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Radhika: Hello, everyone. Welcome to the second Geopolitical Economy Hour. I’m Radhika Desai.
Michael: And I’m Michael Hudson.
Radhika: Thanks to all our viewers for making our inaugural show such a success. As many of you know, in this collaboration with Ben Norton’s Geopolitical Economy Report, Michael and I will present every two weeks a discussion of the major developments and trends that are so radically and rapidly reshaping the world order.
Issues that involve not just politics and economics but, rather, as Michael and I like to put it, “political economy” and, as my 2013 book had it, “geopolitical economy.”
Today’s discussion is focused on inflation and its much-debated return after many many decades. We thought we would structure our discussion around certain key questions.
What is inflation? What is the textbook definition? How has it been understood in the past? What causes inflation? What are the supply and demand-side factors?
Given that capitalism is considered such a powerful productive machine, why are the most powerful capitalist countries suffering from inflation today? What does it say about their productive system? What is, in fact, causing the current inflation? What is the Federal Reserve in the United States particularly — the most powerful central bank in the world — doing about it, and what’s wrong with what the Federal Reserve, and many other central banks, are doing?
So Michael, why don’t you just start with your thoughts on the first question.
Michael: Well, [there are two kinds] of inflation. I think most people are expecting us to talk about consumer price inflation because that’s what the media talks about. I’m going to give you my punchline first because that’s how we’re going to end up in this discussion.
What has really been inflated, since 2008, has not been consumer prices, but asset prices — [that is,] real estate prices, stocks and bond prices, things that the 1% hold. Wealth has been inflated much more than goods and services. [This is especially true] for real estate.
This debt has been inflated not by government debt, not by government deficits, but by the Federal Reserve creating a $9 trillion subsidy to the banks to support real estate prices, and hence the value of bank-held mortgages and stock and bond prices.
This is not discussed, or even recognized, in the mainstream economic models. Instead, we have a kind of mythology by right-wing anti-labor financial lobbyists.
This mythology is about what I think most of the listeners are expecting us to discuss: the inflation of rising consumer prices. That’s the only kind of inflation that the Federal Reserve talks about. This is all blamed on increasing the money supply, as if somehow money is creating the inflation.
They are not talking about inflation as the result of monopoly pricing. They are not talking about inflation as a result of NATO’s sanctions against Russia. They are just talking about money [as if] somehow, if we [could] just stop money supply, if we could stop the government spending so much money on Social Security and Medicare, and other social spending (not military spending) then everything would be over.
We’re actually going to be talking about the relationship between, [on the one hand,] the inflation of housing and asset prices [and,] on the other hand, how this actually affects the inflation of consumer prices, and how debt and inflation all go together.
Radhika: Thanks Michael. I think I’m also going to follow suit and give people a sort of little preview of the way we are going to end up.
I think Michael is absolutely right. There are actually two distinct inflations to be talked about.
One is asset price inflation. [The] other — which is real, it’s happening right now, people are feeling it in their pocketbooks and their bank accounts and so on — is consumer price inflation.
Nevertheless there are some very interesting relationships between them. One part of the relationship is that of course, as Michael said, the Federal Reserve constantly talks about consumer price inflation. But in reality, its actions are geared towards asset price inflation. Not towards dampening it — on the contrary, towards keeping it going.
This is going to be, from my point of view, from various things that I’ve written, including an article called “Vectors of Inflation” that I published in the New Left Review blog Sidecar a few months ago. In this I argue that, precisely because the Federal Reserve actually wants to keep asset price inflation going, because that is the financial house of cards on which the wealth of so many extremely wealthy people, big financial corporations, high-net-worth individuals, depends in order to preserve this wealth, the Federal Reserve is actually also not going to be able to tackle inflation in the only way it can, using the sledge hammer of high interest rates.
This might be a little bit of good news for some of us, but nevertheless it still means that the underlying problems are not being solved. So let me, with that, [return to] the question of: What is inflation?
Generally speaking, the textbook definition of inflation involves, essentially, too much money chasing too few goods. There is a decrease in the purchasing power of money, there is a devaluation of money, and so on. And of course, the Federal Reserve, and most people, as Michael already pointed out, believe that.
So the textbook definition of [inflation] is one in which money loses purchasing power, it is devalued, [and] it happens due to money printing.
[This] conventional view, which Michael has pointed out the Federal Reserve generally tends to subscribe to, was expressed by Milton Friedman and Anna Schwartz in a book they wrote back in 1963, titled A Monetary History of the United States, 1867-1960, in which they claimed that inflation is, everywhere, always a monetary phenomenon.
Which means [in their view] it is [essentially] caused by the Federal Reserve and other central banks supplying too much money into the system. And this can only be quashed by restricting the money supply — by raising interest rates, by employing other means such as [so-called] Quantitative Tightening, in order to restrict the supply of money.
And of course everybody remembers, or not everybody but some people (some people are old enough) will remember that back [at] the end of the 1970s and the early 1980s Paul Volcker imposed precisely such a “shock” on the American economy essentially to quell inflation.
So the textbook definition is this. But Michael, how would we criticize the textbook definition?
Michael: Well, it only looks at money, as you just said, from the Milton Friedman quote. But it doesn’t look at all the non-monetary causes of inflation.
For instance, we’ve seen oil prices and food prices rise simply as a result of the sanctions against Russia. We’ve seen the pharmaceutical prices rising, especially from Martin Shkreli, who vastly increased the prices.
All across the board in the United States companies have been saying, “We’re raising the prices because we think there’s going to be inflationary shortages, and we’re just trying to anticipate this in advance.”
Since the Democrats took power in the 1990s under Clinton, they’ve stopped the anti-monopoly regulation. They’ve stopped the antitrust laws from being enforced, and you have a great concentration of monopolies, and they can raise prices for whatever they want, as much as they want. For agricultural goods, the distributors have simply raised the prices without paying the farmers and the dairy farmers any more.
So when you say that inflation is only a monetary phenomenon, what Milton Friedman is saying is, “Don’t look at the power structure. Don’t look at how markets are structured. Don’t look at monopolies. Don’t look at how the wealthy corporations are inflating [prices]. Look at something that we can blame on labor.”
The inflation that Milton Friedman talks about — and you just mentioned my old boss’s boss Paul Volcker — is wages. So when the Federal Reserve talks about inflation, they say, “It’s really wages rising.” Well, we know that wages have not risen anywhere near as fast as the cost of living, so that can’t be the reason — that wages are rising.
But if you can claim that inflation is only caused by labor making too much money and hurting other workers as consumers, then you have the Federal Reserve able to come in and say, “We’ve got to have a depression. We’ve got to have unemployment. We’re going to raise interest rates because we want more unemployment to increase the reserve army of the unemployed so that wage earners will be so desperate for a job that they’ll work for less. And if only they worked for less, then prices will come down, if somehow the companies are going to lower their prices because they can pay their labor less.”
The pretense is that it’s all labor’s fault.
Radhika: You know, Michael, I completely agree with you, and I would actually go a step further.
Basically by insisting that inflation is a monetary phenomenon — and you know in that original work by Friedman and Schwartz and later on in many other pronouncements — Milton Friedman has even said, “It’s not even about the unions.” He’s not saying that because he particularly cares about the unions. [Rather,] the reason he’s saying that is basically because people like him insist that the only way to deal with inflation is, as you said, to cause a recession.
By restricting money supply sufficiently, and in fact money supply has to be restricted to a point where interest rates go above the rate of inflation. For example, that would have meant [that last] June [2022], in the United States, [when] inflation was above 9%, that [interest rates] would have [had] to go above [9%] in order to dampen inflation.
So the point is, that by insisting on monetary authority’s causing inflation, what you’re doing is, you’re saying, “The only way of dealing with this is to cause a recession, to cause unemployment which is sufficiently high that it will drive down prices (wages, that is to say, the price of labor) and also therefore the price of everything else.”
You simply quash demand to such an extent. And therefore you’re [essentially] saying that you [will] restrict people’s consumption.
And by the way, at the present moment, it may be difficult to say that wages are causing inflation — although strike activity has been going up in the United States and in many other countries. [Wages] are only running to catch up with the extent to which workers wages have gone [down].
But nevertheless what they are doing is [pointing] to the stimulus that the U.S. government has given — which they say has now gone into the pockets of people and is causing inflation — [and saying that the stimulus money] is basically pushing up demand.
But in reality, if we look at the studies that have shown exactly where the stimulus went, again most of the stimulus never even ended up in the pockets of people, and the little bit that did more or less immediately left those bank accounts to go to the bank accounts of the big financial institutions, because ordinary people are so indebted that they were essentially deleveraging, they were reducing that debt.
So anyway, that’s an interesting initial take on the first question, which is how the textbook definition is such a misunderstanding of inflation.
Maybe we can move towards how inflation is understood, and also experienced historically.
Maybe I should just start by saying that essentially, historically we’ve seen that inflation has typically been the result of major disruptions. Wars cause inflation. Various obvious economic crises have caused inflation. And yes, it’s not entirely untrue that it’s possible that an influx of money material — as happened in the 15th, 16th, and 17th centuries in Europe due to the discovery of gold [and silver] in the new world — this influx of money did cause a rise in prices.
But the fact of the matter is, very interestingly, it was directly connected with the birth of capitalism. The rise in prices actually encouraged the economic activity that gave rise to capitalism in these centuries.
Michael: Well, you mentioned the inflow of money. That is another area where Milton Friedman went wrong.
Milton Friedman and Anna Schwartz had no concept at all of what money is. They actually put forth a great falsification that has been leading to confused people for more than half a century — ever since I had to go through school and actually read the book.
Money is — most people think of it as an asset: what you have in your pocket. All monetary assets have debt on the other side of the balance sheet. All money is debt. The currency in your pockets is actually, technically, a debt to you.
Most [physical] currency is hundred-dollar bills, and they are shrink-wrapped and sent in airplanes to pay Al-Qaeda, to Ukraine, to pay Mr. Zelensky, to pay kleptocrats — they are used by drug dealers, they are put in mattresses all over the world. They have nothing to do with American inflation.
By far [though], most money is bank credit. And bank credit is debt. And if you look at debt, then you have a whole different perspective, not only on inflation, but on how wealth is created and how the economy is polarizing.
You have to look at the whole economy as an economic system, which you and I have been talking about for years. The purpose of the mainstream media talking about inflation is to prevent you from looking at how the economy is working, to prevent you from looking at how corporations are raising prices, and to prevent you from looking at monopolies and war.
People talk about hyperinflation and again and again you will see the New York Times, the Washington Post, the Wall Street Journal, saying that, “Well, if we keep running budget deficits to spend on Social Security and Medicare we are going to end up like Zimbabwe. Or like Germany in the 1920s.”
Well, as I’ve shown in Super Imperialism, and Killing the Host, every hyperinflation in history has resulted from trying to pay foreign debt — it’s by dumping your currency on the foreign exchange markets to pay debts denominated in another currency.
Germany was saddled with a war debt far beyond its ability to pay, and the Reichsbank kept throwing German marks onto the foreign exchange [until] the currency collapsed.
[In the] United States, [the] inflation of the 1970s [was] caused by the balance-of-payments deficit for the war in Vietnam and Southeast Asia, and the almost 800 military bases the United States had. But you’re not going to have any of the media saying, “Well, it’s the war debts and the war spending that is causing inflation.” [Instead, they say,] “Well, look what happened in the 1970s. Wages went up. That must be what caused inflation.”
Paul Volcker, who you mentioned, walked around with a table — a chart — in his pocket, of construction industry wages, and he said, “Until we can bring down construction industry wages,” largely by the poorest sector of the population, “then we are not going to fight inflation.”
He didn’t say, “We’ve got to bring down housing prices, or stock or bond prices.”
[He only said,] “We’ve only got to bring down wages, and increase profits, because the profits will be used to spend on more investment and that will save us all.”
All of this is a fairy tale (unintelligible at 18:34) lack of understanding of what money is.
Radhika: Absolutely. And you know, this is very interesting, Michael.
One thing I wanted to pick up on from what you [said] is that the Federal Reserve can print a lot of money. The Federal Reserve has been printing money hand over fist essentially throughout this century, and particularly after the 2008 Financial Crisis. So if there was going to be inflation, how come it didn’t happen earlier?
For the simple reason that, as you mentioned earlier, when the Federal Reserve prints money, it can go in one of two directions.
