the economy deteriorates in the L-shaped “hockey-stick” rut that many
economists forecast, what political price will President Obama and the
Democrats pay for having returned the financial keys to the Bush
Republican appointees who gave away the store in the first place?
Reappointing Federal Reserve Chairman Ben Bernanke may end up injuring
not only the economy but also the Democratic Party for years to come.
Recognizing this, Republicans made populist points by opposing his
reappointment during the Senate confirmation hearings last Thursday,
January 27 – the day after Mr. Obama’s State of the Union address.


hearings focused on the Fed’s role as Wall Street’s major lobbyist and
deregulator. Despite the fact that its Charter starts off by directing
it to promote full employment and stabilize prices, the Fed is
anti-labor in practice. Alan Greenspan famously bragged that what has
caused quiescence among labor union members when it comes to striking
for higher wages – or even for better working conditions – is the fear
of being fired and being unable to meet their mortgage and credit card
payments. “One paycheck away from homelessness,” or a downgraded credit
rating leading to soaring interest charges, has become a formula for
labor management.


for its designated task in promoting price stability, the Fed’s
easy-credit bubble has made asset-price inflation the path to wealth,
not tangible capital investment. This has brought joy to bank marketing
departments as homeowners, consumers, corporate raiders, states and
localities run further and further into debt in an attempt to improve
their position by debt leveraging. But the economy has all but
neglected its industrial base and the employment goes with
manufacturing. The Fed’s motto from Bubblemeister Alan Greenspan to Ben
Bernanke has been “Asset-price inflation, good; wage and commodity
price inflation, bad.”


the problem with that policy. Rising prices for housing have increased
the cost of living and doing business, widening the excess of market
price over socially necessary costs. In times past the government would
have collected the rising location rent created by increasing
prosperity and public investment in transportation and other
infrastructure making specific sites more valuable. But in recent years
taxes have been rolled back. Land sites still cost as much as ever,
because their price is set by the market. Land itself has no cost of
production. Locational value is created by society, and should be the
natural tax base because a land tax does not increase the price of real
estate; it lowers it by leaving less “free” rent to be paid to the


problem is that what the tax collector relinquishes is now available to
be paid to banks as interest. And prospective buyers bid against each
other until the winner is whoever is first to pay the land’s location
rent to the banks as interest.


This tax shift – to the benefit of the bankers, not homeowners – has made Mr. Obama’s hope of doubling U.S.
exports during the next five years ring hollow. This is the upshot of
“creating wealth” in the form of a debt-leveraged real estate and stock
market bubble. Labor must pay more for debt-financed housing and
education, not to mention payments to health insurance oligopoly and
higher sales and income taxes shifted off the shoulders of financial
and real estate.


the Republicans were certain which way the vote would go, they were
able to voice some nice populist sound bites for the mid-term elections
this November. Jeff Sessions of
Alabama and Sam Brownback of Kansas voted against Mr. Bernanke’s confirmation. Jim deMint of South Carolina
warned that reappointing him would be “The biggest mistake that we’re
going to make for a long time.” He added: “Confirming Bernanke is a
continuation of the policies that brought our economy down.”


Among Democrats running for re-election, Barbara Boxer of California
pointed out that by spurring the asset-price inflation, the Fed’s
pro-Bubble (that is, pro-debt policy) has crashed the economy,
shrinking employment. The Fed is supposed to protect consumers, yet Mr.
Bernanke is a vocal opponent of the Consumer Finance Products Agency,
claiming that the deregulatory Fed alone should be the sole financial
regulator – seemingly an oxymoron.


