Posts
Martin O’Malley for President?
The Decline and Fall of the American State; Enjoy It
or How Do You Like Your Fascism? Sunny-Side Up?
In which we learn how the fear of future surpluses (confused you too, huh?) under Clinton scared the bejeesus (and he's already Jewish) out of Alan Greenspan and every banker who communicated with him at that time, among so many other interesting tidbits about the ensuing world economic devastation.
Good luck to US!
QE Intentions All Too Obvious
“Quantitative Easing for Whom?
March 11, 2015
By Michael Hudson
The European Central Bank’s trillion euro plan will only help keep the banks afloat.
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network.
I’m Sharmini Peries, coming to you from Baltimore.
In an effort to relieve some pressure on the struggling European economies, Mario Draghi, president of the European Central Bank, announced a 1 trillion euro quantitative easing package on Monday. Quantitative easing is an unconventional form of monetary policy where a central bank creates new money electronically to buy financial assets like government bonds. And this process aims to directly increase private-sector spending in the economy and return inflation to target.
Well, what does that mean and what might be wrong with it is our next topic with Michael Hudson. Michael Hudson is a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents. His upcoming book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
Michael, thank you for joining us, as always.
MICHAEL HUDSON, PROF. ECONOMICS, UMKC: It’s good to be here.
PERIES: Michael, the Fed and some economists will argue that this is what got the U.S. out of its 2008 financial crisis. In fact, they put several QE measures into place. So what’s wrong with quantitative easing?
HUDSON: Well, the cover story is that it’s supposed to help employment. The pretense is an old model that used to be taught in textbooks a hundred years ago: that banks lend money to companies to invest and build equipment and hire people.
But that’s not what banks do. Banks lend money mainly to transfer ownership of real estate. They also lend money to corporate raiders. They lend money to buy assets. But they don’t lend money for companies to invest in equipment and hire more workers. Just the opposite. When they lend money to corporate raiders to take over companies, the new buyers outsource labor, downsize the work force, and try to squeeze out more work. They also try to grab the pensions.
The Fed was pretty open in what quantitative easing is supposed to do since 2008. It’s supposed to lower the interest rates, which raises bond prices and inflates the stock market. Since 2008 they’ve had the largest monetary inflation history – $4 trillion of quantitative easing by the Fed. But it’s gone via the banks into the stock and bond market.
What has this done for the economy as a whole? For starters, it’s obviously helped stock and bond holders get richer. And who are they? They’re the 1 percent and the 10 percent.
People are wringing their hands and saying, why isn’t the economy getting richer? Why is it that since 2008, economic inequality and the distribution of wealth have worsened instead of gotten closer together? Well, it’s largely because of quantitative easing. It’s because quantitative easing has increased the value of the stocks and the bonds that are held mainly by the 1 percent or the 10 percent hold.
This hasn’t helped the economy because the Fed is really concerned with its constituency, which are the banks.
Quantitative easing hasn’t helped one class of investors in particular: pension funds. It’s done just the opposite. Pension funds made the assumption a few years ago that in order to break even with the rate of contributions that corporations, states and municipalities are paying, they have to make eight percent or eight and a half percent a year as a rate of return. But quantitative easing lowers the interest rate.
Today’s lower interest rates have made pension funds desperate. The risk-free rate of return is less than 1 percent on short-term Treasury bills. If you buy longer-term treasuries you can make 2 percent, but then if the interest rates ever go up, you’re going to take a loss as the bond price declines. So pension funds have said, “We’re desperate; what are we going to do?”
They’ve turned their money over to Wall Street money managers and hedge funds. The hedge funds take a huge rake off of fees to begin with. But even worse, when hedge funds and the big banks – Goldman Sachs, Citibank – see a pension fund manager coming through the door, they think, “How can I take what’s in his pocket and put it in mine?” So they rip them off.
That is why there are so many big lawsuits against Wall Street for mismanaging pension fund money.
To summarize, the effect of the quantitative easing has been to make pension funds desperate, and to support real estate prices, as if higher costs to obtain housing will help recovery. It doesn’t help recovery, because to the extent that quantitative easing supports a re-inflation of housing prices, new homeowners have to pay even more of their income to the banks as mortgage interest.
That means they have less money to pay for goods and services, so markets for goods and services continue to shrink.
What the quantitative easing has not been used for is what was promised in 2008. Before President Obama won the election and took office, Congress said that the TARP bailout and TALF were supposed to go for debt reduction. Some was to write down mortgages, so that people could afford to stay in their homes rather than the millions of home owners that have been foreclosed on and thrown out. But even before Obama came into office, Hank Paulson, the Secretary of the Treasury, told Democrats in Congress, yes, we’re willing to write down debts.
