Government Must Help People DIRECTLY-- Not Through Grasping Big Business Crooks

This morning, Naked Capitalism carried a piece by economist Michael Hudson on the ramifications of the pandemic on the U.S. economy. Hudson explained how to escape from catastrophe by looking at a biblical perspective.

The word “Jubilee” comes from the Hebrew word for “trumpet”-- yobel. In Mosaic Law, it was blown every 50 years to signal the Year of the Lord, in which personal debts were to be canceled. The alternative, the prophet Isaiah warned, was for smallholders to forfeit their lands to creditors: “Woe to you who add house to house and join field to field till no space is left and you live alone in the land.” When Jesus delivered his first sermon, the Gospel of Luke describes him as unrolling the scroll of Isaiah and announcing that he had come to proclaim the Year of the Lord, the Jubilee Year.

Until recently, historians doubted that a debt jubilee would have been possible in practice, or that such proclamations could have been enforced. But Assyriologists have found that from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne. Instead of blowing a trumpet, the ruler “raised the sacred torch” to signal the amnesty.

It is now understood that these rulers were not being utopian or idealistic in forgiving debts. The alternative would have been for debtors to fall into bondage. Kingdoms would have lost their labor force, since so many would be working off debts to their creditors. Many debtors would have run away (much as Greeks emigrated en masse after their recent debt crisis), and communities would have been prone to attack from without.

The parallels to the current moment are notable. The U.S. economy has polarized sharply since the 2008 crash. For far too many, their debts leave little income available for consumer spending or spending in the national interest. In a crashing economy, any demand that newly massive debts be paid to a financial class that has already absorbed most of the wealth gained since 2008 will only split our society further.

...In the past, the politically powerful financial sector has blocked a write-down. Until now, the basic ethic of most of us has been that debts must be repaid. But it is time to recognize that most debts now cannot be paid-- through no real fault of the debtors in the face of today’s economic disaster.

The coronavirus outbreak is serving as a mind-expansion exercise, making hitherto unthinkable solutions thinkable. Debts that can’t be paid won’t be. A debt jubilee may be the best way out.

Over the last couple of years, no one has written more cogently than Matt Stoller about the politics of monopoly. His book, Goliath: The 100-Year War Between Monopoly Power and Democracy should be required reading for a literate electorate. Last night, he wrote-- with a sense of urgency-- that "Congressional leaders are likely to put a very ugly deal in front of the American people, and if it passes, America may be unrecognizable after this pandemic. But there is a way to stop it, if people on the populist left and people on the populist right work together." Please pay attention:

You can't filibuster COVID-19

Here's the situation. Mitch McConnell, Chuck Schumer, and the Trump administration is negotiating a bailout package to address the coronavirus crisis. There's been a lot of chatter about the need to support workers as the economy goes into a freeze. This is happening around the world; the British government, for instance, is willing to pay 80% of worker wages during this downturn for those affected by the crisis.

But in the U.S., our leaders seem to be falling prey to what can only be called a corporate frenzy of favor-seeking. “Any time there is a crisis and Washington is in the middle of it is an opportunity for guys like me," said one lobbyist.

Now first I should say that I don’t know exactly what is going to be in the final bill, because the whole process is opaque and being negotiated right now by some untrustworthy political leaders. We will only find out the details at the last minute. So all I have to go off is rumor and reporting. But if we wait until we know the full contours, it will likely be too late to act. I hope I’m wrong, but the list of what lobbyists are asking for is long, and ugly, and often the requests for money or legislative favors are done to cover up mistakes made before the coronavirus hit.

Take Boeing. The aerospace giant of course wants a $60 billion bailout. Financial problems for this corporation predated the crisis, with the mismanagement that led to the 737 Max as well as defense and space products that don't work (I noted last July a bailout was coming). The corporation paid out $65 billion in stock buybacks and dividends over the last ten years, and it was drawing down credit lines before this crisis hit. It is highly politically connected; the board of the corporation includes Caroline Kennedy, Ronald Reagan’s Chief of Staff Ken Duberstein, three Fortune 100 CEOs, a former US Trade Representative, and two Admirals, one of whom is the board’s only engineer. Using the excuse of the coronavirus, Boeing is trying to get the taxpayer to foot the bill for its errors, so it can go back to making more of them.

But that's not all. Defense contractors want their payments sped up, and I've heard they want to widen a giant loophole called 'other transaction authority' to get around restrictions on profiteering. Elon Musk and Jeff Bezo want "$5 billion in grants or loans to keep commercial space company employees on the job and launch facilities open." They also want the IRS to give them cash for R&D tax credits.

CNBC reported that hotels want $150 billion, restaurants want $145 billion, and manufacturers wants $1.4 trillion. And the International Council of Shopping Centers wants a guarantee of up to $1 trillion. The beer industry wants $5B. Candy industry wants $500M. The New York Times reported that "Adidas is seeking support for a long-sought provision allowing people to use pretax money to pay for gym memberships and fitness equipment." Gyms are of course closed. Meatpackers want special visas so they can undercut wages of their workers, and importers want to stop paying duties they incurred for harming domestic industries for illegally dumping products into the U.S.

Now, I'm not opposed to supporting industries. This is a crisis, and we do not want a lot of the productive capacity of the United States to fall apart because of a pandemic. But the key to supporting enterprises is to make sure that there are strict conditions, so that power doesn't consolidate into the hands of monopolists and financiers cherry-picking distressed assets. Otherwise, America will simply be unrecognizable after this pandemic. CNBC personality Jim Cramer, for instance, is worried that after this pandemic America will have just three retailers. And he's right to be worried about that.