Obama supports Mr. Bernanke and his State of the Union address
conspicuously avoided endorsing the Consumer Financial Products Agency
that he earlier had claimed would be the centrepiece of financial
reform. Wall Street lobbyists have turned him around. Their logic was
the same mantra that
Connecticut insurance industry’s Sen. Chris Dodd repeated at the confirmation hearings: Mr. Bernanke has “saved the economy.”


can the Fed be said to do this when the volume of debt is growing
exponentially beyond the ability to pay? “Saving the debt” by bailing
out creditors – by adding bad private-sector debts to the public
sector’s balance sheet – is burdening the economy, not saving it. The
policy only postpones the crisis while making the ultimate volume of
debt that must be written off higher – and therefore more traumatic to
write off, annulling a corresponding volume of savings on the other
side of the balance sheet (because one party’s savings are another’s


really is at issue is the economic philosophy that Mr. Bernanke will
apply during the coming four years. Unfortunately, Mr. Bernanke’s
questioners failed to ask relevant questions along these policy lines
and the economic theory or rationale underlying his basic approach.
What needed to be addressed was not just his deregulatory stance in the
face of the Bubble Economy and exploding consumer fraud, or even the
mistakes he has made. Republican Sen. Jim Bunning elicited only smirks
and pained looked as Mr. Bernanke rested his chin on his hand, as if to
say, “I’m going to be patient and let you rant.” The other Senators
were almost apologetic.


popular (and thoroughly misleading) description of Bernanke that has
been cited ad nauseum to promote his reappointment is that he is an
expert on the causes of the Great Depression. If you are going to
create a new crash, it certainly helps to understand the last one. But
economic historians who have compared Mr. Bernanke’s writings to actual
history have found that it is precisely his misunderstanding of the
Depression that is leading him tragically to repeat it.


a trickle-down apologist for high finance, Prof. Bernanke has drawn
systematically wrong conclusions as to the causes of the Great
Depression. The ideological prejudice behind his view is of course what
got him his job in the first place, for as numerous observers have
quipped, a precondition for being hired as Fed Chairman is that one
does not understand how the financial system actually works. Instead of
recognizing that deepening debt, low wages and the siphoning up of
wealth to the top of the economic pyramid were primary causes of the
Depression, Prof. Bernanke attributes the main problem simply to a lack
of liquidity, causing low prices.


my Australian colleague Steve Keen recently has written in his
Debtwatch No. 42 (http://www.debtdeflation.com/blogs/), the case
against Mr. Bernanke should focus on his neoclassical approach that
misses the fact that money is debt. He sees the financial problem as
being too low a price level for assets to be collateralized for bank
loans. And to Mr. Bernanke, “wealth” is synonymous with what banks will
lend, under existing credit terms.


1933, the economist Irving Fischer (mainly responsible for the “modern”
monetarist tautology MV = PT) wrote a classic article, “The
Debt-Deflation Theory of the Great Depression,” recanting the
neoclassical view that had led him to lose his personal fortune in the
1929 stock market crash. He explained how the inability to pay debts
was forcing bankruptcies, wiping out bank credit and spending power,
shrinking markets and hence the incentive to invest and employ labor.


Bernanke rejects this idea, or at least the travesty he paraphrases in
his Essays on the Great Depression (Princeton, 2000, p. 24), as Prof.
Keen quotes:

s idea was less influential in academic circles, though, because of the
counterargument that debt-deflation represented no more than a
redistribution from one group (debtors) to another (creditors). Absent
implausibly large differences in marginal spending propensities among
the groups, it was suggested, pure redistributions should have no
significant macroeconomic effects.

that a debt overhead does is transfer purchasing power from debtors to
creditors. Bernanke is reminiscent here of Thomas Robert Malthus, whose
Principles of Political Economy argued that landlords (Malthus’s own
class) were necessary to maintain economic equilibrium in a way akin to
trickle-down theorists through the ages. Where would English employment
be, Malthus argued, without landlords spending their revenue on
coachmen, fine clothes, butlers and servants? It was landlords spending
their rental income (protected by
agricultural tariffs, the Corn Laws, until 1846) that kept buggy-makers
and other suppliers working. And by the same logic, this is what
wealthy Wall Street financiers do today with the money they make by
lending to enable homeowners and savers to get rich making capital
gains off asset-price inflation.


reality is that wealthy Wall Street financiers who make multi-million
dollar salaries and bonuses spend their money on trophies: fine arts,
luxury apartments or houses in gated communities, yachts, fancy
handbags and high fashion, birthday parties with appearances by modish
pop singers. (“I see the yachts of the stock brokers; but where are
those of their clients?”) This is not the kind of spending that
reflects the “real” economy’s production profile.


