , June 8, 2018 at 10:17 am

There will always be right-wingers, left-wingers, progressives, imperialists, etc.

One or more of them will seize control.

It would seem, then, the first thing to do, is to work on human nature, and not discovering new devices for them (or us, ourselves), because we can not guarantee no harm to Nature will come from colliding high energy particles.

Lord Koos , June 8, 2018 at 2:17 pm

I don't really see the left as being anti-science, it seems to me that it's the right that wants to deny scientific findings such as climate change, etc. There are exceptions of course, such as new-age/anti-vaxers, chem-trail theorists, etc but they are a small minority, and I find it hard to envision a scenario where a leftist government would cut science funding. As it is now, many if not most scientific and technical advances have originated from what was originally military funding, including the internet we are using at this moment.

This is a model that needs to change IMHO, there is no reason that cutting-edge science has to be tied to the military, science could just as easily be funded for its own sake, without the pentagon getting the money first and then having the tech trickle down to the rest of us.

MyLessThanPrimeBeef , June 8, 2018 at 3:43 pm

I am trying to come up with some examples where technological advances were not induced or misused by warriors and/or libido, from the dawn of humanity till now.

Stone tools – misused for war.

Bronze/iron tools – the same.

The wheel – war chariots.

Writing – to lord over the illiterate

The steam engine – how the west was won with buffaloes going extinct.

Gun powder – war, and above.

The internet – surveillance and libido.

The smart phone – above.

Aspirin – that's all good .maybe the example I am looking for except I'm allergic to it.

Anthony K Wikrent , June 8, 2018 at 6:28 pm

The technology of smart phones originated almost entirely with DARPA -- see Mariana Mazzucato's The Entrepreneurial State

bruce wilder , June 8, 2018 at 6:28 pm

money and credit are used almost entirely for speculation, usury, and rent extraction

Certainly on the leading edge, that is what money and credit are used for, but "entirely"??? In the main, money remains the great lever of coordination in an economy of vastly distributed decision-making.

The forces of predation and fraud are seriously out-of-control and they use money for anti-social ends, protected by neoliberal ideology and the cluelessness of what passes for the political left. Like any normal bank robber, the banksters want the system of money to continue to work and it does continue to work, in the main, even as they play Jenga with the towering structures of finance.

Anthony K Wikrent , June 8, 2018 at 6:36 pm

Well, I did qualify it with "almost" : ). Still, in the late 1990s I found that there was around $60 (sixty dollars) of trading in financial markets (including futures and forex) for every one dollar of GDP. That compares to 1.5 to 1 in 1960. The ratio probably dropped in the aftermath of the 2007-2008 crashes, but I's be surprised if it has not surpassed 60 to 1 by now. Have mercy on me: I haven't looked at a BIS report for a few years now.

Paul L. , June 8, 2018 at 8:47 pm

Your first scenario is already in existence today, my friend. As far as the second scenario – what exactly is it that you have against democracy?

Ignacio , June 8, 2018 at 10:09 am

It is just intuitive that giving central bankers the monopoly for money creation is not a good idea

Paul L. , June 8, 2018 at 8:49 pm

So your solution is to keep it in the hands of the elite?! Please note that the "central bank" under the Vollgeld initiative is completely redefined, not a central bank at all but a government institution controlled by a democratic process.

Martin , June 9, 2018 at 12:38 am

Many banks around the world started out as state-owned and have been privatised.
I admit it is simplistic, but having a state-run not-for-profit bank being this "government institution controlled by a democratic process" has a lot of merit to me.
It would have lending guidelines to aid investment in productive endeavours, limit the risk, and have no part in the insane fringe financial transactions that brought about the GFC, and who know how many other things that have gone under the radar.
This brings all currency creation into a single place, so it needs transparency and a (proper) democratic governance.
There would probably be fewer jobs I admit, but many of these would be the top levels enjoying fat bonuses based on winning zero-sum games.
And as a final comment – should GDP include the transactions within the financial sector at all? Given the zEro-sum games involved, and the creation of losers as part of that, does it actually "produce" anything at aLL?

Yves Smith Post author , June 9, 2018 at 2:00 am

I hate to be a nay-sayer, but the reason there were once many state banks in the US and there is now only one is that they became cesspools of corruption. And having arm-wrestled with CalPERS for over four years, which is more transparent than a lot of places, good luck with getting transparency and good governance.

Jamie Walton , June 9, 2018 at 7:39 am

Good point Yves. My research revealed the same re. previous state banks.

Yves Smith Post author , June 9, 2018 at 8:24 am

Mind you, that does not mean they might not be worth trying, but the assumption that they can just be set up and will work just fine "because democracy" needs to be taken with a fistful of salt. There needs to be a ton of careful thought re governance and lots of checks (an inspector general with teeth at a minimum, we can see from CalPERS that boards are very easily captured).

Jamie Walton , June 9, 2018 at 9:52 am

Agreed. Could a public banking option run through the U.S. Post Office be a better approach (they have branches and staff everywhere already)?

Watt4Bob , June 9, 2018 at 3:56 pm

Bank of North Dakota has a fascinating history, being founded during the Progressive Era, when ND had a governor who was a member of the Nonpartisan League, a populist political party, and intended to save North Dakota's farmers and laborers from the predations of the big banks in Minneapolis and Chicago.

It remains the only state-owned bank in the country.

The populist
Nonpartisan League
remains the most successful third party in history, and had remarkable impact on politics in North Dakota and Minnesota. It merged with the Democratic Party in the 50s.

Yves Smith Post author , June 9, 2018 at 9:47 pm

Ahem, I acknowledged that. What you miss is that pretty much every other state had a state bank and they were shuttered because they became embarrassingly corrupt. The fact that past "state bank" experiments almost universally failed makes me leery of the naive view that they'll be hunky dory. They could be but the sort of cavalier attitude that they'll be inherently virtuous is the road to abuse and misconduct.

skippy , June 9, 2018 at 11:30 pm

And what did ND do as far WRT usury in being a CC tool.

Wukchumni , June 8, 2018 at 10:11 am

I was talking with my wife about DeBeers and the man-made diamonds they're selling @ 1/10th of the price of the genuine article

what if some neo-alchemist did the same thing with gold?

It would in an instant, render all of it worth $130 an ounce, on it's way to $13 an ounce.

And more importantly, take away the only real alternative to digitally produced ducats.

SubjectivObject , June 9, 2018 at 1:11 pm

allotropes
you need need natural allotropes

Jim Haygood , June 8, 2018 at 10:30 am

" Money is debt. It is only created by government spending and bank lending. " -- Richard Murphy

We've jumped through the looking glass. The former money, gold, is NOT debt. Debt-based money is ersatz, a ghastly fraud on humanity.