It can either go into the financial system, where it is hoarded, where it is used for speculation, precisely in order to drive up the asset prices that you are so emphasizing, Michael, totally correctly.
Or it can go into the economy, leading to productive investment, etc. — and that is what it has not been doing.
[Basically,] every period of economic growth is actually connected with at least mild inflation. Because, essentially — and rising prices are actually a boost to the economy.
I remember reading, many years ago, Pierre Vilar’s A History of Gold and Money: 1450-1920 in which he points out that, had it not been for the effects of the inflation in the early centuries of the emergence of capitalism, capitalism would not have emerged.
Because, you see, left to itself, if capitalism functions as it’s supposed to — which is to constantly bring down the prices of things — capitalism would suffer from a deflationary environment which would be a curb on investment.
So mild inflation — there’s nothing wrong with it. Of course, in the neoliberal period, it’s precisely — people may remember, central banks were aiming for 0% inflation, which is essentially very deflationary. It’s basically saying that we are not going to allow for any productive investment, any productive growth, etc.
So absolutely, if the money is not going towards productive investment, then it’s not going to cause consumer price inflation. As it had not been, when you had all this money printing that went on throughout the 21st century in the United States.
So this also brings us to another question. I guess we have now slipped into talking about the third question, which is: What really causes inflation, both the demand and supply side?
I want to talk about both consumer price inflation and asset price inflation. But I maybe want to open up with a certain point
[The] Federal Reserve’s policies — and the policies of many other central banks that have drunk the neoliberal Kool-Aid, the monetarist Kool-Aid and so on — essentially is to claim that the only way to deal with inflation is to have high interest rates. And this is essentially a class war. It’s a class war in at least two senses. At both ends of it it’s a class war.
[On] the one hand, by causing high levels of unemployment, what you’re doing is, you’re devaluing labor, which is the only thing we have to sell. Most of us — the majority of working people — all they have to sell is their labor. So, by causing a recession by increasing interest rates, you’re devaluing labor.
On the other hand, by increasing interest rates, by keeping asset prices high, you are preserving the wealth of the wealthy, and this is not the least reason why this century has seen such a great shift in income from labor to capital, and particularly to financial capital. And that is why we have seen inequality rise to such obscene levels.
Michael: Well, the result has been what has been called the “Hudson Paradox,” and I’ve described that in my book Killing the Host.
More money and credit is used to bid up asset prices for housing, and retirement income, and that puts downward pressure on consumer spending. Because if you have to spend more money on paying a mortgage, on a house that’s rising in price, if you have to spend more money on rent, if you have to spend money on monopolized healthcare services, on monopoly goods in general, then you are going to have less and less income to spend on goods and services.
Again, what’s deflated is [the] spending of 99% — well certainly 90% — of the population on goods and services, because their spending is diverted to pay for access to assets and to monopolized goods, and to goods that are subject to protectionism or warfare.
So the irony is that asset price inflation leads to rising housing prices and consumer income deflation. You have to look at the economy as an economic system, [not simply as] two variables ( consumer prices and money).
You have to look at who owns the wealth, who owes what to whom, how much debt is diverting money away from consumer spending to the upper asset holders (the 1%, the 10%), who owns most of the stocks and bonds and real estate, and who are now buying up private capital investment in medical practices, and almost every kind of consumer goods, and taking them private, and sharply raising the prices.
If you don’t look at how the economy is structured, and how the ownership is changing, and the relationship between ownership and non-ownership, and consumption and labor, you’re going to miss all of the variables that are really necessary to explain how the economy works. Most discussions of inflation are designed to avoid talking about how the economy works.
Radhika: Precisely. And how it’s structured.
I think the Hudson Paradox is absolutely fascinating, and on top of that I would perhaps add a — shall we say — Desai Corollary to the Hudson Paradox.
That would be that, in its own way, asset price inflation actually adds to consumer inflation, for the simple reason that when you have asset price inflation, some people of course are getting very rich, and they can afford to pay widely inflated prices for various goods and services and so on. And so, because they can easily pay, they end up driving the prices up further because they can pay, so enough people are making money by selling at those prices. So in that sense they can also keep inflation going.
Now, this brings us of course to the discussion of what causes inflation, and perhaps, Michael, if I can kick it off by presenting a very simple scenario. The simple scenario is: Imagine that — saying that “Inflation is too much money chasing too few goods,” is essentially reading the symptom. [It’s] a bit like saying, “You have a fever.” [The response would be:] “But doctor, why do I have a fever? Is it because I have an infection? Is it because I have some other illness, a more serious illness? ” You have to examine why too much money is chasing too few goods.
In any healthy capitalist economy, or any healthy market economy, you would expect that [if] prices are rising [for] certain goods, or maybe many goods, there would be a supply response. An energetic intrepid capitalist would invest in precisely those kinds of production where there are rising prices. And once, of course, they start increasing the production of those goods, prices would normally come down. So in any decently organized capitalist economy, in any reasonably productive capitalist economy, there should be a supply response and, therefore, if inflation does occur it would be temporary, it would be in certain goods and services.
So why [have] there been general rises in consumer prices over time? What have been the causes?
So I would say that certainly there can be rises particularly in the prices of two sorts of commodities, which are quite special. And then of course there can be mismanagement of money. So yes of course there can be oversupply, yes there can also be rising wages if unions are strong, and we hope that they would be, that they can in fact increase wages and that can add to the price of things, and it has happened historically at various points — I would definitely say that was an element in the 1970s when unions were indeed strong.
And there is [another] very key reason why you can have inflation and that is commodity price inflation. Both sorts of primary commodities — the products of agriculture, as well as the products of mining — can have big lags in production, so you can have rising prices, but it takes a long time before additional supply can come on the market. In agriculture because of course you have to wait until the next season for the production of that commodity, or in the case of mining because a lot of investment has to go into mining before the new supplies can come on the market. So there are many other issues involved with this. But these are some of the common reasons why you can have inflation.
But Michael, maybe you wanted to add something.
Michael: You’ve been focusing so far, and quite correctly, on physical output, but the main inflation has been on infrastructure services. Education — getting the cost of education has gone up much more than other things. Medical care.
What’s caused this is the privatization of what used to be social infrastructure services. The whole dynamic of industrial capitalism, a century ago, was to lower the cost of basic needs, of retirement income, of healthcare, of education, because if you could provide these basic needs freely, or at subsidized prices, then you wouldn’t have to pay labor more wages to buy a high-priced education, or high-priced healthcare. You would make your industry more productive because you [lowered] the cost of living by socializing the cost of education, medicine, transportation, communications.
Look at what happened in England after Margaret Thatcher. Privatizing council housing pushed housing prices way up, tripling, doubling, ten times as high. Same thing for medical care — way, way up. Privatization of infrastructure has been probably the single major cause of price inflation squeezing the budgets of the 99%.
Radhika: And Michael I’d add something to that. You already mentioned this, and of course a lot of left-wing economists are pointing out — people like Robert Reich — quite correctly, that definitely a very large part, a very large contribution has been made to the current inflation precisely by these sorts of privatizations, which is not just privatization in a competitive market, but practically every one of these privatizations has been a form of privatization in which they have created private monopolies. And so the contribution of private monopolies to rising prices has definitely been very high.
Michael: The prices of these monopolized services have increased not only because of higher debt service, but because of higher dividends, higher managerial payments. None of this would occur under the previous public sector services. So you have a transformation of the organization of industry as a result of privatization that builds huge financial costs to the banks and to the financial sector into the pricing of goods and services. So the whole character of what the prices consist of is transformed and expanded and inflated.
Radhika: So Michael, what you’re saying is really fascinating.
On the one hand, of course by diverting so much income towards these high-priced goods, [this] should [obviously] lead to inflation in the prices of these goods and so on, but [on the other hand] it should also — by depressing consumer demand as well — actually have a depressive effect on the prices of other things. But we are seeing the prices of all these things going up anyway, which brings us to the next question.
You know, everywhere we look, in most of the literature, even in much of the so-called Marxist literature, we find a depiction of capitalism where capitalism is the best thing since sliced bread as far as the productive system is concerned. Capitalism continuously expands production, it is the only system that is capable of doing so.
In fact, indeed, back in the 1950s or 1960s, I think the Hungarian economist János Kornai had actually argued that socialism can be understood as a supply-constraint system, whereas capitalism should be understood as a demand-constraint system. Which implies that in capitalism there are no constraints on supply.
But the fact of the matter is that we are today witnessing a pervasive rise in prices across the board — prices of all those monopoly services — and of course the financial services that Michael rightly pointed out — rising rents, to which Michael has also pointed, but also rises in the prices of ordinary commodities — not just food and fuel, which can conveniently be blamed on the war in Ukraine, but also other things. Core inflation is very high, which tends to measure inflation net of volatile prices like food and fuel. So why is that? If capitalism is supposed to be so wonderfully productive, why are we experiencing this problem?
Michael, what do you think?
Michael: Well, there’s obviously two kinds of capitalism. The textbooks like to talk about industrial capitalism, especially industrial capitalism as it seemed to be evolving in the 19th century into socialism.
But what we’ve had instead is something very different, and that’s finance capitalism, that’s based on basically rentier income: land rent, monopoly rent, natural resource rent, and financial debt charges. So when you talk about demand, the textbooks think, “Well, workers pay their wages on buying goods and services.” But that’s not what they do at all. That’s not how it works. Before they have any money to spend at all, they have to pay their taxes that are taken off, and their medical care. That’s taken off the top of their paycheck, and they are given after-tax income.
Milton Friedman developed this anti-labor policy during WWII when he was working for the War Department. But also, before the wage earner can spend the money on goods and services, [they] have to pay rent for the house, they have to pay medical care, they have to pay the credit card debt, they have to pay the auto-loan debt, they have to pay their education debt.
So the actual disposable personal income is not simply what they can spend after paying taxes, but what they can spend after paying taxes and rentier services. And [the] increase in these various forms of economic rent has widened so much that it squeezes what’s actually available out of the worker’s paycheck to spend on goods and services.
And if you don’t look at this rentier overhead, then you’re not going to understand why finance capitalism today doesn’t produce the rosy results that advocates of industrialism talked about. They are 100 years behind the times. They are not looking at the transformation into finance capitalism and how it’s transformed the economy.
Radhika: Indeed. And this exactly ties back into our inaugural conversation, Michael, because one of the things we emphasized in that conversation is that when neoliberalism was sort of the neoliberal policy paradigm — [when it] was ushered in as sort of the thing that was going to restore capitalism’s mojo, restore its productive dynamism — it did nothing of the sort, for the simple reason that capitalism is no longer competitive. It’s monopoly capitalism and monopoly firms are price makers, they are not price takers.
Essentially they don’t have to react to rising prices by supplying more. They can simply react to it by keeping prices high, which is kind of what we are looking at right now.
Neoliberalism did not resolve this issue, but, on the contrary, it has vastly inflated financialization. So neoliberalism, rather than restoring capitalism’s productive dynamism, has actually unleashed the storms of financialization which bring us regular financial crises, which bring us all these other problems we’re talking about, and which have also gone into weakening the productive economy.
Michael: Neoliberalism really is financialization. Neoliberalism is financial lobbying for a financier’s view of the world. It’s Wall Street’s view of the world. [It’s] the central bank’s view of the world. It’s not the industrialist’s view of the world, and it’s certainly not the wage-earner’s view of the world.
The question is: Whose perspective are you going to use in looking at how the economy works?
Radhika: If we may round up this part of the discussion, because we have a couple of really important further questions to discuss, I would say that what’s causing the current inflation is a combination of things. Yes, of course the war, the conflict over Ukraine, which by the way the United States is doing nothing to stop, and we will be discussing this at a later date as well. Secondly, yes, monopoly is certainly contributing to it. Financialization is contributing to it. All of these things are contributing.
But there are two things which are definitely not contributing to it.
Number one, the stimulus did not contribute to it, because the overwhelming majority of the stimulus never ended up in the pockets of ordinary Americans.
And number two, yes, even though there may be a wave of strike activity — which absolutely needs to happen, which workers need in order to catch up with the loss of income, real wages, they’ve had for a long time — [it] is not contributing to inflation. If anything it is only mildly mitigating the effects of inflation on the lives of workers.
