16 responses

  1. joe bongiovanni
    March 13, 2013

    Thanks to Dr. Hudson for this great posit of the private debt problem, it being causal to the public debt solution. But I don’t really see any connection being made to the root cause for all the private debt in the first place.
    It is unfortunately not simply an ill-advised tax structure and an un-balanced reward system in the financial sector. These are symptoms of the failure of the money-finance system, but not the cause.
    The cause has been previously identified by Dr. Hudson quite specifically.
    It is compounding interest on a debt-based system of money.
    Each credit/debt bubble is predicated on its predecessor debt bubble.
    Debt bubbles occur in finance for two axiomatic causes – because they have to and because they can; because compounding interest does not lie and does not get cured without debt-deflation.
    That’s what Fisher’s Debt-deflation Theory was all about.
    Financial and monetary chaos is the natural outcome of a debt-based system of money, which is also the cause for wealth concentration through upward flows of income to the debt-asset creators.
    You can embrace a debt-jubilee of sorts to achieve some semblance of social equity, and financial reforms of all genre, but unless you eliminate the root cause, compounding interest on debt-based money, the grandkids will be right back here doing this all over again.

    Please see:
    (Seems to only work by copy/paste in browser address)
    The Deeper Roots of the Global Financial Crisis
    Dr. Bernd Senf, Pr.Emer., The Berlin School of Economics.

    • justaluckyfool
      March 14, 2013

      *WHAT IF THE …The Fed Reserve were to become the CENTRAL BANK WORKING FOR THE PEOPLE (CBWFTP) instead of working for the Private For Profit Banks (PFPB) .

      The government can not win against ‘compound interest’ on debt for that can be infinite in amount. IF ‘compound interest were eliminated then there would be no “systemic failure”. Or better yet; take that most powerful weapon, use it for the people .
      Let’s try this game: Substitute the words “Central Bank Working For The People” (CBWFTP) where ever” Private For Profit Banks” (PFPB) appears.

      ****PFPB (read CBWFTP) have $100 trillion in assets as mortgages on residential and commercial real property (RE) loans. The average compound interest rate is 4% for a term of 36 years. The PFPB (read CBWFTP) would have created that $100 trillion ‘out of thin air’ (Horizontal Money)(read Vertical Money) which would have an attachment that would require $400 trillion to be paid to the PFPB (read CBWFTP). YES, take away the smoke and mirrors, this is a fact-the Rule of 72. Now we must replace (reduce to zero ) the Horizontal Money by subtracting $100 trillion leaving a profit,income,taxation from ‘somewhere else’ of $300 trillion. This amount goes as profits to the PFPB.(read CBWFTP) Revenue they may use for their own selfish purposes. That’s not the bad news-what the bad news is :That $300 trillion is real money, real currency, sucked up by the PFPB, (CBWFTP) yes Vertical Money !!
      Why would you not want prosperity for yourselves and your children? Why would you not want $300 trillion THAT MUST BE PLACED BACK INTO THE ECONOMY IN ORDER TO PREVENT DEFLATION !
      Maybe,just perhaps you might read and improve : “Justaluckyfool”

      Amazing that Adair Turner is suggesting Quantitative Easing for the People not for banks.http://t.co/P2o6J8ux9m Copying @ProfSteveKeen?
      Adair Turner recommends Quantitative Easing for the People
      A breakthrough speech on Monetary policy by journalist and financial economist Anatole Kaletsky was published by
      READ “QE 4 The People”
      Read “QE 4 Disaster Relief”
      Discover a path to prosperity.read: http://bit.ly/MlQWNs

    • UMKC Economics Undergrad
      March 17, 2013

      Thanks for citing Fisher’s Debt-deflation Theory. I’ve listened to Dr. Michael Hudson’s interviews on Pacifica/KPFA’s Guns and Butter (and transcribed and posted some on MediaRoots.org as well). And I recall interviews wherein host Bonnie Faulkner has asked Dr. Hudson for clarification of the concept of debt deflation.

      I hear Marxist-leaning thinkers often say it’s simply “capitalism,” which always yields ‘financial and monetary chaos.’ I’m told capitalism cannot be ‘saved.’ But when I ask for the key factors differentiating their proposed socialist model from the existing capitalist model they usually shrug. And clarifying the causality of the boom-bust cycles seems key to socioeconomic equity. But, certainly, we can all agree compounding interest is all bad, as is the de facto two-party dictatorship, which always sides with the ruling-class and is now building legal barriers to entry to alternative political parties, such as California’s Top Two Primary.


  2. Frank
    March 13, 2013

    Margrit Kennedy also points out the problem of compound interest growing exponentially, which impacts every part of a country’s economy.


    Interest payments and Interest:
    Gains show large disparities:
    80% of the population pays twice as much as they gain.
    10% gain more than twice as much as they pay.

    Her analysis his spot on, but her suggested solutions are too complicated in my view. She seems to exclude the idea of a government creating its own debt and interest free money.

  3. Tyler Healey
    March 13, 2013

    Great speech, Michael!

    Low interest rates seem to encourage people to go into debt, while also starving the economy of interest income. I think they should be saved for when there is an inflation problem, which is certainly not now.

