Moon of Alabama Brecht quote
September 02, 2021

On The Breeding Of Money - by Gordog

Gordog

Some continue to delude themselves about the so-called US economy, which is nothing but a house of cards---and this meaningless, completely fabricated 'metric' of GDP. In real terms, China's economy is already bigger by half then the US. And that is being charitable.

Let us review some basic facts about how NUMBERS actually work. This is known as MATHEMATICS.

Take for instance the Ponzi Scheme. This is an ingenious bilking scam where a group of investors is promised a guaranteed rate of return. Since there is no PRODUCTIVE business of any kind that can generate any return, the only way to pay those initial investors is to draw in more investors over the next term, usually a year. The incoming investors are likewise paid their return by the next crop of investors, etc. Now it is obvious just from this description that the amount of new investors has to INCREASE each year, in order for this to stay afloat.

The mathematical underpinning of this scheme is exponential growth. This is a mathematical function where the growth of something is a function of the EXPONENT of TIME.

In simple terms: if you start with a single cell that splits in two...then those two each split in two and so on, it is obvious that the number of cells doubles at a given rate of time. In a Petri dish, such organisms will rapidly multiply in number until they have exhausted all the nutrients available...and everybody DIES!

Now let's consider a bank that is lending money at interest. Here we have a group of BORROWERS rather than investors.

If in the first year, the bank has a given number of borrowers, it will receive back not just the amount of money it has lent, but an additional amount of money in interest. This accumulation of interest will continue building in perpetuity, according to the exponential math exactly like the Ponzi Scheme or Petri dish.

This is the fundamental mathematics of both. Only they are mirror images of each other. One is drawing in lenders [investors], while the other is drawing in borrowers. From the wiki entry on exponential growth:

Finance:

For instance if you borrow money at a rate of 9 percent interest per year, the amount you owe is DOUBLE after just 8 years [provided you are required to just pay it all back in one lump sum and not payments].

Now let's take into account that the ONLY way for brand new money to come into existence is if it is created as a BANK LOAN. That is actually how our system works. The borrower can be a consumer, a corporation or a government. It doesn't matter. But somebody has to step up to the bank counter and say 'I want a loan' before any new money can come into existence.

So here is the catch 22: Because the borrowers in any given year are also paying back interest, that means that more and more brand new money has to come into being each year, simply to account for that extra interest money that wasn't there before!

So you need an ever greater amount of borrowers stepping up and asking for loans.

Where do they come from? Can you just keep going like this forever?

Obviously the Petri dish and the Ponzi Scheme both tell us that this is a house built on foundations of sand. It cannot possibly continue in perpetuity. It all has to come crashing down.

Consider that 100 years ago, very few ordinary people needed to borrow money. Oftentimes people would buy a house or a car with money they had saved. By the time of the postwar years of the 1940s, you already had a new kind of borrowing culture emerging, where people would often seek credit to buy their own home more quickly.

[Recall the scene in Frank Capra's It's a Wonderful Life, where George Bailey [Jimmy Stewart] who runs a family savings and loan that lends to aspiring homeowners, confronts the badguy Henry Potter who is a slumlord and wants to ruin the small family S&L.]

For good or bad, this depiction of getting ordinary folks to borrow money so they can more quickly own their own home, as something positive and progressive, took root. Of course getting people to borrow for buying a house and car was just the beginning. Soon, you needed a whole new crop of borrowers, so we started women entering the workforce and becoming part of the debt slave pool.

[Remember, just like the Ponzi Scheme, the interest lending scheme needs EVER GREATER numbers of borrowers each year.]

Then when that dried up, you had to start importing brand new PEOPLE, ie immigrants! Today that is an increasingly fraught subject as the wheels continue to come off this Ponzi machine and there is less to go around for everybody. So people start resenting the newcomers. Yet, the powers that be insist on bringing in ever more people! They are needed. Each one is going to go to the bank and borrow to buy a car, a house, etc. Just like that Ponzi Scheme somehow has to find new investors to avert going tits up. Then you had credit cards, and then a very big one: EDUCATION. Now you have not only mom and pop debt slaving away, but even junior has to be pressed into the chain gang, before having even gotten an education or a vocation in life.

Is there any possible stone that has been left unturned in the search for new debt slaves? And this is all supposed to be so 'glorious'?

Some have foreseen all of those problems, such as Michael Hudson. He told us long ago that ancient civilizations had all come up against the same problem with EXPONENTIAL MATH: When you attach interest to loans, the amount of debt reaches unmanageable levels and has to simply be wiped clean. We see this from the graph of exponential math:


bigger

A real productive economy can be expected to grow only linearly, as in the red line. And even then, at some point it cannot grow any more!

But the amount of accumulated debt starts overtaking the amount produced by the real economy until it is double, triple or even many more times that of the real, productive economy. Obviously, the only thing you are doing is producing money itself, not actual and real things! That is why we have had ZIRP for more than a decade now. Zero interest rate policy. Not wanting to actually write off unpayable debt, at least cutting the money creation rate to zero is supposed to accomplish the same thing.

Only it's not working. And it's not ever going to work.

This is the fundamental problem. And the fact is that the moneychangers who are in charge of directing this whole Ponzi ball of wax are much much dumber than they imagine themselves to be. They work like Wile E Coyote: trying the same scheme over and over [greed], but hoping for different results. But the end result is always the same: BLOW UP IN FACE! And that's not even to mention the absolute morons who look up to these idiots as some kind of 'bright' people, lol! And absorb all of their made-up bullshit practically by osmosis!

But the REAL results cannot be papered over. The US is a third-world dump across vast swathes of its living terrain. Look at a comparison of the Moscow and New York subways, for instance.

Many of these dimwits who believe the bullshit peddlers also seem to think that the US still has some kind of advantage or lead in technology. WRONG! In real technologies that are hard to do, like rocket science and nuclear, the US is nowhere [despite a lot of ridiculous hype about the former]. China is already ahead in many key aspects. Even in consumer electronics like computer chips, which is not actually any kind of difficult technology, but simply a commodity business dominated by countries like Taiwan and Korea, China is systematically plowing ahead. The only real flagship industry where the US still has something left in the tank is in civil aviation manufacturing, although even here formerly great companies like Boeing have recently shown to be moving downhill quickly as they become 'financialized.'

The bottom line is that our physical world is governed by real, foundational principles, not by made-up bullshit that says Ponzi Schemes can succeed. They can't. No matter how much you contort yourself to believe that.

On the matter of wealth and gaining it, The Great Thinker had much to say:

There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another.

The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest.

And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural.

Aristotle, Politics Book One, Part X

There is no getting around these foundational truths. No amount of bullshit from various flim flam artists on Wall Street or Madison Avenue is going to change the result.

It's quite obvious that the wise and learned folks who are carefully guiding China along the path to a truly Great Society have taken these known truths to heart.

Posted by b on September 2, 2021 at 15:48 UTC | Permalink

Comments
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This is indeed how the maths works, but an economy works differently. Money is just a medium of exchange. You confuse and conflate too many things like printed money, value, economies, markets and their evolution. I do not see the point of this article.

Posted by: Idiocrates | Sep 2 2021 16:00 utc | 1

Money (in the form of a bank deposit) is created by bank loans. China regulates its banking sector guiding it to focus on the productive economy, this is the Asian Development Model. The US in the 1970s(Nixon) started deregulating the rules the New Deal added to regulate which markets banks could operate. Note that it was Nixon that interviewed Harry Dexter White (key new deal economist) on alleged communism and was being fed by A Dulles.

Posted by: paulh | Sep 2 2021 16:02 utc | 2

An interesting debunking of Soros' dream by Michale Hudson:

https://www.counterpunch.org/2021/09/02/soros-dream-to-turn-china-into-a-neoliberal-grabitization-opportunity/

Posted by: Idiocrates | Sep 2 2021 16:03 utc | 3

Talking about money, Western Union just announced it resumes its transfers to Afghanistan. How nice of them (they got a monopoly on transfers some years back with the "war on terror".. the amounts can represent a 2 digits percentage of the GPD in some countries with lots of migrant workers abroad).
Just another case of monopoly, since banks have not reopened.
They take about 50 dollars for a transfer of 500. You get an idea.

Posted by: Mina | Sep 2 2021 16:08 utc | 4

"A real productive economy can be expected to grow only linearly, as in the red line. And even then, at some point it cannot grow any more!"

I agree with the second sentence but I don't understand the basis for your assertion that "A real productive economy can be expected to grow only linearly, as in the red line."

Having studied (and taught) economics, I have never heard the assertion that real economies are expected to grow linearly so I would be interested in your response.

Having said that, thank you for the post.

PS: many people think that ANY (strictly) convex function, such as the blue line in the graph above is an exponential function - it is not. It is a power function.

Posted by: spudski | Sep 2 2021 16:19 utc | 5

Gordog is such a kill-joy!

Hasn't he heard? Maf is hard and possibly racist. Going viral is the new sensation and "influencers" are hero ground-breakers. They get fame and fortune from who they are, not how well they think. Duh!

Everyone knows that China hates influencers. We have nothing to fear from such backwardness. We have twitter, twitch, and onlyfans - what do they have?

Talk to the hand!

!!

Posted by: Jackrabbit | Sep 2 2021 16:20 utc | 6

When we talk about debt I think it's important to distinguish between private and public debt.

The private debt problem of student debt is huge and would be a great place for a debt jubilee. Student Debt Cancellation (Stephanie Kelton)

""These results suggest that policies like student debt cancellation can be a viable part of a needed reorientation of US higher education policy.""
----------

The 2008 financial crisis was largely due to the private debt problem of home ownership. The correct solution here would have been a debt jubilee for the people with the exorbitant mortgages and prosecution of the fraud that went into providing these mortgages. Instead we saw the Fed and Treasury make the banks whole while forcing millions of people into foreclosure. A huge and destructive waste of fiscal policy which could have been used productively for things like single payer medical care or to enhance social security or for a job guarantee program.

These are the types of choices that can be made with public debt. Making banks and real estate whole (Michael Hudson's detested FIRE sector) isn't the right road.

Posted by: financial matters | Aug 25, 2018 8:45:04 AM | 33

Posted by: financial matters | Sep 2 2021 16:21 utc | 7

@ Idiocrates #1


One way of arriving at GDP is to count up all of the money spent by the different groups that participate in the economy. These include consumers, businesses, and government. All pay for goods and services that contribute to the GDP total.