Here's how we can stop it. There are enough members of Congress to act and prevent what really looks less like a relief package and more a corporate coup. However, the problem is that this group is split into different political parties, and Congressional leadership is taking advantage of that dynamic to jam this through. Mitch McConnell wants big business to rule, so he's playing a trick. He is refusing aid to workers. Democrats are negotiating with him to try to get unemployment assistance and social welfare. McConnell knows Dems won't pay attention to corporate bailouts if he takes the public hostage, and Democrats know that they can hand out favors to big business if they just talk about how they got larger checks for workers.

So McConnell will put a bill down in front of Nancy Pelosi, with some good stuff like unemployment insurance, but also the really ugly stuff to hand over America to big business. The corporatists in the Democratic Party will tell her "Pass the corporate coup bill, after all we have to do something right now!" And because she doesn't have the votes from within her own caucus because of these corporatists, and because she doesn't particularly care if America is sold off to big business, she will do that. The only hope is to get together a bipartisan group from the right and the left to oppose this charade.

And there's a precedent.

In 2008, when Congress was on the brink of passing a $700 billion bailout to Wall Street, something astonishing happened. A motley bipartisan group of roughly a hundred members, as well as outside experts, formed what was called the "Skeptic's Caucus," and organized enough votes to take down the package. Congressional leaders then attached some minor tweaks, and forced the package through after the stock market crashed. Ultimately, the skeptics failed, and the bailouts ended up shifting power and wealth to an unaccountable elite class.

But for that brief moment, it became clear that opposition to Congressional leadership on corporate subsidies is possible. We will need another Skeptic's caucus, and quickly. And this time, it can succeed. Because this time, no one is fooled by what is happening. We can see it plainly.

So whether you are a Republican or Democrat, join a new Skeptic's caucus. And demand your member of Congress represent YOU, and not just big business. Help the people by dealing with unemployment, rent, mortgages, not big business executives trying to save their cushy positions.

Stoller, who began his Capitol Hill work in Alan Grayson's office, later worked as a Senate staffer for Bernie. As you can see from the just-released video clip above, it certainly looks like Bernie will be one of the senators standing behind his ideas. Another is Elizabeth Warren:

Is The Democratic Party Worth Reforming And Saving? Are We Stuck With It As Our Only Hedge Against Fascism?

Even before Biden showed how incoherent and unfit he is during yesterday's debate, Michael Hudson, University of Missouri in Kansas City economics professor and author of And forgive them their debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year, published a call to abolish the DNC and break up the Democratic Party. He wrote that the debate-- "a reality entertainment show"-- would be a "shameless charade" and that despite the pretense that we're selecting who the Democratic nominee will be, most Americans "vote with their backsides, belonging to the informal but dominant party of non-voters who choose not to be sucked into legitimizing the bad choices put before them."

Hudson wrote that "Most Americans are now living from paycheck to paycheck and cannot come up with even $400 in an emergency. They are afraid to go on strike or even to complain about their job, because they are afraid of getting fired-- and of losing their corporate health care, knowing that getting sick may wipe them out... Voters basically want what Bernie Sanders is promising: a basic right to Single Payer health care and a retirement income. That means protection against the Republican-Democratic threats to cut back Social Security to balance the budget in the face of tax cuts for the richest One Percent and rising Cold War military spending. This means a government strong enough to take on the vested financial and corporate interests and prosecute Wall Street’s financial crime and corporate monopoly power. When neoliberals shout, 'But that’s socialism,' Americans finally are beginning to say, 'Then give us socialism.' It beats being ground down into debt peonage."

[H]ere’s the trick that the TV debates sweep under the rug: It is not the voters who are empowered to choose the Democratic Party’s candidate. That privilege belongs legally to the Democratic National Committee (DNC). Since stacking the political deck in 2016 to serve up Hillary Clinton as nominee, it has put in place rules that will enable its Donor Class members, super-delegates and other lobbyists for the One Percent to repeat the trickery once again in 2020.

I hope that the candidate who is clearly the voters’ choice, Bernie Sanders, may end up as the party’s nominee. If he is, I’m sure he’ll beat Donald Trump handily, as he would have done four years ago. But I fear that the DNC’s Donor Class will push Joe Biden, Kamala Harris or even Pete Buttigieg down the throats of voters. Just as when they backed Hillary the last time around, they hope that their anointed neoliberal will be viewed as the lesser evil for a program little different from that of the Republicans.

So Thursday’s reality TV run-off is about “who’s the least evil?” An honest reality show’s questions would focus on “What are you against?” That would attract a real audience, because people are much clearer about what they’re against: the vested interests, Wall Street, the drug companies and other monopolies, the banks, landlords, corporate raiders and private-equity asset strippers. But none of this is to be permitted on the magic island of authorized candidates...

The problem facing the Democratic National Committee today remains the same as in 2016: How to block even a moderately left-wing social democrat by picking a candidate guaranteed to lose to Trump, so as to continue the policies that serve banks, the financial markets and military spending for Cold War 2.0.

DNC donors favor Joe Biden, long-time senator from the credit-card and corporate-shell state of Delaware, and opportunistic California prosecutor Kamala Harris, with a hopey-changey grab bag alternative in smooth-talking small-town Rorschach blot candidate Pete Buttigieg. These easy victims are presented as “electable” in full knowledge that they will fail against Trump.

Trump meanwhile has done most everything the Democratic Donor Class wants: He has cut taxes on the wealthy, cut social spending for the population at large, backed Quantitative Easing to inflate the stock and bond markets, and pursued Cold War 2.0. Best of all, his abrasive style has enabled Democrats to blame the Republicans for the giveaway to the rich, as if they would have followed a different policy.