But as Barney Frank explained in exasperation, Obama said no, he’s not going to do that. Obama ended up supporting the banks. So almost none of the TARP bailout money was been used for debt write-downs.
The same phenomenon is happening in Europe.
PERIES: So, Michael, this is exactly what the ECB is now proposing for Europe.
. . . what’s wrong with w(hat) the ECB has announced in terms of a trillion euros worth of quantitative easing for Europe?
HUDSON: The head of the European Central Bank, Mario Draghi, has said that he’ll do whatever it takes to keep banks afloat. He doesn’t say that he’ll do whatever it takes to help economic recovery, or to help labor more. The ECB’s job is to help banks make more money.
Draghi was vice chairman of Goldman Sachs during 2002 to 2005. His view is that of Wall Street. It’s not a vantage point helping labor or helping economies grow.
So it’s not surprising that the trillion euros of new money that the Eurozone’s central bank is creating hasn’t gone to help Greece, for instance, survive. It hasn’t gone to help Greece, Spain, Italy, or Portugal get out of depression by fueling government spending.
It’s simply been given away to the banks to buy bonds and stocks, including buying American stocks and bonds.
Behind this policy is the trickle-down theory that if you can make the financial sector richer, if you can make the one percent and the 10 percent richer, it’s all going to trickle down.
This is the view of Paul Krugman, and it’s the view of the advisers that Obama has had. But instead of trickling down, the stock and bond price gains by the 1% and 10% drive a wedge in the economy, by increasing the value of stocks and bonds and real estate and wealth against labor.
So quantitative easing is largely behind the fact that the distribution of wealth has become worse rather than better since 2008.
PERIES: Now, Michael, one of the things that has happened in Europe that you wrote to me actually in an email was the disappearing central banks’ role in stimulating economies. Why is this an issue?
HUDSON: Central banks originally were designed to monetize government deficits. Governments are supposed to spend money into the economy, because that helps economies grow. But in Europe the Lisbon agreements say governments can’t run a deficit more than 3 percent of national income.
Furthermore, the role of the Eurpean Central Bank is not to give a penny to governments. They say that if you give a penny to government, you’ll have hyperinflation like you had in Weimar. So the central bank can only give money to banks – to invest in stocks and bonds.
But the ECB won’t b(u)y fresh bonds to finance new government spending. The result of this policy of not funding government deficits is that if the economy is to grow, it has to be entirely dependent on commercial banks for credit.
We had this situation in the United States in the last few years of the Clinton administration when the United States actually ran a budget surplus instead of a deficit. Now, how do you think the United States could grow when there’s a budget surplus sucking money out of the economy?
The answer is that commercial banks and bondholders have to supply the money. But the banks only supplied money in the form of junk mortgages and other forms of an economic bubble, such as takeover loans and a stock market bubble.
The interest of banks is not to help economies grow; it’s to extract interest from the economy. The financial sector uses part of its rising wealth to lobby for privatization selloffs.
The problem with this is that when you privatize a public utility, you give away a monopoly – and if you deregulate the economy, you let the monopoly set up tollbooths over the economy, for toll roads, communications or whatever is being privatized.
The ECB is telling Greece to privatize to raise the money to pay its bondholders, the ECB and IMF. So you have quantitative easing going hand-in-hand with the insistence on privatization. The result is debt deflation as the economy is forced to depend more and more on banks for the money to grow, instead of on government spending into the economy.
You’re having the governments not being able to spend on infrastructure, letting it fall apart, as is happening with bridges and tunnels in the United States.
The next step is for the government to say, “I’m sorry, the central bank doesn’t have enough money to help us build new infrastructure. So we’ve got to sell it off to private investors who do have the money.”
The next thing you know, you have the economy ending up looking like Chicago. That city sold off its sidewalks and its parking meters to Goldman Sachs and to other Wall Street firms. All of a sudden the prices of parking, driving, and living in Chicago went way, way up instead of lowering the costs as privatization promised.
You have the same phenomenon here that England suffered under Margaret Thatcher: costs for hitherto public services go up. Transportation costs go way up. Road costs go up.
Communications, internet costs, telephone costs, everything that is privatized goes way up. Financialization leads to a rent-extractive, almost neo-feudal economy.