So, all the thousands of billions borrowed for US wars are included in GDP. And so VAT collected on imported goods.

Germany's GdP is calculated on production and export, Frances GDP on collected VAT and public deficit.

ECONOMY?
Or Clue

Posted by: Odenwälder | Sep 2 2021 16:23 utc | 8

Well said. Forces your economy into a "high cost structure" situation, parasites always extract a price in "fitness". Lot's of "developed" economies stagnant as a mud-puddle for that reason at the moment. No recovery possible until the debt burden is written off, real investment is resumed..

Posted by: Bemildred | Sep 2 2021 16:24 utc | 9

Chinese economy that is double that of USA on PPP basis?

But Chinese population is four times that of USA so this is not really an indication that they are ahead, yet.

!!

Posted by: Jackrabbit | Sep 2 2021 16:26 utc | 10

financial matters
June 3, 2017 at 9:17 am
Stephan Gowans highlights the difference between Marxism (struggle between an exploiting owner class and exploited worker class) and Arab socialism (the struggle between exploiting and exploited nations).

“While these two different socialisms operated at different levels of exploitation, the distinctions were of no moment for Western banks. Socialism was against the profit-making interests of the U.S. industrial and financial elite.”

Both Libya and Syria in their attempts at not being part of globalization which emphasizes debt to Western banks were interested in things like free education and medical care, good employment and social security.

These goals don’t make socialism sound so bad. :)

Posted by: financial matters | Sep 2 2021 16:27 utc | 11

Its all Ponzi. The way to "fix" some of the problems u point out is to make entry into the program mandatory. Say auto insurance and Unemployment Insurance here in Canada. That a productive Economy should only move in a linear path seems strange to me as well.

Posted by: Tannenhouser | Sep 2 2021 16:33 utc | 12

Jackrabbit

That is GDP/PPP per country vs GDP/PPP per capita.

China per capita wealth only needs to be one quarter that of the US for it to have the same economic power in geo-politics.

Posted by: Peter AU1 | Sep 2 2021 16:36 utc | 13

Posted by: spudski | Sep 2 2021 16:19 utc | 5

Good point, linear in what?

Something really messy smoothed out with statistics is more like it.

I would expect some modest power law growth function with investment, up to a point.

Then the law of diminishing returns sets in.

After that, at certain point, if you try to keep growing, it costs more and more to get nothing (Red Queen situation). I think that is where we are now.

Posted by: Bemildred | Sep 2 2021 16:40 utc | 14

Possibly/probably a bigger problem, as some have alluded to earlier in this thread, is misallocation of capital - including schemes like Solandra, cons like the Global Financial Crisis, and MIC adventurism.

- Banks still don't mark-to-market, and their 'back stop' is now all banking customers instead of US citizens - to save US politicians from another embarrassment.

- Healthcare still costs multiples of what it should.

- The military-intel budget only gets bigger - no politician dares suggest lowering it (except maybe "the Squad" who are derided/dismissed).

!!

Posted by: Jackrabbit | Sep 2 2021 16:43 utc | 15

Peter AU1 @Sep2 16:36 #13:

China per capita wealth only needs to be one quarter that of the US

Gordog was comparing economy (GDP) not wealth: In real terms, China's economy is already bigger by half then the US. And that is being charitable.

!!

Posted by: Jackrabbit | Sep 2 2021 16:48 utc | 16

Why would an economy need to grow linearly? Money can also be created by governments printing into existence, which would eliminate the need for additional loans to pay off previous debt. Also why would debt not lead to exponential increase in goods being produced? This article is disjointed with no clear thesis, imo.

Posted by: Me2 | Sep 2 2021 16:51 utc | 17

There are not one but two ways that fiat money can come into existence 1) when a private loan is issued or 2) when the national government deficit spends. Note that national governments that issue their own currency do not have to borrow money to deficit spend, and selling T-bills is not really borrowing -- a T-bill is basically a savings account at the national bank, a subsidy to the owner of the T-bill.

Agree with Gordon & Hudson that ever-increasing private debt is unsustainable, but that does not apply to deficit spending of a national government that prints its own currency. Steve Keen has written extensively on private debt vs. public debt.

Posted by: Dan Lynch | Sep 2 2021 16:53 utc | 18

excellent gordog.. thank you!!

Posted by: james | Sep 2 2021 16:57 utc | 19

GdP is not about producing, but spending. See #9

But Gordog is false and right.
Real economy [producing useful goods] increases not so linear.
Looks often like, but is not. Social, health or technical events can curb it down or up.
But financial revolution [ printed money] was the trigger of industrial revolution


Major economic change was spurred by western Europe’s tremendous population growth during the late 18th century, extending well into the 19th century itself.
New organization of business and labour was intimately linked to the new technologies for production and transportation.
The new machinery was expensive, and businessmen setting up even modest factories had to accumulate substantial capital through partnerships, loans from banks, or joint-stock ventures.

Posted by: Odenwälder | Sep 2 2021 17:01 utc | 20

GDP is a "distraction"
Another "policing beyond horizon" fairytale.

Posted by: Odenwälder | Sep 2 2021 17:03 utc | 21

Its a superficial argument on a very complex subject. The bottom line in the US is the US borrows money into circulation and does not spend money into circulation. It collateralizies this debt with bonds. I think all countries are run in the same manner by their central banks.

Money has to be circulated in sufficient quantities as a media of exchange which is something the Treasury was never able to accomplish because its leaders wanted a fractional reserve system for their banker buddies. With a fractional reserve system a dollar in deposits can be used to create 50x that amount out of thin air by the private banks which is then used for loans and circulating supply of dollars for the medium of exchange.

All that can be accomplished by a country spending money in suffient amounts for circulation with no debt or taxes. If the circulation supply is too high they can tax it out of the economy and destroy that amount of dollars. The money plowed into bonds could be used for the productive economy instead of backing debt.

It does not take much imagination about what can be done for a society if that were the case.

Posted by: circumspect | Sep 2 2021 17:06 utc | 22

Bemildred@14

I believe that linear in time is what the author intended: hence the reference to a an interest rate of 9% doubling the principal every 8 years, assuming there are no withdrawals.

For barflies who may not have heard of it, there is a rule of thumb called the rule of 72 which says that at an interest rate of x%, the principal will double every 72/x years. For example, at 6%, the principal will double every 72/6 = 12 years. This is a pretty good practical approximation except for extremely high or extremely low growth rates.

Note that with constant returns to scale technology,i.e., if you double all inputs e.g., Leontief, Cobb-Douglas, general functional forms with appropriate parameters, etc., if labor, net investment, and other inputs grow at x% per year, then so would output.

I agree that eventually you will run into real resource, environmental, and other constraints that will ultimately slow things down in the real world.

But if real economies had historically exhibited linear growth in GDP over time - and this is my only quibble - then if population increases at x% per year, we would expect to see a decreasing real GDP per capita every year for all real economies over time.

Posted by: spudski | Sep 2 2021 17:09 utc | 23

financialization... making money off money.. interest - usury and etc. etc... that is the wests gdp.... is that productive?? some would argue no and that would include me... is wall st productive?? is george soros productive? is spending a shit ton on the military productive?? maybe if it helps keep the us$ propped up! unless of course you are not in the us$ in which case it looks like the mafia running things.. so - gdp - gross domestic product... if you leave wall st out of it - doesn't look the same... but i am sure some will argue that amazon, jeff bezos and etc. is very productive...

it seems the concept of expotential growth and linear growth confuses people..

Posted by: james | Sep 2 2021 17:10 utc | 24

@ Gordog who wrote

"
Now let's take into account that the ONLY way for brand new money to come into existence is if it is created as a BANK LOAN. That is actually how our system works.
"

What about money coming into existence by the creation of goods and provision of services?

Otherwise a decent rant but if MoA is going to discuss finance then why not a broader discussion of public/private finance which is what the conflict between China and the West is all about....and the social planning it facilitates on an ongoing basis like in the back rooms in the West or in China with its ongoing 5 year plans and public planning process

Posted by: psychohistorian | Sep 2 2021 17:11 utc | 25

Finally, I'm just going to add that GDP can be calculated by summing value added at each stage of production, or by summing spending of final goods and services, or by summing factor incomes.

Posted by: spudski | Sep 2 2021 17:13 utc | 26

Sorry, should be "summing spending ON final goods and services."

Posted by: spudski | Sep 2 2021 17:14 utc | 27


I have also taught economics at the University level, and was a student of Axel Leijonhufvud at
UCLA. While the subject matter pf "phantom wealth vs real wealth is EXTREMELY important" (“The efforts of men are utilized in two different ways: they are directed to the production or transformation of economic goods, or else to the appropriation of goods produced by others” --- Vilfredo Pareto, 19th century), I don't find this a particularly good explanation.

Better to look at Modern Monetary Theory (MMT), David Korten
( Phantom Wealth to Real Wealth)

Posted by: erichwwk | Sep 2 2021 17:19 utc | 28

Thanks to the host and special guest. Definitely a subject worth and in need of discussion (not that it matters :-) A financial empire is no empire at all, especially the current one with no discernable culture or uniting principle other than dog eat dog.

Debt is property. The largest property holders are for-profit banks and financial institutions which exist on the backs of both borrowers and investors. And what is a bigger ponzi scheme than Consumerism.

The People of the United States owe its creditors about $30,000,000,000,000 and counting. The rights of property rule over the rights of people. And it's all make believe.

Posted by: gottlieb | Sep 2 2021 17:19 utc | 29

circumspect

Everything can be described as superficial unless you first look at the human species and how it is a herd or social mammal.
In that respect with herds as large as they are now, information and who controls it governs how the heard thinks and that will never change. Hunter gatherer societies, everybody knew everybody else, but now with very large nations that interact with all of the world we far more information than can be found locally by word of mouth.
Information and how it is used has far more power than any written laws or constitutions.

Posted by: Peter AU1 | Sep 2 2021 17:29 utc | 30

Gordog attacks the Free Lunch of the Rentiers, the same Feudalistic holdover group that was attacked by those known as Classical Economists, who almost won the battle but were defeated by the Reaction led by England's Royalty and its allies beginning about 1870. With the help of Dr. Hudson, over many months here at MoA, I've reviewed most of that history that resulted in today's Neoliberal political-economy that threw out Industrial Capitalism in favor of Financialized Capitalism, and is the narrative told by Hudson in his Killing the Host, which explains the parasitism of Neoliberalism.