The Democratic Party’s role is to protect Republicans from attack from the left, steadily following the Republican march rightward. Claiming that this is at least in the direction of being “centrist,” the Democrats present themselves as the lesser evil (which is still evil, of course), simply as pragmatic in not letting hopes for “the perfect” (meaning moderate social democracy) block the spirit of compromise with what is attainable, “getting things done” by cooperating across the aisle and winning Republican support. That is what Joe Biden promises.

The effect has been to make America into a one-party state. Republicans act as the most blatant lobbyists for the Donor Class. But people can vote for a representative of the One Percent and the military-industrial complex in either the Republican or Democratic column. That is why most Americans owe allegiance to no party.

...The DNC preferred to lose with Hillary than win with Bernie, whom springtime polls showed would be the easy winner over Trump. Potential voters who didn’t buy into the program either stayed home or voted Green.

Now is the time to start thinking about what to do if and when the DNC presents voters with neoliberal Hillary 2.0, preferring to lose with Biden or his clones than to win with Bernie.

I think the only effective response will be to boycott the Democratic Party-- not only its presidential candidates, but its Blue Dog candidates and incumbents.

The legal kerfuffle raised by Sanders supporters in the aftermath made the switcheroo official. The courts affirmed that the Democratic Party’s candidate for president is legally chosen by the DNC alone, and may or may not be the candidate elected by voters in the primaries. To cap matters, the superdelegates serve as a safety valve against any candidate unwilling to go whole-hog neoliberal. A legal tangle of state and national U.S. election laws effectively blocks third parties from meaningful representation in Congress. Registered Independents such as Sanders are constrained to caucus with and serve on committees of one of the two parties.

That makes it difficult for any third party to play more than the role of a spoiler in elections. When the Democratic Party runs its right-wing Blue Dog candidates, a third-party protest will throw the Senate or Congressional election to the Republican-- until the DNC finally just walks away.

It would not help much to take over the Democratic Party as long as its rules cede control to Wall Street donors. For the party to be reconstituted, the coterie that has imposed Rubinomics, Hillary’s neocon military empire, and is threatening to balance the budget by cutting Social Security needs to be isolated.

The most obvious start is to run real progressive candidates against incumbents, like AOC in Queens. If the DNC bans consultants from working with them, they should be attacked in the primary and then either stay home or vote for a third party in the fall election to defeat the incumbent rather than participate in the fake choices of just which neoliberal may be the least worst.

Democrat leaders will denounce the Third Party, claiming that voters would have supported Democratic otherwise, much as they blamed Ralph Nader in 2000. The reality is that voters refused to support the right-wing neocon Joe Lieberman (how appropriate that he became Obama’s Senate mentor) and his neoliberal Democratic Leadership Council front-man Gore, who would have given George W. Bush a run for awfulness.

The only way to make the Democrat Party democratic is to clean house, to boycott its Blue Dog candidates even though this throws elections to the Republicans until the DNC is emptied out. Only at that point can its rules be replaced with ones committing the party to follow the choice of voters and the majority non-Democratic (even non-voting) bloc instead of big donors and super-delegates.

This tactic may lead to Republican sweeps in the next few elections. That is the price that the Democrats have forced to be paid for their neoliberal intransigence that has made Donald Trump their president as much as that of Republican voters.

There is no “middle class” policy in an indebted economy polarizing at an accelerating pace as financial rentiers lord it over an indebted majority. That is why wage earners have lost their identity with the Democratic Party’s loyalty to Wall Street. Although Democratic politicians presents themselves as the only alternative to Republican corporate lobbyists, the DNC is a smoke-filled room of donors, packaged in identity politics-- every identity except that of indebted wage earners. It is merely a diversion to focus on personalities and to claim that economic reform is “divisive” because it may offend centrist voters such as the Democrats’ dream of attracting suburban Republican women.

Joe Biden’s promise of a moderate centrist policy is like Warren Harding’s slogan of a “return to normalcy” a century ago, in 1920. But a “return” would mean rolling back the enormous post-1980 increase in debt, the privatizations, deregulation and other neoliberal nightmares. Today’s U.S. economy-- like that of Europe-- has no middle ground. Attempts at a “moderate” party are merely a euphemism for backing the financial and real estate sector, the oil industry and the military-industrial complex.

If America had a parliamentary system reflecting voters’ preferences for parties, the Democratic Party would share the fate of German and other European Social Democrats that have embraced neoliberal economics and would poll about 5 percent of the vote, just barely being represented in a truly democratic congress. Voters are rejecting neoliberalism everywhere, but the DNC and foreign formerly left-wing party bureaucracies are holding onto it. They have become zombie party hacks.

Sanders rightly blames Wall Street and the One Percent for the economy’s financial mess. Warren strikes a resonant chord in seeing the need to alleviate the debt burden saying in effect, “It’s the debt, stupid.” But she also seems prepared to go along opportunistically with the rest of the Democratic Party’s platform. Even so, the DNC seems quite willing to throw the election to Trump as its major funders and super-delegates back Biden, Harris and Buttigieg.

When Bernie says he will take on Wall Street, people believe him. When Elizabeth Warren says that, voters worry about just how far she may compromise. When Biden or Harris say that, most voters realize that they are simply grabbing slogans that play well in focus groups, selling their personalities without policy content.

Most potential voters have no party in the United States, but are forced into a choice between Republican and Democratic neoliberals. The polls euphemize most voters as “undecideds,” as if they have not decided to avoid both parties and try to scrape by as best they can with the bad choices put before them: Republican corporate lobbyists, or Democratic Wall Street lobbyists, both parties supporting military spending and representing the One Percent who form their donor base.