In that sense, quantitative easing and the refusal of central banks to fund governments (except to pay bondholders and bail out commercial banks) is a new kind of class war. It’s not the old kind of class war, which was between employers and their workforce over what wages will be.
It’s by the financial sector trying to take over the economy, and especially to take over the public sector, to take over the public domain, to take over public utilities and whatever assets a government has. If governments cannot borrow from central banks, they have to begin selling off property.
PERIES: Michael, this is exactly what’s happening in Greece right now. The SYRIZA government is somewhat forced to continue privatization as a part of the agreement of the loans that they have been given by European banks. What could they do in this situation?
HUDSON: This is really a scandal, because most privatizations are corrupt insider dealings. The SYRIZA Party came in said, wait a minute, the privatizations that have been done are by governmental officials to their own cronies at a giveaway price. How can we balance the budget if we’re giving away the public utilities instead of getting a fair price for them?
The European Central Bank said, no, you have to give away privatization to cronies at pennies on the dollar just like Russia did under Yeltsin, just like the United States did with the railroad giveaways of the 19th century.
Remember, the American privatization to the railroad barons and their financial backers created essentially the ruling class of the 20th century. It created the American stock market. The same thing is happening in Greece. It’s being told to continue the former politicians’ drive to endow a new oligarchy, a new kind of a feudal monopoly lord, by these privatization giveaways. The ECB says that if you don’t do that, we’re going to bankrupt the banking system.
Yanis Varoufakis went back to the party congress in Parliament and asked whether they would approve this. The left wing in Greece has said, no, we won’t approve the giveaways.
The pretense is that privatization is to make money, but the European Central Bank is saying, no, you can’t make money; you have to give it away to our cronies. It’s all one happy financial family. This is escalating financial warfare.
I can assure you that neither Varoufakis nor SYRIZA has any interest in this kind of privatization giveaway. It’s trying to figure out some way of perhaps prosecuting the cronies for bribery, for internal connections, or figuring out some way of legally stopping the rotten policies that they’re told to follow by the European Central Bank – which isn’t giving a single euro to help Greece get over the economic depression that debt deflation has brought on. The euros are only given to the financial sector, basically to help declare war on the Greek government, the Spanish government, the Italian government.
This financial warfare is trying to achieve the same thing that military warfare did in the past. It’s aim is to grab the land, to grab control of the public infrastructure, to grab control of governments themselves. But it’s doing it financially rather than militarily.
PERIES: Right. Michael, the SYRIZA Party last week did agree to the conditions of privatization, that they would not roll back on the existing agreements that had been made by previous government. They agreed to not roll back on ones that are underway, and that there actually not even averse to privatization as a statement by Yanis Varoufakis. What does all this mean for Greece?
HUDSON: The financial gun was put to their head. If they wouldn’t have said that, there would have been a total breakdown, and the European Central Bank would have tried to bankrupt the Greek banks. So he didn’t have much of a choice. Everything that Varoufakis has written, and all that the political leader of SYRIZA has said, has been exactly the opposite. But they had to give lip service to what they were told to do, and any agreement that’s made has to be ratified by Parliament. So, what they’ve said is, okay, we’re going to play good cop, bad cop. We’ll be the good cops with you, and let Parliament and our left wing be the bad cops and say that we’re not going to stand for this.
PERIES: As always, Michael, thank you so much for joining us. It’s always fun to have you on. And it’s so sad that issues we’re dealing with are so tragic for the people.
HUDSON: It’s really good to be here. Thank you so much, Sharmini.
From the right we hear lots of complaints now too.
Attend carefully to the arguments they are advancing for their skepticism.
And you thought it was only those at your income level who were complaining!
Truthinesslessness
Nothing is stable, nothing is straightforward, everything is fixed, and nothing is fixed. O nation of busboys and WalMart greeters, awake and sing!
Can an empire founder on sheer credulousness? After last Friday’s jobs report, I think so. For a culture that luxuriates in statistical analysis (and the false idea that if you measure enough things, you can control them), it is rather amazing that we absolutely don’t care whether the measurements are truthful or not. Hence, an economist such as Paul Krugman of "The New York Times" might ask himself how it is that Zero Interest Rate Policy only trickles down to places where hamburgers are sold. PK was at it again in his Monday column, yammering about “rapid job growth,” “partying like it was 1995.” Wise men like him are pounding this country down a rat hole faster than you can say Romulus Augustulus.