As I've written over and over again and is noted above, the Outlaw US Empire's GDP is artificially higher because of the financial flows that are counted as gains when they ought to either be counted as negatives, not at all, or in some combination of the two. The closest monitor of Real GDP is Shadowstats John Williams whose GDP Chart is here, which I've cited many times, while also noting it's not completely correct because of negative financial flows that are counted as positives instead of being treated as the negatives they are actually. The divergence between real and falsified economic stats began during Reagan/Bush when Neoliberalism was formally introduced as Trickle-down/Supply-side/Voodoo Economics despite having existed for years, and coincidentally with the arrival of Milton Freidman as Reagan's #1 economic advisor who was later eclipsed by Alan Greenspan in 1987 who was brought in to reinflate the bubble burst by the very willful Savings & Loan Crime, which marked the beginning of the Era of GDP shrinkage that continues today.

As I've noted and many have echoed, the Chinese and Russian political-economy's goal is to enhance the wellbeing of their nations primary asset--their human capital--by instituting polices that as Putin stated yet again yesterday are in the Public's Interest. Neoliberalism has the opposite as its goal--to make as much of the public debtors to financial institutions and their allies so the Ponzi game can continue. The result is China and Russia pursue policies that promote Industrial Capitalism, not Financial Capitalism, as do most of their allies. I've linked to the many essays Dr. Hudson has written on the ongoing war between Industrial and Financial Capitalism and the differences in philosophical choices that must be made to promote one or the other, which is where the fundamental ideological divide exists in Cold War 2.0. The results of the two choices are becoming ever more stark as time rolls forward and the Outlaw US Empire sinks to the status of a 2nd ranked power whose only reason why it's not a 3rd rank power is due to its nuclear weapons complex and little else.

Posted by: karlof1 | Sep 2 2021 17:30 utc | 31

sorry couldn't get tag https://muse.jhu.edu/article/584911/pdf, a link to David KKorten's Book "From Phantom Wealth to Real Wealth" to work.

Post still in preview. grr.

Phantom wealth somewhat akin to Keyne's earlier "illusions"/. In trying to determine first use of phantom wealth I find nothing earlier than in the Enron case
THE FINANCIAL COLLAPSE OF ENRON by 107 House Congress, 2002, where phantom assets and earnings appeared 6 times.

I might also mention the late David Graeber's work on the origin and use of money, one who used Bullshit to similar effect. (Not my style, as I find it useful only in speaking to an audience that already shares one's views).

Other useful economic concepts might be "doughnut economics" and the circular economy. Both

1962 http://arachnid.biosci.utexas.edu/courses/THOC/Readings/Boulding_SpaceshipEarth.pdf

1968 https://en.wikipedia.org/wiki/Operating_Manual_for_Spaceship_Earth by Buckminster Fuller chart the path back in terms of limits to growth, and real vs Phantom wealth. Even the arch conservative Milton Friedman touched on this in his collection of essays "The Optimum Quantity of Money"

Posted by: erichwwk | Sep 2 2021 17:37 utc | 32

There are two big issues with GDP as a measure of an economies size. First, GDP is a measure of "activity" in various segments of the economy, not of production. So, some people think a GDP of 20 trillion means said nation is producing 20 trillion in wealth. Not so. It only means 20 trillion changed hands in those sectors. The other issue is Nominal GDP, the actual GDP of a nation converted into dollars by exchange rate. People make the natural, but false assumption that currencies exchange on the forex based on their purchasing power equivalency. This is seldom the case however. Only the reserve currencies such as the Dollar, Euro, Pound and Yen even approximate this. Most others will trade for considerably less unless it is pegged artificially. So in the case of the Ruble,which is free floating, we have seen it's exchange rate easily halved these last 7 years. That makes some people imagine the Russian economy has contracted enormously, when in fact it still grew. With China, I believe they peg their currency against the Dollar, but at a rate that is much lower than purchase parity. Again, it gives the illusion the economy is smaller than it is. This is why PPP GDP is important, it gives a more realistic picture. Now, some people are obsessed with currency valuation. But truth be told, it is a double edged sword. If your currency is devalued it makes imports more expensive, but that makes you look for domestic substitutes which is more important to the long term health of the economy. At the same time it makes your own products look more attractive to the world market which is a plus.

Posted by: nook | Sep 2 2021 17:40 utc | 33

@28

I am well aware of the problems with using GDP, GDP per capita, etc., as a welfare measure: this is covered in principles courses at the beginning of the macro part where I have taught.

I have studied and largely accept MMT as being far more useful and accurate than the almost silly standard loanable funds model (savers make deposits, and these amounts are loaned to borrowers, multiplier stc.,) typically taught in university courses: Krugman has invoked this model (loanable funds) on many occasions.

Greenspan in the 1990s, Bernanke in the 2000s, and Haldane (Bank of England, paper circa 2016) have admitted that the government does not need to "get" currency from anywhere before it spends, assuming it is a currency issuer, has a floating exchange rate, does not have a significant amount of debt denominated in a foreign currency: in short, they have agreed with Mosler that "Money is a spreadsheet."

Having said that, do you have any disagreement with anything I posted?

I'll leave it there and let everyone else have at it - got a medical appointment very shortly.

Posted by: spudski | Sep 2 2021 17:44 utc | 34

Came across this:

"Until 1993, most measures of economic activity omitted part of FIRE (finance, insurance, and real estate) income. National accountants tended to exclude financial intermediation because they considered the income that financial firms gained by charging interest to be a transfer between various economic sectors. Fee-based financial services (overdrafts, foreign exchange transaction, mergers and acquisitions) were included in GDP as production.

In 1993 even interest-based financial intermediation became defined as productive and entered into GDP calculations. As Brett Christophers explains, the rise of the financial sector in both size and power contributed to changing views about its nature, with the result that the 1993 update of the national accounting standards “made” finance productive by defining it as such, rather than a transfer as before.

Meanwhile the structure of advanced economies changed as well. By 2009 — even after the onset of the financial crisis — FIRE accounted for over a third of all economic activity included in U.S. GDP. Recent years have witnessed a growing divergence between the economic picture painted by GDP on the one hand, and one suggested by employment figures or standard of living measures such as median income, on the other."

https://publicseminar.org/2015/03/put-out-the-fire-in-gdp/

If in 2009 the finance, insurance, real estate sectors already "accounted for over a third of all economic activity included in U.S. GDP" 12 years ago, I wonder what percentage of US GDP it accounts for now.

To what extent do the ever-increasing home prices and stock prices inflate US GDP figures?

Posted by: Canadian Cents | Sep 2 2021 17:48 utc | 35

Well said Gordog. You have hit It on the head, a little fuzzy arounds the edges but right on. I like your sense of humor. Had never read Aristotle's take on económic matters. My first pre-Michael Hudson gurú was Thorsten Veblén, a late 19th century Americano economist Who distinguished between industry (making things) and business (making Money). He predicted the current FIRE sector takeover. Thanks again.

Posted by: c | Sep 2 2021 17:49 utc | 36

The importance of being the financial superpower doesn't lie in its GDP, but on the fact that, in the capitalist system, finance is the equivalent to the Politburo of the free market: it is the commanding heights of all private spending and investment.

As such, the USA's true GDP is not its GDP, but the sum of all GDPs of the entire West (including much of China). As long as the world keeps using the USD, it will continue to have to do the USA's bidding. That's why the Cold War was actually a very unequal fight between two sides, with the USA always with the initiative over a perpetually defensive USSR.

What really matters in capitalism is the social profit rate. And here the news are very worrying for the USA nowadays (and the entire West, for that matter). See this very important graph:

US corporate profits booming... or are they?

Posted by: vk | Sep 2 2021 17:49 utc | 37

Why create money as debt?
“If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional amount as interest. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the USURER and the other helps the People. If the currency issued by the People were no good, then the bonds would be no good, either. It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges at the hands of men who control the fictitious value...”

Understand the myths, Machiavelli tricks, power dynamics in the creation of money as debt.

What elements enable one to control the nation & world?
“Who controls the food supply CONTROLS the people; who controls the energy can control whole continents; who controls money can control the world.”

History of Ruling Powers? Monarchs —> Financiers —> Global Financial Syndicate

In 1792BC, the self-proclaimed King Hammurabi of Babylon created money as debt and introduced the concept of “debt jubilee,” so he can continue with his power. There is a direct correlation between the POWER to rule and monetary power. Long ago and far away, a group of very clever paleo-banksters figured out a way to stop those annoying periodic slave revolts... eventually it came to be known as "the two party system" (democracy/Republic) and it's working like a charm... Rulers make the slaves fight each other. These banksters and feudal lords worked to reign in monarchs. Some of the financiers went global to build a global empire.

"Democracy" is a temporary phase of history which allows the Global Financial Syndicate to take control from the earlier generation of dominant power players: the monarchies.

Who should create money in a nation?
Majority (99.9%) of people can’t state correctly and clearly, who creates money in their nation. Why? Majority (90+%) of money is created by PRIVATE BANKS in the West. The private banks have worked diligently to manipulate textbooks, educational system and media, over centuries to hide the reality of money.

“The study of money, above all over fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.”
– John K. Galbraith

Why pay INTEREST on the money created out of thin air?
Controlling others and living off their backs by forcing them to borrow with interest in order to have any money is called usury. It is a system that ensures everything we do, whether in the public or private sector, feeds Wall Street and the controllers above it.  It creates a two-tiered societal pyramid of money pushers on top vs. money users on bottom.  The power differential is huge. Everyone is hostage.

This only happens because of debt-based money, usury, that greatly benefits the top of the pyramid while everyone else suffers to a certain degree depending on their level in the pyramid. A system based on usury, is profoundly immoral.  It is a fundamental violation of every major religion. Who are the leaders speaking against usury?

Our monetary system is a top-down controlling machine, not a free market.  It is run not by government, but by the most powerful financial interests in the world.  Some people feel in their guts that someone must be stealing from them because they just can’t get ahead no matter how hard they work. It is time to speak up.

Why the production of money by banks?
“When banks give a loan to a business or individual, they in effect create money when they credit funds to the borrower in the form of a deposit in their account, which is then used for purchases.”

“Strip private banks of their power to create money,”

“A good government produces citizens distinguished for courage, love of justice, and every other good quality; a bad government makes them cowardly, rapacious, and the slaves of every foul desire.”