In a normal economy, government spending is financed by taxes and borrowing, meaning that no new spending power has been created, as IS the case with new bank loans.

Daniel Nevins' book Economics for Independent Thinkers discusses how modern economists got misled into believing the money supply governs everything, whereas earlier 19th century economists understood that bank lending is what drives expansions.

Poor Murphy, starting out with a wonky premise, only succeeds in careering into a briar patch and wrecking his bike. He should post his pratfall on YouTube.

False Solace , June 8, 2018 at 11:57 am

Fiat money can also be created without debt. That's the whole point of MMT, but it makes Haygood's head explode so he never acknowledges it (without muttering about hyperinflation, which never actually happens outside of disasters on the scale of a major war).

When the federal government spends money into existence -- which can be on the basis of a democratic agenda, in countries that have actual democracies -- there's no need for a corresponding issuance of government debt. Hence, spending power is indeed created. If the government does create debt, the bond is an asset on the ledger of whoever buys it, and the government spends the interest into existence. Which creates additional spending power for the private sector. The government can choose to, or not, collect a portion of this as taxes, which extinguishes the money. If the government collected as taxes everything it ever spent there would be no money in circulation.

> In a normal economy, government spending is financed by taxes and borrowing, meaning that no new spending power has been created, as IS the case with new bank loans.

Er, new bank loans also represent borrowing that has to be paid back. The spending power that gets created is extinguished by paying back the bank loan.

MyLessThanPrimeBeef , June 8, 2018 at 12:07 pm

the federal government spends money into existence

a

That's a choice made by the designers of the current system.

But not the only choice.

The people, for example, can be empowered (or perhaps inherit that power, on the basis of the Constitution amendment clause* that any power not given explicitly to the federal government is reserved for the people), to spend money into existence.

*The Tenth Amendment declares, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people."

Susan the other , June 8, 2018 at 11:59 am

So do you gold bugs want to dispense with double entry bookkeeping or keep it and adapt it to gold (would that entail both counterfeit money and counterfeit debt?) – gold as both credit and debt, or just what exactly? With the gold side weighing down the ledger it's gonna get wobbly. Maybe have to start a war to fix it? The fog of positive money. Really, JH, you've been the best voice against war. How do you reconcile all the social imbalance that would follow with "positive" money?

Wukchumni , June 8, 2018 at 12:03 pm

Nobody's going to willingly go back to a gold standard, it would have to come about because money via digital deceit has failed in entirety.

Jim Haygood , June 8, 2018 at 12:23 pm

Fiat money is war finance, made permanent. Even during the gold standard, governments would suspend gold convertibility during wars. Lincoln's greenbacks and the UK's suspension during WW I are noteworthy examples.

So the gold standard won't stop governments declaring national security exceptions -- they've always done so. But permanent war finance is what sustains the value-subtraction US military empire, a gross social imbalance that already plagues us by starving the US economy of investment.

Double entry bookkeeping doesn't require that every asset have an offsetting liability. A balance sheet with no liabilities is all equity on the right-hand side. It's what a bank would look like if it sold off its loan portfolio and paid off its depositors -- cash on the left side, equity on the right. If the bank then bought some gold, it would be exchanging one asset (cash) for another (gold), with no effect on the liability/equity side.

Wukchumni , June 8, 2018 at 12:30 pm

It is worth noting that the Federal government struck well over 10 million ounces of gold in coin form for use in circulation from 1861 to 1865

And the CSA?

Not one grain worth

Anthony K Wikrent , June 8, 2018 at 6:40 pm

I've gathered and read much on the greenbacks, but don't recall that very interesting data about minted gold. Any sources you might recommend?

Wukchumni , June 9, 2018 at 4:40 pm

Just look up the mintage figures, here's $20 gold coins that contain just under 1 troy oz of pure gold in content, from 1861 to 1865. You can follow links to other denominations.

There were over 8 million ounces alone in $20 gold coins struck during the Civil War, by the Union.

http://www.amergold.com/gold-news-info/gold-coin-mintages.php

Wukchumni , June 8, 2018 at 12:42 pm

p.s.

We were never on a pure gold standard, nowhere close actually.

The most common money in the land until the Federal Reserve came along, FRN's not being backed by gold?

Why, that would've been National Banknotes, which was the currency of the land from 1863 to 1935. There were over 10,000 different banks in the country that all issued their own currency with the same design, but with different names of banking institutions, etc.

https://en.wikipedia.org/wiki/National_Bank_Note

MyLessThanPrimeBeef , June 8, 2018 at 1:40 pm

Specifically, in this case:

Assets = Equity (+ zero liabilities)

The accounting identity is still good.

Susan the other , June 9, 2018 at 10:06 am

Very hard to argue with you, but I'm tripping over this: "If the bank then bought some gold, it would be exchanging one asset (cash) for another (gold) with no effect o the liability equity side." Because in my mind cash isn't an asset – it's just money – a medium of exchange and a unit of account. Where we get all messed up is when the unit of account starts to slip (due to mismanagement) and people start to demand that money become a store of value. When the value is society itself. And blablablah.

JTFaraday , June 9, 2018 at 12:52 pm

Sure, the value is society itself, I agree with this. But OTOH, it is for example much better to be a woman, black person, fill in the blank, even "working class" person with a lot of money than not in a sexist, racist, etc society.

I can't necessarily compel the forces of sexism, racism, old farts who don't agree with me, etc through the "political process," thereby bringing my will to bear on society. But I can move things with my dollars, This is how money gets its magic power. If people played nice with each other, we wouldn't need money.

Older & Wiser , June 8, 2018 at 1:03 pm

What about paper bugs Susan ?
Has paper buggery helped any ever ?
Why do fiat currencies always self-implode (in average) every 50 years ?
" You can fool part of the people all of the time, and all of the people part of the time. .."

OpenThePodBayDoorsHAL , June 8, 2018 at 7:42 pm

8 white men control > 50% of the world's wealth. Let's just keep going in that direction, to where it's down to one white guy, and with debt-based money everyone else owes him all the "money" in the world. Then we can just strangle him in the bathtub and usher in an era of peace and prosperity.

Older & Wiser , June 8, 2018 at 6:40 pm

Richard Murphy says that " handing all credit creation to the central banks is not only technically impossible in a modern economy, it's a dangerous folly "

What is QE then, Sir ?
Our "modern" economies don´t have business cycles any more, just distorting credit cycles.
There are no "markets" as such today, nor prices only interventions.
Even interest rates (the price of supposed "money" remember ?) are not priced by markets any more .

OpenThePodBayDoorsHAL , June 8, 2018 at 7:47 pm

Ask any economist or banker what they think about fixing the price of goods and services and see how they answer.

Watch their heads explode when you then ask if it's a clever idea to fix the most important price in the global economy.

