| Subject: | Re: [socialcredit] Michael Hudson's harangue on Richard Cook | | Date: | Monday, August 20, 2007 20:38:16 (+1200) | | From: | Peter <cymric @.......nz>
|
| In reply to: | Message 4990 (written by william_b_ryan) |
its a wonderful piece of propaganda for persueding politicians to have govt
take over control of the money supply, if every loan repaid is going to
increase their purchasing power.
It would also be one sure route to communism with the state ending upowning
all property. Then with a georgian tax on property it would take half the
time.
Peter.
----- Original Message -----
From: <william_b_ryan@yahoo.com>
To: <socialcredit@elistas.com>
Cc: <rickycook21@hotmail.com>
Sent: Monday, August 20, 2007 4:00 PM
Subject: [socialcredit] Michael Hudson's harangue on Richard Cook
>I am forwarding this posting from earlier today to
> list gang8 from Michael Hudson regarding our friend,
> Richard Cook.
>
> For those of you who do not know of Michael Hudson, he
> has been employed for most of his adult life by one
> Georgist organization or another. He is a rather
> extreme neo-Georgist, as you can see from his
> harangue. Recently, he has been taking money,
> indirectly if not directly, from Warren Mosler, the
> multi-millionaire currency trader who wormed his way
> into and thoroughly corrupted the Post Keynesian
> movement--through his--meaning Hudson's--association
> with the Mosler founded and funded "Center for Full
> Employment and Price Stability."
>
> Let me just point out this from Hudson's post:-
>
> "Cook continues: 'However, when the money goes back to
> the bank to cancel a loan, that purchasing power
> disappears.' It doesn't really disappear, of course.
> It is withdrawn from the 'real'
> production-and-consumption economy and added to the
> financial sector's purchasing power."
>
> It doesn't really disappear? This is just pure
> Georgist ideology in their perverse concept of "asset
> price inflation."
>
> The theorem known since as early as Douglas' time is
> that loans create deposits; the repayment of loans
> cancel deposits.
>
> The theorem is accepted most prominently by the Post
> Keynesians, at least by those who have avoided being
> corrupted by Warren Mosler.
>
> --------------------------------------------
> -------------------------------------------
>
> Posting from Michael Hudson:
>
> August 19, 2007
>
> Dear Gunnar,
>
> Thank you for sending my Mr. Cook's article and your
> comments. I'm told that he is to be joining my team on
> behalf of Dennis Kucinich. So I want to make clear how
> my ideas differ both from yours and his.
>
> I realize that you are not going to agree with me
> Gunnar. I have refrained from arguing with you in the
> past, because I don't want to get into the situation
> that led both Randy Wray and Stephen Zarlenga to
> withdraw from this list. The best thing is that we
> agree to disagree.
>
> Here is where we disagree. I view "the economy" as
> divided into two sectors. The biggest sector as far as
> credit is concerned over 99% is the market for
> financial securities, mainly bonds, stocks and
> mortgage loans and other packaged bank loans. Each day
> more than an entire year's GNP passes through the New
> York Clearing House and the Chicago Mercantile
> Exchange.
> The small sector using about 1% of credit is the
> sector that you and Mr. Cook focus on: the "real"
> economy producing goods and services. Given the
> disparity in sizes, most credit inflates asset prices.
> In fact, since 1980 the U.S. economy has seen the most
> rapid inflation in its history. But the inflation has
> been considered "benign" and even "good" (Mr.
> Greenspan called it "wealth creation") because it
> increased the purchasing power over living labor of
> property real estate and financial securities. The
> dead hand of the past increased its weight over the
> living.
>
> You cite Cook's statement, "But the peculiar thing is
> that because the borrowed money pays for labor,
> commodities, rent, etc., it [He means, 'its financing
> charges'] becomes part of the prices that are
> eventually charged for goods and services." OR, the
> borrowed money the great bulk of it is used to bid
> up prices for real estate (70% of U.S. and British
> bank loans are mortgage loans), stocks (for LBO loans)
> and bonds (by flooding the economy with credit to
> drive interest rates down, producing the greatest bond
> rally in history as rates fell from 20% in 1980 to 5%
> in 2005).
>
> Cook continues: "However, when the money goes back to
> the bank to cancel a loan, that purchasing power
> disappears." It doesn't really disappear, of course.