Most Democratic voters have decided not to back Biden or Harris. They realize their interests were betrayed first by Clintonomics and its deregulation of Wall Street and stripping away of social spending, and then by Obama protecting his Wall Street donors from “the mob with pitchforks,” namely, those who voted for his empty promise of hope and change. That is how the DNC views its constituency-- to be manipulated and its attention diverted onto the Fantasy Island episode aired on Thursday on ABC.

About The Next Great Crash

Aggregate private household debt, 1990-2014. Consumer debt is measured on the left-hand scale; mortgage debt on the right-hand scale (source).

by Gaius Publius

"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way [money is created] is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's bank account, thereby creating new money."

—Bank of England ("Money creation in the modern economy")

Governments create money and banks create money. Governments create money by spending. They send you $100 for, say, several cartons of paper from your small paper supply store, after which you have $100 and they have paper. Where did the $100 come from? The government "printed it," perhaps literally. Nevertheless, you have $100 to spend and are in debt to no one.

Banks create money by lending. You go to a bank for a $100 loan. They add $100 to your side of the ledger as an asset they've given you, and add $100 to their side as a debt you own them. You walk out with $100 you can spend, and they look forward to collecting interest until you pay it back.

(No, banks don't take money from reserves or deposits to lend you money. If the government had a rule that said banks had to hold no reserves, they could still lend you money. Read the quote at the top again from a Bank of England paper, or consider this Forbes article, "Banks Don't Lend Out Reserves," which says essentially the same thing: "[W]hen a bank creates a new loan, it also creates a new balancing deposit. It creates this 'from thin air', not from existing money: banks do not 'lend out' existing deposits, as is commonly thought.")

Those are in fact almost the only ways that money — the thing in your wallet and the number in your bank account — come to exist. (A third way of money-creation is for governments to issue treasury bonds — also a form of "printing it" — but that way is entirely optional and doesn't pertain to this discussion. They could still just print the money directly, as money, if they wanted, and use that money to buy things. Treasury bonds are created for an entirely different purpose. Paying taxes, of course, uses money already created.)

Both of these ways of creating money — by governments and by banks — create an asset. But when governments create money by spending, people own the asset. When banks create money by lending, they own the asset, which they lend, and people own a debt — the obligation to pay it back with interest.

This is a Great Truth and should be memorized. In general, government-created money puts an asset in your hands. Bank-created money puts an asset in their hands.

Obviously, bankers would always prefer the economy to be supplied with new money by banks than by the government. Which is why governments are always being forced by bankers, to the greatest extent possible, into austerity budgets. It means more business, more profit, for them.

Bank-Created Money Competes with Government-Created Money

Banks — and the bankers who grow rich running them — love it when governments run budget surpluses, which means the government takes more money out of the economy than it puts into it. (A government budget surplus means that at the end of the year, the government spent less money than it took in. In other words, budget surpluses shrink the supply of money, making money less available to the public)

When governments run surpluses (which is sold to the public as enacting "responsible" budget policies), the economy is relatively starved of government-created money. Every dollar that the government does not spend is a dollar that's not available to anyone. So to get additional dollars — to make up the difference between what the public needs and what they have — the public has to go to banks and other lending institutions and put themselves in debt.

It should be obvious from this that banks will always favor "responsible" pro-austerity government policies, and will always work to enact them. When bankers succeed at enacting austerity budgets, they increase their take from loans and make out like bandits.

That's where we are now. Bankers have captured the political process and staffed the government with its own ex- and future employees. On the Democratic Party side, this practice of bankers running government budget policy goes back through Barack Obama to Bill Clinton, his banker-turned-Treasury Secretary Robert Rubin, and their proud budget surpluses. (Rubin went from Goldman Sachs to Treasury Secretary to Citigroup. He even gave his name to this set of policies: "Rubinomics.")

Bankers like Rubin and their Democratic Party acolytes preach austerity for government, try to run budget surpluses instead of deficits (i.e., take money out of the economy instead of supplying it), and the whole rest of the nation goes into debt to bankers when people need what the government failed to provide.

(Republicans preach austerity too, but run budget deficits when they have power. Deficits do create an asset, the money itself, but the money doesn't go to the general public. Most of it goes straight to their friends, often in the military-industrial-security industry. This time a lot of it will also go to the climate-change-creating fossil fuel industry.)

The Goal of Both Parties Is to Keep Household Debt High

While the total private debt — commercial or business debt and household debt — affects the whole economy as we'll see shortly, the household debt now drives our politics. And maintaining high household debt has been a goal of both parties.

When Democrats hold power, the government directly starves the economy of money (strives for "responsible" budgets) and bankers get rich creating debt. That's why households are so debt-ridden today, with mortgage debt, student debt, credit card debt and the like. It's why the whole rest of the country, the bottom 90% whose voices are never heard, no matter who they vote for, are feeling so fatally crushed, so ... pre-revolutionary, if you will.

When Republicans hold power, the government enacts deficit-creating budgets, but still keeps the giant mass of private debt in place so commercial banks and other lenders can continue extract interest.

Where does this leave the public? Drowning in debt by design, under either party.

Where does this leave the country (in addition to poised on the verge of revolt)? Poised on the precipice, the edge, of the next Great Crash, because unrestrained debt-creation drives boom-and-bust cycles.

The Structural Problem With Debt-Driven Economies

Earlier I wrote about the current U.S. debt overhang (the large amount of debt that businesses and the public are suffering under) and said, "No U.S. economic recovery is possible until the government stops protecting creditors at all costs and starts making it possible (or mandatory) for personal debt to be forgiven." I'm not alone in saying that.