Yves Smith Post author , June 9, 2018 at 9:53 pm

Help me. Gold is not money. And it does not have and never had immutable value. Even in the days of the gold standard, countries regularly devalued their currencies in gold terms. It was the money that was used for commerce, not the gold. When the US government devalued the $ in gold terms by 5%, bread at the store didn't cost more the next day, which is what your "gold is money" amounts to. It's not correct and you need to drop it.

Synoia , June 9, 2018 at 10:49 pm

I visited a gold mine for a tour onec. At the end of the tour was the gold refinery, and on the floor two ingots of gold.

They made the offer, "if you could life one with one hand, you could keep it."

I tried.

And discobered that the ingit, was

a) Pyramidal in shape so ones fingers slid off it
b) F .. heavy. 140 lb.

When you see gold "bars" being tossed around in the movies, it's complete bs. Arnold at his best coud not toss them around.

So we went an had a beer instead. Wiser, but not sadder.

Plenue , June 10, 2018 at 1:13 am

"The former money, gold, is NOT debt. Debt-based money is ersatz, a ghastly fraud on humanity."

You've been on NC for years. You have to know by now that this literally, objectively, isn't true. It just simply isn't. History and anthropology do not at all support your version of events. People like Hudson and Graeber have extensively documented where money came from. Debt and credit came first, then money as a token to measure them. We have warehouses full of the freaking Sumerian transactions tablets that show it! Money is debt, always has been.

Actually, I say you have to know this by now, but given how conspicuously absent you seem to be in the comments of Michael Hudson articles about the history of debt hosted here, maybe you just aren't reading them. Or you are and don't like what they say and how it clashes with your pre-established worldview, so you just ignore them. Though even if the latter, it's still telling how you don't even attempt to refute them. Perhaps because you can't.

steven , June 8, 2018 at 10:52 am

It's not about money; its about creating and distributing wealth. That a trivial thing like a double-entry bookkeeping operation should stand in the way of creating the wealth the world and its people need to survive is, of course, insane. But it is also insane to expect different results from turning over control of the process of money creation to a wholly owned subsidiary of governments like those of the United States and Great Britain, bent as they are on global hegemony ("full spectrum dominance") – at ANY cost.

Whether or not China and other developing nations realize it, genuine wealth creation – not money as debt creation ('finance capitalism') – is THE source of national power. It is more than a little amusing to watch the neoconservatives fret about the rise of China after having joined with their neoliberal brothers in off-shoring US and Western wealth creation potential (in what they must have thought was an oh so clever attack on Western living standards by forcing 'their' people to compete with the world's most desperate workers in a global race to the bottom so their 1% patrons would have an excuse to create more money as debt).

So long as the West remains focused on 'the price of everything and the value of nothing' (like the human potential of their own people, for example), the developing world is soon likely to have a monopoly that will put OPEC and its Middle Eastern dictators to shame. In summary this is about FAR more than just about how a few 'post-industrial' democracies create their money. The definitive work on this topic remains Soddy's Wealth, Virtual Wealth and Debt, 2nd edition.

Paul L. , June 8, 2018 at 8:57 pm

Soddy doesn't object to democratizing the money supply and turning over its creation the democratically elected government.

skippy , June 9, 2018 at 6:18 am

Soddys drama is making money a physical object when its a contract with time and space qualities,

blennylips , June 9, 2018 at 7:28 am

Just as a few days ago Carlos Rovelli, author of " The Order of Time ", has useful insights of the political significance of LSD, he has advice for this too in the same book:

The entire evolution of science would suggest that the best grammar for thinking about the world is that of change, not of permanence. Not of being, but of becoming.
We can think of the world as made up of things. Of substances. Of entities. Of something that is. Or we can think of it as made up of events. Of happenings. Of processes. Of something that occurs. Something that does not last, and that undergoes continual transformation, that is not permanent in time. The destruction of the notion of time in fundamental physics is the crumbling of the first of these two perspectives, not of the second. It is the realization of the ubiquity of impermanence, not of stasis in a motionless time.

In other (his) words:

"The world is made up of networks of kisses, not of stones."

Not bad for a physicist!

blennylips , June 9, 2018 at 8:02 am

As long as I am feting physicists, this just came over the transom from Sabine Hossenfelder of backreaction.blogspot.com fame. She's written a book, " Lost in Math " and was informed that a video trailer is customary in this situation. As the first comment there says:

"Hey, that is a GREAT statement! (And it applies to SO MUCH in life, not just physics!)

http://backreaction.blogspot.com/2018/06/video-trailer-for-lost-in-math.html

djrichard , June 8, 2018 at 10:54 am

We've all been focusing on the demand side of the Fed Reserve's liquidity pump: be it for sound business needs. Or not (pirates).

But what happens when demand for that pump disappears because everyone is over-extended? Because this is where Bernanke and Japan and the ECB have done "whatever it takes" to keep that pump from going in reverse. Because in an empire created on naked shorts (currency creation today is essentially a naked shorting process), the last thing you want is that pump to go in reverse. That's not just creative destruction. That's house-on-fire destruction.

So Bernanke et. al. have figured out how to keep that pump from going in reverse. Simply prop up asset prices, e.g. by reducing the asset float in treasuries, MBSs, etc. And it worked. Yay! Right? If you're an asset holder, you're aces. If you're not an asset holder, well you're not doing so well. In particular, if you're in that part of the economy which depends on the velocity of money. Because velocity is at a stand still. As another blogger I used to follow would say, price sans volume is not the right price. So from my perspective, Bernanke (and Japan) had to destroy their economies by replacing them with zombie economies to rescue certain players. Not just players, but playahs – the pirates that pushed us to this end-game. So the pirates are rescued. And the average joe inherits the after effects. But hey, those with 401Ks got rescued too, so it's not all bad. And since the 401Kers are competitive, they generally found safe harbor in the job market too. Yay for them.

If we were not on a debt-based monetary pump, we would not end up with a zombie economy. One which the Fed Reserve can't figure out how to solve except for creating even more demand at the debt pump, even more over extension to mask the issue only to fall back within the same trap again. From what I can tell, we are truly in a doom loop and at present I don't see any creativity in getting us out of this doom loop.

So the vollgeld initiative would ostensibly be a way to extricate an economy from that doom loop. I suspect the Swiss don't really need it as much as other nations. But why get in the way of that type of creativity?

And I would just add that supplanting the federal reserve note with a Lincoln greenback type of approach would work just as well. Even better since it gives the monetary powers to the fiscal side of the Fed Gov.

I posted a version of this last night in the previous thread. But suspect nobody is going to go to that thread anymore. So apologies for a repeat of sort. Not trying to spam.