Are good citizens in majority or minority?

Posted by: Max | Sep 2 2021 17:52 utc | 38

Hi Gordog. You seem to have hit a nerve. I'm a long time reader here but never post. I suspect the anger and nit[picking you have caused only draws the trolls out from under their rocks. Basically? you are on the right path. I look forward to anything you add when it comes to aviation and SAA defences. Or anything else you would care or like to post. The naysayers expose themselves. Kudos. and keep up your good work.

Posted by: scott andrews | Sep 2 2021 17:52 utc | 39

All good. This subject should be familiar by now. For now, it would seem that a national economy whose net exports are even 100% Finance, can still work just fine -- provided it has the power to stop trading partners from going elsewhere.

The "real" parts of internal economy, can then be mostly non-financial services, construction, and weapons. It's the US for the last 25 years.

What is coming to slow but inexorable end is the ability to stop other countries from bypassing the western banking system. This will take a long time to register.

We may see nominally incompatible US and Chinese finance, with JP or ROK acting as middlemen. EU would be the natural ones for this but will probably be too scared. But who knows. At some point they realize that their international position gets eaten too, if they don't start making more serious deals with whoever is supposedly enemies of the US - Russia in particular. But this won't be possible until US has accepted multi-polarity, and we are probably several more crises away from that.

Posted by: ptb | Sep 2 2021 17:53 utc | 40

Canadian Cents 35

Sounds very similar to when US ran out of gold and went to the petro dollar. Fiddling the books so they can continue spending more than they earn all.

Posted by: Peter AU1 | Sep 2 2021 17:55 utc | 41

Thanks to all for the comments!

This was submitted as a comment to yesterday's China thread, not as an article.

I'm an engineer, not an economist, but I stand by what I have written here as being essentially correct.

About the quibbles. No, issuing T-bills is no different than creating money by bank loan. It is the same as me going to the Dodge dealer and convincing the guy to give me a new truck in exchange for my own paper IOU. Nice work, if you can get it.

But the whole thing hinges on TRUST. That is being able to make the guy take my IOU seriously. Otherwise there is no difference. The T-bill also comes with interest attached, so it is also creating money with interest that is subject to the same mathematical laws.

The most emphatically wrong comment is that money is supposedly only a means of exchange in a 'real' economy. That is false. How big is the FIRE sector in the GDP? It is something approaching one third the total 'economy.'

Obviously this is sleight-of-hand. And obviously it is doing exactly what I posit here---trying to conjure into reality that money can be CREATED from money!

The part about linear growth of the productive, real economy is a simplification, but I believe it is correct in essence. Productive capacity CANNOT grow exponentially like money at interest.

Again, I turn to Prof Hudson on this. This is one of his fundamental insights from his study of antiquity and the finance of ancient civilizations, where periodic debt forgiveness was an ESSENTIAL answer to the problem of the exponential growth of debt.

Posted by: Gordog | Sep 2 2021 17:56 utc | 42

Just one concrete example of how the USA can control the flow of capitals from the entire world at its will that's happening right now: since the end of Trump, the USA has been printing USDs through the trillions, in order to finance its budget and allegedly build more infrastructure at home.

As a result, inflation has been rising in the USA, last time I checked at some 5.4%. But inflation is rising even more in the rest of the world: that is due to the fact we live in the Dollar Standard. Every nation needs USDs to trade with other nations, therefore they can sustain the value of the USD if they want to keep their imports and exports steady. When the USA prints more USDs, there's downward pressure on it; the governments of other nations have to devalue their respective currencies to keep the USD purchase power.

The end result of this process is that the USA essentially siphoned off concrete wealth (real stuff) from the rest of the world to finance its infrastructure project, therefore depriving the rest of the world from stuff they produced themselves and could be using for their own peoples, but are instead serving the American people. Yes, there is a limit for this system and the USA is being battered by relatively high inflation - but the rest of the world is paying an even higher price and will always do.

Therefore, it is illusory to think the USA is just a giant ponzi scheme economy. They're not: they're your boss' boss. The piece of machinery or raw material that you're building/extracting in your country may not serve your country, but the USA.

Posted by: vk | Sep 2 2021 18:00 utc | 43

America Has A Terminal Case Of Capitalism (In Two Charts)
https://indica.medium.com/america-has-a-terminal-case-of-capitalism-in-two-charts-5f43c0116416

Related to Gordog's comparison of the Moscow, NYC subways:

"This is where America is today. It’s 6 AM, the drugs are wearing off, and suddenly they’re noticing that the toilets are filthy, everyone looks haggard and cruel, and their lives suck."

from Indi Samarajiva, a writer from Sri Lanka whose posts I find interesting.

Jackrabbit @16 re: "Healthcare still costs multiples of what it should."

Check out the graph he has on that page for life expectancy vs healthcare expenditure per capita ...

Peter AU1 @40, yup, they just redefine GDP to hide the decline and redefine the CPI to hide the inflation.

Gordog, thanks for the post!

Posted by: Canadian Cents | Sep 2 2021 18:03 utc | 44

What a complete bullshit!

Of course does a bank produe something: financial services. Just like cutting hair it`s an immaterial good - a service - and just like a barber a bank has a purpose. Just because you don`t understand basic economics doesn`t mean that the financial industry is a ponzi scheme per se.

There are many ways in which the US economy is unhealthy and the fincancial service certainly plays a key role in this development. Just not in this hyper-simplistic manner.

Posted by: m | Sep 2 2021 18:05 utc | 45

"Some continue to delude themselves about the so-called U.S. economy which is nothing but a hours of cards."

And yet this house of cards continues to grind on (survived the Great Depression, the Great Recession, the bond market crash of 2020 etc.

Gordog what is your evaluation of the viability of the stabilization tools at the disposal of this megamachine--those thwarting mechanisms which seem to forever keep American capitalism functioning--like the Welfare state, expansive fiscal policy, wage policy, forever accommodative banking, Keynesianism and MMT, Federal Reserve lender of last Resort functions etc.

It strike me that modern American capitalism is encased within a military-intelligence-Central Bank monolith. For example, it has now gotten to a place where the repetitive credit stabilizing strategies of the Federal Reserve are indeed creating increasing overall system instability because such policies accelerate inequality, through the offering of never-ending liquidity for speculative investment--but if this process does result in another financial crisis what is to stop the intelligence/big tech/military institutions from also stepping in with their own "stabilization tools."

Posted by: Gulag | Sep 2 2021 18:11 utc | 46

Gordog "It is the same as me going to the Dodge dealer and convincing the guy to give me a new truck in exchange for my own paper IOU. Nice work, if you can get it."

That is something I always consider when it comes to currency. Promissory notes have been around a long time, be they written by a government or an individual. US promissory notes could always be redeemed for a set amount of gold. Prior to paper currency, the metal coins were made from always had value so I guess the could be considered ingots of a known weight.

Posted by: Peter AU1 | Sep 2 2021 18:15 utc | 47

You doing business with a Piggy Banker 🐷?

Piggy Banker sniffs around the city named Monopolis looking for people who want and need things but can’t afford them. Some need a loan to build & grow a business, buy a house, or a car... But others only want a loan to pay for a vacation trip to Vegas that they hope to pay back through their gambling profits.

Piggy Banker lends them money so they can buy these things. But he doesn’t have to have the money first in order to lend it, the way you lend your neighbor your lawnmower when his breaks down.

Piggy Banker creates the money as he lends it simply by saying “here’s your money” and using his computer to make a bunch of positive numbers appear on your bank account. Then he has to make sure he has reserves to cover that loan, but he can arrange those later with the Monopolis Central Bank who basically gives him any amount of reserves he wants. Just because he’s Piggy Banker.

So you don’t need the govermint to create money. Piggy Banker creates money just by walking around and singing “I’ll finance your mortgage, I’ll rummage and pillage, singing I’m a piggy banker, piggy banker am I”. Piggy’s profit come from charging interest on loans and he earns a lot. Piggy Banker rummages around sticking his snout everywhere trying to smell opportunity. He’s not all bad, but sometimes his addiction to eating garbage gets him in trouble, and if he eats enough garbage, then all the people in Monopolis say “Oh Man, Piggy just ate himself almost to death again. I guess we have to bail him out one more time.”

So the money💲comes from Piggy Banker snorting around eating whatever he can and handing out loans. And everything works unless the Piggy stuffs himself with so much garbage you have to put him in the animal hospital before he dies and takes the entire banking system down with him.

Will Piggy Banker live forever?

"The issue which has swept down the centuries and will have to be fought sooner or later, is the people versus the banks."
- Lord Acton

This is derivative work based on a comment many years ago.

Posted by: Max | Sep 2 2021 18:19 utc | 48

How dare you tell the truth mr Gordog!?!

/s

Posted by: Per/Norway | Sep 2 2021 18:35 utc | 49

PS: many people think that ANY (strictly) convex function, such as the blue line in the graph above is an exponential function - it is not. It is a power function.

Posted by: spudski | Sep 2 2021 16:19 utc | 5

Please elaborate on why this distinction is important. Yes, an exponential function means the variable is in the exponent and a power function has the variable in the base. But compound interest rates yield exponential growth. Hence the blue line is the exponential function and the green line is a power function. Did I miss something?

Posted by: Tom_Q_Collins | Sep 2 2021 18:42 utc | 50

Posted by: m | Sep 2 2021 18:05 utc | 44

You miss the forest for the trees, or just the point altogether. Cutting hair as a service doesn't rely on compounding interest rates; it's a simple act of exchanging money for a real world service. No money is manufactured, hidden, tranched into complex financial "instruments" that the average person can't (and frankly, in a healthy economic mindset, shouldn't have to) understand. I've never heard of a barber running a Ponzi scheme. Have you?

Posted by: Tom_Q_Collins | Sep 2 2021 18:44 utc | 51

That is why we have had ZIRP for more than a decade now. Zero interest rate policy. Not wanting to actually write off unpayable debt, at least cutting the money creation rate to zero is supposed to accomplish the same thing.

In essence yes, but that in itself creates creates an even bigger problem.