That statement is still true, but the situation is actually worse than I said. It's not just that a recovery is impossible; it's that the crash part of the boom-and-bust cycle is on its way as well. The mass of private debt — household debt and business debt — is now so great that it will cause the next economic collapse, just as debt caused the last one in 2008. This is a global problem, since major economies around the world have refused to put the brakes on debt creation. (One of the worst offenders, by the way, is China, but they're certainly not alone. Economic growth in almost all Western nations is strangled by the overhang of private debt.)

Michael Hudson explains this in a review of a new book by Steve Keen called "Can We Avoid Another Financial Crisis" (h/t Naked Capitalism for the link; emphasis mine). Hudson starts with Keen's view of debt growth as systemic to unregulated banking activity. First, debt growth creates an economic boom, when the new money acts as a stimulus. But later, bankers become "exuberant," lend far, wide and recklessly to increase their own income, and debt repayment comes to dominate the economy, strangling it. This puts the economy in a downward spiral, leading to a crash. In a society that does not restrain bankers, rinse and repeat.

Hudson puts it this way:

It is simple enough to show that the mathematics of compound interest lead the volume of debt [both household and commercial debt] to exceed the rate of GDP growth, thereby diverting more and more income to the financial sector as debt service. Keen traces this view back to Irving Fisher’s famous 1933 article on debt deflation – the residue from unpaid debt. Such payments to creditors leave less available to spend on goods and services.

In explaining the mathematical dynamics underlying his “Minsky” model, Keen links financial dynamics to employment. If private debt grows faster than GDP, the debt/GDP ratio will rise. This stifles markets, and hence employment. Wages fall as a share of GDP.

This is precisely what is happening [today].

Mainstream (neoliberal) economics has no way to take this debt-driven boom-bust cycle into account, or even to see it for what it is, since neoliberal economics doesn't see debt as a driver of the economy at all. As Hudson says below, for them it's the old logic that "debt doesn't matter, because 'we' owe the debt to 'ourselves.'"

But mainstream models ignore the overgrowth of debt, as if the economy operates on a barter basis. Keen calls this “the barter illusion,” and reviews his wonderful exchange with Paul Krugman (who plays the role of an intellectual Bambi to Keen’s Godzilla). Krugman insists that banks do not create credit but merely recycle savings – as if they are savings banks, not commercial banks. It is the old logic that debt doesn’t matter because “we” owe the debt to “ourselves.”

[But the] “We” are the 99%, the “ourselves” are the 1%. Krugman calls them “patient” savers vs “impatient” borrowers, blaming the malstructured economy on personal psychology of indebted victims having to work for a living and spend their working lives paying off the debt needed to obtain debt-leveraged homes of their own, debt-leveraged education and other basic living costs.

For Keen, Hudson, Minsky and a number of others, this kind of economy — depending on unrestrained debt for stimulus, leading to debt-driven crashes — is malstructured and the boom-bust cycles are inevitable, built in. The only long-term solution, of course, is a restructured, debt-restrained economy, which implies quite a lot of government intervention — anathema to free market, neoliberal, Rubinomics true believers (and the bankers who keep them in power).

Barring that restructuring, economies entering bust cycles have only two choices — pop the bubble now, or keep the party going a little longer — and they generally take the worse one:

Keen explains why, mathematically, the Great Moderation leading up to the 2008 crash was not an anomaly, but is inherent in a basic principle: Economies can prolong the debt-financed boom and delay a crash simply by providing more and more credit, Australia-style. The effect is to make the ensuing crash worse, more long-lasting and more difficult to extricate. [...]

Again, this is where we are now. The U.S. economy and the world economy are both limping along at almost no growth, and have been since the 2008 crash. No one has seen a recovery except the very wealthy, the upper 1%, plus the upper 10% who run things for them. Banks are doing fine, better than fine in fact, because government policy both here and in Europe is to let no debt go unpaid. You can see the result. I hope you can also now see where this is leading.

"Irrationality" and Bank Lending

Classic, neoliberal economics sees the world as made up of "individuals" making rational decisions. Here's Keen quoting Ben Bernanke, a classic neoclassical economist (source here; my emphasis):

"Hyman Minsky (1977) and Charles Kindleberger (1978) have in several places argued for the inherent instability of the financial system but in doing so have had to depart from the assumption of rational economic behavior. [A footnote adds] 'I do not deny the possible importance of irrationality in economic life; however it seems that the best research strategy is to push the rationality postulate as far as it will go.' (Bernanke, 2000, p. 43)"

But the irrational often rules us all, especially hyper-wealthy bankers driven mad with greed, what Alan Greenspan, another classic neoliberal economist, quaintly called "irrational exuberance." Pathological monomania is another characterization, and it's not an anomaly, but a characteristic of this part of the cycle. (Even economist Jeffrey Sachs labeled as "pathological" the Wall Street bankers he had to personally deal with, a surprising statement coming from someone who used to work at the IMF.)

According to Hudson, Keen's solution to this failure of vision is to see the economic world as populated, not with individuals like "prudent savers" (banks) and "spendthrift" borrowers (their customers)," but with "basic economic categories – creditors, wage earners, employers, [and] governments [who are] running deficits (to provide the economy with money) or surpluses (to suck out money and force reliance on commercial banks)."

A Choice — "Modern Debt Jubilee" or the Next Great Crash

Keen does have a solution to the problem of avoiding the next great crash. He calls it a "modern debt jubilee," a massive conversion of debt into equity. Hudson describes this as essentially a swap of equity for debt. About this, Hudson writes, "The intellectual pedigree for this policy to keep debt within the ability to pay was laid two centuries ago by Saint-Simon in France. ... As a transition from [today's] debt stagnation, [Keen] suggests that the central banks create a lump sum to put into everyone’s account. Debtors would be required to use their gift to pay down the debt. Non-debtors would keep the transfer payment – so as not to let demagogic political opponents accuse this plan of rewarding the profligate."