Wukchumni , June 8, 2018 at 11:06 am

The idea of a real estate pumped perpetual notion machine, combined with essentially an interest free savings plan for the proles, persuaded them to come through and help rise all boats, and who could have figured on vacation rentals helping out housing bubble deux, the sequel.

Looking @ the real estate listings here in a vacation rental hotspot is indicative, in that there are only a few $250k-$300k homes for sale now, whereas there used to be a dozen, always.

Now, on the other hand, we're swimming in $500k to $1m homes that don't make the rental cut.

That says a lot.

Jim Haygood , June 8, 2018 at 12:36 pm

You probably read the Bernank's naive confession yesterday that fiscal stimulus "is going to hit the economy in a big way this year and next year, and then in 2020 Wile E. Coyote is going to go off the cliff."

Three hundred shocked staffers in the Eccles Building cocked their heads to the side and gasped, "He said WHAT?" So I wrote this song Technodammerung for rogue banker Ben:

He was just a Harvard hand
Workin' the QE he planned to try
The years went by

Every night when the sun goes down
Just another lonely quant in town
And rates out runnin' 'round

It's another tequila sunset
Fed's old scam still looks the same
Another frame

Wukchumni , June 8, 2018 at 12:46 pm

{imagines Bernanke working tables @ South Of The Border, and typical waiter spiel going something along these lines }

"Bienvenidos amigos, me llamo Benito, may I start you with an endless supply of chips?"

Alejandro , June 9, 2018 at 1:54 pm

Pardners in chime
proseytizing in real time
Preaching, if you can touch a dime
Why wont paper rhyme
But in their zeal and haste
And self-righteous aversion to waste
Recruit disciples in bling bling
Preaching money is a thing thing
While finger wagging the bloat
Preaching fix the rate, dont let it float
But beyond the noise
Preaching with poise
Its all about them
Their stuff, jewels and gem

Thornton Parker , June 8, 2018 at 10:58 am

Might the actions of a bank be restrained more easily by requiring all payments and stock issuances to the executives and directors be put directly into escrow accounts to be metered out in small amounts if the bank stays healthy over time? If the bank suffers major losses, the escrow accounts would be the first source of funds to make up for them. No Federal Deposit Insurance or other government payments would be made to the bank until the escrow accounts have been reduced to zero.

John , June 8, 2018 at 11:45 am

Randall Wray could be made Sec Treasury, Stephanie Melton Fed Chairman and if the plutocrats still run the rest of the political show that sets priorities, we would still be screwed. The full employment guaranteed jobs could just as easily be strip mining coal from national parks and forests as installing a national solar grid. It could be done with forced low paid labor camps that maximize rent for the plutocrats. MMT seems morally neutral on how the money is spent. For a good portion of the plutocrats, helping the poor is morally suspect .if they consider it at all. That is the larger problem than acceptance of MMT.

economicator , June 8, 2018 at 1:19 pm

Right on.

I didn't see any comment here going in depth with ideas on the binding money creation decisions with socially useful goals (saving TBTF I dont consider such a goal, except for emergency purposes), by what type of process and stakeholders – to avoid driving us toward becoming a 3rd world oligarchy.

The rest is just mechanics – but the most important thing is what is the social control and social purpose of money creation. I am sure we could do just fine even with the present system (of course since it is a MMT system), if there were some limits on speculation with asset prices, less military spending, more democratic control of enterprises, including banks, severe constraints on the FIRE sector, etc, etc.

In the end the problem of managing money well is a political problem. And not much is changing there for the better, despite a growing awareness that "we have a problem" as a society. Where are the politicians that will connect the dots and take on the responsibility to fix the travesty that we have?

More questions than answers, I know. But what we need a change in politics – then banking will follow.

Pespi , June 9, 2018 at 3:34 am

This is a common fallacy, that MMT is bad because it isn't about communal barter tokens or some other thing. MMT exists to empirically describe how money works in the existing economy today. You can be any sort of ideology and embrace it, anyone can use it, just like anyone can use science, it's not inherently biased toward any ideology unlike neoclassical economics and its baked in neoliberalism. That doesn't make it bad, that just shows that it is what it purports to be, an empirical description of money in our existing economy.

You want a brand new type of currency in a whole new economy, well, start organizing your revolutionary army, because that's what that will take.

bruce wilder , June 8, 2018 at 12:42 pm

The Battle for Money -- that much, it seems to me, is true. Neoliberalism is going down, brought down by its own (unfortunate in my view) success and hubris, and one consequence, on-going, is the urgent political need to re-invent the institutions of money.

The institutional systems of monetary/payment/finance systems are always under a lot of strategic pressure: they tend to develop and evolve quickly and they do not usually last all that long -- maybe, the span of three or four human generations -- except in the collective memory of their artifacts and debris.

There's a natural human wish that it could all be made safely automatic -- taken out of corruptible hands and fixed with some technical governor. Whether you are a fan of democracy or loyal to oligarchy really doesn't take anyone very far toward devising or understanding a workable system of money.

As I said in a comment on the earlier Richard Murphy post, money is a language in which we write (hopefully) "true" fictions to paper over uncertainty. Much of what passes for a theory of money is just meta-fiction, akin to literary criticism of a particular genre or era. That is certainly true of Quantity Theory (1.0 re: gold and 2.0 Friedman). It is true of related fables, like Krugman's favorite, loanable funds.

When Murphy rejects the quantity theory of money and then turns around and talks about the need to create "enough" money, I pretty much write him off. When he embraces the Truth of MMT, I know he is hopeless.

Wukchumni , June 8, 2018 at 1:44 pm

Ideally in a battle of money

a squadron of F-35's would be pitted against a fleet of Zumwalt Class destroyers

Summer , June 8, 2018 at 2:13 pm

It's been discussed on NC before, but despite all the theories and figures, it's really a battle of values. I'm not pushing religion, just saying it has all the makings of a holy war.
(come to think of it, isn't religion a big part of the history of monetary theory?)

Mercury , June 8, 2018 at 3:46 pm

China has yet to fall under the thumb of private banks the way the west has. State still holds the reins of regulation tight and the government bank maintains a robust public sector. Michael Hudson just came back from China and has this to say:

"The debts are owed to government banks. A government can do what the U.S. can't do. The government can forgive debts, at least those that are owed to itself, without creating a political backlash. If a viable corporation has run up too much debt, the government can forgive it. This is better than letting the debt close down a factory or force it be sold to a predatory asset management firm as occurs in the United States. That is the advantage of having public credit and why credit should be public. That's how it was in Babylonia. Rulers were able to cancel debts all the time in the 3rd millennium and 2nd millennium BC, because most debts were owed to the palace or the temples. Rulers were cancelling debts owed to themselves.

China can cancel business debt owed to itself. It can proclaim a clean slate. It can minimize debt service to whatever it chooses. But imagine if Chase Manhattan and Goldman Sachs are let in. It would be much harder for the government to raise real estate taxes leading to defaults on the banks. It could save the occupants by making new loans to those who default – based on lower land prices.