Bernanke sees no problem, unless rich people spend less of their gains
on consumer goods and the products of labor than average wage earners.
But of course this propensity to consume is precisely the point John
Maynard Keynes made in his General Theory (1936). The wealthier people
become, the lower a proportion of their income they consume – and the
more they save.


falling propensity to consume is what worried Keynes about the future.
He imagined that as economies saved more as their income levels rose,
they would spend less on goods and services. So output and employment
would not be able to keep pace – unless the government stepped in to
make up the gap.


Consumer spending is indeed falling, but not because economies are experiencing a higher net saving rate. The U.S.
saving rate has fallen to zero – because despite the fact that gross
savings remain high (about 18 percent), most is lent out to become
other peoples’ debts. The effect is thus a wash on an economy-wide
basis. (18 percent saving less 18 percent debt = zero net saving.)


problem is that workers and consumers have gone deeper and deeper into
debt, saving less and less. This is just the opposite of what Keynes
forecast. Only the wealthiest 10 percent or so of the population save
more and more – mainly in the form of loans to the “bottom 90 percent.”
Saving less, however, goes hand in hand with consuming less, because of
the revenue that the financial sector drains out of the “real”
economy’s circular flow (wage-earners spending their income to buy the
goods they produce) as debt service. The financial sector is wrapped
around the production-and-consumption economy. So an inability to
consume is part and parcel of the debt problem. The basis of
monetary policy throughout the world today therefore should be how to
save economies from shrinking as a result of their exponentially
growing debt overhead


Bernanke’s apologetics for finance capital: Economies seem to need more debt, not less


finds “declines in aggregate demand” to be the dominant factor in the
Great Depression (p. ix, as cited by Steve Keen). This is true in any
economic downturn. In his reading, however, debt seems not to have
anything to do with falling spending on what labor produces. Taking a
banker’s-eye view, he finds the most serious problem to be the demand
for stocks and real estate. Mr. Bernanke promises not to let falling
asset demand (and hence, falling asset prices) happen again. His
antidote is to flood the economy with credit as he is now doing,
emulating Alan Greenspan’s Bubble policy.


wealthiest 10 percent of the population do indeed save most of their
money. They lend savings – and create new credit – to the bottom 90
percent, or gamble in derivatives or other zero-sum activities in which
their gain (if indeed they make any) finds its counterpart in some
other parties’ loss. The system is kept going not by government
spending, Keynesian-style, but by new credit creation. That supports
consumption, and indeed, lending against real estate, stocks and bonds
enables borrowers to bid up their prices, enabling their owners to
borrow yet more against these assets. The economy expands – until
current revenue no longer covers the debt’s carrying charges.


what brings the Bubble Economy down with a crash. Asset-price inflation
gives way to crashing prices and negative equity for real estate and
for much financial debt leveraging as well. It is in this sense that
Prof. Bernanke’s blames the Depression on lower prices. When prices for
real estate or other collateral plunge, it no longer can be pledged for
more loans to keep the circular flow of lending and debt repayment in


circular financial flow is quite different from the circular flow that
Keynes (and Say’s Law) discussed – the circulation where workers and
their employers spent their wages and profits on consumer goods and
investment goods. The financial circular flow is between the banks and
their clients. And this circular flow swells as it diverts more and
more spending from the “real” economy’s circular flow between income
and spending. Finance capital expands relative to industrial capital.[1]


prices in the “real” economy may help maintain the circular financial
flow, by giving borrowers more current income to pay their mortgages,
student loans and other debts. Mr. Bernanke accordingly sees FDR’s
devaluation of the dollar as helping reflate prices.


however, a declining dollar would make imports (including raw materials
as well as key consumer goods) more costly. This would squeeze the
budgets of most families, given
rising import dependency as its economy is post-industrialized and
financialized. So Mr. Bernanke’s favored policy is to get banks lending
again – not for the government to spend more on deficit spending on
infrastructure, social services or other full employment projects. The
government spending that Mr. Bernanke has endorsed is pure bailouts to
the banks, insurance companies, real estate packagers and other Wall
Street institutions so that they can support asset prices and thereby save the economy’s financial balance sheet, not its employment and living standards.


debt thus is not the problem, in Chairman Bernanke’s view. It is the
solution. This is what makes his re-appointment so dangerous.