But ultimately, I would say that the reason that core inflation is high and is likely, in my humble opinion, to remain high, particularly in the very neoliberal financialized capitalisms like the United States and the United Kingdom, is because of the productive debility, the underlying productive problems of the economy. This is the main thing that is causing inflation and, as I’ve argued in my “Vectors of Inflation,” unfortunately while the Federal Reserve, while talking about employment levels and economic activity levels and so on, is actually really concerned about keeping asset inflation going. It is going to fail to deal with it. So that’s how I want to sum up this aspect.
So we can now shift, perhaps, Michael, to talking about what the Federal Reserve is doing, how we [are] to understand it, and what’s wrong with it.
Michael: Well, the Federal Reserve was created in 1913 to take monetary policy out of the hands of government. The idea was, actions that the Treasury used to do — managing the economy — would be transferred to Wall Street and other centers. The Treasury Secretary was not even allowed to be a member of the Federal Reserve Board.
J.P. Morgan organized the bankers and said, “We’re going to take the twelve Treasury districts and we’re going to make them into Federal Reserve districts. Basically we’re going to shift economic planning away from Washington and put it in the hands of Wall Street in New York, Boston, Philadelphia, Chicago, San Francisco. But we’re not going to let the government do the planning. The problem is that people vote for politicians. And you don’t vote for who’s going to be on the Federal Reserve Board. We’ve got to take planning away from democracy and put it where it belongs: in the hands of the 1% and the bankers.”
That was the purpose of central banks in every country. Central banks were the alternative to socialism. Central banks were to prevent industrial capitalism from developing into socialism, but [rather] to develop into a financialized capitalism that instead of being productive was predatory.
That explains why, if you look at what Janet Yellen and other anti-labor economists are saying, she’ll say, “Our job is to prevent wages from keeping up with the cost of living. We have to keep wages down to keep our businesses’ profits high. Because corporations are our customers. Our customers are real estate people. Our customers are people buying houses, and if we can raise the debt necessary to buy a house, then we’ve got an enormous amount of economic rent that has ended up paying interest instead of being used as the tax base.”
Which [by the way] is what Adam Smith and John Stuart Mill and the first line of the Communist Manifesto urged, to treat land as a public utility.
Radhika: Absolutely. You know, Michael, all that reminds me of a really interesting strand of the story that you’re telling. You know, you rightly reminded us that the Federal Reserve was created in 1913, that J.P. Morgan insisted that even the Treasury Secretary could not be a member of the Federal Reserve Board.
So you know, particularly in the very era when this financialization really got going, it was accompanied by the rise of a myth. The Myth of Independent Central Banks. The idea was that central banks were to be made independent, which means that there should be no political interference in the central banks, and the idea was that this would allow central banks to set monetary policy independently for the good of the economy to keep employment high and inflation low.
In reality of course central banks have behaved in ways that have only benefited the financial sector — the financial sector which produces nothing, which makes profit without production. But nevertheless these are the sectors of the economy whose interests have been minded by the central banks, not the interests of the productive economy.
From this point of view, it’s really very interesting that it is precisely in the era when labor was very powerful, up to the 1970s, it was only the late 1970s that the Federal Reserve was given a new mandate. Up until then, the Federal Reserve’s mandate was only to keep inflation low. But with the strength of labor and the Democratic Party being in power, and Carter and so on, they passed legislation which added a new mandate for the Federal Reserve. Which is that the Federal Reserve should also organize monetary policy in such a way as to keep employment levels up.
Of course, no sooner had they passed this legislation then the Federal Reserve acted in precisely the opposite way. Rather than worrying about [employment] levels, the Federal Reserve focused only on bringing down inflation.
Paul Volcker was made the Federal Reserve chairman because he was known as a “sound money man,” a man who was willing to restrict money supply to such an extent, and allow interest rates to go as high as they wanted, in order to curb inflation. Eventually, as some of the older ones of you may remember, or the rest of you may have read, interest rates went to 18% — double digits, high teens — before they brought inflation down.
Ultimately the Federal Reserve didn’t bring inflation down. The Federal Reserve imposed such a deep recession — some people will remember the W-shaped recession of the early 1980s — [on] the American economy and the rest of the world economy as well, as to essentially bring prices down.
So in that sense, even though employment was added as a mandate, and today the Federal Reserve chairpeople, whether Janet Yellen, Alan Greenspan, Jerome Powell, Ben Bernanke, have all continued to use the rhetoric of, “Oh, we are looking at employment levels. We are going to calibrate our monetary policy to these things.”
In reality they have only been concerned about keeping asset inflation going, because, as I’ve said before, and as Michael says, these are the markets on which the assets of the really rich Americans rely for their wealth.
Michael: Two comments, Radhika.
First of all, you said the financial sector is not productive. What does it produce? It produces debt. Debt is what it produces. That is what yields interest. Its product is debt, even though it’s really an anti-product, that is what it produces.
Debt is a form of overhead. So the financial sector produces overhead, and the effect is to polarize the economy.
Secondly, you talked about the shift in the Federal Reserve’s purpose towards inflation, not towards full employment. It’s actually much more subtle than that, and much more sinister.
Listen to Janet Yellen and she’ll say, “Well of course the Federal Reserve is trying to increase employment. How do we increase employment? Wages have to fall by 20%. We’ve got to pay those greedy workers less. And if we pay them less, then there will be more employment. So the solution to make more employment is to create unemployment. And if we can create enough unemployment, then workers will become so desperate to eat that they will have to avoid homelessness by actually taking minimum wage jobs, which we are not going to raise in keeping with inflation, because inflation is what’s squeezing the budgets, basically, to this whole economic system designed to transfer wealth from the goods-and-services-producing sector, to the rentier, debt, and monopoly sector.”
That’s the irony. They’ve twisted all the meanings into an Orwellian Doublethink.
Radhika: Very interesting. So Michael, what would you say the Federal Reserve is doing, and what is right and wrong with it?
Michael: Well, what’s wrong with it is that it believes that the way to make an economy grow is to make it poorer.
This is the doctrine that the International Monetary Fund tells all of its borrowers. Latin America, Africa, Asia. [The IMF says to them,] “If you can only prevent labor unionization. If you can only cut social spending. If you can lower wages, you’ll be more competitive and you will grow. So yes, we will bail you out of debt so you can pay the bondholders in the United States and other dollar bondholders, and the foreigners who’ve lent you money, because the World Bank has pushed you into dependency on the creditor nations. If you can pay them by being poorer.”
That’s the financial philosophy. The financial philosophy in a nutshell, is: Pay labor less, leave the economic surplus for the owners of wealth, the owners of money, and most of all the owners of [monopolies on] creating credit and creating money. That’s what makes Western capitalism different from the Chinese system, where it’s the central bank of China that creates the credit, not the commercial banks that end up turning all of this rent into interest and economic overhead that is responsible for most of the cost increases.
Radhika: This is very important.
We should probably wrap up our discussion now because we are getting close to an hour. But let me just say a couple of things.
To add to what you are saying, as I said earlier, the Federal Reserve has been acting in the interests of the financial sector throughout the neoliberal period. This period I would divide into two distinct parts.
[First,] we had the 1980s and 1990s where, beginning with the Volcker Shock, interest rates became very high. And then later on they did come down a bit, but they remained at historically quite high levels during these decades, so basically banks were making a lot of money simply by buying bonds and earning relatively high interest.
[Second,] particularly after the 2000s bursting of the dot-com bubble, we had the Federal Reserve changing course and adopting — changing course, by the way, I should add, for a very interesting reason, they realized that the only thing that was keeping the dollar’s value up, and the economy going, even at a weak rate, was basically the [housing] price bubble that had been brewing in the U.S. economy since the 1990s. So in order to keep it going, the Federal Reserve adopted a radically low monetary policy, a paradigm which allowed the inflation of those huge asset bubbles which we saw which ultimately burst in 2008. Of course, even after that the Federal Reserve kept up the easy money policy.
So there are these two distinct periods. But in both cases, they are looking after, in one way or [another], the interests of the financial sector.
Now [therefore], at the present moment, when inflation really began to hit, the Federal Reserve basically first of all reacted to it — Jerome Powell first reacted to it by saying, “Oh, we don’t have to worry about it, we are going to continue low monetary policy, because inflation is going to be transitory.”
Remember, I’m not endorsing the Federal Reserve raising interest rates. What I’m saying is, they didn’t raise interest rates, which is what they would have willingly done if they thought the threat of inflation was higher, because they first of all dismissed it as transitory because they couldn’t afford to accept that they would need to increase interest rates, because increasing interest rates will prick all these asset bubbles, beginning with the weakest asset bubbles.
So, first they tried to pretend that inflation [was] going to be transitory. Then, by early 2022, they were forced to admit that inflation was there — it was proving persistent, it was not going to go away easily, so the Federal Reserve began a series of rate hikes.
Now, the thing about these rate hikes is, yes of course they have been quite amazing. At various points they have been going up, not only by the normal 25 basis points, but by 50 basis points and 75 basis points, and so on. But the fact of the matter is that the Federal Reserve is going to have to find some way of stopping raising interest rates because it is already entering that danger level.
Let me give you a comparison. Back in 2005, 2006, 2007 — the Federal Reserve was forced to start raising interest rates because the dollar was declining. There was downward pressure on the dollar. Oil prices were rising, and so on. So the Federal Reserve started raising interest rates, ever so gently, incrementally, in a series of steps, 25 basis points at a time. It brought the interest rates up to something like 5.25%.
That was enough to burst the financial bubble, essentially. And the Federal Reserve, if it allowed that to happen, it would essentially bring down all these asset bubbles. Today, you know, we don’t have one or two asset bubbles, you know, credit bubble, housing bubble, we now have an Everything Bubble.
And already, many of these bubbles are bursting in many areas where money has been going. The bubbles have been bursting. So now what you are going to see is, the Federal Reserve is going to fight shy of raising interest rates very much. So the sledgehammer of high interest rates will not be used. The Federal Reserve has no other way of dealing with inflation
The point is that, from our point of view, what needs to be done in order to both combat inflation but also to remedy a whole host of other ills that ail the U.S. economy, is in fact to move away from financialization and create the sort of industrially-focused, productively-focused economy that Americans needs.
But the Federal Reserve is loath to do it. The elites are loath to do it, because it involves a level of financial regulation, and regulation of capital, which really brings it very close to what they fear; — namely, some sort of socialism. And this is my argument in the article I wrote, “Vectors of Inflation,” and also of course what I continue to argue today.
Michael: What you’re advocating is just what the central banks are unable to do. The fact is that the debt that has been run up can’t be paid. There is no way that the Federal Reserve can cope with the fact that every recovery since WWII, every recovery since 1945, has started from a higher and higher and higher debt level, until, now, there’s so much debt that the economy cannot compete, and cannot avoid homelessness and polarization, unless the debt is wiped out.
And that is what the Federal Reserve doesn’t do. The Federal Reserve can’t change the financial system and say, “Well, for the last 100 years, actually for centuries, commercial banks, when they make a loan, they make it against collateral. Banks do not make loans in order to create new means of production. The stock market may do that, for seed capital. But banks don’t lend for assets that are not already in place. They only lend against assets that are already there that they can foreclose on if the debt can’t be paid.”
Well, we’re now in a mass foreclosure period, and the reason that all this $9 trillion was created when Obama bailed out the banks, was that the banks were insolvent. They had made so many bad loans that, as the FDIC had pointed out, Citibank was bankrupt, all the big banks were broke. We spoke about that in the very first show. And the financial system is still basically insolvent. It’s being kept alive — it’s a zombie-bank system, keeping zombie corporations afloat by more and more debt that ultimately is going to have to be written down.
But banks don’t do that. And the only solution is beyond the Federal Reserve’s policy. Number one, [it has to] write off the bad debts. This is certainly obvious for many Global South countries. But you also have to have a different financial system. You have to make credit a public utility, as it is in China. A public utility that actually is designed to create money and credit, to create new means of production, without adding to the overhead costs and debt service.
This requires deprivatization as well as making credit a public utility. Economic rent should be socialized and used as the basic tax base so you don’t have rent being used to pay interest. You have rent to prevent housing prices from being bid up on credit by a financial sector whose job is to inflate asset prices to keep the Ponzi scheme going so the economy doesn’t —
Radhika: Precisely. Maybe in closing, actually, I just remembered a couple of points that are really worth making before we close today, so we may go a tad over an hour.