Well, you can imagine the international furor that would erupt. Trump would threaten to atom bomb Peking and Shanghai to save his constituency. His constituency and that of the Democrats are the same: Wall Street and the One Percent. So China may lose its ability to write down debts if it lets in foreign banks."

http://www.unz.com/mhudson/us-vs-china-housingand-those-millennials/

There are advantages to restoring financial management to the nation-state, as former Deputy Secretary of the Treasury Frank Newman has pointed out in books and lectures. The private banks have exhausted QE to the tune of $30 trillion, none of which was invested in the industrial economy. Why blame the Swiss for wanting to be like China?

Grebo , June 8, 2018 at 5:23 pm

that this is a Chicago School / Friedmanesque monetary policy is made clear by Positive Money

The Chicago Plan of the 1930s and the unrelated Friedman suggestion of 1948 were both predicated on the false fractional reserve theory of banking. Given that individual banks create credit unrestrained by reserves those plans would not have had the desired result.

Positive Money knows this, though they do sometimes carelessly use the term 'fractional reserve banking'. They think their plan is different and, to the extent that it would actually prevent banks creating credit, it is.

It is silly to suggest that Positive Money is some Neoliberal front. Neutering the banks is the last thing Neoliberals want, and when they want something they don't bother with democratic methods like public pressure groups, they use think-tanks and lobbying.

Murphy's main complaint is about handing the 'quantity' decision to the Bank. I don't think Positive Money is wedded to that idea, it is just an attempt to defuse the 'profligate politicians' argument.

Watt4Bob , June 8, 2018 at 5:29 pm

I'm sort of disappointed in this thread.

Being that NC is the place I discovered MMT, and it's been explained and debated so for so long here, I would have expected NC readers to more broadly understand that what we have currently would work for everyone if only our masters would allow it.

IOW, it is not necessary to reinvent our system so much as insist that it be used to finance material benefits for all, as opposed to endless war, political repression and bail-outs for our criminal finance sector.

How can it be that we can we finance $trillions for war at the drop of a hat, but cannot afford to 'fix' SS, or provide universal healthcare?

It seems to me that it's a political issue, not a technical problem, or am I missing something here?

Korual , June 8, 2018 at 6:54 pm

It's the difference between nationalization and centralization. We can change policy direction or we can double down, as the Swiss are considering.

OpenThePodBayDoorsHAL , June 8, 2018 at 8:11 pm

Cui bono?
The current mission of the custodians of our "money" is to keep banks afloat. It's not to provide general benefit, or to even preserve the buying power of the scrip they issue, despite what you might hear about the supposed "dual mandate" (which is now a "triple mandate": prices, employment, and the stock market).

"Financing material benefits for all" could be a bank that extends credit to a small business. Take a look at commercial credit creation to see how well that's been going. Take a look at velocity.

The Fed gifted Citi $174 billion on a day when they could have purchased 100% of the Citi Class A common stock for $4B. This is the difference Michael Hudson points about about China: their instant ability to swap debt for equity because all banks are state-owned and because they're Communists and nobody would blink an eye .

Most interesting in The Middle Kingdom are the moves to protect the state-owned banks. They started about 18 months ago, when people were told they could only have one Tier 1 bank-linked e-commerce account. As a result 7.5 billion (with a B) accounts were closed. Next they said all payments systems (including WeChat and Alipay) must clear through a new central bank clearinghouse. Two weeks ago they said not only will everything clear through these but the actual funds will need to be transferred to the new CB account .

Ant Financial announced that in the future they would be concentrating on services to finance and e-commerce companies, and away from providing those services themselves. They even anticipate a name change, from Ant Financial to Ant Lifestyle. All this makes perfect sense: President Xi will see every financial transaction in the country, and presumably apply a Social Score filter on whether he allows it to go through. 11 million people have already been denied the right to purchase train tickets or buy a house because they spat on a sidewalk, jaywalked, or made the wrong comments on social media.

Paul L. , June 8, 2018 at 7:21 pm

Wow! We are clearly past the "First they ignore you.." stage and just on the other side of " then they ridicule you.." phase. What a basket of slurs, gross omissions of fact and outright falsehoods is this current blog post.
Anytime Milton Friedman is invoked to slur a concept developed before he was even born, should be an indicator that there is no substance to the argument against the democratization of money creation.

Thanks to the internet however, one can easily visit the Positive Money site, the American Monetary Institute and International Movement for Monetary Reform sites to see those fake progressives in action. While you're at it, go to the Vollgeld site yourself and read what those wolves in sheep's clothing are really saying instead of the creative writing displayed in the blog.

How can anyone who claims to be concerned over the excesses of capitalism prostrate themselves in front of the current banking system, the driver of capitalism as it rides off the rails.

I can't bring myself to respond to the stream of unsubstantiated assertions presented but need to remind people that banks, MUST create money first for the most creditworthy. I won't insult the readers any further by naming who that class represents. A child can see that this, by definition, must lead to the accelerating inequality we see today.

As a challenge, I ask the author to show specifically in the US code where it permits the Federal Government to spend before its accounts at the Fed are replenished either by borrowing or taxing. Stay tuned to these pages for the evidence .

Clint Ballinger , June 8, 2018 at 7:29 pm

PM just wants OMF (Overt Monetary Financing) with ZIRP and a very small horizontal money system. MMT analysis suggests OMF with ZIRP and a much more regulated horizontal system is needed. There is actually very little difference in their policy prescriptions. They just arrived at them from opposite sides of the track

http://clintballinger.edublogs.org/2017/11/02/omfg-mmtpm-get-along/

steven , June 8, 2018 at 8:43 pm

I'm sort of disappointed in this thread.

I'll second that but for different reasons. Buried not far beneath the surface of this issue (money's creation, how and how much) are hugely important issues. But the discussion never seems to get beyond everyone's favorite system for creating money. The assumption seems to run along the lines of: if we can just come up with some scheme for government or gold backed money, those who possess or produce the real wealth for that money to buy will forever be content to exchange it for the money we will forever create to pay for it. There seems to be a belief countries like China or Russia can never escape the 'dollar trap' – or if they try we can threaten and intimidate them back in line with our "full spectrum dominance" military. Money IS debt – and sooner or later those who hold it are going to want to call that debt in.

Both Positive Money and MMT appear to me to just be attempts to continue 'business as usual', operating without a real definition of wealth and trusting / hoping 'the market' will sort it out.