Devaluation of the dollar FDR-style will make U.S.
real estate, corporations and other assets cheaper to global investors.
It thus will have the same “positive” effects (if you can call making
homes and office buildings more costly to buyers a “positive” effect)
as more credit – and without the debt service needing to be raked off
from the economy. This policy is akin to the International Monetary
Fund’s “stabilization” and austerity programs that have caused such
havoc over the past few decades.[2] It is the policy being prepared for imposition on the
United States. This too is what makes Bernanke’s re-appointment so dangerous.


problem is a combination of Mr. Bernanke’s dangerous misreading of
economic history, and the banker’s-eye perspective that underlies this
view – which he now has been empowered to impose from his perch as
central planner at the Federal Reserve Board. Pres. Obama’s support for
his reappointment suggests that the recent economic rhetoric heard from
the White House is a faux populism. The President promises that this
time, it will be different. The former Bush appointees – Geithner,
Bernanke and the Goldman Sachs managers on loan to the Treasury – will
be willing to stand up to Goldman Sachs and the other bankers. And this
time the Clinton-era Rubinomics boys will not do to the
U.S. economy what they did to the Soviet Union.


this stance, it is no wonder that the Obama Democrats are relinquishing
the populist anti-Wall Street card to the Republicans!


The Bernanke albatross


Bernanke misses the problem that debts need to be repaid – or at least
carried. This debt service deflates the non-financial “real” economy.
But the Fed’s analysis stops just before the crash. It is a “good news”
theory limited to the happy time while the bubble is expanding and
homeowners borrow more and more from the banks to buy houses (or more
accurately, their land sites) that are rising in price. This was the
Greenspan-Bernanke bubble in a nutshell.


We need not look as far back as the Great Depression. Japan
since 1990 is a good example. Its land prices declined every quarter
for over 15 years after its bubble burst. The Bank of Japan did what
the Federal Reserve is doing now: It lowered lending rates to banks
below 1%. Banks “earned their way out of debt” by lending to global
speculators who used the yen loans to convert into foreign currency and
buy higher-yielding assets abroad – capped by Icelandic government
bonds paying 15%, and pocketing the arbitrage difference.


This steady conversion of speculative money out of yen into foreign currency held down Japan’s exchange rate, helping its exporters. Likewise today, the Fed’s low-interest policy leads U.S.
banks to borrow from it and lend to arbitrageurs buying higher-yielding
bonds or other securities denominated in euros, sterling and other


The foreign-exchange problem develops when these loans are paid back. In Japan’s
case, when global financial markets turned down and Japanese interest
rates began to rise in 2008, arbitrageurs decided to unwind their
positions. To pay back the yen they had borrowed from Japanese banks,
they sold euro- and dollar-denominated bonds and bought the Japanese
currency. This forced up the yen’s exchange rate – eroding its export
competitiveness and throwing its economy into turmoil. The long-ruling
Liberal Democratic Party was voted out of power as unemployment spread.


In the U.S.
case today, Chairman Bernanke’s low interest-rate regime at the Fed has
spurred a dollar-denominated carry trade estimated at $1.5 trillion.
Speculators borrow low-interest dollars and buy high-interest
foreign-currency bonds. This weakens the dollar’s exchange rate against
foreign currencies (whose central banks are administering higher
interest rates). The weakening dollar leads
money managers to send more investment funds out of our economy to
those promising stock market gains as well as a foreign-currency gain.