That is, everyone gets a gift of money in their bank account from the central bank — the government's bank, which again creates new money. Debtors are required to apply the gift to their debt. Non-debtors get the gift as well to avoid the inevitable political attack that, if only debtors got the gift, we'd be rewarding only the "undeserving."

Pretty slick idea. Some wealth rebalancing (though not much), considerable debt destruction, with a side of economic stimulus. That would keep the next crash at bay.

When Pigs Fly, or Sanders is Senate Majority Leader

Keen's suggestion will also, my realistic socialist mind tells me, never happen. If it did, we'd be living in a world in which the Democratic Party chooses Bernie Sanders to replace Chuck Schumer as Democratic leader of the Senate, and chooses to win elections again by standing with the people instead of big money donors, many of them bankers, who now provide most Party funding.

This could occur, of course, but look what happened to Sanders the last time he challenged the Party — every part of its ecosystem, including its media, worked to defeat him. And if Democrats won't stand for the people — and save the nation from the debt that's drowning it — who will? In our deliberately constricted political system, there's only one other alternative, and they'll always be no help at all.

Our Debt Is Their Income Stream

A final note — the newsy part of this piece, about the coming crash, is not the most important part. The paragraphs leading up to the news — my opening sections prior the discussion of Steve Keen's book — is much more significant, since it explains all you need to know about why banker-captured Western governments are so in love with austerity economics; why austerity guarantees your indebtedness; and why that's entirely by design.

Again: Government-created money puts an asset in your hands. Bank-created money puts an asset in their hands.

Our debt is their "income stream," and they will always stop at nothing to keep it that way, including inducing the first black president to destroy the wealth of his own community for their benefit (see "Obama's Other Legacy").

This austerity-created income stream must be interrupted and reversed, or we really will get that revolution I've been alluding to, and not just at the ballot box. (More on that problem in a later piece.)

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America Cannot Recover from Recession Until It Writes Down Debt to What Can Be Paid

Wealth created by productivity diverged from wage growth in the Carter administration, but separated for good under Reagan and all subsequent presidents. Wages have been essentially flat since 1972. For almost all working people, increase in purchasing power has been achieved by increasing personal debt.

by Gaius Publius

We live in a predatory capitalist world, one in which those with money compete ruthlessly with each other to acquire the most added money they can. Achieving this goal includes, among other things, impoverishing their customers, converting the personal wealth of their customers to personal debt, then making more money selling and collecting interest on that debt.

After 45 years of this behavior, and especially in the wake of the devasting 2007-2008 crash, most Americans live with a burden of debt they can never recover from, can never earn their way out of. Since 2008 especially, as a direct consequence of this situation, debt growth has continued to skyrocket while GDP growth has limped along.

This started in the 1980s, in which almost all of the fruits of increased productivity were harvested by the owning class and not the workers who generated it. You can see that process in the chart above.

This is a very perverse economy, but it's unfortunately the one we're trapped in. During a crisis, major bond holders in particular and creditors in general are protected and reimbursed at 100 cents on each dollar owed — bond holders via various bailouts, and creditors via increasingly harsh and punitive bankruptcy laws that apply to those who owe them money. Thanks to a relatively recent change, for example, promoted by Joe Biden and others, student debt, now totally over $1 trillion dollars, is almost impossible to discharge by declaring bankruptcy.

Total U.S. student debt as of March 2015 (source). Note that student debt growth was unaffected by the 2007–2008 economic crash.

Keep in mind, this discussion is entirely about personal debt, debt held by citizens, like mortgage debt, credit card debt, student debt, car loans, and the like.

Bottom line: No U.S. economic recovery is possible until the government stops protecting creditors at all costs and starts making it possible (or mandatory) for personal debt to be forgiven. During the last crisis, for example, Obama's government could have bailed out the mortgage holders themselves, regular citizens, but chose instead to bail out banks and institutional creditors that held those mortgages, leaving mortgage debt held by individuals almost entirely in place (and largely unrepayable).

In fact, the insurance company AIG was given federal money to pay its derivatives debt to major banks at 100 cents on the dollar, specifically so that AIG creditors like Goldman Sachs would not see or suffer any loss at all. In other words, Obama's government bailed out AIG as a backdoor bailout of Goldman Sachs and other banks.

Not so the suffering mortgage holders, whose personal pain was infinitely greater. They saw, and still see, next to nothing in relief.

You may call this recommendation, that debt be forgiven, morally problematical — after all, "everyone knows" you have to pay your debts — even while U.S. corporations and the elites who run them declare bankruptcy all the time as "simple business decisions," and the bailout of Wall Street was by definition debt forgiveness with government money.

Nevertheless, if the current overhang of personal debt isn't erased — wiped off the books — there will never be an economic recovery in the U.S., at least not for the lower 90% of the population unserved by either political party. And if people in the lower 90% never see a recovery, the national economy will never see one either. There's just no such thing as a recovery in which only the rich are spending.

Michael Hudson: "We're in a Permanent Debt Deflation"

Here to explain all this much better than I can do is economist and professor Michael Hudson, a man who understands the relationship between debt and the economy as well or better than anyone like him writing today (h/t Naked Capitalism).

This is an excellent and clear explanation, and a fascinating listen. Please give it an opportunity to engage you. If you do, there are several surprises near that end you're likely to enjoy.

It doesn't matter who is in office, or which party. The economic condition of the lower 90% will not change — will in fact worsen until there is a revolution of some kind — unless the mountain of U.S. personal debt is forced to be forgiven.