The first thing is, you know, earlier I mentioned the mystique of independent central banks, and of course, throughout this period, from the 1990s onwards, for more than two decades, we have been living through a sort of mystification of the role of central banks, and particularly of the Federal Reserve.
There was a book written about Alan Greenspan whose work was portrayed as though, when he was the chairman of the Federal Reserve, he was like a maestro who was conducting the complex orchestra of the U.S. economy and even the world economy merely with deft little movements of his monetary policy baton.
In reality, of course, if we ask ourselves what really kept inflation low — because you see the central banks are lauded for having defeated the dragon of inflation over the last two or three decades — in reality what has really kept inflation low over the last many decades is basically an attack on labor. It is basically an attack on Third World countries, particularly their ability to develop, which we saw particularly strongly in the 1980s and 1990s.
As you know, the economists Utsa Patnaik and Prabhat Patnaik have argued in their book A Theory of Imperialism, a key to keeping the value of the money of First World countries is to keep the development of Third World countries low. Because if Third World countries started developing, they would demand and buy more of the commodities that First World countries have been so used to getting for next to nothing.
Whether it is copper or oil or lithium or whatever, now one of the reasons we are looking at inflation is, despite the best efforts of the United States and Western countries, at least some Third World countries, led by China, but also many others, are beginning to develop — they are making policy choices, and they will say, “We also want our share of commodities and products,” and this is also going to create a very different scenario.
Finally I just want to add, just give you a little preview for our next discussion — Michael and I have agreed that our next discussion will be about de-dollarization. These financial asset bubbles are deeply connected with the reason why the dollar has appeared to remain the world’s money — which is, essentially, these asset bubbles have been drawing money into the dollar-denominated financial system, but this is also rapidly changing.
One of the things that Michael mentioned is, the inflation of the balance sheet of the Federal Reserve, doubling with the 2008 Financial Crisis, and then again under Q.E., and then again with the recent pandemic crisis and so on. So today it stands close to $9 trillion. What is all this money doing?
[The Federal Reserve] is essentially printing money. It has not contributed to rising prices, rising consumer prices, because it has not gone into the pockets of ordinary people. It has basically kept the asset inflation going.
This asset inflation now has artificial support. The Federal Reserve is propping up asset markets. This is just one of the signs of the weaknesses which [are] going to doom the dollar. That is what we are going to be talking about next time.
Michael: As preparation, I’ve discussed dollarization in my book Super Imperialism, and a scenario for de-dollarization in The Destiny of Civilization, [which] is all about that. Both Radhika and I have written much about de-dollarization, and it would help if you could take a look at what we’ve written in the past so we can start from there in saying what’s actually unfolding today.
Radhika: If you would also look at Michael and my paper, Beyond the Dollar Creditocracy, and also my book from 2013, Geopolitical Economy, which is very much focused on the dollar as well.
Hopefully you have a chance to take a look at some of these things now or later, and next time we will return with a discussion of de-dollarization.
Thank you for now, and goodbye.
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The entire materialist paradigm is itself nothing but a cruel mirage, promising not only what it can’t and won’t deliver, but what doesn’t even actually exist. This makes “economists” into something like the high-priesthood of a worldwide cargo cult, interceding with the grand exalted deities of finance to show some mercy toward the little people.
There is no such thing in Earth’s Whole Living Arrangement as an “economy.” So all this mumbo-jumbo about it is just so much echolalia….sound and fury signifying a lot less than merely nothing, because it wastes the precious attention of all who listen because they believe mistakenly it means something they really need to know-about.
Those among our Human Relatives who’ve been domesticated, by the organically-crippling immune-suppression regime of the Planet-wasting “civilization” disease process, are cut-off from the actual and only source of everything they really need to live….Earth’s Whole Living Arrangement. They are reduced and degraded into having to hack and tear from Her what they want, and to “pray” to strange gods for it, by a massive contraption that has been erected to block their natural access to what us surviving Free Wild Peoples of All Kinds still enjoy as Gifts from Earth and Sun and All Our Relations. Our Kind, in-turn, has Gifts to put into The Hoop of Life here.
The bursting of all these “bubbles” isn’t really a consequence of “misguided” policies and practices by the money-magic soothsayers. All of it is collapsing because it has no supporting counterparts in the actual Living Arrangement. It is all just out their floating around with nothing more to sustain it than the fraudulently gained “confidence” and literally ground-less hopes of muddled masses with no idea really of what is captivating them and their fevered imaginations.
On-the-other-hand, here in Indian Country we have no difficulty making sense of The Way , The Tao, of Earth and of our Kind and of All Out Relations. We know exactly where we are living and breathing together every Day….and just as vital, where we are not.
But it doesn’t look at all the non-monetary causes of inflation.
For instance, we’ve seen oil prices and food prices rise simply as a result of the sanctions against Russia. We’ve seen the pharmaceutical prices rising, especially from Martin Shkreli, who vastly increased the prices.
This is as far as I’m going to read in this lengthy effortpoast, because you’re already off on the wrong foot. Prices are signals that reflect, as they are supposed to, exogenous shocks such as the artificial scarcity of IP laws or government sanctions against suppliers like Russia. Prices are signals of a scarcity that needs to be mitigated by the flow of capital to further production to supply consumer demand or a regulation, such as IP, that needs to be eliminated.
Inflation is an entirely different phenomenon; it is simply an increase in the money stock. But there are all sorts of counter-trends involved and it is impossible to sort out. It is only measurable by applying the broadest basket of goods. Housing, for example, has a large component of 1+M people immigrating to the US every year and bidding for a place to live (and natives bidding to live away from their new brown neighbors).
The “Biden” administration is throttling private sector activity with regulations, importing more serfs for the tax farm, and printing more money. Increased prices are inevitable.
The causes of inflation are extremely simple.
If you mean a rise in price of staple goods to wages, then it is when the price of money goes down faster than economic growth, as the latter causes good prices to fall.
If you had hard money, e.g. if folk realized using BTC is a good idea, then the price of everything would be dropping all the time and everyone (except debtors) would be delighted about it.
If you mean lowering the price of money, it happens when demand falls or supply rises, same as any other trade good.
In the case of money this is extra sticky, since it’s a rare good with the reverse demand curve – demand for money increases when the price increases, and price drops cause demand drops, which cause further price drops…
The situation simply isn’t complicated enough to warrant all this bafflegab.
You can tell the interviewee is fake because he doesn’t mention Cantillon. (In short, the Fed prints money, its friends get to spend post-inflation money on goods priced at pre-inflation numbers, then you get the post-inflation money at pre-inflation wages.) Is he so incompetent he doesn’t know the Cantillon effect? Any real economics department should fire him. Or is he just lying and avoiding this extremely important and foundational dynamic? Academic fraud – fire and revoke his credentials.
If assets are ‘inflated’ that means you will, later, see serious inflation, whereas asset-owners got to spend a bunch of free money on new assets.
Oh hey, look what happened. Real goods inflation is something like 20-30%. Since 40% of all USD were printed the last two years (or whatever the ridiculous ratio is) it’s surprising it’s not higher.
Why is that? The Cantillon effect and the fact that 75% of USD are held by non-Americans. Regular Americans are still pretty high on the Cantillon gradient – it’s foreigners who are really getting jacked.
Commoditization is a big problem for businesses, but great for consumers. It’s incredible delving into “private” mortgage lenders basically selling the same Fannie/Freddie paper, and the rationalization is that competition is bringing prices down, when it is in fact not doing that.
My fundamental disagreement, is I still think Milton Friedman was right about government spending, and that you fund it through taxes, government debt, or inflation. When you look at total government spending, most of it is not military, and it is higher than ever in real terms, even though it all needs to be reduced.
If this post is meant to educate us about the causes of inflation, God help us.
From the summer of 2020 until the summer of 2021, the M2 money supply (Milton Friedman’s favorite measure) increased by more than 20 percent in the US.
During 2022, the increase in the M2 money supply was 0 percent.
The rate of inflation, excluding food and energy prices, went way up, and now the rate of inflation is falling sharply. There may or may not be recession.
Mr. Hudson, monopoly power per se may cause the price of an item to be higher than it otherwise would be; it does not per se cause the RATE OF INCREASE of that item to be higher. Shocks to energy and food supplies can cause one-time increases in the rate of inflation, but not enduring increases.
The Federal Reserve Act was legislated by the US Congress. An authentic capitalist, monetary system would be free banking (which I am not endorsing), with commercial banknotes being convertible into a base money (which historically was most often gold). In light of technological progress with its associated cost reductions, there was historically a mild deflation under gold-based monetary regimes. Contra Mr. Hudson, this did not curtail investment. There is a confusion here between the overall level of prices as opposed to the relative price of one item vs another.
As a crazy anti-capitalist ideologue, Mr. Hudson links inflation to capitalism. He did not mention the hyperinflation in the Soviet Union during the 1930s (see the writings of the late Franklyn Holzman of the University of Washington). Why did this inflation occur? Because of excessive creation of money by the Soviet government. There was again rapid inflation in the 1990s after the Soviet regime collapsed. Why? Because of excessive creation of money.
My best summary of his view is “financial socialism,” even though that is a bit of a straw man. It’s very similar to the US postal service/UPS/FEDEX market. Instead of having 6-8 big banks claiming that they improve the Federal Reserve Bank, why not cut out the middle man, and simply “vertically federate” a “natural monopoly?” We still do this, to an extent with electricity/gas etc.
how do I make money from this? or at least not lose money?
I recommend reading Princes of the Yen it is an excellent book that explains asset piece inflation in a way that kind of overlaps with what Michael Hudson says.
Michael Hudson should also write more about China.
The author coined the term “Quantitative Easing.” Reading up “non-heterodox economists,” they argue central banks don’t even really now the total supply of money, and that the central banks only set rate targets, they’re just reflecting short term treasury bond market changes. Making credit markets “a utility” would almost have the same effect as “sound money,” total government spending will have to come down in real terms, unless enough people are willing to pay more taxes, or real GDP increases.
Many of the people above have obviously not read the work of Piketty, who uses asset data to show that there has been a huge shift in wealth to richest 10% and 1% since the 1980’s.
There have been many on the “populist right” who have said “woke capital” is a strategy to split the left on the inequality issue. But “inequality” is another loaded term, like “freedom,” and “equality,” that can be made meaningless.
This has created artificial shortages in key parts of the economy which causes rising prices as well as price volatility.
The most obvious example is in residential real estate.
The market is “made” at the margin–since most owners do not have transactions every year and many do not have a transaction even every ten years.
The wealthy used to buy a couple of homes, but with the creation of real estate investment vehicles they can dominate the transactions in various markets–creating massive rises in prices by their demand.
The volatility part is still ahead of us–when they decide to bail on those investments the real estate crash will be stunning.
I still think the phrase, “you find equality in a prison, or grave,” gets in the way of the wholly mainstream narrative of “muh equality.”
There is so much bad faith in tax policy, that people like Piketty simply want to raise rates that effectively did nothing in the past. Of course, the wealthiest people have the best means to minimize taxes. It’s why “free market, classical, georgist” economists end up concurring with “post/neo-keynesians” on “land taxes,” because it would be so hard to hire tax attorneys to create evasions.
Just maybe, cheaper tax policy results in increased upfront reporting of “assets,” and the data is not capturing that. On the opposite end, welfare incentives people to not have assets because of the “welfare trap.”
Echoing military and financial objectives and reiterating the role of the IFIs in US foreign policy, A Report to the Committee on Foreign Relations, United States Senate, One Hundred Eleventh Congress — March 10, 2010, states that “The international financial institutions (IFIs) have traditionally been an important element of US foreign policy.”
It goes on to say that “The international financial institutions present the United States with an opportunity to maintain its influence, address national security issues, and provide global leadership in an era when the American economy may not be the overwhelming source of power it once was.”