Paul L. , June 8, 2018 at 9:23 pm

Please explain your comment "Money IS debt". Money may represent a debt but is not debt in and of itself.

steven , June 9, 2018 at 1:24 am

Money is debt, both functionally and conceptually. This is true for most of the money used in the Main Street economy. It is created as debt – yours to a bank when you use your credit card or borrow money; the bank's to you when you deposit money with one. In its role as a medium of exchange money serves as a claim on society's goods and services, its real wealth. You don't exchange real wealth for fiat or bank-created money without the expectation you will at some future time be able to again exchange that money for real wealth at least equivalent to what you had to give up in exchange for the money originally.

Jamie Walton , June 9, 2018 at 7:48 am

Rather than a claim on wealth, money could be viewed as a representation of value. Value exchange is more like a giving/sharing economy, rather than debt-swapping. I think this psychological improvement will lead to many physical/social/environmental improvements.

Of course, in any case, people need to be willing sellers/exchangers – it's not automatic or universal; we need some freedom to choose, and the better the conditions are generally, the better the freedom we will have.

Paul L. , June 9, 2018 at 10:24 am

OK but the term, "money is debt" is used too loosely and can be very misleading. Money does not have to be issued as debt as claimed by MMT. In fact, money can first appear as equity on the government's balance sheet with no counterbalancing debt. So this concept is grossly misused to imply money must be issued as debt when, in fact, once issued it may represent a claim on the wealth of society. Proponents of MMT first make the claim that money is debt, and that the notion that money can be issued debt-free is therefore false on its face. Pretty clever. They slyly blur the distinction between the creation of money by a government and the role of that money once in the economy.

WobblyTelomeres , June 9, 2018 at 10:28 am

SOME proponents of MMT first make the claim that money is debt.

FIFY.

tegnost , June 9, 2018 at 10:33 am

How can money first appear as equity? Isn't the other side of that the deficit? Granted I am naive on these points but I thought money was a bond of zero duration.See skippy re time and space

steven , June 9, 2018 at 11:17 am

I don't believe you are

"naive on these points"

. A question for Paul: Unless it is 'privatized' is there even such a thing as 'government equity'? The way the West's financial system works nothing that can't be sold appears to have any value. What's missing from that system – and the discipline of economics (see below) – is a definition of wealth.

Paul L. , June 9, 2018 at 1:10 pm

steven –
I believe we know what wealth is – but I don't understand your claim that money needs to be privatized to be considered equity. The government declares by fiat that the money it creates can be used to purchase goods and services in the economy.

steven , June 9, 2018 at 5:11 pm

I believe we know what wealth is

I don't believe this is anywhere nearly correct. From all over the political spectrum commentators lament the lost of trillions of dollars (or euros or whatever) of wealth. At least until the effects of a financial crisis start to take hold, no physical or intellectual capital is lost. The only thing that is lost are a few zeros on some financial ledgers.

As for money as equity, you may be technically correct, i.e. the rules of accounting may permit governments to count the stacks of paper currency they print (in any case, small change in terms of the total money supply) as 'equity'. But for most of us the only thing governments possess that we would count as equity are asset classes like public infrastructure. And until the services they provide (or the assets themselves) are sold, that infrastructure would, from a business accounting standpoint, technically be 'worthless'. (that last is a question?)

tegnost , June 9, 2018 at 11:24 am

I'll add watt4bob has stated what I feel is true, which is that we have MMT right now, and it's more commonly known as socialism for the rich

Paul L. , June 9, 2018 at 1:04 pm

tegnost – There is nothing in the accounting standards that prevents the inclusion of equity on a balance sheet. If we were under the gold standard and you happened to find a nugget of gold in your back yard, are you telling me that you would have to imagine some kind of "debt" to balance your household balance sheet? When Lincoln issued the Greenbacks in the 1860's there was no bond or debt associated with it. It paid soldiers wages and goods and services during he civil war.
Just as MMT states the government isn't a household, it also isn't a commercial bank either. It has the constitutional power to coin money as needed, no debt involved.

tegnost , June 9, 2018 at 2:42 pm

presumably you bought the nugget of gold when you purchased the property and it's land use rights so it's not a virgin birth, the debt is what you purchased the land for. Maybe one of those diamonds in the outback that hardy souls find, but those may have some territorial claim as well.

Paul L. , June 9, 2018 at 3:37 pm

tegnost – If you have to go there to make your point I let others judge.

tegnost , June 9, 2018 at 5:18 pm

ok how bout I come into your yard and look for some gold?

Plenue , June 10, 2018 at 1:33 am

The gold nugget has no inherent value. It's just a lump of cold metal. It will only become valuable when you go to someone else with it and try to exchange it for something, whether it be a currency or some kind of good. And only if the other person agrees with you that it's valuable. This is fundamentally what money is: a token of social interaction. The gold becomes valuable when you go to exchange it for something else. In other words when a debt comes into play. Money is debt. Or rather, it's a measurement of debt and credit. 'Store of value' and all that econ 101 rot is so much gibberish.

Once you realize that, then a question arises: "Well, why bother with rare metals or pressed coins? If it's just a token, you could literally just take a stick and carve marks into it and it would be the same thing". Yes, exactly. Which is precisely the sort of thing we see lots of in history.

RBHoughton , June 8, 2018 at 9:15 pm

Murphy sounds like one of those indecisive chaps who dispute with everyone but have no ideas of their own. I shall ignore him. Good luck to Switzerland. They have the courage and political system to try the experiment and we will all know the result in early course.

Oregoncharles , June 8, 2018 at 11:50 pm

What am I missing? As far as I can tell, the proposal is just Modern Money with the central bank substituted for the Treasury. Yes, that makes it less democratic.

MMT is inflation-limited, too. That's how you know you've overshot your resources. In fact, MMT poses a technical problem: how do you know when you've reached resource limits, EXCEPT by observing inflation? Because without that, you have a ratchet. Of course, that's just what we have, usually, so maybe that's evidence for the theory.

"First, this puts inflation at the core of economic policy." – is a false claim. As quoted, it treats inflation as a limitation. The core is promoting adequate economic activity.

Finally, he treats "money is debt" as doctrine. he doesn't justify it and it makes little sense, ESPECIALLY in MMT. How can you pay a debt with a debt? Someone's getting cheated. MMT actually proposes free money, to a point. I've seen elaborations of the idea, but they use a very extended sense of "debt." And I don't see how it's even relevant to his overall thesis.

The Swiss are pretty conservative, so I doubt they'll pass it.

Yves Smith Post author , June 9, 2018 at 1:45 am

No, Positive Money is not remotely MMT. Wash your mouth out.

The Positive Money types want to limit the extension of credit and put it under the control of what Lambert called "a magic board," a regular gimmick from his days back in debate where someone needed to be in charge but no one wanted to think hard about who or how. In practice, a central bank would be in charge. So how democratic is that?