The prospect of undoing this credit creation threatens to lock the United States
into a low-interest trap. The problem is that if and when the Fed
begins to raise interest rates (for instance, to slow the new bubble
that Mr. Bernanke is trying to inflate), global speculators will repay
their dollar debts. As the
carry trade is unwound, the dollar will soar in price. This threatens
to make Mr. Obama’s promise to double U.S. exports within five years
seem an impossible dream.


The prospect is for U.S.
consumers to be hit by a triple whammy. They must pay higher prices for
the goods they buy as the dollar declines, making imports more
expensive. And the government will be spending less on the economy’s
circular flow as a result of Pres. Obama’s three-year spending freeze
to slow the budget deficits. Meanwhile, states and cities are raising
taxes to balance their own budgets as tax receipts fall. Consumes and
indeed the entire economy must run more deeply into debt simply to
break even (or else see living standards eroded).


Mr. Bernanke, economic recovery requires resuscitating the Goldman
Sachs squid that Matt Taibbi so artfully has described as being affixed
to the face of humanity, duly protected by the Fed. The banks will lend
more to keep the debt pyramid growing to enable consumers, businesses
and local government to avoid contraction.


this will enrich the banks – as long as the debts can be paid. And if
they can’t be paid, will the government bail them out all over again?
Or will it “be different” this time around?


our economy flounder with Mr. Bernanke’s reappointment as the rich get
richer and the American family comes under increasing financial
pressure as incomes drop while debts grow exponentially? Or will
Americans get rich off the new bubble as the Fed re-inflates asset


The Road to Debt Peonage


Last week, Senator John Kerry of Massachusetts
acknowledged many Americans’ anger about the bailouts of the big banks:
“It’s understandable why there is debate, questioning and even anger”
about Mr. Bernanke’s re-nomination. “Still,” he added, “out of this
near calamity, I believe Chairman Bernanke provided leadership that was
urgent, nimble, strong and vital in staving off greater disaster.”


by “disaster” Sen. Kerry seems to mean losses for Wall Street. He
shares with Chairman Bernanke the idea that gains in raising asset
prices are good for the economy – for instance, by enabling pension
funds to pay retirees and “build wealth” for America’s savers.


the Bush-Obama team hopes to reflate the economy, the $13 trillion
bailout money they have spent trying to fuel the destructive bubble
takes the form of trickle-down economics. It has not run up public debt
in the Keynesian way, by government spending such as in the modest
“Stimulus” package to increase employment and income. And it is not
providing better public services. It was designed simply to inflate
asset prices – or more accurately, to prevent their decline.


is what re-appointment of the Fed Chairman signifies. It means a policy
intended to raise the price of housing on credit, with a corresponding
rise in consumer income paid to bankers as mortgage debt service.


rising stock and bond prices will increase the price of buying a
retirement income. A higher stock price means a lower dividend yield.
The same is true for bonds. Flooding the capital markets with credit to
bid up asset prices thus holds down the yield of the assets of pension
funds, pushing them into deficit. This enables corporate managers to
threaten bankruptcy of their pension plans or entire companies, General
Motors-style, if labor unions do not renegotiate their pension
contracts downward. This “frees” yet more money for financial managers
to pay creditors at the top of the economic pyramid.


Mr. Bernanke’s opposition to regulating Wall Street


does one overcome this financial polarization? The seemingly obvious
solution is to select Fed and Treasury administrators from outside the
ranks of ideologues supported by – indeed, applauded by – Wall Street.
Creation of a Consumer Financial Products Agency, for instance, would
be largely meaningless if a deregulator such as Mr. Bernanke were to
run it. But that is precisely what he is asking to do in testifying
that his Federal Reserve should be the sole regulatory agency,
nullifying the efforts of all others – just in case some state agency,
some federal agency or some Congressional committee might move to
protect consumers against fraudulent lending, extortionate fees and
penalties and usurious interest rates.


Bernanke’s fight against proposals for such regulatory agencies to
protect consumers from predatory lending is thus a second reason not to
re-appoint him. How can Mr. Obama campaign for his reappointment as
Chairmanship of the Fed and at the same time endorse the consumer
protection agency? Without dumping Bernanke and Geithner, it doesn’t
seem to matter what the law says. The Democrats have learned from the
Bush and Reagan administrations that all you have to do is appoint
deregulators in key positions, and legal teeth are irrelevant.