The Dawn
The way 3rd World gets mired into inflation and stays there year after year
That is only partially true. Yes, there was “an attack on labor”, but it actually was only an attack on First World/Western labor. Third World/Asian/Chinese labor benefited tremendously, and that’s the reason why Trump got elected:
Image Source: https://www.unz.com/jpetras/china-and-the-us-rational-planning-and-lumpen-capitalism/?showcomments#comment-2068535
Also, “de-dollarization” is very unlikely: “One of the reasons the dollar holds its value is because the United States economy is not as heavily indebted as the rest of the world. […] Money velocity in China in 2020 was 0.44 versus 1.19 in the United States. […] And so the United States continues to outperform on a long term basis. And as long as that’s the case, the United States dollar will continue to remain firm.“ – https://www.unz.com/article/ubi-reconsidered-for-23/?showcomments#comment-5797377
Yeah…not really. The smartphone you use to write this comment on a worldwide forum for others to react is a byproduct of capitalism, free trade and technology- all of which are a necessity for civilization to progress. I’d go so far as to say technological progress is the purpose of life, and all wars have come to close thanks to technology(Hiroshima bomb) and innovation. All this hokey mother earth, flower child, living in spiritual bliss sounds fantastic. Doesnt work.
Inflation helped China to send spy balloons to the US.
The 1% are irrelevant pikers scrabbling for pennies.
https://www.nytimes.com/2005/06/05/us/class/richest-are-leaving-even-the-rich-far-behind.html
Taxes are inherently criminal. Offer services so you can charge for them.
Taxes are one of the critical causes of societal decay. Taxes alone guarantee your government is cancerous. Historically, the illness has caused 100% fatality.
Professor Hudson excellent as always. Thank you.
False. The smartphone is a product of government research and development, as are the technologies of the networks it runs on. Capitalism and free trade only create things like dragon dildos and 100 different flavors of Mountain Dew.
Perhaps Mr. Hudson’s loan sharking for the financial oligarchy causes inflation:
https://www.larouchepac.com/the_british_using_george_h_w_bush_destroyed_the_first_church_committee_s_achievements_a_true_crime_story_and_lesson_for_our_times
Nothing’s stopping the Communists from living in their own Communes, except the fact that it doesn’t work. There were many – in America, not some backwater – in the early 1800s. Indeed the earliest permanent American settlement was full Communist, and worked exactly as well as everyone [who isn’t a Communist] expected it work.
There are many places you could still group up and live a hunter-gatherer lifestyle, except they instead all flock to the height of technology. Revealed preferences. Actions refuting words: why is he saying it here instead of in person to his local spear-hunting club?
Shouldn’t use the term capitalism without defining it, though.
I call it capitalism when trade is possible and agreements stay agreed.
When you’re allowed to bid wealth in exchange for other wealth, and sign contracts securing these trades. (No take-baksies. Unless the contract allows it, I guess.)
Under these conditions, folk who are good at production or good at trade will become wealthy. Those who are bad at it will become paupers. It is better than the alternative, which is that we all become paupers. Or dead, as Stalin thoughtfully demonstrated. Trade and reliable agreements underpin a lot of food production, so if you outlaw Capitalism, you inevitably cause mass starvation.
Or: if competent folk are rich, you can have charity. If even the competent aren’t rich, then there’s nothing to spare. And if it comes down to fists and knives, guess who wins…
Fun fact: it is no longer legal to sign a marriage contract. Family law courts will force you to break them at the counterparty’s whim.
There is some good seeding done in this comment, but bowing to Mother Nature is not at cause. She has her own variables taken care of.
Economics should be defined as “To fit the human world into the Planet Earth”. Theoretical economics could be defined as a quest for a system that can sustain a human world, a world that fits into the larger Biosphere.
This starts with terminology. The language that M. Hudson uses, and the logical approach is sadly flawed. An existential struggle between NAZIs and Bolsheviks [is there any difference when the terminology is such]. All approaches to “monetary system” can and are abused. Secondly there is no accounting done, and as a minor, no moral accountability. Michael keeps feeding in the through to make his arguments to the contrary. A nihilistic approach.
To suggest even that a system of interchanges, promises and convenance, distribution systems, would run unplugged, by gravity [markets], up to the cellular atomata [the worker class, the “welfare” class, the administrator class, the “billionaires”, is outlandisch. Real economics theories means inventorying what the Planet has to offer, translate that some-how in a modest ambition to humanity of how many, how long, who-so can deploy and enjoy the farming.
Capitalism as can be observed [from the start, way before the proverbial Roman Empire], and this by no means excluding any other “system”, “monetary policy”, communism, central banking, “state-controlled”, is there for some ambitions of choice: mind control of the masses, enlarging the divide between the masses and the “elites”, allow the elites to game the resource that is cheapest [human meat] to settle their internal differences and prestige [the Ukraine War?!] and these are the minor ones.
The real game to which all are blind, is running into exhaustion, overheating, obesity of the human world. Which then will no longer fit into the Planet, hence will burn down the tower of Babel, including the ‘Arthur’s and knights’ of choice in the main living quarters, the cosy ones, the ones that designed the oven that consumes them.
A single point made: economists, policy makers, scientists are terminologically meaningless divides, theoretical economics should do some book-burning, re-write the white paper, since it looks as of now as the grocery list of a shopaholic trophy wife. Who are they trying to impress but the canon fodder. From Elton Musk to Russia and Xi, the goals set are self-destructive. Engineering with elegance the Anthropocene is a matter of survival.
Fun to see this play out, the tools are so much better in our day and age, …better tools, massive destruction first.
This canned recitation from the cargo-cult catechism will no-doubt “earn” for this true believer (in the “capitalist” branch) an extra-nice prize in his/her/their next $3.00 box of Cracker Jack. Meantime, if all that stuff is only the “by-product” of the belief-system, what exactly is the actual end-goal of all the strip-mining, solar radiation management, ocean-acidification, panopticon surveillance, social credit, CBDC, etc., etc.? Will WWIII “come to close” when everybody’s dead from mRNA “technology”?
Inquiring minds want to know.
They are switching cause by effect. Inflation is the increase of money supply without real growth “The cause”, price of goods increase is the effect of money inflation. Please stop calling goods price increase inflation.
There are only a few countries that by any standard can be called capitalist countries. Today, thanks to the different faces of socialism, socialist governments are simply operators of the money printing factories.
Friedman was right, inflation, by definition, means that money loses its purchasing power and, therefore, is a monetary phenomenon.
They are switching cause by effect. Inflation is the increase of money supply without real growth “The cause”, price of goods increase is the effect of money inflation. Please stop calling goods price increase inflation.
There are only a few countries that by any standard can be called capitalist countries. Today, thanks to the different faces of socialism, socialist governments are simply operators of the money printing factories.
Friedman was right, inflation, by definition, means that money loses its purchasing power and, therefore, is a monetary phenomenon.
Would you pay $1,000 for a bucket of seawater at any Florida’s beaches? No, because seawater supply is endless. The same happens with money; when the supply increases it is not that goods increase their value, it is the money to purchase those goods that is losing value.
To me, listening to economists is like listening to a dog catcher about brain cancer. What causes inflation is people buying things they do not need, including paying too much, including borrowing to make the purchase.
Take the simple purchase of a sweater. Jessica already has 23 but she does not have the red crew neck with the yellow polka dots. This would go well with her red shoes (she is shopping for that too) and her yellow pants. The sweater is on sale at 70% off which translates to $79.99, a good deal as far as she is concerned. Casual investigation reveals it cost $1.49 to produce in Bangladesh! She does not have the cash. Perhaps if she did, she would feel a psychological tug as she counted it out to the 17 year old flighty clerk. Instead Jessica whips out the credit card. She has overpaid for the sweater many times. First she does not need it, second the price is hot, third included in the price is the 3% + merchant fee the credit card company will charge and then the 2%/ month interest charge when that bill arrives in the mail. Dont forget sales tax !
The final lunacy, she wears the sweater for the last few months of winter, the thing starts to unravel, she cleans out her closet for spring and dumps the thing at the Salvation Army.
“Inflation” does not bother the clever shopper. Take something as essential as food. When lettuce, normally $2 skyrockets to $4 , I leave it on the shelf and eat spinach down from $3.99 to $1.99. Sure enough, the supermarket feels the pressure. reduce the lettuce to $2 or have it rot. They then play the game in reverse, spinach jumps and lettuce takes a nose dive.
Yesterday I pulled into the nearby mall and was appalled to see an African immigrant delivering food in a white Lexus SUV. Yours truly, who can afford to buy one for cash drives a 15 year old Toyota. In the Mall I did not notice any signs of inflationary pressures. People are BUYING ! One 14 year old kid wearing green sneakers was showing his purchase of a pair of red ones to his clique of giggling companions. They all had the latest cell phones and tooled up to Fung On’s chinese kiosk for noodles, barbecue chicken and greens plus a soda at $20 a pop.
Prudent purchases, not buying and paying cash is for the old farts. This is a new age where everyone wants everything NOW, with credit and to hell with the cost. Saving is b/s and the mob no longer needs to feel the edge of those hard on coins before they hand them over, Dude, we use credit cards.
The system is designed to snare the mice who cannot resist the smell of the cheese.When companies make billions every three months after paying their executives tens of millions in compensation, the sharp sighted know inflation does not exist but suckers and mooks abound.
(MaCready tosses a stick of dynamite) Yeah f you too!
Sorry, being a John Carpenter fan I couldn’t resist.
But seriously, I think you’re lamenting the tragedy of our inability to return to the Garden of Eden. There are realities of technological innovation and monetary systems that we have to deal with, however unpleasant. So far as persuasion goes you might as well be a fundamentalist Christian, Muslim, Orthodox Jew, or whatever, opining about how wonderful the world be if only everyone converted and recognized the one true righteous God. Now, one thing about your series of complaints I do agree with, whether it’s only implicit in your grievances, is that we all need to consider much more carefully potential consequences of AI, mRNA, surveillance, and so forth (I’d add climate were it not for all the existing hysteria). I do wonder if Frank Herbert’s world of “Dune” had it right to ban artificial intelligence under threat of death.
Thou shalt not make a machine in the likeness of the human mind. Is that a superior philosophy to help ensure the survival of the human race? I don’t know, but I do think it warrants consideration. Are humans evolving with technology at all? Or are we merely feeding a dopamine addiction, allowing ourselves to live until 95 instead of dying at 87, etc? Is our technology worth it? Some of it maybe?
Like The Song says “We have all been here before.” The really quite primitive “tools” here today, just like always everywhere, dictate absolutely their own uses. How “good” they are is shown in the actual effects of their deployment in and upon the Living Arrangement. Everything else is, at-best, just wishfully thinking out-loud. In-fact, all this electro-mechanically and institutionally enhanced and accelerated waste-making will not stop short of either the strongholds of the managing directors, the no-holds-barred of the cage-fighting social Darwinists, or the crumbling toeholds of the muddled masses.
Here in Indian Country “bowing to Mother Nature” (or to Father Sky, either) is not our “thing.” Us surviving Free Wild Peoples, of all Kinds, simply give Their Living Arrangement (which is, after-all, made-up of all of us) our undivided precious attention, our deep respect, our informed consent, and our unconditional affection. The Human Beings among us do that to sustain the Organic Integrity essential to fulfillment of their Kind’s Function as a component of Her immune system.
All that is really happening here is the never-ending HeartSong and MatingDance of LifeHerownself and Love Hisownself….in whose image and likeness we are All made, “male and female.” Once upon a time somewhere, some fear-ridden tormented entities decided they had “a better idea.” They took that conceit on the road, left a scar of devastation across the face of this Nourishing Way Star Nation, and finally came crashing down to Earth. We’re keeping them confined here, on the slim chance (by now nearly none, maybe) they might still get-over their “self” sickness by taking The Medicine specific to what ails them.
Because we know The Way, we can see them back through The Water of Life and into The Light of Love….just like how we All do. Yet, in their Great Pride, having thought and fought and bought their way into this “self”-inflicted predicament, they cling to the belief they’ll come up with some gimmick that will let them think and shoot and buy their way out of it. THE END of (t)history is being “written” right now. It might indeed be bitter….”massive destruction.”
What we can remind our currently captive Human Relatives of, though, is that so long as your Native sensibilities are not deadened entirely you can still feel your way through it. So….what’s your druthers?
I guess asset inflation is “too much debt chasing too few productive assets”.
So are you living in the wild and free?
I saw this inflation wave coming three or four years ago, but did nothing about it. Fool, perhaps.
Would be quite sure that Radhika moved many FIRE investments (to use Hudson’s term) about for max. profits.
What times we live in. LOL.
Now, Butt-Tucker and Michael Hudson have something in common.
Butt-Tucker as disseminator of Marxism.
Never did visit any “Garden of Eden.” Have heard though that nobody actually lives there. Same can be said about the pages of books, and the stages of theaters….and the virtual worlds of economies.