ZIRP lowers the cost of debt but it also leads to an increase in total debt as more money is borrowed as the cost of debt is lower. Using ZIRP creates an even bigger problem than it solves. Eventually all this “easy money” leads to inflation which leads to capital destruction which leads to interest rate rises (no more ZIRP) which in turn leads to economic crashes. The famous boom/bust cycle. The dot.com bubble and the housing crash of the early 2000’s was preceded-by an era of ”easy money” under Greenspan

Then once the crash happens they create a policy of “easy money” to stimulate the economy which leads to ….. a real Ponzi scheme. Eventually through this method of creating more debt to pay the old debt the debt itself becomes unpayable and everything comes crashing down. The only way out is through debt forgiveness but in this era of financialisation that will not happen.

Western economies don’t have a liquidity problem they have a solvency problem. They can print all the money they want but the ability of people/companies/institutions to pay the money back is diminishing all the time.

Money=debt
Production=income

It’s that simple.

Posted by: Down South | Sep 2 2021 18:47 utc | 52

An example of errors in GDP calculation that's in the news today is the damages caused by the tropical cyclone Ida that just devastated New York City. All the damage will be added as a positive to GDP since they will be expenditures, just as your funeral is an expenditure and counted as a positive for GDP purposes. Sixteen years ago, Katina $85+Billion in damage was counted as a positive, not subtracted as the negative it most clearly was in the eyes of many. Yes, all those funerals were counted as plusses too. Long ago the USA was taken over by a cabal that amounted to a gaggle of used-car salespeople.

Posted by: karlof1 | Sep 2 2021 18:53 utc | 53

It strike me that modern American capitalism is encased within a military-intelligence-Central Bank monolith. For example, it has now gotten to a place where the repetitive credit stabilizing strategies of the Federal Reserve are indeed creating increasing overall system instability because such policies accelerate inequality, through the offering of never-ending liquidity for speculative investment--but if this process does result in another financial crisis what is to stop the intelligence/big tech/military institutions from also stepping in with their own "stabilization tools."

Posted by: Gulag | Sep 2 2021 18:11 utc | 45

Yes, and therefore you should add the forever wars and military economy to the equation. I would add to Gordog's post the MIC that you mentioned. It's the hidden-in-plain-sight driver of what's left of the American manufacturing (and in many cases services) economy. A giant self-licking ice cream cone. Both on the monetary policy level and on-the-ground in about every fifth relatively populous county in the United States. If you're not familiar with BRAC, it's "base re-alignment and closure" and it involves the US military packing up shop at a base in a given city/county to either get rid of whatever mission that base fulfilled or consolidating that mission into another base, thus enlarging it.

People in the areas where bases are closed almost ALWAYS protest the closure because most if not all of their local economy is based around providing goods and services to the members of the military, the contractors and other visitors to said base. In fact, I would bet money that in b's home country of Germany, where the US has several bases held over from WWII and the Cold War, the locals, or the local powers that be, would stridently object to closing them because of the negative economic impact it would have on them. I'm sure there's a vocal minority who are always pushing for those bases to go away, but money talks and the money is behind keeping them around. That's just my guess after having grown up in a military town in the USA. Many, many US towns simply vanished when a base was closed. Even larger cities lobby to keep the bases intact. There have been recent stories about suggestions for some of the abandoned bases in California being used to house the homeless population, but I don't know the details.

Posted by: Tom_Q_Collins | Sep 2 2021 18:55 utc | 54

Posted by: karlof1 | Sep 2 2021 18:53 utc | 52

AKA "disaster capitalism"...You can add 9/11 to the list of hurricanes as well.

Posted by: Tom_Q_Collins | Sep 2 2021 18:57 utc | 55

Michael Hudson is a breath of fresh air, delivering much-needed faith into the "dismal discipline" at a critical time.

Certainly, this is a moment when Marxian Economics is being elevated above Marxist Politics (stern look at you, vk--you jingoist teenybopper of CCP policies: you're basically a CCP version of Hillary Clinton after her conversion to anti-Vietnam politics).

But really, b:

"Now let's consider a bank that is lending money at interest. Here we have a group of BORROWERS rather than investors.

If in the first year, the bank has a given number of borrowers, it will receive back not just the amount of money it has lent, but an additional amount of money in interest. This accumulation of interest will continue building in perpetuity, according to the exponential math exactly like the Ponzi Scheme or Petri dish."

In any given year, even by today's fundamental banking (or ordinary mug) theories, local banks receive only a fraction of the money they have lent, plus interest. This is a fact that can be confirmed by literally hundreds of thousands of bank functionaries across the entire NATO+ (Philipines, Taiwan, Japan, etc) spectrum.

The key thing you, I, or any interlocutor who wants this...unconfirmed fantasy of yours NEEDS to explain is the hierarchy of The Fed's dispensation policies.

Posted by: Pacifica Advocate | Sep 2 2021 18:57 utc | 56

> A real productive economy can be expected to grow only linearly, as in the red line. And even then, at some point it cannot grow any more!

Wrong.

GDP growth (in real, inflation-adjusted terms) comes from two sources - population growth and productivity growth.

Population growth results in linear growth of GDP. Productivity growth results in exponential GDP growth. E.g. if productivity grows 2% a year, then the GDP next year is 1.02 X GDP this year. After hundred years, the GDP will be 1.02^100 X GDP today. Notice the exponential function.

Posted by: KK | Sep 2 2021 18:58 utc | 57

Banks aren't the only players.the investment/hedge funda are also important. Right now there seems to be a problem with a scarcity of profitable investments. Hence the growing push for privatising formerly públic services. The EU is particularly aggressivi on ihis - health care, education, transport, utilities, etc.

Posted by: c | Sep 2 2021 19:03 utc | 58

@ Down South (#51), the Empire not only has a solvency problem but CREDIBILITY too. It is morally, intellectually and financially bankrupt? It is well trapped!

After losing the Vietnam War, the U$A DEFAULTED, due to the liquidity (gold) problem. After being DEFEATED in Afghanistan, what comes?

U$A’s DEFAULTS & Devaluations:
1933 - Gold confiscation. Dollar devaluation by 41%
1971 - Nixon ended the Bretton Woods convertibility of 1945. “The dollar plunged by a third during the 1970s.”
2008 – Financial Crisis –> Defaulting through inflation/quantitative easing (QE1, QE2, QE3, QE4… ♾)

Nation’s default OPTIONS:
1) Devalue currency – so that a nation’s goods and services become cheaper, earn more from sales abroad and then pay its debt. (USA - 1933)
2) Haircut – we will pay you less, devalue & manage inflation. (USA -1971)
3) Inflation – Inflate the money supply and force the participants to speculate to maintain and increase prices. ( USA - 2008+)
4) Write off – we are not going to pay you back, ever.
5) Austerity – we will cut pensions, end social contracts and pay creditors.

How will the U$A default & devalue this time?

Posted by: Max | Sep 2 2021 19:03 utc | 59

@Gordog

Here is Hudson:

“When the volume of debt has grown as large as national income or GDP, and when it bears an interest rate (typically 5%) above the economy’s rate of growth (typically just 1% to 2%), then all the growth in national income is taken by the creditors.” ― Michael Hudson, J Is for Junk Economics: A Guide to Reality in an Age of Deception

The problem is not linear growth rate, it is if the growth rate is less than the interest rate on debt.

Linear growth implies successively smaller percentage increases in GDP per year: in calculating growth rate, the numerator (increase in GDP) is the same each year, while the denominator (GDP) is increasing each year. I would not have thought that this statement, purely mathematical, would be controversial, ffs.

Further, if population is growing at some rate x% per year, the GDP per capita will peak (at the point where the declining GDP growth rate = x%)and decline thereafter if linear growth in GDP is posited. Again, mathematically.

NO other quibbles - agree that economy can't grow forever, agree that GDP is a lousy measure of welfare, there should be a distinction between earned and unearned income, FIRE sector bs, importance of private sector debt, ...

Goodbye and good luck and again thanks for posting Gordog.

Posted by: spudski | Sep 2 2021 19:06 utc | 60

Canadian Cents @ 35: very interesting, thanks!

Exactly what I mean by trying to alter reality, with a wave of the magic wand!

Posted by: Gordog | Sep 2 2021 19:14 utc | 61

Posted by: Tom_Q_Collins | Sep 2 2021 18:55 utc | 53

To expand on my reply, I neglected to mention the importance of the hidden-in-plain-sight aspect of the MIC and military bases. If one day - or over the span of a short amount of time - the USA were to scale back its military expenditures and close a bunch of bases, the economy would crash almost instantly. People often don't realize that there is a "good" reason that there are so many military bases in so many ZIP codes in the USA. I wish I could find a good primary source to back up my argument here, but I can't at the moment. In any case, the sheer number of military installations in the USA isn't just a coincidence or happenstance due to "need." By placing military bases in as many physical locations as possible, the military and MIC ensure that elected representatives at all levels must, in addition to the local civilian population/businesses, represent the interests of the members of the military and the invariable gaggle of civilian military contractors and other service providers whose life's blood is the existence of the respective base. This is one of the most insidious ways that the MIC is the self-licking ice cream cone and why it's going to be so hard to uproot. The civilian economy in the USA has essentially been become to a large degree reliant on the continuing operations (and expansion) of military installations.

https://comptroller.texas.gov/economy/fiscal-notes/2016/september/military.php

By insinuating itself into as many locations as possible, the MIC ensures high level political support for itself according to basic regional economics. Simply put, converting national/regional priorities from bases and weapons to socially useful purposes would radically upset "institutions" that are basic to the economy and only a social revolution will ever succeed in de-militarizing the USA. In other words, embracing socialism.

Posted by: Tom_Q_Collins | Sep 2 2021 19:18 utc | 62

Just to clarify the graph: GREEN is the exponential function. Blue is a power function.

Exponential has the characteristic of starting out slow, but then shooting quickly skyward.

Posted by: Gordog | Sep 2 2021 19:21 utc | 63

im surly no economics expert and twice as sure no defender of capitalism or financialisation, but I would like to make the following observation about increase of the money pool.
true money in the "west" is created by loans, but an enormous amount is also destroyed by defaults and bankruptcies. so in a balanced capitalist economy the money pool does not grow as dramatically as described in the article.
now i am wondering with all the QEs in Europe and the US since 2008 (13 years!), how is the economic house still standing? i remember all the doomsayers of an impending major crash in '09 '10 '11 .. '20 but to my amazement this big burst of the bubble never happened.