Independence of the Federal Reserve is a euphemism for financial oligarchy


brings up the third premise that defenders of Mr. Bernanke cite: the
much vaunted independence of the Federal Reserve. This is supposed to
be safeguarding democracy. But the Fed should be subject to
representative democracy, not independent of it! It rightly should be
part of the Treasury representing the national interest rather than
that of Wall Street.


This has emerged as a major problem within America’s
two-party political system. Like the Republican team, the Obama
administration also puts financial interests first, on the premise that
wealth flows from its credit activities, the financial time frame tends
to be short-run and economically corrosive. It supports growth in the
debt overhead at the expense of the “real” economy, thereby taking an
anti-labor, anti-consumer, anti-debtor policy stance.


on earth should the most important sector of modern economies – finance
– be independent from the electoral process? This is as bad as making
the judiciary “independent,” which turns out to be a euphemism for
seriously right-wing.


and above the independence issue, to be sure, is the problem that the
government itself if being taken over by the financial sector. The
Treasury Secretary, Fed Chairman and other financial administrators are
subject to Wall Street’s advice and consent first and foremost.
Lobbying power makes it difficult to defend the public interest, as we
have seen from the tenure of Mr. Paulson and Mr. Geithner. I don’t
believe Mr. Obama or the Democrats (to say nothing of the Republicans)
is anywhere near rising to the occasion of solving this problem. One
can only deplore Mr. Obama’s repetition of his endorsements.


to the “independence” issue is a fourth reason to reject Mr. Bernanke
personally: the Fed’s secrecy from Congressional oversight, highlighted
by its refusal to release the names of the recipients of tens of
billions of Fed bailouts and cash-for-trash swaps.


Does it matter?


Now that the confirmation arguments against Mr. Bernanke’s reappointment have been rejected, what does it mean for the future?


the political front, his reappointment is being cited as yet another
proof that the Democrats care more for bankers than for American
families and employees. As a result, it will do what seemed
unfathomable a year ago: enable GOP candidates to strike the pose of
FDR-type saviors of the embattled middle class. No doubt another decade
of abject GOP economic failure would simply make the corporate
Democrats appear once again to be the alternative. And so it goes …
unless we do something about it.


problem is not merely that Mr. Bernanke failed to do what the Fed’s
charter directs it to do: promote employment in an environment of
stable prices. The Republicans – and some Democrats – read out the
litany of Bernanke abuses. The Fed could have raised interest rates to
slow the bubble. It didn’t. It could have stopped wholesale mortgage
fraud. It didn’t. It could have protected consumers by limiting credit
card rates. It didn’t.


Bernanke, the current financial system (or more to the point, the debt
overhead) is to be saved so that the redistribution of wealth upward
will continue. The Congressional Research Service has calculated that
from 1979 to 2003 the income from wealth (rent, dividends, interest and
capital gains) for the top 1 percent of the population soared from
37.8% to 57.5%. This revenue has been expropriated from American
employees pushed onto debt treadmills in the face of stagnating wages.


the government is permitting corporate tollbooth to be erected across
our economy – and un-taxing this revenue so that it can be capitalized
into financialized wealth paying only a 15% tax rate on capital gains.
It pays these taxes not as these gains accrue, but and only when they
realize them. And the tax does not even have to be paid if the sales
proceeds of these assets is reinvested! Financial and fiscal policy
thus reinforce each other in a way that polarizes the economy between
the financial sector and the “real” economy.


these bad policies is a disturbing body of junk economics – one that,
alas, is taught in most universities today. (Not at the
University of Missouri at Kansas City,
and a few others, to be sure.) Mr. Bernanke views money simply as part
of a supply and demand equation between money and prices – and he
refers here only to consumer prices, not the asset prices which the Fed
failed to address. That is a big part of the Fed’s blind spot: Messrs.
Greenspan and Bernanke imagined that its charter referred only to
stabilizing consumer prices and wages – while asset prices – the cost
of obtaining housing, an education or a retirement income – have soared
as a result of debt leveraging.