Since The Living Arrangement doesn’t require anybody’s “belief,” us surviving Free Wild Peoples don’t waste “time” and precious attention on bound-to-be-futile-anyhow attempts to CONvince anybody of anything. We have no “complaints,” either. We’ve already been through way worse things than the penny-ante bullshit the “civilization” disease in its death-throes is vomiting-up now.
Our domesticated Human Relatives, though, are by their own admission in what they frequently refer-to as “uncharted waters”….and other similar variations on the theme of “WTF is happening here!?” Fact is, we’re just being friendly in offering some observations that might help them remember exactly “where” in hell they are all still actually living and breathing together everyday.
Whether any of ‘em takes it or leaves it is all the same to us. It’s supposed to be a matter of “free will,” after-all.
“What Causes Inflation?”
Well, is it the fact that Hudson’s ego requires him to insert a photo of his wretched, frowning kisser above every one of his articles? Switch to Keystone Light, Mike, you’ve got a permanent case of the bitter beer face.
Video Link
Too many dollars chasing too few goods. That can happen in several ways including flooding the economy with dollars and a big drop in productivity. We have had massive deficits and little inflation until recently simply by having a very productive economy that keeps pace.
Inflation is caused by the zionist privately owned central bank , the FED, which is 1 of the 10 planks of the communist manifesto and is designed to destroy America by debasing the currency.
The FED was saddled on America in 1913 by the zionist banking kabal and is in total control of the ZUS regime. The FED is unconstitutional and needs to be abolished.
Funny thing is, we All are. After-all there just ain’t actually anyplace “else” to be living and breathing, anyhow. Some fear-ridden tormenting entities, though, trying to evade the awesome responsibility of it, wanted desperately to have some company in their “self”-inflicted misery. So they dropped-in on us here awhile back and started their crazy reign-of-terror.
All that is nearing THE END of its run. So ready-or-not, Free Wild is comin’ like that slow train, “….up around the bend.” ALL ABOARD!!!!
If GEP (gross elite production) can reduce inflation, the last few days
informing about the Chinese balloon should reduce inflation to zero.
GEP = tonnage of elite BS+ elite horse shit times elite hysteria.
Michael Hudson said “[T]he Federal Reserve was created in 1913 to take monetary policy out of the hands of government. The idea was, actions that the Treasury used to do — managing the economy — would be transferred to Wall Street and other centers. The Treasury Secretary was not even allowed to be a member of the Federal Reserve Board.
J.P. Morgan organized the bankers and said, “We’re going to take the twelve Treasury districts and we’re going to make them into Federal Reserve districts. Basically we’re going to shift economic planning away from Washington and put it in the hands of Wall Street in New York, Boston, Philadelphia, Chicago, San Francisco. But we’re not going to let the government do the planning. The problem is that people vote for politicians. And you don’t vote for who’s going to be on the Federal Reserve Board. We’ve got to take planning away from democracy and put it where it belongs: in the hands of the 1% and the bankers.”
That was the purpose of central banks in every country. Central banks were the alternative to socialism. Central banks were to prevent industrial capitalism from developing into socialism, but [rather] to develop into a financialized capitalism that instead of being productive was predatory.”
and I say the problem is dilution of the government’s monopoly power into private hands transforms capitalism into monopolism. All the rest of the problems presented are the result of that transform.
The Initial Condition: Government is the top level non human organization and it should be the only NHO organization in every society. Government contains, possesses and manages all monopoly powers subject to the vote or objection of those who are the governed. In other words, government and what it does with its monopoly powers is controlled by those who are the governed.
Government dilutes its monopoly powers into the hands of privately owned Oligarch special interest: Private and special interest tug at bottom up government trying to turn it into top down managed government. Thuse Private and special interest want two things:
1) they want all of the monopoly power that government possesses and
2) they want privacy and secrecy into order to control the use and application of monopoly powers. To do that the Private Interest and special interest seek ownership, possession and control over monopoly power. These monopoly powers could only come from one place, the government, because a formation time the government owns all of the monopoly powers. Government dilutes itself by spinning off parts of its monopoly powers to Non human organizations (NHOs).
Government Spin-offs are a horizontal transfer of government monopoly power.
Governments are Non Human Organizations (NHOs), Corporations, Partnerships, Trusts, and the like are also NHOs. Spin offs of the monopoly power of governments into privately owned NHOs removes bottom up (voter influence) as removes voters from access to information they need to favorably influence elections.
The corporations (fictitious entities=NHOs), governments use to transfer monopoly power from one NHO (government) to another NHO (the receiver of a transfer of government monopoly to a corporation).
The corporation is chartered by government itself to be a sibling NHO. The government sibling “corporation” is a vehicle used by government to remove one or a set of governed owned monopoly powers outside of the political system and inside of the corporate entity.
Spin-offs by governments remove voter influence over how monopoly powers are used. Voters are no longer able to control the management or use of the monopoly power; private interest decide how to manage their monopoly powers in secret and no voter, outside of the ownership of the corporation are given any opportunity to vote.
Spin-offs dilute. Government ownership of the monopoly powers government owns occur when a , but it also removes and by doing so, the government
Result of spin offs. The daughter and son corporations (spin offs) have take nearly all of the monopoly powers that used to belong to government, and they have gone international and as a result of the imperialistic colony ism<=globalism they have become more powerful than their parents: the governments.
One class of spin offs is the media. This class of NHO that we call the media has become so powerful it can control the mental thought processes and understanding or lack thereof of the masses of people governed by the governments. As a result the people either ignore government activities or they agree with it. There are few objectors. Unfortunately the media is owned by the spin off, so no part of its activities are subject to voter influence.
Media is supported by private corporate advertising spending not government spending. So all monopoly powers not remaining in government are controlled by non government NHOs. and all voters vote over government use monopoly power is controlled by the voter who is under the mind control of the media, which is under the dollar control of the advertising corporations.
Summary: Monopoly powers transfers from governments to private NHOs (chartered entities) has allowed the private entities to grow bigger and to become more powerful than the governments that spawned their existence. That is the sons and daughters have become richer and more powerful than the father and mother.
All important and useful monopoly power have been removed from the voters oversight; that is why voters no longer see any results to the votes they caste in elections. The government has become the pawn of the monopoly powered corporations.
I read a Ocean Tomo 2021 report which announced that 90% of the assets of the global multi national corporations were intangible assets. (Physical assets made up less than 10% of the balance sheet assets of the multi national corporations).
What nations straddled with private monopolism is a popular understanding that monopoly powers belong exclusively in government hands. Any monopoly power outside of government means the private owner of those monopoly power will eventually use it to extract wealth and income from those the government governs. Private public partnerships must go, because they give private interest monopoly access to government owned monopoly power.
Exactly. Globalization was quite beneficial to the Middle Classes and up to a lower extent the working classes of the emerging Third World economies but has been a disaster for first the Western Working classes and later Western Middle Classes. The Western elite classes could simply side step Western labour with higher labour rights and practices (partly thanks to the actions of Western labour Unions) and used Third World labour to give a big middle finger to Western Labour unions and Workers. Hell they used Communist China and Communist Vietnam to screw over Western Working classes. Communist China does not have labour unions like the West.
Irrational Hate West, hate Whitey, hate Japan etc…mental diseases, endemic in many Third World countries actually benefits the West and Japan, as long as them envious populations remain in their Third World countries. Anti-colonial B.S. which was partially driven by Global Marxism was a boon for the populations of the West. Driven by Leftist policies, many ex colonies took a socialist restrictive economic policy which led to a lot of Capital and technology being tied up in the West and Japan, for decades. Having high IQ and highly productive workforces, the standard of living for Western and Japanese populations rose.
Anti-colonial envy driven hate West/Hate Whitey common in the Third World, actually benefited the populations of the West. The gap in between the standards of living in between say Africa/ Indian subcontinent and Western Europe actually increased after decolonisation. That is the Great Divergence which predated European colonial Empires actually continued and accelerated like never before, after decolonisation.
But the fall of the Soviet Union ended up leading to a disaster for the populations fo the West. As now many Third World countries frustrated with decades of Socialist policies began to open up to the West/ Japan-Asian Tigers and thus capital and technology was flowing much faster and freely into the Third World now. Even though labour productivity in most Third World countries was lower, the gap in salaries in between Western labour and Asian labour in those days (and even today in most cases) was so huge, that it was worth it.
And also too many dollars propping up the middleman economy. A huge chunk of the GDP, perhaps as high as 30% is related to the middleman economy. The US GDP per capita is inflated because of it. Just the money managers of Wall Street alone account for trillions of dollars not counting the “consultants”, “fixers” and “advisors” in other industries.
Technology and globalization increased the importance of middlemen in the value chain but in the last couple of decades, the middleman became the tail that wags the dog instead of the other way around.
‘Money is … what you have in your pocket. All monetary assets have debt on the other side of the balance sheet.’ — Dr Michael Hudson
This is true for central banks under the contemporary fiat currency system. The Federal Reserve, for instance, carries $11 billion of wildly undervalued ($42.22/oz) gold stock on its balance sheet as one minor asset, with currency, reserves and reverse repos as the main liabilities offset against the total of its assets.
https://www.federalreserve.gov/releases/h41/20230202/
But the other $8.5 trillion of the Fed’s assets, consisting of securities, are all someone else’s liability: either the US government, US agencies (for mortgage-backed securities, or foreign governments (foreign currency).
Gold — at least if it were held directly by the Fed, rather than by the Treasury — is no one’s liability. That’s equally true of a gold coin in your pocket, as Dr Hudson points out.
Under the gold standard and its variants from 1790 to 1933, the US experienced no net inflation. Since 1933, when Frank Roosevelt seized the people’s gold, the price level has inflated by a factor of 23.5 times, and counting.
Empirically, we must conclude that the gold standard — in which the monetary asset base is constrained to rise on the order of 1% annually from new mining supply — effectively nullifies inflation. Whereas an unconstrained fiat currency standard, in which a limitless supply of government bonds forms the monetary asset base, fuels chronic inflation.
Fiat currency is an evil yoke of slavery imposed on humanity.
The great betrayal : how American sovereignty and social justice are being sacrificed to the gods of the global economy by Patrick J. Buchanan.
In The Great Betrayal, Buchanan charges the architects of NAFTA and GATT with selling out the middle class and turning their backs on the nation. As the voice of populist conservatism, he speaks to the desperation of the millions of Americans who have lost their jobs as a result of the free-trade policies of the Global Economy. He shows how by exporting jobs to Asia and Mexico, the corporate elite is destroying the American dream and profiting from the exploitation of sweatshop labor. Abandoned by their government, American workers are being forced to compete with cheap Third World labor and, inevitably, are losing out.” “Basing his arguments on the principles of our Founding Fathers and using real-life stories to illustrate the plight of the working class, Buchanan raises an impassioned call to arms. He offers a “new economic nationalism” and invites a battle for the heart and soul of the Republican Party in 2000 on the issues of national sovereignty and social justice. Republicans, neoconservatives, and Democrats cannot let his charges go unanswered.
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Political pundit and two-time Republican presidential candidate Pat Buchanan is best known for his sharp-edged cultural conservatism. The Great Betrayal, however, is an economic manifesto that promotes what Buchanan calls “economic nationalism.” Buchanan believes that free trade serves the interests of Wall Street, not Main Street. Transnational corporations rake in huge profits, but ordinary Americans see few benefits. Instead, they suffer from free trade’s bad consequences: flat wages for workers, increased drug trafficking, and environmental deterioration. Markets should serve people, says Buchanan, not the other way around. “The economy is not the country; the country comes first,” he writes. Buchanan offers a protectionist political agenda–one that many modern conservatives may not like, but one that Buchanan says puts him in the fine tradition of Washington, Lincoln, and Theodore Roosevelt. A forceful polemic challenging elite economic opinion. — John J. Miller
Hello Prof. Hudson,
Do you accept postdocs to work as your apprentices? I would really like to have a position to work with you. I am a total groupie for the way you challenge hegemony without mincing words. It is rare to see courage like this.
Thank you.
Thank you very much for your always unique perspective and insightful feedback, Malla!
