[p2p-research] Michael Hudson on the financial crisis and the criminilisation of our economy

[Michel Bauwens]

http://www.debtdeflation.com/blogs/wp-content/uploads/2010/10/HudsonAMI2010Talk.swf

This is a really must see video, really strongly recommended

Kevin, it contains  a critique of henry george if you listen carefully

see also these remarks by Steve Keen at
http://www.debtdeflation.com/blogs/2010/10/04/jubilee-shares-and-the-american-monetary-act/


*Steve Keen*, my favourite economist, in his (moderate) critique of the
American Monetary Act <http://www.monetary.org/amacolorpamphlet.pdf>, makes
some *very interesting
argument<http://www.debtdeflation.com/blogs/2010/10/04/jubilee-shares-and-the-american-monetary-act/>about
monetary reform
*:

*“The proposal itself is functional: it would convert our current banks into
institutions like building societies, which when they lend money to a
borrower, have to decrement an account they hold at a bank–so that no new
money is created by the loan. In the AMI’s plan, banks would have accounts
with the Federal Government (the Federal Reserve, which is currently
privately owned, would be incorporated into the US Treasury), and could only
lend what was in those accounts. Money creation would then be exclusively
the province of the Government via deficit spending.*

*I don’t oppose this plan, but I think it directs attention at the wrong
problem: the issue to me is not how money is created, but how it is used. If
it’s used to finance productive investment, then generally speaking all will
be well; but if it’s used to finance speculation on asset prices, then it
will lead to financial crises (though not necessarily as severe as the one
we’re experiencing now).*

*My reform proposals are therefore directed, not at how money is created,
but at how it can be used. Briefly, I argue that banks are always going to
want to create as much debt as they can (under whatever system of money
creation we have). So if we’re going to stop the use of money for
speculative purposes, our reforms have to affect the willingness of
borrowers to borrow, rather than expending energy on ultimately futile
attempts to limit bank lending directly.*

*Bankers especially might not like this analogy, but it’s apt: banks are
effectively debt pushers, and trying to control bank lending at the source
is like trying to control the spread of illegal drugs by directly
controlling the drug pushers. While ever there are drug users who want the
drugs, then there’ll be a profit to be made by selling drugs, and drug
pushers will always find ways around direct controls.*

*So if you want to stop the spread of drugs, it’s far more effective–if it’s
at all possible–to reduce the desirability of the drugs to end-users. This
was the basis of the very successful “Kiss a non-smoker: enjoy the
difference” anti-smoking campaign run in my home state (New South Wales,
Australia) in the 1980s.*

*We need something like that in finance to counter the successful campaigns
that bankers have run to give debt as “sexy” an image as tobacco companies
once gave cigarettes, even though–in another apt analogy–it causes financial
cancer: the uncontrollable growth of debt is very much akin to the
exponential growth of a tumour that ultimately kills its host.*

*The metaphor is not perfect of course, since a certain minimal level of
debt is a good thing in a capitalist society. Productive debt both gives
firms working capital, and finances the activities of entrepreneurs who need
purchasing power before they have goods to sell.*

*But debt that funds simply speculation on asset prices is very much akin to
a cancer. And like the cigarettes that cause lung cancer, growing
unproductive debt gives a “hit” that makes the borrower addicted to more
debt: when debt is growing, the debtor and society in general feel better.
It enables the borrower to make profits from speculating on asset prices,
since the rising debt drives up asset prices; and the spending this capital
gain allows spreads into the wider economy, creating a genuine but
ultimately terminal boom. The boom can only continue if debt continues to
grow faster than income, but at some point this guarantees that the
debt-servicing costs will exceed society’s capacity to pay, and the
cessation of debt growth causes a crisis like the one we are in now.*

*My two “kiss a non-debtor” proposals to make debt far less attractive to
borrowers are:*

** 1. To redefine shares so that, if purchased from a company directly, they
last forever (as all shares do now), but once these shares are sold by the
original owner, they last another 50 years before they expire; and*

** 2. To limit the debt that can be secured against a property to ten times
the annual rental of that property.*

*The objective in both cases is to make unproductive debt much less
attractive to borrowers.*

*99% of all trading on the stock market involves speculators selling
pre-existing shares to other speculators. This trading adds zip to the
productive capacity of society, while promoting bubbles in stock prices
because leverage drives up prices, encouraging more leverage, leading to a
crash when price to earnings ratios reach levels even the Greater Fool
regards as ridiculous. Then shares crash, but the debt that drove them up
remains.*

*If instead shares on the secondary market lasted only 50 years, then even
the Greater Fool couldn’t be enticed to buy them with borrowed money–since
their terminal value would be zero. Instead a buyer would only purchase a
share in order to secure a flow of dividends for 50 years (or less). One of
the two great sources of rising unproductive debt would be eliminated.”*



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