It's just a fact. Please consider that fact during the next economic crisis, with its inevitable calls for new banking and creditor bailouts. Or during the next eruption of revolt against our governing elites.

You may also want to hope that the next eruption of revolt is expressed electorally like the last one was, and not expressed in some other way. Desperate people who can't find electoral relief often seek relief through non-electoral means. Not a recommendation from me, or something I wish for, but a fact I often fear these days.

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How Dangerous Is NATO's Economic Purpose?

by Gaius Publius

I'm going to break the rule normally applied when one asks a question in a title ... by answering it immediately. Using NATO for economic purposes is very dangerous indeed, since it could, and perhaps will, lead to war.

The stated purpose of NATO is "defense," yet it seems to exist for a different purpose — (a) to bring money into the coffers of U.S. corporations by strangling European trade with Russia as an economic competitor to the U.S., and (b) to guarantee billions of dollars in armament sales for U.S. weapons manufacturers such as Raytheon, Grumman and Lockheed.

To expand that point, let's examine the excellent brief interview with economist Michael Hudson above (h/t Naked Capitalism). We start where the interview starts, with a recent speech by Barack Obama re-emphasizing the importance of NATO for U.S. policy-makers.

Obama said (my emphasis everywhere):

"In this challenging moment, I want to take this opportunity to state clearly what will never change. And that is the unwavering commitment of the United States to the security and defense of Europe, to our transatlantic relationship, to our commitment to our common defense. ... The United States has increased our presence here in Europe. NATO is as strong, as nimble, and as ready as ever."

Since 2014, people have been calling this new NATO posture a "reset," a reformulation of the alliance in a way that "assumes Russia is not [and will not be] a partner," according to Supreme Allied Commander Gen. Philip Breedlove. Guess for yourself what that makes Russia, vis-à-vis NATO? But don't take too much time; the Russians have already figured it out.

Keep in mind that NATO is America's army in Europe, to be used as America chooses — which gives most ordinary Americans the kind of tingle that bypasses thought — yet NATO wouldn't exist without its member nations. Keep that last in mind as you listen to what Michael Hudson says.

Defense? Against What?

First, from the transcript, Hudson on the idea that NATO's purpose is defense:

One of Russia’s leading military strategists said, here’s what the problem is: NATO wants to move bombers and atomic weapons right up to the border of Russia. That means that if they launch a missile over us, we have only a few seconds to retaliate. President Putin a little while ago had given a speech saying that Russia doesn’t really have a land army. In fact, today, no country in the world – in the Northern Hemisphere, at least – has a land army that can invade anywhere.

Try to imagine America being invaded by Canada, or by Mexico on its borders. You can’t imagine it. Impossible. No democracy can afford a land army anymore because the costs are so high that the costs of mounting a land war will just impoverish the economy.

As a matter of fact, what NATO is trying to do is to goad Russia into building up an army so the US can undercut its economy by diverting more and more resources away from the economy towards the military. Russia’s not falling for it. Putin said that Russia has no intention of mounting a land army. It is unthinkable that it could even want to invade the Baltics or Poland.

Putin is relying on his nuclear arsenal for Russia's defense rather than pouring money into building the kind of army that can take on NATO. If so, what is NATO defending Europe against?

Europeans Want Trade with Russia, Not Defense Against Them

Which brings us to the real purpose of NATO, to force European purchasers — not just of arms, but of oil and gas, not to mention consumer products — to buy from the U.S. instead of from Russia. Hudson:

Europe is saying, well we really don’t need defense. We’d rather have an economic relationship with Russia. Especially the Germans say they don’t want the sanctions. The Italians say they don’t want the sanctions. The Americans say, we don’t want you to make money off Russia. Buy from us, not from Russia. Buy your agricultural goods and your other goods from us, or at least from countries in the dollar orbit, not from the Russian orbit.

That, essentially, is what Obama meant by the reset. It meant a new Cold War. But the essence of this new Cold War is to fight in the new way, which is a financial war. The military are now only a catalyst for the financial warfare by the United States.

We shouldn't lose sight of the arms trade and its value to the multi-billion-dollar U.S. armament industry:

[O]ne of the points made at the NATO meetings was NATO urged countries not to rely on Russian weaponry. There was an insistence by Obama that the NATO countries spend 2 percent of their GDP on NATO, on arms, mainly by buying arms from American military manufacturers, Raytheon, Boeing and the others.

Now, look at what’s happening in Europe. It’s not even growing 2 percent, because of the austerity that’s being imposed on it. So 2 percent is the entire annual economic growth in Europe. This large amount has to be spent on American arms. So it turns out that this sabre-rattling to Russia is a means of obliging the European countries to pay the United States arms manufacturers for goods, and to basically hold Europe up for ransom, saying if you don’t be a part of this, we’re not going to defend you.

According to an early 2000s study at Stanford University:

The three largest defense companies in the world are all United States companies. With a combined total revenue in 2001 of $100 billion and employing 400,000 people, Lockheed Martin, Northrop Grumman and Boeing are three powerhouses of American business.[i] Their combined revenues account for 1% of the United States' $10 trillion GDP.[ii] Each company is on each of the Fortune lists: America’s Most Admired Companies, Global Most Admired Companies, Fortune 500 and Global 500.[iii] Lockheed Martin, Northrop Grumman and Boeing are also the three top arms-producing companies in the world.

As part of this "pivot" the U.S. has gotten the government of Poland to place a Patriot missile installation within its borders:

Poland to buy US Patriot missiles amid Russia tensions

President Bronislaw Komorowski said Poland would start talks with the US to finalise the multibillion contract.

The move follows reports that Russia has deployed missiles in its exclave of Kaliningrad, which borders Poland.