Posted by: svd | Sep 2 2021 19:26 utc | 64

c @ 57

‘Banks aren't the only players.the investment/hedge funda are also important. Right now there seems to be a problem with a scarcity of profitable investments. Hence the growing push for privatising formerly públic services. The EU is particularly aggressivi on ihis - health care, education, transport, utilities, etc.’
——-

Yes. The ‘shadow’ banking system which also involves money market funds which is probably primed for another implosion as it hasn’t been fixed since it ‘broke the buck’.

The US should seek Chinese consultation on how to fix this and also on how to properly fund medical care, education, infrastructure etc.

Posted by: financial matters | Sep 2 2021 19:30 utc | 65

Spudski @ 59:

Yes, you are correct that an economy that is growing by 2 percent each year is ALSO growing exponentially. That is the same math.

My contention is that this kind of growth, by a set percent each and every year, is not possible in the real world. At least not in perpetuity.

It is possible TEMPORARILY, as long as there is ROOM to grow. At some point, there is no more need for any real goods. That is just a physical reality!

So yes, the real economy growth then STOPS being exponential. That happens long before the growth curve starts zooming skyward asymptotically!

But the existing debt CONTINUES growing at the completely ARBITRARY interest rate, in perpetuity. And it does start shooting skyward asymptotically. That is inevitable!

So, no matter how you slice it, at some point, the debt overtakes the real economy.

At that point, the debt has to be wiped clean. There is no other way.

And the fact is that there would be ZERO gain for the financial lenders if they were to charge interest only at the same rate that the economy is growing.

When the economy stops growing, the interest charged would have to be ZERO.

That is the key. The two [debt and growth] have to be in perfect alignment for things to stay in equilibrium!

Posted by: Gordog | Sep 2 2021 19:38 utc | 66

svd "i remember all the doomsayers of an impending major crash in '09 '10 '11 .. '20 but to my amazement this big burst of the bubble never happened."

The bigger the bubble, the more destructive it will be when it bursts.
US think they have their bubble chained down.
https://www.youtube.com/watch?v=ET2FDx5iBP4
https://www.youtube.com/watch?v=HANwJp8Z5mc&t=3s

This one is a small bubble bursting like 2007 https://www.youtube.com/watch?v=8AR2GOkJLS0

Posted by: Peter AU1 | Sep 2 2021 19:45 utc | 67

Okay, a couple of DUMB quibbles:

First the idea that 'productivity' growth is exponential.

YES, BUT...ONLY if you can keep increasing so-called 'productivity' at the same rate each and every year.

As I already pointed out above, this is IMPOSSIBLE in the real world.

It is impossible, simply by the math itself. The key is the point at which this supposed productivity growth starts shooting skyward. Obviously it gets harder and harder to maintain even that one or two percent each and every year!

There is no such thing in the real world as INFINITE GROWTH! Neither in biology nor in any other physical science!

That is why new methods of 'accounting' are invented as time goes on. [Karlof and others have pointed out this bogus bookkeeping].

Next we have the contention that a bank only gets back a fraction each year of what it loans out in any given year. WRONG!

Because each year, the bank is getting payments for loans that go back not only to the previous year, but to 10 or 20 or even 50 years back, in the case of a 50-year mortgage!

The math model I have presented here is entirely correct. It is a simplification, like any math model. But there is NO DIFFERENCE between the math of a Ponzi Scheme and the math of lending at interest!

Posted by: Gordog | Sep 2 2021 20:06 utc | 68

Tom Q. stated above:

"Only a social revolution will succeed in de-militarizing the USA."

I wish I had your optimism. I have a much darker bias.

What if the creation of this military-intelligence-central bank megamachine represents something more than simply a long socialization under capitalism.

What if this entire monolith represent a tendency within all of us to inevitably create such huge agglomerations of power, control and ambition.
(think of Ancient Egypt and the slaved pyramid builders.)

There seems to almost be some type of rhythm in history in which centralized civilizations arise, acquire power and coalesce into this megamachine thingy which we end up worshiping as some type of sacred deity ( a deity of profit, power and control).

If this assumption is anywhere close to accurate then it also seems necessary for all barflies to begin to look more closely at cultural issues as well as the usual economic/financial/political dimensions.

Posted by: Gulag | Sep 2 2021 20:07 utc | 69

The money problem defined so precisely by Gordog, that is, only the principle is loaned into existence, meaning that borrowing must increase exponentially or the banks default (unless the government steps in with its Crash Production Team), is the same problem as capitalism has.
The wealth produced by humans working with the bounty of Earth must be sold at profit, but the entire workforce only receives a fraction of the wealth they produce, so the profits must come from products being sold elsewhere, or sold on credit, to be paid off by future labor. Or the solution the US uses, make WMD and drop them on people in other countries, thereby leading to continuous need for more production.
At some point, though, normal products run out of markets, leading to bankruptcy or war.
That isn't even counting the limits of the bounty of Mother Earth. Most people understand that we have hit peak oil, but we've also hit peak copper and aluminum. They are now talking about mining the moon, or asteroids or the Arctic, because they live in a fantasy world where growth can continue forever.
And that's not even counting topsoil and fresh water, which the 7+ billion people on this planet need to live.
The whole thing is unsustainable. What can't go on forever, won't.

Posted by: wagelaborer | Sep 2 2021 20:13 utc | 70

james @Sep2 17:10 #24: ... is that productive??

Excellent question, james.

In theory, it is productive. Financial speculators are suppose to bring rectitude. They play a role that is akin to 'whistle-blowers' in government.

But in practice, they destabilize due to lack of regulation and collusion.

This destabilization could be ended by government regulation and taxing power. But regulatory capture ensures that doesn't happen. As an example: you never hear about taxing 'carried interest' anymore. Obama promised to end that boondoggle. He never did. Just another betrayal by Saint Obama that can not be discussed.

!!

Posted by: Jackrabbit | Sep 2 2021 20:20 utc | 71

I've been trying to "educate" people on this topic for decades now. The money angle is a bit tricky, and kudos to Gordog for assembling this.

Nothing "productive" can occur without these three things:

1) Natural resources;
2) Energy (to transform #1);
3) Instructions (plans, technology, science etc.).

Go try and bake a cake without ONE of the above (for #3 you would have to dismiss ANY existing memory concerning a cake).

ALL WARS are about resources. One will note that "energy" can be both "energy" (duh) and a "natural resource," in which case it shouldn't come as any surprise that the number one most traded commodity in the world is related to energy: oil.

As the planet is finite so too are our natural resources: some are "renewable," though having that attribute AND actually being "renewable" to the point of providing for a sustained use aren't the same. Educational tip: "sustainable growth" is an oxymoron.

Take this week's garbage and bury it in your backyard (or if no backyard, toss it out into your street). Next week generated 2% more garbage and "dispose" of it the same way. Continue to do this until... things start to stink to high-heaven. Keep in mind that your neighbors, also loyal consumers and generators of garbage, are also doing the same. Our technocratic class's job is to keep shuffling around the garbage such that we don't really see it (until, that is, we do).

Money is an abstract. Actual resources, AND GARBAGE, not so abstract.

As Dr. Albert Bartlett said: "The greatest shortcoming of the human race is our inability to understand the exponential function."

Posted by: Seer | Sep 2 2021 20:20 utc | 72

Max @Sep2 17:52 #38

To briefly answer your simplistic click-bait questions:

  • Why create money as debt?

    Because 'money' (as a ledger item) is created as needed.

  • What elements enable one to control the nation & world?

    All boils down to political/media control and military force. Dividing the spoils follows.

    Question for you: Who watches the watchmen when 'whistle-blower' is a crime?

  • Who should create money in a nation?

    Umm ... NOT the ones in a position to benefit from it.

    That's a big part of the motivation behind independent crypto-currencies?

  • Why pay INTEREST on the money created out of thin air?

    Because interest is the cost to rent money, like any commodity.

    The problem isn't interest as much as usury and fraud.

  • Why the production of money by banks?

    Is this a trick question?

    Because crypto-currency wasn't invested yet. :)

  • Are good citizens in majority or minority?

    Easy one: a majority.

    But not many understand banking and finance. And, in truth, they shouldn't have to - if it was run properly. Fixing the flaw requires fixing democracy. The necessary changes will follow.

!!

Posted by: Jackrabbit | Sep 2 2021 20:39 utc | 73

Well! Thanks for introducing the subject here.

It is one I have been learning about for some years now as an amateur.

I have found a number of learned experts who are better at explaining the truth of Money and Debt than I can. I will post some easy links later.

So let’s take it from the top!

How does money - a currency - come into being and how does it have any value?

With me so far? Let’s take it even slower and parse that last sentence.

Money is Currency - ok?
Currencies belong to nation state governments - agreed?
That’s why there are many currencies.

So a state creates its own currency. It also licences and authorises banks within that nation state to also be able to create the currency of the state for commercial purposes.

How does the state create currency?
It pays its civil servants, ministers, military personnel...all state employees and all welfare and social security benefits and buys materiel for use and services and many things from the commercial sector - DAILY.
HOW?

It tells its National Bank to pay them! And the National Bank does it!

That’s it. Nothing more.

The National Bank presses a button and the money is sent to all these people and entities accounts in commercial banks.

That is all there is to how the governments of the world with national banks and their own currencies create money.

As do commercial banks who are authorised to create the same currency do when their customer borrows - mortgage, loan, credit card payment or overdraft.

That money didn’t exist either until it was ‘spent’ by the borrower.

So that answers the first part of my sentence. Let’s look at the last part - how does the created money have value?

The only attribute that makes any nations currency have any value is because that state demands that taxes be paid to it in THAT currency. And no other.

Everyone will pay tax indirect or direct and these tax liabilities HAVE to be settled ONLY in that currency.

That is the starting point in understanding our fiat monies in whichever currency.

Anyone disagree before I move on? It is essential to understand otherwise we are easily led down the rabbit hole or over the rainbow.

I’ll post a more considered piece and independent links later.

Posted by: DG | Sep 2 2021 20:43 utc | 74

I hope everyone is aware that my comment @Sep2 16:20 #6 is SATIRE.

People have been complaining about the capitalist class for decades and nothing is done. The system if fixed and most just shrug or meekly follow establishment-provided faux populists like Obama, Bernie, and Trump that lead nowhere.

The establishment offers a pill. Gordog/Hudson offers math. Guess who wins.

A cultural change is needed. One that demands accountability and fair system, not just crumbs from time to time.

!!

Posted by: Jackrabbit | Sep 2 2021 20:51 utc | 75

@ Posted by: svd | Sep 2 2021 19:26 utc | 63

The problem is that this process depresses investment - which is the factor that makes the "real economy" grow in capitalism.