Mr. Bernanke misses – along with his neoclassical colleagues – is that
the money that is spent bidding up prices is also debt. This means that
it leaves a debt legacy. When banks “provide credit” by writing loans,
what they are selling is debt.


question their marketing departments ask is, how large is the market
for debt? When I went to work for Chase Manhattan in 1967 as its
balance-of-payments analyst, for example, I liaised with the marketing
department to calculate how large the international debt market was –
and how large a share of this market the bank could reasonably expect
to get.


bank quantified the debt market by measuring how large a surplus
borrowers could squeeze out over and above basic break-even needs. For
personal loans, the analogy was how much could a wage earner afford to
pay the bank after meeting basic essentials (rent, food,
transportation, taxes, etc.). For the real estate department, how much
net rental income could a landlord pay out, after meeting fuel and
other operating costs and taxes? The anticipated surplus revenue was
capitalized into a loan. From the marketing department’s vantage point,
banks aimed at absorbing the entire surplus as debt service.


debt service is not spent on consumer goods. It is recycled into new
loans, after paying dividends to stockholders and salaries and bonuses
to its managers. Stockholders spend their money on buying other
investments – more stocks and bonds. Managers buy trophies – yachts,
trophy paintings, trophy cars, trophy apartments (whose main value is
their location – the neighborhood where their land is situated),
foreign travel and other luxury. None of this spending has much effect
on the consumer price index, but it does affect asset prices.


idea is lacking in neoclassical and monetarist theory. Once “money”
(that is, debt) is spent, it has an effect on prices via supply and
demand, and that is that. There is no dynamic over time of debt or
wealth. Ever since Marxism pushed classical political economy to its
logical conclusion in the late 19th century, economic orthodoxy has
been traumatized from dealing about wealth and debt. So balance-sheet
relationships are missing from the academic economics curriculum. That
is why I stopped teaching economics in 1972, until the UMKC developed
an alternative curriculum to the
University of Chicago
monetarism by focusing on debt creation and the recognition that bank
loans create deposits, inverting the usual “Austrian” and other
individualistic parallel universe theories.




[1] I elaborate the logic in greater detail in “Saving, Asset-Price Inflation, and Debt-Induced Deflation,” in L. Randall Wray and Matthew Forstater, eds., Money, Financial Instability and Stabilization Policy
(Edward Elgar, 2006):104-24. And I explain how the recent expansion of
credit and easing of lending terms fueled the real estate bubble in
“The New Road to Serfdom: An illustrated guide to the coming real
estate collapse,” Harpers, Vol. 312 (No. 1872), May 2006):39-46.

[2] I explain the workings of these plans in greater detail in Super Imperialism: The Economic Strategy of American Empire
(1972; new ed., 2002), “Trends that can’t go on forever, won’t:
financial bubbles, trade and exchange rates,” in Eckhard Hein, Torsten
Niechoj, Peter Spahn and Achim Truger (eds.), Finance-led Capitalism? (
Marburg: Metropolis-Verlag, 2008), and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy (1992, new ed. 2009).

Michael Hudson is a frequent contributor to Global Research.  Global Research Articles by Michael Hudson

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The information on this website and talk shows is solely for informational and entertainment purposes. IT IS NOT INTENDED TO PROVIDE MEDICAL ADVICE. Neither the Editors, producers of One Radio Network, Patrick Timpone, their guests or web masters take responsibility for any possible consequences from any treatment, procedure, exercise, dietary modification, action or application of medication which results from reading or following the information contained on this website in written or audio form, live or podcasts. The publication of this information does not constitute the practice of medicine, and this information does not replace the advice of your physician or other health care provider. Before undertaking any course of treatment, the reader must seek the advice of their physician or other health care provider and take total responsibility for his or her actions at all times. Patrick Joseph of the family of Timpone, a man...All rights reserved, without recourse.