What Keynes warned about globalization
https://www.india-seminar.com/2009/601/601_david_singh_grewali.htm
– https://archive.ph/P486x#selection-599.0-599.991
Things have changed for the better in terms of the (private sector) indebtedness of the United States since 2009 ““Private Sector Debt Service Ratio” (PSDSR). As can be seen from the following table, the U.S.’s PSDSR was at 18.3% in 2008 and it has fallen to 13.4% by 2022. China’s PSDSR on the other hand was 13.3% in 2008 and it has risen to 20.0% by 2022.” https://www.unz.com/article/ubi-reconsidered-for-23/?showcomments#comment-5797666
Nevertheless, as Keynes already observed 90 years ago ‘the age of economic internationalism was not particularly successful in avoiding war.’ https://archive.ph/P486x#selection-443.849-443.940
Recommended reading regarding possible/potential (geopolitical) policy prescriptions:
From Satanic Mills to Machine Learning by Francesco della Porta published July 18, 2022
Western Technology and Global Markets in the 19th and 20th Centuries
https://www.hugendubel.de/de/buch_gebunden/francesco_della_porta-from_satanic_mills_to_machine_learning-42257372-produkt-details.html
The Western middle class is a “one-off”. The Industrial Revolution helped the West to create a middle class that was non-existence before. Pretty soon people will catch up. Colonization of “non-industrialized” nations also helped. How long do you think that one can perpetuate this “lottery win”? I think it expired in the 70s, just two decades after WW2 rest the whole world order.
To think that the Western middle class deserves to get paid more for doing things that others can do for ten times the price is delusional. At the moment, war is the only solution to temporarily to sustain the status quo but at what price?
03/31/2022 Central Banks: Who Needs Them? No One!
Central banks, and especially the Federal Reserve System, continue to churn up inflation and the boom-and-bust cycles—in the name of “stabilizing” the economy.
https://mises.org/wire/central-banks-who-needs-them-no-one
Dec 4, 2021 Federal Reserve “Independence” is a Total Crock. #shorts
Without the Fed, the largest government in history wouldn’t be able to do much of what it does today.
Video Link
Is Inflation the Legacy of the Federal Reserve?
Jan. 17 (Bloomberg) — In today’s “Single Best Chart,” Bloomberg’s Scarlet Fu displays how inflation has increased in the 100 years since the creation of the Federal Reserve.
Video Link
“Inflation is taxation without legislation.” Milton Friedman
‘In today’s “Single Best Chart,” Bloomberg’s Scarlet Fu displays how inflation has increased in the 100 years since the creation of the Federal Reserve.’ — Agent 76
This chart illustrates the point made in words in Post #43 — under the gold standard, inflation exhibited no long-term trend. It was a bumpy flat line before the Fed.
Once central banks were introduced with legal authorization to monetize government bonds, inflation took off with a bang.
The Federal Reserve started out slowly with monetization. Until World War II, gold constituted a larger share of the Fed’s assets than Treasury obligations.
That all changed during the war. The Fed monetized Treasury bonds in the quantities needed to cap their yield at 2.25%, with wartime inflation running considerably higher.
By the end of the war in 1945, Treasury bonds exceeded gold on the Fed’s balance sheet, and never looked back. Unsurprisingly, inflation trended up for 35 more years as bonds became the Fed’s predominant asset.
Today, after a decade of unprecedentedly reckless quantitative easing, gold constitutes only a fraction of a percent of the Fed’s assets. AND, by no coincidence, inflation is eating our lunch once more.
Quantitative easing should be banned. And it might be, after quantitative tightening crashes the financial system. The Federal Reserve is flying the US economy into a mountainside, as the pilot and copilot huff laughing gas.
This author lies in the first response he gives, why read the remaider. Please Mr Unz, get an economist that understands the market instead of an apologist for the Keynesianism that prevails today. Maybe Walter Block or Tom Woods for example.
Constant Walker is what happens when a neurotic mixes his ganga and fentanyl. I read his comment several times and have no idea what the fuck he is talking about.
If he is living wild and free as you suggest what does that mean ? I live wild and free in the Big City. Does he live wild and free on the Plains, scrounging for rodents, grasshoppers and small birds, living in a tepee and communing with Mother Earth and the Manitou, cooking over a fire of buffalo shit ?
You dont want to ask him to clarify as you are liable to get another 4 paragraphs of shit explaining the original tedious load of incomprehensible manure.
Honestly Che, some of the commentators here on UR are so dumb, one wonders if the midwife dropped them on their heads and then slapped them.
Note that Americans can unilaterally revoke the Fed by refusing to use USD except for taxes.
Although it’s required that stores accept USD, they aren’t banned from accepting anything else. I expect it’s legal to do something like a 10% discount incentive, too…which is functionally a 10% premium for using USD. The stores would then immediately sell all USD, to avoid any inflation risk.
It would kick off USD hyperinflation, except the part where Americans would no longer be buying things with USD rendering the dollar prices irrelevant.
Oh…and don’t most Americans get a tax return, not a tax bill? Most need never hold USD at all.
You can even still bank without using USD. I suggest a BTC bank. It won’t have federal insurance, because it won’t legally be a bank, but that’s actually a good thing, not a bad thing.
Don’t need DC’s permission.
The Fed only has power because Americans slavishly let it tell them what money to use.
To FKA Max:
“De-dollarization is very unlikely”
We would strongly recommend you read how an empire’s money can become “de-dollarized.” Check out the fall of The Roman Empire,” or The British Empire.” Those are two textbook classics in comprehending how their currencies died along with their empires.
I agree that for the US we need to drastically redesign our system of economic evaluation.
I would agree that measuring the rise and fall of stock prices has limited value, because that design is based on a model that simply no longer exists
a. in industrialization
b. in processes which are obsolete by technology.
c. wealth so concentrated that the general consumer has little impact on the economy
d. a political system that operates to corporate interests which no longer operate to the country’s interest
There are no Carnegie’s designing a means to rescue the economy, it is the complete reverse – tax payers rescuing the holders of wealth, worse, the same holders in any respects for the careless management of the holders.
It is beyond explanation, save carelessness or collusion that the ratings agencies did not see the corrosive derivative packages. It appears that the nine primary principles developed and applied in GAAP assessments either failed or are no longer appropriate tests of best practices. Tragedy from which the country on whole has not recovered.
But in assessing the inflation, there’s a hurdle that yet has explanation to overcome that does not entail price co0ntrols and other government tools of force. How does one explain to Walmart or Este Lauder that in order for the system to survive to the benefit of all or most as is its purpose, they have to make less money. That the fifteen billion in profits they made this year will have to be 7 billion for the next ten years to rebalance the scales. That they either need to lower prices on goods and services or pay employees a higher wage or perhaps both.
How does one force the Federals: reserve banks, FDIC, FTC, etc. that will be held accountable for failing to to actually failing their to do their jobs? It was thought that we had elected a president to take such drastic action — but that was but a dream and that any current body or person politic taking that on is bit a “pipe dream”.
One could marshal the consumer to go one a general strike from buying from major sellers. That their local grocer, or tool company is a better investment. But what politician has the wherewithal to make that stand when the corporate world is shelling out funds for his or her re-election. The political class is not selecting economists from main street, they are all from the inner circle of elites and wealth.
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I am not sure how to explain that its not globalization, it’s globalization without controls. I can’t even argue that it is greed per se as much as the irrational fears of the upper classes that they will lose it all if they act in accordance with the rules and controls as opposed to the free for all competitive or self protectionists games they wield. Is Morgan Chase really just looking to horde cash so that everyday citizens are forced out of their homes? I am not sure I buy that.
I do buy that they exist in a world that simply is not real for 90% of the population and the steps they take suit them, maybe, but are a disaster for the other 90%. Now I would have thought that the democrats would be first in line, but as the record demonstrates, they are the last ones to advocate change and were the first ones to completely topsy turvey the capitalism by bailing out companies, when in fact, the billionaires should have been bailing out each other.
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I have no beef with the rich as long as they rules are duly applied. And they have been upending the rules to their favor and that I have issues with.
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If I grasp the conversation — then inflation is soley caused by artificial means — not the market but by an intent to protect profits at the expense of labor.
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a word unions in the US shot themselves in the foot when they globalized.
We “agreed” only to the extent of wanting THE entire FED to be destroyed, and go back to when the US was a very productive nation with millions of well paid workers who could afford homes, etc. etc.
But the entire financial hegemon in the US is now the sector who over took what the US Central Govt. used to do. The US country is owned entirely by its Financial System. Result: massive wealth for the select few; growing poverty abounds.
What causes the inflation? The Greed.
What causes the deflation? The Fear.
What caused the 30’s recession? The Fear.
What caused the post 2008 inflation? The Greed.
Any divigation beyond those two is a masochistic claptrap.
How do you know how resources would’ve been utilized if governement had not confiscated them?
Communism =
?
Isn’t providing for the masses/the 99%/the collective, i.e
socialism?
Gee, according to this medium, every-where ya look now it’s another ‘blob..’, aka rabid-of-pal-izz-stein?
Pretty close, yeah.
To be precise, Communists think of a childishly naive version of a hunter tribe. In particular they think hunter tribes didn’t need laws or have any homicide. It’s true they were much more egalitarian, due to having a society of not more than about 100 folk, so your odds of running into anyone really special was basically nil. E.g. the best singer you ever encountered would be like 1 in 500 at most, rather than 1 in some billion. Everyone you ever met would be ‘normal.’ Also due to the fact wealth was meat and fridges didn’t exist. The best hunter would share because it would just rot if he didn’t.
A lot of Communism is about environmental mismatch. Their solution is to return to the ancestral environment, either because they’re kind of stupid or because they’re crafting rhetoric aimed at the kind-of-stupid audience. “What if we made feeling Envy adaptive again?” they would say if they weren’t kind of stupid, though if they phrased it honestly like this they would realize it’s a stupid idea and stop saying it.
Indeed the Owenites (1830s) did just call a spade a spade. That was the last time Communists were ever honest. Nobody – absolutely nobody (except clinically crazy Owenites) – buys Communist arguments if they aren’t dressed up in elaborate lies.
Communists don’t really think about what they think, so it tends to be incoherent. E.g. the utopian strain thinks that we need to return to the ancestral environment by not returning to the ancestral environment as it’s still here. They think the only reason we need laws and anyone gets jealous is because of Racism or whatever. Or da joos. If we just properly suppressed all the heretics nobody would need willpower or strict socialization ever again.
It’s totally fine to upend Capitalism because we would still have food everywhere like we did in the ancestral environment, see? Makes perfect sense. If you’re kind of dumb.
Just get rid of all white men (or joos) and nobody would have to work a job anymore. Everyone could write poetry or go to rallies (for what politics?) or curate books (bound by whom?) and food would just…happen.
Can anyone tell me why places like Rhode Island, New York and Virginia will have heating bill increases at the lower end to other…less well off Americans?
I would think the heavier populated areas would need more maintenance for wear and tear then less heavily populated areas?
Also the more north you go the colder it gets.
I suppose its economy of size where the more cubic meters (sorry about the metric) you sell then the more competition for that market.
Do the people who buy all this stuff, work hard for it?
In the contemporary context; the answer is clear: baby boomers cause inflation.
The inflation is due to baby boomers getting pensions, social security, medicaid, and make-work jobs.
This is what our culture, our freedom, our heritage and our future were flushed down the drain for. So that boomers could drink, eat junkfood, use drugs and party hard like it’s 1972 forever.
I have always wondered what creates inflation and now, after reading this article, I am sure it isn’t the Jews who are doing it.
The supremacists that come here, who are mostly Crystal meth smokers, plumbers and truck mechanics (some of whom I wonder how they got here) will tell you that: “it’s the Jews, stupid”.
Thankyou for the article, I will read it again so I can be ready to answer to those who in their very ultimate high, say there is a group call the illuminati doing that. (the illuminati for your information, was a group of priests who fought the Vatican that got killed one by one a few years later and had nothing to do with economics).
So, in the article these two very intelligent folks explain there are two kinds of recession and that wall street and high interest rates provoke this.
Putin -and his ego-capricious wars – too is provoking this recession and therefore starvation all over the planet..
Who owns the damned federal reserve?
Well here is the board members:
Jerome H. Powell, Chair
Lael Brainard, Vice Chair
Michael S. Barr, Vice Chair for Supervision
Michelle W. Bowman
Lisa D. Cook
Philip N. Jefferson
Christopher J. Waller
(I see no Jewish names up there except maybe Bowman).
The U.S. central banking system—the Federal Reserve, or the Fed—is the most powerful economic institution in the United States, perhaps the world. Its core responsibilities include setting interest rates, managing the money supply, and regulating financial markets.