MMT does not fetishize money the way the Positive Money does. MMT despite having Monetary in the name is about the role of government spending in a fiat currency system. MMT argues that (as Kalekci did) that businesses have strong incentive (not wanting workers to get uppity) to keep the economy at less than full employment. So the government can and should spend to mobilize resources. And it can because its role as the currency issuer means it can never go bankrupt, it can only create too much inflation. Taxes are what contain inflation in MMT.

By contrast, the Positive Money types want to do it by limiting credit creation. And thus Murphy is correct. That means their priority is to preserve the value of financial assets, not achieve full employment.

steven , June 9, 2018 at 11:03 am

I don't believe it is accurate to say that Positive Money "fetishizes money". Irving Fisher acknowledged his debt to Frederick Soddy for the concept of "100% Money", the intellectual foundation for the Positive Money movement. Soddy's intent in limiting the creation of money to the stock of wealth available for it to purchase was to retain independence from the state in obtaining the means of subsistence. He compared the use of monetary policy to goose the economy to a merchant putting his or her finger on the scale, making it difficult to impossible for money to fulfill two of its primary functions: serving as a medium of exchange and a store of value.

So long as there was wealth available for it to purchase, he – and presumably Fisher's Positive Money crowd – would have no objection to creating as much money as needed to keep the economy running. What he and every other respectable economist have been trying to bring under control is the excess money creation fueling speculation and the seemingly inevitable boom-bust cycle accompanying the private creation of money.

Rather than curbing that excess, however, the 'solution' that seems to have been adopted is for the US and other Western governments to absorb the excess credit (money as debt) creation by taking it on their (governments') own books. Government debt is I believe called 'near money' in the financial markets. But neither the governments nor the bankers of countries that no longer create real wealth have any logical right to create the money to buy it. Just retaining the right to 'print' more money or 'near money' doesn't change that, except perhaps in an absurdly narrow legal sense.

There are, of course, some issues like globalization intimately connected with the construction of a logical and fair monetary system. But underlying them all, including for countries other than the US, is a logical definition of 'wealth':

a logical definition of wealth is absolutely needed for the basis of economics if it is to be a science."

Frederick Soddy, WEALTH, VIRTUAL WEALTH AND DEBT, 2nd edition, p. 102
(Soddy might have added "if government is to be a science".)

skippy , June 9, 2018 at 8:12 pm

Here in lies the rub economics will never be a Science.

Firstly the medium used by most economics – philosophy – does not even have a functioning model of time and space and is prone to fads. Magnified by scale WRT elite tastes or self dealing. Wealth or Capital is also a bit complicated by say the Cambridge Controversy et al. So until some very fundamental flaws are sorted, that have nothing to do with – money – the concept of "Science of Money" is going to be a non starter.

Worst is those that use such syntax and dialectal style are going to be called into question – over it.

I mean we had political theory, then some bolted on science to it, and called it economic science. Which then begat a whole time line of dominance front running the political process regardless of political incumbents.

I think Scientists that dabble in monetary theory fall victim to the same dilemma that say religious based views do – their optics are ground before looking.

steven , June 9, 2018 at 9:55 pm

Skippy,

Probably best to start with the first part of Soddy's (actually John Ruskin's) observation, "a logical definition of wealth is absolutely needed ". "Most economics" may indeed disguise its prostitution with a veneer of philosophy or mathematics. But I don't think you can say that about Soddy's:

A definition of wealth must be based upon the nature of physical or material wealth, in the sense of the physical requisites which empower and enable human life-that is, which supply human beings with the means to live, and, as an after consequence of living, to love, think and pursue goodness, beauty and truth.p. 108

(All citations are from Soddy's Wealth, Virtual Wealth and Debt, 2nd edition- WVWD)
For that matter, according to Michael Hudson, you can not accuse the classical economists of just dabbling in philosophy. They were ALL about freeing society from free-lunch economic rent seekers, freeing up the resources so they could be devoted as completely as possible to the development of "the physical requisites which empower and enable human life".

What we have to do to develop those physical requisites – and increasingly the limitations imposed by the requirements of sustainability – is pretty well known. Whether a science of money can be devised to help accomplish that goal or some other mechanism for distributing the wealth made possible by advances in science and technology is required is increasingly open to question.

Take a look at Soddy's –THE THREE INGREDIENTS OF WEALTH (DISCOVERY, NATURAL ENERGY AND DILIGENCE). p. 61 The first two are firmly embedded in time and space.

skippy , June 9, 2018 at 11:21 pm

I have read Soddy, more so I have talked with PM sorts for a long time, hence I'm not ignorant of the camps views or actions during said time.

Onward

"a logical definition of wealth is absolutely needed ".

I did reference the Cambridge Controversy, are you informed WRT this aspect.

"A definition of wealth must be based upon the nature of physical or material wealth, in the sense of the physical requisites which empower and enable human life-that is, which supply human beings with the means to live, and, as an after consequence of living, to love, think and pursue goodness, beauty and truth.p. 108"

Sorry but . "consequence of living, to love, think and pursue goodness, beauty and truth" has nothing scientific about it.

I reiterate – Metaphilosophy has no scientific underpinnings and attempts to "brand" it otherwise in only to burnish its credentials without any empirical satisfaction is just rhetorical gaming.

"you can not accuse the classical economists of just dabbling in philosophy."

Hay I respect Hudson, that does not mean I worship him, hes been invaluable to the discovery process, but, that does not mean everything he has to say is the word of dawg, nor would I surrender my cognitive processes just because someone uses the term classical.

If I have to go that space I would favor say Veblen or Lars P. Syll where if your to own a thing one must accept the responsibility from a social aspect and not one of atomistic individualism.

But hay I regress . because I'm still waiting for someone to show me a few decades of a labour market in "action".

skippy , June 9, 2018 at 11:22 pm

BTW it would be incumbent of you to redress my concerns above without forging a new path which excludes them.

steven , June 10, 2018 at 1:40 am
"BTW it would be incumbent of you to redress my concerns above without forging a new path which excludes them." – Sorry if I did that. It was not my intent. Wikipedia is my only exposure to the Cambridge Controversy . As I understand it, science is supposed to be all about observing the real world and then drawing conclusions from those observations. It looks to me like the participants in the debate were looking at their models and maybe the logic they used to construct them, not the world they were supposed to be modeling.
"Most of the debate is mathematical, while some major elements can be explained as part of the aggregation problem. The critique of neoclassical capital theory might be summed up as saying that the theory suffers from the fallacy of composition;"
This kind of cant is a far cry from something like:

"Though it was not understood a century ago, and though as yet the applications of the knowledge to the economics of life are not generally realised, life in its physical aspect is fundamentally a struggle for energy , in which discovery after discovery brings life into new relations with the original source. Evolutionary development has been parasitic, higher and higher organisms arising and obtaining the requisite supplies of energy by feeding upon the lower. But with man and the development of conscious reason, that process as regards energy is being reversed. "

(emphasis added)

Sister Gloria , June 9, 2018 at 8:46 am

Sorry, but where does Positive Money , in any of the publications and articles, propose any limitations on 'credit' ?
I never saw that.
Or AMI or any of these public money types for that matter?
Thank you.