> It is withdrawn from the "real"
> production-and-consumption economy and added to the
> financial sector's purchasing power. That sector uses
> its inflow of (re)payments to lend out to buyers of
> real estate, stocks and bonds and entire companies to
> further inflate asset prices.
>
> As I'm sure all of us on Gang8 know, banks don't lend
> to invest in tangible capital formation. That is
> financed mainly out of retained earnings. Neither
> James Watt, Henry Ford or industrialists in between
> could borrow from banks to put their capital in place.
> Banks lend to against assets already in place, or to
> finance the sale of goods already produced and
> ordered, but not to create "equity" investment in
> tangible means of production. This is what warps the
> private-sector banking system today, and I understand
> that this is Mr. Cook's criticism too. (Chris Cook
> might also agree here.)
>
> Mr. Cook concludes that "The economy is thus a
> treadmill that borrowers must constantly trudge along
> in order to have enough money for survival." I think
> it is a treadmill that becomes increasingly steep. The
> debt repayment burden mounts up at compound interest.
>
> You comment: "In the circular-flow view of
> Entrepreneurial Production, newly created
> credit/money/ purchasing power enters the economy
> through the market for Factor Services and exits the
> economy through the market for Final Goods and
> Services."
>
> Again "the economy" here is divided into two sectors.
> This is my major point. Credit is NOT transformed
> "into Final Goods and Services," but into asset-price
> inflation.
> You ask, "Why, then, does Cook assert that "this
> process creates a chronic shortage of purchasing
> power"?
>
> My answer is that debt service mounts up faster than
> the economic surplus, and ends up absorbing it.
>
> Yours is, "Because he defines 'credit' as synonymous
> with the economy's potential productive capacity and
> takes as given that actual mobilization of Factor
> Services must fall short of that potential." This
> sounds like the old Social Credit idea.
>
> You point out his citation that all definitions of
> credit "have some connotation of the concept of
> 'value.'" I would rather say, "Price." Value in the
> sense the classical political economists used the term
> reflects socially necessary costs of production.
>
> Credit and other financing costs are external to the
> production-and-consumption sector, being wrapped
> around it as I have shown in the diagrams in my Kansas
> City and Harpers articles. These financial charges are
> institutional, not technological.
>
> You focus on the "real" economy, as does Cook here
> until he criticizes the fact that today's banking
> credit is extended largely to finance predatory
> property acquisition.
>
> You then cite a sentence that seems to reflect both
> your views in common: "The idea of credit when viewed
> from a macroeconomic perspective refers to the ability
> of an economy to produce goods and services of value
> to the members of that community."
>
> My point is that credit been turned into its opposite
> increasing the economic power and price of property
> over labor, as it takes more and more wages to buy a
> home, more and more profits or rental income to buy
> commercial real estate, or more and more labor income
> to buy a flow of retirement income.
>
> Cook writes: "Without the credit-potential of a
> producing economy, money has no meaning."
>
> My point is that it HAS a meaning, but one that takes
> the corrosive form of asset-price inflation. This
> becomes clear when one looks at the buildup of
> interest-bearing debt at exponential rates the
> "miracle of compound interest."
>
> Cook points out that "the 'real' credit of the U.S.
> economy was much higher, because our economy is not
> running at anywhere near its full capacity."
>
> To me, the answer is different. The volume of capital
> and debt far exceeds GNP. Hence, financialized
> asset prices are expanding much larger than actual
> production. Credit is not extended to produce goods
> and services, increase national income and GNP, but to
> buy assets and financial securities.
>
> You now quote from Cook's article, WHERE MONEY COMES
> FROM. I think he makes a good point when he writes
> that: "Actually, an economy functions according to the
> principles according to which it is designed and
> regulated. If it is designed to funnel wealth into the
> hands of the monetary controllers, then that is what
> the 'market' and the 'invisible hand' will do.
> Unfortunately, we march today to the tune of the
> monetary elite, so they are the ones who reap the
> profits and the benefits. They are the ones on whom
> the 'invisible hand' lavishes the wealth of the
> world." Bravo!
>
> He continues: "It is done through the process of
> bank-created credit. While during the nineteenth
> century other forms of money circulated, such as large
> quantities of coinage, silver certificates, and
> government-issued greenbacks, almost all the money
> that exists today originates through a loan by a
> financial institution to an individual or a business."
> OK.