So, even if a crisis doesn't happen, investment rates tend to fall to zero. You slowly degenerates, with a crumbling infrastructure, stagnant and declining wages and no technological revolutions/innovation.

Posted by: vk | Sep 2 2021 20:53 utc | 76

Gordog

I think a productivity chart would show an interesting line if taken from the start of when a country moves from rural based society to manufacturing based society. At some point I would guess it to be exponential but then it would start to curve over to a much slower growth rate.

Posted by: Peter AU1 | Sep 2 2021 21:08 utc | 77

Gordog @Sep2 17:56 #41: I'm an engineer, not an economist ...

Which makes me wonder why b didn't just quote from Hudson directly.

Frankly, I'm surprised you had the time to read Hudson and prepare a long comment as you work on a guest-post on Space (which I suspect will be fairly long and detailed).

And, although I appreciate the intellectual firepower you bring to the blog, I lean toward the view that complaining about currency manipulation and financial ponzi is not the path to change. 'Ponzi finance' is a bit of 'sky is falling' fear-mongering akin to the Mathusian nightmare of population growth. People don't understand the financial issues and the establishment easily swats away these kinds of complaints.

There are plenty of other problems that people in the West can more readily understand and stir the blood instead of the pot.

<> <> <> <>

This is an important discussion - and these issues pop up frequently within discussions here - but karlof1 and psychohistorian have been talking about Hudson and the financial system at moa for years. With all due respect, I think b could have asked them to author a guest post, or asked Hudson himself, who has written for other blogs and publications.

!!

Posted by: Jackrabbit | Sep 2 2021 21:13 utc | 78

Gordog @Sep2 20:06 #67:

... there is NO DIFFERENCE between the math of a Ponzi Scheme and the math of lending at interest!

This is correct in all the wrong ways, Gordog.

The math of exponential growth may be the same but you are losing sight of the nature of the activity.

A Ponzi scheme is designed to defraud.

Interest is the cost of capital. Capital is a commodity like any other. A scare resource.

Now, the nature of capital lends itself to frauds like ponzi schemes and bank frauds (the best way to rob a bank is to own one) but that is a different matter. That moves into regulatory capture.

!!

Posted by: Jackrabbit | Sep 2 2021 21:23 utc | 79

Five very short videos by Professor Richard Murphy which explain much better and faster than I - enjoy and learn.

https://m.youtube.com/playlist?list=PLvRueM6wBgoZH8Gf_Jd-IhVeLNuJhGyuc

Posted by: DG | Sep 2 2021 21:23 utc | 80

Correction: scare ==> scarce

!!

Posted by: Jackrabbit | Sep 2 2021 21:24 utc | 81

a very simple basic article about a very complex subject that presumes many things, thinks it knows it all but it doesn't. The article is SO basic, it is basically meaningless. The world doesn't work that way.

Look at history, Gordog.
What does Capitalism do when it fails? It starts a war, and totally or partially resets the system, reinvents itself and merrily goes its new way, still claiming to be "Capitalism". They have done it at least 5 times by now.
That's your answer. That is exactly what they are trying to do right now, with the fake "Covid" and The Great Reset they are openly talking about (Green capitalism, etc) It's right in front of you. Those guys aren't dumb, they KNOW PERFECTLY well the system cannot continue, and that there is infinite growth. what you wrote isn't news to them. The systems isn't going to collapse by itself, they that are working fervently right now to collapse it BEFORE it collapses around them.

Come on. Don't waste my time with silly stuff that's at preschoolers level.

Posted by: Hoyeru | Sep 2 2021 21:24 utc | 82

aside from thanking gordog for bringing some realism to a number of topics here at moa, i would like to especially thank karlof1 who is very clear on this particular topic in his post @ 31 and elsewhere over the years at moa... thanks both for addressing this topic in different ways...

@ jackrabbit.. thanks! yes - what is productive?? i live in a house that we bought for 126k$ in 2002 that is now worth about 800k... that is the kind of shit that is defined as productive - when it goes sold.. adding wealth my ass!!! .. the real estate bubble in canada... it isn't productive.. it is total bullshit, smoke and mirrors.. anyone who believes in the gdp numbers may as well wish upon a star... in fact, you would be better wishing on a star then believing in anything the western gov'ts are saying at this point... it is all totally made up - and i say this as a musician who likes making stuff up - musically!! thinking the shit is real is where people run into problems....

Posted by: james | Sep 2 2021 21:28 utc | 83

Peter, here is a chart about the big gap that has opened up between the economy's rise in productivity, and the rise in wages.

This is not going back as far as you are proposing here, but it is is illustrative nonetheless.

And where has all that money gone that has been siphoned off from ordinary folks?

Here is another chart that shows who benefited!

It's the 0.01 percent. The thing to notice here is the TIMELINE. Notice that the wage to productivity gap starts opening up around 1980. This is the exact same point in time, the the SHARE of wealth of the tiny super-rich class starts shooting up. Coincidence?

That latter chart from Zucman and Saez influential 2014 study 'Wealth Inequality in the US'.

And here is a good, shortish article that talks about this subject in an insightful way.

Now, again, I want to stress here that I am NOT an economist. Nor do I intend to start writing articles about economics.

The point of this comment-turned-article is simply to draw attention to some very basic, but important, fundamentals that are based on simple math. I don't want to get into the weeds of technical things for which I am not qualified. I will defer to people like Michael Hudson to do that.

Posted by: Gordog | Sep 2 2021 21:32 utc | 84

James @ 82: Thanks for saying THAT! ✊

Posted by: Gordog | Sep 2 2021 21:35 utc | 85

So all you need is willing workers and the money will appear? FDR understood it far better.
Of course, in 1933, the US still had plenty of oil and other resources.

"Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.

More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.

Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because the rulers of the exchange of mankind's goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men. "

Posted by: wagelaborer | Sep 2 2021 21:46 utc | 86

@ Jackrabbit (#72), thanks for simplistic click-bait answers. The real battlefield is the mind. History without monetary events is fiction. Learning history with monetary events is acquiring knowledge.

– Why create money as debt?
Wrong.

– What elements enable one to control the nation & world?
Money rules the world.
Control elements: Money, (Wo)Men, Media, Military, Markets (Commodities), ...

Military and Intelligence agencies chiefs are preselected by the Global Power Syndicate and won’t be appointed without their approval. Most of these chiefs join the Financial Sector after retirement. They’re lackeys. They betrayed their populace. What happened to their oath? No integrity.

Question: Who watches the watchmen when 'whistle-blower' is a crime?
“In God We Trust”

– Who should create money in a nation?
What does U$A’s Constitution say? Article 1 Section 8, Congress. What happened?

Learned from geostrategists, central bankers and financiers, CBDC will takeover in the future. Remember, the period between the Second Bank of the U$A and the creation of the Fed. A same game is being played with cryptos, just a bubble & Ponzi scheme.

– Why pay INTEREST on the money created out of thin air?
Nope. Someone wants to use public credit for private gains. Unfortunate, you don’t see anything wrong in that. Free money. How was our monetary system privatiZed and captured?

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

– Why the production of money by banks?
No. How was our monetary system privatiZed and captured? Why do we still stick to the private control of the main power, the monetary policy?

“Love of power is the root of evil.” What confers the power to command the labor of others?

– Are good citizens in majority or minority?
“God is watching US!”
Deceivers decay! Justice will be done!

Today slavery is less about people owning other people, instead, it is about exploiting and controlling through money.

“The essence of all slavery consists in taking the product of another’s labor by force. It is immaterial whether this force be founded upon ownership of the slave or ownership of the money that he must get to live.”
– Leo Tolstoy

How did humanity get ENSLAVED?

Posted by: Max | Sep 2 2021 21:50 utc | 87

Lending for productivity vs lending for speculation - which is nothing more than a politically correct name for gambling. Lending/borrowing has its place.
Here in the glorious west, the banks are loan sharks that lend for speculation and speculate themselves.
The Chinese 'entrepreneurs' got into speculation and drove prices up. Not a good thing to do in a country with a government that represents the people so they all got some third degree burns.
The government here is constantly pushing speculation, driving the cost of housing up to where it gets affordable for people who want to buy a home. The governments like high housing costs as they believe that is the measure of a good economy.
Kids or anyone for that matter wanting to buy a home have to compete with local and foreign investors. In most places that means taking out a massive loan and both husband and wife working to keep up with payments.

Posted by: Peter AU1 | Sep 2 2021 21:51 utc | 88

Is it possible to conduct a sober assessment of Chinese development policy without, upon conclusion, ending in drunken idolization?
"...learned folks who are carefully guiding China along the path to a truly Great Society have taken these known truths to heart"

Anyone familiar with Chinese labor policy knows that coordinated union action is ruthlessly crushed, not "carefully guided." Insurgent workers are treated like beasts that must be restrained, not women and men who can participate in carrying out planned social development by agreeing to consumption limits in the present to invest in the future, etc etc. Yes, indeed, the standard of living has risen; as many have pointed out, the rise in living standards of the Chinese working class in the past two decades accounts for almost all of world-wide working class gains. But it's still been a form of primitive capitalist/socialist accumulation that's been grueling for many and a fine time for a few. Why insist on covering this over with hymns? You only give the Cold War stokers an opening.

Posted by: dadooronron | Sep 2 2021 21:56 utc | 89

JR @ 78: I say that that the financial 'industry' is designed to DEFRAUD just as much as the Ponzi Scheme.

Consider the graphs about wealth share I just put up. They are taking money from us ordinary folks, simply based on the the fact that they have the POWER to do that! No difference from armed robbery in my book!

As for your thoughts about capital being 'scarce' and this being a reason for having a financial 'industry.'

I completely disagree. Others here have pointed out that a sovereign government can create its own credit. So it's not 'scarce.'

China has been doing exactly this! If the government creates money to build a road or housing for people or any other kind of industry or infrastructure then this is most definitely not the same as what we have going on with financial 'engineering.'

Did Stalin have a financial 'industry'? Yet the massive growth of the Soviet economy in those decades has not even been equaled by China in its recent spurt!

What I have described is completely correct. We have been boiled slowly like the proverbial frog, by becoming indebted more and more. This is by design, and in fact necessity, as the underlying math makes clear.

It is simply the choice that our ruling elite has made. It is the biggest Ponzi Scheme of all!