Paul L. , June 9, 2018 at 9:45 am

You are completely correct, they don't. This is all made up propaganda against the democratization of the money supply. What PM proposes is sound credit creation.

skippy , June 9, 2018 at 8:23 pm

PM wants to establish a non democratic administration of government issuance and then allow a return to the free banking period of the 1800s. All based on notions of EMH and QTM contra to all the historical data from that period. So on one had PM wants to lay claim to scientific methodology WRT money yet still cling to scientifically refuted EMH.

As far as I can discern PM proponents advance the belief that this would compel banks to become investment entities for "productive" activities. Don't know how that would work out considering how corporatism views society.

Sound of the Suburbs , June 9, 2018 at 4:13 pm

MMT has looked at publicly created money.

The positive money people have come at it from the other angle. People like Richard Werner have been studying the problems with privately created money since the Japanese economy blew up in the 1980s .

https://www.youtube.com/watch?v=EC0G7pY4wRE&t=3s

They have seen all the problems with privately created money and the positive money people were very pleased when the BoE confirmed their beliefs in 2014.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

The positive money people have come to the wrong conclusion through not understanding publicly created money.

The MMT people can learn a lot about the problems of privately created money from the positive money people.

The two camps should merge to get the big picture.

I started looking into all the problems of privately created money after 2008 and was a latecomer to MMT.

The two merge nicely when you think about it and realise the why the positive money people came to the conclusion they did. They just didn't understand the way publicly created money works now.

djrichard , June 9, 2018 at 4:19 pm

In the case of Japan, unless I'm misunderstanding things there, presumably they've embraced MMT out the wazoo, in that they're willing to leverage federal gov debt out the wazoo. And yet I think the consensus still seems to be that their economy is still zombified (still not really recovered from the debt overhang from their go go years). In which case, why is that?

Has Japan been hamstringing their use of MMT, so it's less effective than it could be? Do they need to up the ante, employ MMT-on-steroids to overcome the trap that they're in, say like the US needed WWII to get out of its trap?

Withstanding MMT-on-steroids, should it be QE-on-steroids instead that get the animal spirits rekindled? I don't have a strong sense of whether the US central bank has done more in that department compared to the central bank of Japan. Or if indeed, the US central bank has been more successful on that front. It's clear that animal spirits are certainly rekindled in the US – the usual playahs are back at it. Though whether that's unzombified our economy, I'm not so sure – I don't think it has.

If these hurdles are so difficult, seems to me we should have a monetary system that doesn't result in a zombified economy to begin with, per the comment I was making further above.

Synoia , June 9, 2018 at 10:41 pm

And yet I think the consensus still seems to be that their economy is still zombified (still not really recovered from the debt overhang from their go go years). In which case, why is that?

Debt Peonage. For it to work there has to be a debt jubilee (a forgiveness of peoples debt).

Older & Wiser , June 9, 2018 at 8:21 pm

China´s Battle for Money

" It seems there are greater similarities between China and the US than may be visible at first glance. China builds real estate for a shrinking population, invests for an over-indebted client (the US, which even insists on a drastic reduction of the bilateral trade deficit) and finances all this with money it does not have ."

https://mises.org/wire/china-trouble

skippy , June 9, 2018 at 9:39 pm

I know the answer to this dilemma – Praxeology – !!!!!

skippy , June 9, 2018 at 8:29 pm

MMT has always stated to whom the debt is owed is the crux of the matter and in what form denoted.

I have trouble understanding the dramas with bank issued credit when squared with say equities, why all the focus on one and not to be inclusive of a wide assortment of other mediums of exchange and how they are created and why.

skippy , June 9, 2018 at 9:27 pm

Sorry comment was directed at djrichard above.

So tell me why J – bonds are called the death trade e.g. shorters nightmare – albeit they will tell you their shorts are being thwarted by ev'bal forces.

The Rev Kev , June 9, 2018 at 10:26 pm

Couldn't resist this. That title has me intrigued so, with apologies to Winston Churchill-

" What (neoliberals have) called the Battle of (Credit) is over the Battle of (Money) is about to begin. Upon this battle depends the survival of (world) civilisation. Upon it depends our own (western) life, and the long continuity of our institutions and our (civilization). The whole fury and might of the enemy must very soon be turned on us. (Neoliberals) knows that (they) will have to break us in this (idea) or lose the war. If we can stand up to (them), all (the world) may be freed and the life of the world may move forward into broad, sunlit uplands.
But if we fail, then the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new dark age made more sinister, and perhaps more protracted, by the lights of perverted science. Let us therefore brace ourselves to our duties, and so bear ourselves, that if the (United Nations) and its (Countries) last for a thousand years, men will still say, "This was their finest hour." "

skippy , June 9, 2018 at 10:50 pm

https://www.nakedcapitalism.com/2011/11/mark-ames-libertarian-liars-top-reagan-adviser-cato-institute-chairman-william-niskanen-%E2%80%9Cdeficits-don%E2%80%99t-matter%E2%80%9D.html

Yet then some say AET and Neoclassical economics just needs to implement PM and all will be well.

I've yet to see any PM advocate or proponent criticize an executive or corporatism, only banksters and some politicians. On the other hand I've seen many PM sorts back crypto based on the argument of decentralization. So which is it, counterfeiting of national money with a side of corruption or a case of counterfeiting ex nihilo via some arbitrary computational source with a predominate side of corruption.

I am completely at a loss to understand how the debate about money proceeds things like Marginalism, supply and demand as a monolith, rational agent models, theoclassical opinions elevated to truisms [economic laws] and a reduction of human experience as a binary condition set in stone.

I also have issues with PM advocates and their UBI agenda, due to its original proponents views on the need to water down democracy more to keep the unwashed from just voting themselves more money. It is in my opinion logically incoherent, that is just what has occurred during the neoliberal period and corporatists via the democracy of money through lobbyists – every dollar is a vote – et al.

In light of that I can only surmise that PM is actually pro elitist, not that I have issues with some being elite, that is another story altogether, but money itself is not the bar.

[Jun 10, 2018] Trump At G-7 Closing Remarks We're The Piggy Bank That Everybody's Robbing

Looks like Trump adopted Victoria Nuland "Fuck the EU" attitude ;-). There might be nasty surprises down the road as this is uncharted territory: destruction of neoliberal globalization.
Trump proved to be a really bad negotiator. he reduced the USA to a schoolyard bully who beats up his gang members be