> He then proceeds: "When a loan is made it is issued as
> a liability on the bank's ledger. When it is repaid,
> the liability is canceled." But in the interim, the
> bank receives interest which tends to accumulate
> exponentially to reflect the build up of loans. The
> "administrative fee" he refers to as "interest" is
> indeed an "administered price," and hence a monopoly
> right and as such, a form of economic rent.
>
> Cook recognizes that "Some credit is used by
> businesses or individuals as investment in order to
> generate profits over and above the amount they must
> repay to the bank with interest."
>
> Profits are not really the key these days. "Capital
> gains" have become the name of the game in today's
> "Ponzi" stage of the business cycle, to use Minsky's
> terminology.
>
> Cook realizes this when he writes that "Unfortunately,
> large amounts of credit are used mainly for
> speculation, not for any benefit to the producing
> economy. This includes securities bought on margin and
> borrowing by hedge funds where the fund may make a
> profit even if the value of its investments goes down.
> Bank-created credit in this case is little more than
> chips in a casino."
> It actually is more than this. Credit bids up asset
> prices in the "large" finance-and- property sector
> that is wrapped around the "real" production-and-
> consumption economy. This is the major cause of
> economic polarization in today's world.
>
> This is why I find M3 an important measure, and why
> Stephen Zarlenga has proposed the Monetary
> Transparency Act so that we are in a better position
> to measure the extent to which the banking system is
> contributing to asset-price inflation, loading down
> the economy with debt in the process.
>
> Cook makes an excellent point in arguing that
> "individual consumers should never have to borrow in
> the first place. And we never ask ourselves why, with
> the abundance that is possible from modern science and
> technology, should people have to borrow money at
> interest for the necessities of life--a house, a car,
> household expenses, an education, etc. Thus we realize
> that the financial system works against what should be
> the real purpose of money, which is to serve as a
> ticket for the purchase by people of articles they
> need to survive or otherwise desire to utilize once
> the demand for survival has been met."
>
> Again, I'm sympathetic to this, and also to his
> pointing out something with which we all agree: "money
> is being mis-defined as a commodity. People who
> believe money is a commodity think it has value
> in-and-of-itself."
> Unfortunately, he defines money (and credit too?) as
> "anything that a willing buyer and a willing seller
> agree to exchange for something else."
>
> From ancient times, anyone could create credit simply
> by NOT PAYING. Most debts in ancient Babylonia were
> arrears of payments for land rent, consumption, taxes
> and fees (as the volume from our British Museum
> conference edited by Marc Van De Mieroop and myself on
> "Debt and Economic Renewal in the Ancient Near East"
> has shown).
>
> So to conclude, Cook gets confused by pointing that
> while "the 2006 GDP of the United States was $12.98
> trillion. But actually, the 'real' credit of the U.S.
> economy was much higher, because our economy is not
> running at anywhere near its full capacity."
>
> That's not the reason at all. The reason is that
> credit is used to finance assets and financial
> securities, and as such, claims ON wealth (as Soddy
> pointed out), not goods and services.
>
> Credit is extended NOT for production, but for
> property rights and financial claims ON the economy.
> It becomes a purely mathematical Ponzi scheme in the
> end. This is the stage in which we find ourselves
> today.
>
> Inasmuch as the right to create interest-bearing debt
> is the right to a form of economic rent, I can agree
> that "Therefore, credit can and should be viewed as a
> communal endowment, a public phenomenon, a part of
> what is called 'the commons,' even with the normal and
> natural fact of the existence of private property.
>
> So the use of credit and its distribution should be
> treated as a public utility, like water or
> electricity. Everyone should have a right to its use,
> according to some rational, lawful, and humane
> criteria of need or contribution to creating it. "It
> is no exaggeration to say that the existing system is
> one whereby the financial elite has confiscated and
> privatized the most important public resource of all,
> more important than water, land, electric power, etc."
>
>
> I wish his argument was that this resource has been
> distorted by the fact that banks and the financial
> sector generally has a short-term "extractive" outlook
> that has a disconnect with the production and
> consumption sector, and actually works against it by
> inflating asset prices rather than financing capital
> formation.
>
> His argument reads as if consumers need more credit to
> help GNP be fully realized. Producers also need
> credit, but instead, corporate raiders are granted
> credit to take over, downsize and outsource the labor
> force, carve up the companies and avoid paying taxes
> in the process.
>
> Michael Hudson
> michael.hudson@earthlink.net
> -
>
>
>
>
>
>
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