  4. RobertM
    March 13, 2013

    Brilliant explanation of the problems we face in terms layman can understand.

    In regards to compound interest:
    I believe it was Dr. Hudson who previously said ‘Debt that cannot be paid back won’t be paid back’.
    “The greatest shortcoming of the human race is our inability to understand the exponential function.”- Bartlett

    Our government has chosen the banks over the people. Sadly, they do not understand the above quotes.

    • UMKC Economics Undergrad
      March 17, 2013

      The “laity” is the most important audience, as we are the most numerous. And I think Dr. Michael Hudson is one of the strongest public figures bringing some hard-hitting heat. Of course, we gotta give it up for Dr. William K. Black, Dr. L. Randall Wray, Dr. Stephanie Kelton, and UMKC heterodox economics.

      Yeah, that’s a great quote from Dr. Hudson:

      “The basic premise underlying my analysis is that a debt that can’t be paid won’t be. All of the Wall Street analysts I know realise the debts can’t be paid. The political question is how won’t they be paid. Will they not be paid by letting the banks foreclose? One quarter of all American real estate today owes more money on the mortgage than it actually is worth. That means one quarter of homeowners—almost ten million people—could walk away from their property and come out ahead on their balance sheet. Donald Trump would walk away. Certainly, Goldman Sachs walks away from bad investments. But individuals are told that their debt should be paid, that only the debts of the rich don’t have to be paid. Only the debts of the 99% to the rich have to be paid. And there’s a shift in the understanding of how the economy works.” http://michael-hudson.com/2012/03/mmt-as-the-austerity-alternative/ OR http://mediaroots.org/mr-transcript-italian-mmt-summit-2012.php

  5. Giselle
    March 13, 2013

    Student loan debt is the same as cost of war on drugs. Not counted expenses on prisons, court costs, built up police state, deaths and human tragedy. Legalization of drugs as Portugal did in 2001 could save $ 15 bilions annualy

  6. Giselle
    March 13, 2013

    Silvio Gesell and Gottfried Feder were from the same platform as M. Kennedy. On Gesell’s theory work indenpendent currency in Swiss called Wir which support barter business with over 1 bilion SF equivalent annualy. I see problem in centralization, monopolization and corrupted political monoculture. I see this as roost and cause all above. Look at decentralized Swiss. They decided in referendum to limit “golden bonuses” for outgoing oligarch since this is actually out af pocket of small investors . I always smile from those libertarians, tea party, reps, dems and so on. Any ideas have dead end in political monoculture in DC which is deaf, blind and mute. It is worthless to spend time to create ideas and throwing them as dust into air.
    Look at healthcare reform. Main issue in US is employers out of benefits as healthcare etc. All must be done on indenpendent basis and alternatives in public cooperatives. The best health insurance in Brasil is public cooperative. It is not necessery to change system just alternate monopoly. Those monopolies will sooner or later go out of business by itself. Doing this need to change tax system- it needs to be changed no matter what, and rapidly rise minimum wages as we take benefits from employers they need to add money on paychex. See minimum wages in Scandinavia, Benelux, Austria or Canada on wikipedia.
    Student loan debt? No other country on this world has this problem as they have decentralized and demonopolized systems. Money for education comes from income, sales, fuel taxes not property tax. This package is split by number of stdents. When parents asign kid to school this school get the money no matter if public or private. If is cost more than that, mostly private, parents pay extra money. But keep kids in school as prisoners of district is nasty monopoly.

  7. Giselle
    March 13, 2013

    Another thing is efectivnes of schools. In Europe after 8 elementary yers students have 3 ways depend on score: school of trades, specializing on trades high school, and similar to college which prepare for universities. What they get? They do not mix bad with good students. They got great tradesmans from schools of trade who are lifetime certified without money out of pocket, high school prepares nurses, teachers- limited, technicians- they also get certificate for trade but usually they do lower management as foremans etc. And those from 3rd level- school elites at age 18 goes to universities. So they eliminated 4 years bubble of expenses syntetically created by Board of education created by Rockefeller’s monopoly. And output is exactly as they wanted to- debt prison.

  8. Robert Avila
    March 14, 2013

    “Student loan debt, now the second largest debt in the US at around $1 trillion” and yet no one ever asks what was this debt used to finance? I did a study in the 1980s of US College and University budgets which found that over the previous twenty years per student College and University spending on educational services as compared had remained flat in constant dollars while administration and overhead spending grew year after year. That was before the rise of adjunct instructors, and university ancillary business operations. Over the past 25 years University and College administration is one of the few sectors of the economy where work processes have not been systematically automated and outsourced. Corporate headquarters are far smaller and leaner than they were in the 1970s and 1980s, while the bloat in higher education continues rise driving up “costs”. It is the student loan program that has turned the administration of higher education into a money making business for administrators. It has not increased the quality or the quantity of higher education.

    Historically most loans have required collateral that can be foreclosed on in the event of default. The two great exceptions are sovereign debt and student loans. Student loans, being against future earnings, are a form of indentured servitude and thus of questionable legality. When viewed in the light of the vast administrative bureaucracies these loans subsidize, their morality is even more dubious.

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