You can read the rest — it's very U.S. friendly. But note, first, that the response is to a Russian missile deployment within its own borders, not outside of them, and second, this "multibillion" dollar contract will go entirely to the corporations, like Raytheon, that produce and support the Patriot missile.

And not to put too fine a point on it: "Poland also plans to buy helicopters, submarines and armoured personnel carriers." Sounds like money to me.

What Does Russia Want? What Will We End Up With?

Finally, take note of this exchange from the interview:

DESVARIEUX: Michael, what about on the Russian side? There are interests that are encouraging this reset?

HUDSON: They [the Russians] had hoped that the reset would mean a winding down of military spending. Russia and almost every country would like to use more of its resources for the domestic economy, not for military overhead. America is trying to force Russia to spend more on overhead as part of its economic warfare with Russia.

This was Brzezinski’s plan in Afghanistan, you know, under the Carter administration. The idea was that if you could force Russia to pay more for its military to defend Afghanistan, then its economy would buckle and discontent would spread. This is the essence of American strategy: to spread chaos. Then the Americans can come in and promote nationalist and other localist breakups, and try to break up Russia just as America is trying to push a breakup of China as a long-term strategy.

And:

There’s no way that this cannot backfire on the United States.

He's right. There's no way at all this cannot backfire. In blood.

There's No Need for NATO

The good news is that the Germans and French may not go along with it. Early days yet, but still. The solution, of course, is simple. As Hudson put it, "Essentially to dissolve NATO, which France has been pushing now for many years. There’s no need for NATO now that there’s no threat of any military invasion anymore."

Nor should we be blind to that lack of need, despite the guilty testosterone tingle that having a trans-European army at our beck and call offers us.

What Would Hillary Do?

Trouble is, the news these days is filled with items like this, from The Guardian:

Potential Hillary Clinton Pentagon chief calls for increased action against Isis

A security specialist tipped as the potential defence secretary in a Hillary Clinton administration has set out an agenda that confidently asserts American leadership in the world, backed by strong military force.

Michèle Flournoy, cofounder and chief executive of the Center for a New American Security (CNAS) thinktank, launched a report on Monday that some in Washington might be tempted to mischievously characterise as an 18-page job application....

The 55-year-old told the Guardian on Monday: “I don’t want to speak for her, but what I will say is I think the policies she’s already articulated in a series of speeches and in her record as secretary of state suggest that she understands the importance of American leadership in the world, that she is in the bipartisan consensus that has supported a smart approach to US engagement as the best way to protect our interests and also underwrite the global order. ...

The CNAS published its report, Extending American Power[pdf], after a yearlong series of dinner discussions with experts and ex-officials co-chaired by Robert Kagan [a major Bush-era proponent of the Iraq War], who sits on the secretary of state’s foreign affairs policy board, and James Rubin, who was assistant secretary of state and chief spokesman for the state department during the Bill Clinton administration. Its conclusions are endorsed by Flournoy and others.

In a tantalising glimpse of a possible Hillary Clinton foreign policy agenda, the report recommends increased US military action against Islamic State in Iraq and Syria.

If you go to that report (pdf) and search on "NATO" you find sections like these, regarding Europe:

Many policymakers tend to forget the centrality of the transatlantic world, strategically, politically, and economically, because for so long the story in Europe had been one of remarkable success. Through the Cold War and then in the two decades that followed the collapse of the Soviet Empire, Europe has been a region of expanding peace and security, growing prosperity, and increasing democracy.

To a greater extent than many realize, this success is being threatened now. Strategically it is threatened by growing Russian ambition and willingness to use force, including the invasion of neighboring countries. It is also threatened by British strategic retrenchment, French economic weakness, and historic German strategic ambivalence in the security sphere.

On NATO specifically from just the introduction:

Underwrite credible security guarantees to NATO allies on the frontlines with Russia. Given recent Russian behavior, it is no longer possible to ignore the possible challenge to NATO countries that border Russia. The Baltics in particular are vulnerable to both direct attack and the more complicated “hybrid” warfare that Russia has displayed in Ukraine. To provide reassurance to U.S. allies and also to deter Russian efforts to destabilize these nations, it is necessary to build upon the European Reassurance Initiative and establish a more robust U.S. force presence in appropriate central and eastern Europe countries, which should include a mix of permanently stationed forces, rotationally deployed forces, prepositioned equipment, access arrangements and a more robust schedule of military training and exercises. Such measures should not be seen as inconsistent with international law. On the contrary, they should be regarded as a fully justified, appropriate, and proportionate response to Russia’s violation of the purpose of the NATO-Russia Founding Act. The United States should also work with both NATO and the EU to counter Russian influence-peddling and subversion using corruption and illegal financial manipulation.

And this telling paragraph about the true economic goal of the NATO alliance (note the apparent Freudian typo):

Strengthen and modernize economic and resource cooperation. For all of Europe, west, east, and south, it is essential to pursue greater transatlantic economic integration and cooperation. Europe’s continuing energy dependence on Russia is a particular vulnerability. It will take time to reduce that independence [sic, but quite a tell], but that is all the more reason serious efforts should begin now.

"Reduce that [European] independence" indeed.

Again, building NATO forces outside the U.S. and positioned in countries on Russia's borders, as a response to Russia's internal deployment of its own forces. All to establish American "leadership" and support its corporations' lust for more money. (The section I quoted just above pivots smoothly to making the case for TTIP, the TTP of the Atlantic.)

Kiss Kiss Kill Kill

I get the argument against Trump; I really do. It's just that I don't want Clinton anywhere near U.S. foreign policy.

Kiss kiss, kill kill. They've actually been friends for a very long time.

No, I really don't. Maybe the French, with their resistance to NATO, can save us one more time.

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