And please don’t attack Radhika simply because she’s dark skinned.
See how smart and how high the IQ of non white women is?
(The illuminati, they say, give me a break 🙄).
Isn’t that apparent, what causes inflation? Balloons!
Or maybe it’s the other way around.
As long as the U.S. maintains its leading position in terms of the depth of its financial markets https://www.unz.com/pescobar/rublegas-the-worlds-new-resource-based-reserve-currency/#comment-5272089 relative to GDP, there won’t be a meaningful “de-dollarization”, IMHO. Global capital/wealth — for the time being — simply has no other stable, sizeable alternatives:
Image Source: https://www.sifma.org/2020-outlook/2020-outlook-markets-matter/ or https://archive.ph/C1Iw1
The U.S. capital markets are the largest in the world and continue to be among the deepest, most liquid and most efficient.
I don’t know if you are aware of this, but Linde https://en.wikipedia.org/wiki/Linde_plc — Germany’s largest market capitalization company — recently delisted from the Frankfurt Stock Exchange, which is the opposite of “de-dollarization”: “By delisting from the DAX index, the company will see the departure of its most valuable group with a market capitalisation of €140bn, an event labelled by an analyst from investment bank Cowen as a ‘major blow’.” https://archive.ph/1Z3Rt
Very courageous and interesting discussion. Kudos to both economists and many thanks to the UR for linking to yet another outstanding contribution.
I wish the speakers had touched upon why inflation kicked off just after the COVID emergency measures had ended. Was it causality or coincidence? Has anybody read anything interesting on the topic?
I appreciate your time and comment, and I do not know where to are in the world. I have a link that is a global view so you can look up how much debt any country’s including where you are.
2020.05.24 The Agenda animation: Global Debt and COVID-19 Explained
When global business owners, economists and bank bosses call to end lockdowns, they’re often criticised for putting profit before people, but just how is the COVID-19 pandemic changing our financial foundation?
https://newseu.cgtn.com/news/2020-05-24/The-Agenda-animation-Global-Debt-and-COVID-19-Explained-QGm1Bu1lHa/index.html
The Global Debt Clock
Our interactive overview of government debt across the planet. The clock is ticking. Every second, it seems, someone in the world takes on more debt.
http://www.economist.com/content/global_debt_clock
I’m not convinced(even with all the colorful charts). Paper money is faith based, and the majority of the planets’ population are looking for alternatives(losing faith).
Personally, I like my gold, but hey, that’s just me.
Ahhhhh!! Jews with paper!! Run awayyyy!!!!
Is it?
Capitalism has completely crushed labor… But a funny thing has happened. Capitalism has almost completely offshored it’s industry… Millions and millions of industrial jobs. It also has imported millions of workers, mostly from the Third World… For agricultural, construction, service, tech jobs. It has gotten as close as you could ever dream (nightmare) of, to the free flow of labor. But now, even people from the Third World are refusing to work for these sub living wage salaries… and that’s what they have the Chutzpah to call inflation… Bring in the Robots!
You’re welcome.
The function of debt in America is largely to get away from crime and insufferable neighbours. Deterring crime is illegal in America, so the only option is to live somewhere so expensive the criminals can’t get near the place. Likewise, someone punishing a bad neighbour for being rude is considered worse than the trespassing neighbour, so the only way to avoid them is to hope they’re bad at their job and can’t afford a better apartment or house.
However, this is a red queen race. The criminals can also take out mortgages. The winners are the banks.
As such, solving the individual debt issue is a coordination problem. However, it is not illegal to stop trying to use DC to solve coordination problems. There are several strategies Americans could use to create affordable neighbourhoods that nevertheless disallow criminal residents. They just don’t.
Sovereign debt is unlike individual debt in almost every way. The Fed can’t go bankrupt. Even if they kick off hyperinflation, they will have enough money. It’s just you that suffers. Nearly everyone who ‘lends’ to Auntie Sam is aware that she can just not pay them back whenever she feels like. Oh and the interest rates are set by Sammie herself.
Imagine your credit card rate was set by you, to whatever you wanted it to be, and you could simply call the credit card company and cancel your balance whenever you wanted. That’s what sovereign “debt” is like. Almost, but not entirely, unlike a loan.
Thnks, refreshing vocabulary.
What else?
“Putin -and his ego-capricious wars – too is provoking this recession and therefore starvation all over the planet.”
Given the avenues for food distribution, I simply don’t buy the Russia contention.
——
I am not sure you you understand capitalism.
The debate regarding labours wages for work is actually a legitimate property (skill or effort) whose price can certainly be negotiated by those providing labor. And I am not convinced that your labor scenario is accurate.
Good question. Been to Australia lately? Might be a clue to the intended end-state there.
There was always unbacked paper money even under the gold standard; unbacked paper money is not only the legitimate child of the MMT and Bankers’ Fiat, but also a bastard child of the gold standard.
Gold standard has this merit of keeping prices steady, but only for a short term – one century at most; then the gold supply – per capita availability of gold should have increased proportionately to the increased population; else, there will be a deflation. Deflation itself is not bad, but deflation is very bad for debtors. That means debtors have to fight not just the interest burden, but also the burden of same unit of money buying more goods and services – he has to work harder to repay the debt marked in money units. An inflexible supply of money is always a siphon sucking the poor.
An inflatable money supply is unavoidable. One solution would be bimetallism, or even trimetallism, but without fixing inter-metal exchange rates (like the Mughals did in India; gold, silver and copper coinages all existed side by side, but there was no fixed exchange rates between them; an article can be quoted in any of the three). Another solution would be to allow government to spend their expenditure with interest-free paper notes, redeemable as tax payments, along with promissory notes and bimetallism – like the US in the late 19th Century. US did very well till the banksters convinced the government not to issue greenbacks, and then eliminate the silver money. Another two rounds of greenbacks – one in 1908 and another in 1934 – would have permanently freed America from the clutches of the money cartel.
One thing is clear: there must be competition among the different kinds of money, and at least one should be accessible to all – that is, everyone must be able to issue that money.
BTW, a trillion dollar coin, or even a quadrillion dollar coin, is certainly on its way to us.
There is such a thing as Inflations in flavours, the current one is a distinct inflation in nominal dollar quota of the part of the wealthy [too sad to use such a word to describe such atrocity of greed].
The rich were “inflated” which ultimately by inertia affected the price of industrial food, underwear, habitats, and gas. The play-out of the bluff over Ukraine which the US did not manage to be able to follow up on, and caused a loss of credibility, triggered the major quake: a contraction of the use of the dollar [even the confiscating of the Russia assets would have come home (were it not that the accounting of our Finance Cabal, the apostles of Capitalism is non-existent)]. Thus, since some of the biggest transaction generators of real resources openly spit on the dollar [Russia, China, Saoudis …], …the worthless dollars come home.
To whom? the street dwellers, the Mr. USA, and the American Dream crowd? No, it is the rich, they get the blow-back from the fart they engendered. Inflation now becomes deflation [as in value against inflation as nominal amounts]. Which is a good thing i presume. Policy making should have little to do with creating a virtual world for humanity that bursts in the face of reality. Thus this time around: inflation == “nominal dollar amounts having incrementally lesser value”. A good thing in all, were it not that China and Russia have little to offer then continuing the overheating to serve the short term as much, and compromising the future generations. Are there any “Jews at work” in Moskou as much? Are the Chinese, after throwing off the jug in the end not capable of much more then to set the clock back to 1850, Adam and Ricardo? Moses?
I completely disagree. The Western middle class might have been a product of the Industrial Revolution but their roots are deep, from the late Middle Ages. White America was a prosperous society even during the colonial era, during British rule, might be the most prosperous society on Earth even as early as the late 1600s. If there is one society where the Middle class is not a lottery win, it is the West.
The lotteries were the ancient civilizations like Egypt, China, India, Iraq..they just got access to great river systems and farmlands. That is all. Had the barbarians they looked down upon got these farmlands, they would have hit the lotteries too.
And it is not only the Middle classes who suffered in the West due to globalism, Western working classes suffered too. Your arrogant and misguided response proves that crackpot Marx’s theory of global Middle class solidarity is unnatural and impossible. It is always tribal interests.
What a pompous arrogant bitch!!! Bringing Middle Eastern/ South Asian level class snobbery to the West. If there would be no Truck mechanics and all trucks breakdown, how will you get the bullshit you order online? Who will transport your food and fuel without truckers and without mechanics to service and fix their trucks?And let your house get a big leak with water filling out your basement, you would be running creaming helter shelter and call every plumber you know.
Get off your pompous high horse madam, have some beer with plumbers and truck mechanics, talk to them, it may lead to some increase in your abysmally low IQ. Plumbers and Truck mechanics are more important to any civilization than most leftard professors in academia.
I have no idea what you’re hinting at?
How unfortunate.
Whatever floats your boat. Gold is a great asset — with elevated price volatility risk, but almost no counterparty risk (unless it’s stored at 33 Liberty Street https://www.unz.com/pescobar/from-the-black-sea-to-the-east-med-dont-poke-the-russian-bear/?showcomments#comment-5197254 “most of the World’s mined, central bank gold is stored on U.S. soil in NYC“) — to maintain one’s purchasing power and wealth with, just not so much to grow/compound it. That’s where open and transparent capital markets come in, as one of the most productive capital allocation mechanisms we have come up with so far, and also as an alternative to unproductive government taxation/wealth redistribution. The size and depth of American capital markets and the resultant U.S. Dollar global reserve currency status give U.S.-listed corporations a competitive advantage (“Exorbitant Privilege” https://en.wikipedia.org/wiki/Exorbitant_privilege#Research “estimates overall return differentials of 1.9% [to] 1.7%“) because they usually have lower funding and borrowing costs without taking on too much exchange rate risk, if most of their profits are generated domestically in the U.S. That’s why Warren Buffett https://archive.ph/SoVKz says “For 240 years it’s been a terrible mistake to bet against America“:
– https://www.unz.com/runz/resurrecting-americas-minimum-wage/?showcomments#comment-5300066
What is hilarious is when the elites push for “mixed income affordable housing” with lots of regulations designed to weed out criminals from the projects.
It always fails within a few years–but the reason is subtle so the “planners” can’t understand it.
It is the “grandmother effect”.
Grandma is a sweet black lady who lives alone in the project. All her neighbors love her.
Eventually her daughter (who lives elsewhere) gets in trouble with drugs and the law and the daughter’s kids are about to be taken away and put in foster homes.
Grandma, being the sweet lady that she is, steps up and agrees to take care of the grandkids.
All is well for a few months and then gradually the complex is hit with burglaries, car break-ins, late night muggings and maybe a rape or two.
It is a total mystery–unless you know where to find the clue–the grandson’s gang tats…
Thank you. The F-bombs and sh*t-storms and such to which some seem reflexively to resort, do serve to reveal psycho-emotional states redolent of fear….hardly surprising given that being the prevailing “climate” for so many these days. Those habits might relieve some tension, too, but don’t do much to further the critical cause of clarity in communications.
On the other hand, this Old Man’s admittedly unorthodox Way of stringing together what are for the most part just everyday words, is off-putting for some, too. It’s just that the Old Original Language of Organic Functional Integrity is difficult to fit into the impoverished lexicon and relentlessly mono-dimensional structure of “modern” English. That difficulty is only compounded by the woeful Biological “illiteracy” inflicted on the victims of the .edu establishment.
The Grandmothers say offering our captive Human Relatives some reminders of their true Nature is still worth the effort, though. So this “beneficiary” of the Gov’t School System is glad to do a little along those lines.
blah blah blah
My father is a plumber and he is a turd.
https://progressive.org/latest/2023-ftc-takes-on-big-tech-rosen-31123/
i am not a progressive or a leftist, but I found the above reference worth recommending.
Indeed, Language is Key. Thanks.
Emission. What else?
Ok, so according to the first part of the conversation, the FED, after 2008, it raised the value of these financial intsruments and now we citizens are paying for that.
If that’s the case, then why do we keep hearing how The FED is fighting Inflation?
This doesn’t make sense.
Can someone explain that?
It’s unfortunate that no one reading or listening to this conversation can intervene when we have questions about what they mean.
Most people here want to learn, but without a question/answer dialogue you have to spend untold hours in trying to comprehend what the speakers are saying.