Apparently the US Bureau of Labor Statistics missed the job bloodbath in the oil industry, especially over in Frackville where the latest western phenomenon is the ghost man-camp (along with ghost pole dancing parlors). It’s a veritable hemorrhagic fever of job layoff announcements: 9,000 here, 7,000, there, thousands of thousands everywhere — Halliburton, Schlumberger, Baker Hughes — like an Ebola ward in the oil services sector. Not to mention the cliff-drop of capital expenditure, meaning even steeper job losses ahead, Casey Jones. But nobody notices, I guess because they’re out at Ruby Tuesdays eating things bigger than their heads. Are the portions getting smaller, or are their heads shrinking?
Finance is complicated, but not as complex as the wizards employed in it would have you believe. They would have you think it is an order of magnitude more abstruse and recondite than particle physics, when, in fact, it is often not much more than a Three Card Monte switcheroo. The whole ZIRP and QE game, for instance, can be boiled down to a basic wish to get something for nothing, that is, prosperity where nothing of value is created. Now, that’s not so hard to understand, is it? Until the economics wardrobe team comes in and dresses it up in martingales and bumrolls of metaphysics and you end up in a contango of mystification.
More galling and worrisome, though, is the failure of anyone even remotely in authority to stand up and publically object to the tidal wave of lies washing over this dying polity, actually killing it softly with truthinesslessness. The code of anything goes and nothing matters is turning lethal and the more it is kept swaddled in lies, the more perverse, surprising, and destructive the damage will be. The more our leaders lie about misbehavior in banking — including especially the actions of the Federal Reserve — the worse will be the instability in currencies. The more central bankers intervene in price discovery mechanisms, the more unable to reflect reality all markets will become. The more that the US BLS lies about the employment picture in America, the worse will be the eventual wrath of citizens who can’t get paid enough to heat their houses and feed their children.
An economist named Richard Duncan last week proposed the interesting theory that Quantitative Easing can go on virtually forever in an endless chain of self-canceling debt. Government spends money it doesn’t have and cannot raise, issues bonds to “investors,” buys its own bonds and stashes them in a storage vault so deep that the sun will not shine on them until it becomes a blue dwarf — long after the cockroaches have taken charge of Earthly affairs. Duncan forgets one detail: consequences. The consequence of this behavior will not be eternal virtual prosperity, but rather a wrecked accounting system for the operations of civilized human life. We’ve stepped across the event horizon of that consequence, but we just don’t know it yet. My bet is that we start feeling the effects sooner rather than later and when it is finally felt, all the Kardashian videos in this universe and a trillion universes like it will not avail to distract us from the flow of our own blood.
How "Free Markets" Defame "Democracy"
Militarization of America - We've Become a Failed State
The German playwright and poet Bertolt Brecht spoke about the 'liberals' in his country collapsing during the rise of Hitler and Nazism. They meekly surrendered and betrayed the public trust. In the US most liberals still believe that they are just one election away from turning things around. Just get another Democrat into the White House or return the Congress to Democrat control is their only priority. But sadly they've forgotten that it was their party, in control of Washington during Bill Clinton's presidency, that kick-started NATO expansion to encircle Russia and continued the massive growth in the Pentagon's budget that began under Jimmy Carter and continues under Obama. I've been an activist through all those years and have seen the 'liberals' continual selling out to the military corporate agenda.
Our country has become a failed state. Our children's future is bleak. Rank-and-file liberals don't have much to say. Obama has been a god-send to the corporate oligarchy. He has kept his base in check. Hillary Clinton would do the same.
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The modern Republican party has become an authentic mechanism for political subversion, and it's not just unknown crazy people from Texas who are driving the train. A rookie meathead submarines the president's foreign policy. Rick Perry is currently running for president on a platform more suited to a campaign conducted under the Articles of Confederation. Mitch McConnell, the majority leader of the United States Senate, has suggested that governors out in the several states ignore the Environmental Protection Agency. At every conservative gathering, from CPAC on down, there at least is one panel touting the benefits of nullification and old-school states rights politics. Yes, a lot of it is about how states rights got whipped over civil rights in the 1960's, but it's not all about race. It's about a deliberate, calculated attempt by one of the only two political parties we allow ourselves to dismantle the federal union. They want the country to come apart so they can sell off the pieces to the people who run their campaigns. They are free to prove to me that I'm wrong.
Obama’s Selma Song: America Is Not Racist – It’s Just Ferguson
MEDIA FAIL: Is the West’s Coverage of Ukraine a Failure of Nuclear Proportions?
That should be enough to hold us through this weekend.
And if not, Max Keiser and Stacy Herbert will definitely get your heart punping overtime today.
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