Posted by: Gordog | Sep 2 2021 21:57 utc | 90

A few days ago, we were treated to Dr. Hudson's retort published by Naked Capitalism to an earlier George Soros op/ed. Today, Dr. Hudson formally published his retort at his website that clarifies what was initially reported. IMO, Soros displays his idiocy with the following proposal:

"Soros has a radical solution, which he suggests 'should obviously apply to the performance benchmarks selected by pensions and other retirement portfolios: … The US Congress should pass a bipartisan bill explicitly requiring that asset managers invest only in companies where actual governance structures are both transparent and aligned with stakeholders.'

"Wow. Such a bill would block Americans from investing in many American companies whose behavior is not at all aligned with stakeholders. What proportion: 50%? 75? More?" [My Emphasis]

Of course, his real aim is to keep people from investing in China as Hudson explains:

"So Mr. Soros wants to block the United States from investing in China. He seems not to see that this is President Xi’s objective also: China doesn’t need U.S. dollars, and is in fact de-dollarizing."

One wonders how Soros got as rich as he did by being as stupid as he just proved. Oh, and after reading this light material, you might begin watching the series of videos Dr. Hudson has provided before having to devote many hours to becoming current.

Posted by: karlof1 | Sep 2 2021 22:01 utc | 91

Too simplistic.
Let's say banks charge interest of 9% on loans, but the economy is growing 10%.
Is this actually negative?
Let's not forget - China printed mightily while it was growing its economy. But creating lots of money is ok if that money creation actually leads to more work, more infrastructure, more productivity, etc etc because productivity gains also can compound. Among other things, the provincial and even city governments in China have the ability to issue money in the form of loans.
Thus the only real difference between US printing and China printing is how much of the printed money went to billionaires' net worth as opposed to better, more productive lives for their citizens. Note that this includes the 'ghost cities' and mountains of junked 'shared bikes', etc etc - it shows just how efficient the thieves/monopolists/what have you in the US are.

Posted by: c1ue | Sep 2 2021 22:05 utc | 92

James @ 82

Yes thanks from me too.
Bullshit is bullshit, Naked emperors can be called out by a seven year old child, one does not need a degree in "economics" to see what is going on around us.
Gordog's summary is the Ocham's Razor of posts here. It makes sense and does not need to satisfy made up and obtuse rules of so called "economics".
If a man made concept that greatly and negatively impacts regular people is beyond ordinary comprehension, then there is something wrong with that concept or it has been intentionally created to confuse.
The lowest common denominator is not stupidity, it is the well being of the people. All societal constructs including money and economy need to satisify the LCD or we should go back to the drawing board as China is apparently currently doing. What point is there in endlessly debating and justifying artificial constructs such as economics, lending etc if the regular people are suffering?
IMO we need to try to get to the root of why things are the way they are instead of arguing at a perimeter that has been set by the very people that benefit by things being the way they are.
Of course there is a necessary place for scholarly consideration of such matters, but this has to be always subordinate to the needs of the collective.

Posted by: K | Sep 2 2021 22:12 utc | 93

I agree with Max @ 86. 👍

Posted by: Gordog | Sep 2 2021 22:13 utc | 94

As I noted earlier in a previous thread about comments on the economies of Canada, Japan, and the U.S. by Roger and vk (adding the 282.2 million is the 2000 figure):

As karlof1 and others point out, John Williams (the ShadowStats one, not the NY Fed shill) goes into detail how U.S. economic sadistics are terrible. South Korea's unemployment sadistics (I hear) as about as horrible. The decline in population in Japan is quite dramatic. U.S. energy consumption was stuck at 100 quads since at least 2000 until the plunged to 93 in 2020. Yes, most autos on U.S. roadways are now about as heavy as those in the early '70s and as fuel efficient as every and yes we are well on our way to replacing incandescent lamps with LEDs; However, I am not buying we can have a population go from around 282.2 in 2000 to a guestimated 333,193,717 on 19 August 2021, according to Worldometer and still have around 2.5% or whatever GDP growth being claimed. Perhaps increases in energy efficiency and population more or less balance out and GDP growth is close to zero.

Take population growth (negative growth in the case of Japan) and gimmicking of sadistics into account and GDP growth per capita growth (or negative growth, as the case may be) and the U.S. looks worse as far as change goes at least anyway. Absolutes such as living standards in Japan never really reached 1973 U.S. are another matter. They have almost no flat land, small apartments, probably thin walls, while many U.S. houses are easily 2,000 sq ft or more. Of course, they seem to want China to solve the problem of lack of flat land by having them make the entire island as flat as a parking lot with a nice layer of shocked quartz that glows in the dark.

____________________________________________________________________________________________________________________________________________


The change noted by Canadian Cents with fake F.I.R.E. returns being adding in 1993 accounting for over one-third of GDP by 2009 is something I was not aware of, but probably necessary (and indeed responsible for most of the falsification of sadistics) since I do not see how the gimmicks John Williams mentions can deflate the numbers down to zero or even close. If you claim 2.5% growth but it really is zero, that gives you about 64% over 20 years that you claim materialized but in fact did not. Taking out one-third of the 164% brings you back down close to where you were before, around 109% of base line. If it is *over*, one-third, say around 38%, that right there brings you back around where you started.

Even if some researchers were to develop (or if this really has been developed and kept under wraps) zero-point energy (or something equally exotic that can achieve the same purposes) and transwarp drive (or something equally exotic that can achieve the same purposes), assuming the average person weighs 65 Kg, the mass of the observable universe is 1.5 X 10^53 Kg it takes about 5938 years to go from two people to a mass roughly equal to the observable universe at a 2% growth rate. I could not get a guesstimate of the mass of the entire universe but it probably wouldn't take long afterwards to reach that were it a realistic possibility.

So even in the best case scenario with the wildest of assumptions, we can fill the universe within the span of a few thousand years, at which point growth halts.

Posted by: William Haught | Sep 2 2021 22:21 utc | 95

"Gordog's summary is the Ocham's Razor of posts here. It makes sense and does not need to satisfy made up and obtuse rules of so called "economics"."

That above covers it for me. Gordog I hope you haven't been put off writing about the subjects in your are of expertise by some of the comments on this forum. I am always interested in the tech subjects, especially where it is related to the great power competition that is now occurring so looking forward to your next installment.

Posted by: Peter AU1 | Sep 2 2021 22:27 utc | 96

Adding to comments at #28, #34 and #45: MMT - Modern Money Theory is, perhaps, the last chance for capitalism.

"Understanding Modern Money" from Professor L. Randall Wray is a good source of infomartion about it, sorry if already mentioned.

Posted by: C Khosta y Alzamendi | Sep 2 2021 22:38 utc | 97

Now let's take into account that the ONLY way for brand new money to come into existence is if it is created as a BANK LOAN. That is actually how our system works. The borrower can be a consumer, a corporation or a government. It doesn't matter. But somebody has to step up to the bank counter and say 'I want a loan' before any new money can come into existence.

So here is the catch 22: Because the borrowers in any given year are also paying back interest, that means that more and more brand new money has to come into being each year, simply to account for that extra interest money that wasn't there before!
_________________________________________________________

This is just internet mythology. Lending by depository institutions is not the only way deposits are created.
After the 2008 debacle, deposits in depository institutions grew at the same pace they did before the financial meltdown while the loans of depository institutions fell. For several years after 2008, loans in depository institutions were in decline while their deposits continued to grow. That fact pretty much disproves the claim that the only way to create deposits is by lending them into existence. Lending is just one way deposits are created. In 2000 loans were just about exactly equal to deposits, but today loans are only about 60% of deposits.
And once again after the covid meltdown if you look at the data you will see the same disconnect in the growth of deposits and loans. Right now only about 60% of all deposits by depository institutions were created by lending.

As for the claim that to pay the interest loans have to grow exponentially forever, that is also complete nonsense. When interest is paid to a depository institution does not disappear into a black hole never to be seen again. The interest paid to a depository institution is the earned income for that company. The money it earns is paid to its employees and pays for other expenses and what is left over as profit is paid to the owners. That money circulates in the economy and that means it could pay the interest on loans many times over. The claim that the money supply must grow to pay interest is based on at total failure to comprehend how money system works.

For one thing, money is not just deposits. The money in your wallet and the money in your bank account may be all the money you have ( its all the money I have), but its not all the money in the economy. The world might be a much healthier place if deposits and currency were the only thing used as money,m but its not.

Money is whatever people believe is money. There is nothing in this world that is more democratic than money. What I mean by that is people decide what has value to people. Money is that which people accept as money.

And if anybody is wondering why I use the phrase "depository institution" instead of using the word "bank" that is because they don't mean the same thing. J.P. Morgan or Wells Fargo are not depository institutions. If you don't understand this distinction then you are missing a key component in understanding money.


Posted by: jinn | Sep 2 2021 22:43 utc | 98

The circuit of money (circulation) and the circuit of value(real commodities) are autonomous but interacting circuits. But in terms of primacy, it is the latter that comes first, with the second being simply a good "technology" that facilitates growth of the real economy. Now, Gordogs presentation lacks any reference to the relation between these two circuits and it's as if the ponzi scheme is just a bug of "finance". I think it is important that we emphasize loans and finance become ponzi only when the real economy is stagnant. The way I think of it is this: since money (are meant to) represent actually produced wealth(that is, labor time spent), the existence of compound interest implies that towards the end of the economic season, the bank expects *more* wealth back than that it initially lent (and let's assume that all banks are collectively one bank in an isolated system). That means, people will need to produce *more* wealth this economic season in order to pay back the bank, therefore, work *more* for no variation in the forces of production - or increase the productivity of labor per hour by further development of the forces of production. If that doesn't happen, then the problem starts to set in. And if you allow it to fester, it becomes a real ponzi scheme, since the growth rate of the first circuit (real economy/industry) is close to linear, like Gordog said, and actually maybe worse (at some point it flattens out). Meanwhile, the growth rate of the second circuit (money/finance) is exponential. Therefore, this is an impossible catch-up and the result is increased immiseration of people, slow growth in the real economy and even crisis.

Posted by: galerkin | Sep 2 2021 22:56 utc | 99

Peter, thanks! ✊

No, I am not put off by anything here on MoA. I am still working on a tech article that I hope will be ready sooner rather than later.

Lots of very good comments here.

Posted by: Gordog | Sep 2 2021 23:02 utc | 100

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