The Bubble and Beyond - Fictitious capital, debt deflation and global crisis

637 Pages·2012·4.55 MB·English

by  Michael Hudson

— PRAISE FOR MICHAEL HUDSON'S WORK —

“There are few people alive who have taught me more than Michael
Hudson. The incisive and brilliant essays in this book should really be
assigned to every first-year student of economics. The fact they never will be
is the ultimate testimony to the fact economics has betrayed its own most
noble tradition  —  and Hudson here so magnificently embodies  —  to
become a sheer instrument of power.”
— David Graeber, author of Debt: The First 5,000 Years and co-organizer
of Occupy Wall Street

“Michael Hudson has consistently been an eloquent, erudite, accurate
analyst of the strengths and failings of modern capitalism. He is one of the
prescient few who anticipated today’s never-ending economic crisis, and one
of a smaller number still whose advice about how to end the crisis would
actually work. His simple mantra debts that can’t be repaid, won’t be repaid
will echo down the ages. Buy this book and acquire real wisdom, with a
breadth of vision from the origins of human society till today that no-one else
can match  —  and I include myself in that judgment.”
— Steve Keen, author of Debunking Economics. The Naked Emperor
Dethroned? and editor of Debtwatch blog at debtdeflation.com

“Among the contemporary voices crying in the wilderness of the world’s
financial trouble, I know of none more forceful or prescient than Michael
Hudson’s. He sets the crooked straight and makes the rough places plain.”
— Lewis Lapham, editor of Lapham’s Quarterly and editor emeritus of
Harper’s magazine

“Michael Hudson is a vital and productive force. He is a top notch
economist and historian, a man to whom the phrase “class struggle” still has a
vital imperative. On the left, and at CounterPunch we await eagerly his
dispatches and this book promises to be a rich treat.”
— Alexander Cockburn, co-editor of CounterPunch.org
“Hudson argues convincingly that there is no legitimate debt repayment
option, only variations on debt forgiveness, and that elected governments
should determine the policy that is in the best interest of constituents, not
financial firms, and that the future of the global economy hangs in the
balance."
— Eric Janszen, founder and president of iTulip.com

“Michael Hudson is able to articulate the truths behind our economic crisis
and provide solutions that would liberate tens of millions of Americans from
desperate financial conditions. This book explains the choices before us and,
more importantly, how to maneuver ourselves away from what many of us
believe is a looming economic catastrophe. If Dr. Hudson were sitting at
Obama’s right as chief economic advisor, I would feel far more secure and
hopeful about our future.”
— Gary Null, author, president and co-founder of prn.fm (Progressive
Radio Network)
© 2012 Michael Hudson / ISLET-Verlag
© September 2012 eBook edition
Cover design by Kate McInnes
All illustrations, tables, charts and graphs © Michael Hudson with the
exception of the two illustrations in Chapter 2 by Nigel Holmes.
All rights reserved.

www.michael-hudson.com
www.islet-verlag.de

Hudson, Michael, 1939–
The Bubble and Beyond. Fictitious Capital, Debt Deflation and Global Crisis
Michael Hudson

ISBN 13: 978-3-9814842-0-5
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Table of Contents

Acknowledgements
Preface & Sources
Introduction: The Crisis in the Economy and in the Economics Discipline

Part I. Fictitious Capital and Economic Fictions
1. Two Traditions of Financial Doctrine (Table)
2. The Magic of Compound Interest: Mathematics at the Root of the Crisis
(2 illustrations)
3. How Economic Theory Came to Ignore the Role of Debt
4. The Industrialization of Finance and the Financialization of Industry
5. The Use and Abuse of Mathematical Economics
6. The Financial Character of Today’s Crisis and Why Economists Avoid
Confronting It

Part II. Inflated Debt and Debt Deflation
7. A Property is Worth Whatever a Bank Will Lend Against It (5 Charts)
8. The Real Estate Bubble at the Core of Today’s Debt-leveraged
Economy (19 Charts)
9. Junk-Bonding Industry (2 Charts)
10. Privatizing Social Security to Rescue Wall Street
11. Saving, Asset-Price Inflation and Debt Deflation (6 Charts)
12. Saving our Way into Poverty: The Political Implications

Part III. The Global Crisis
13. Trade and Payments in a Financialized Economy (4 Tables)
14. U.S. Quantitative Easing Fractures the Global Economy
15. America’s Monetary Imperialism (1 Table)
16. How the Dollar Glut Finances America’s Military Build-up
17. De-Dollarization and the End of America’s Empire
18. Incorporating the Rentier Sectors into a Financial Model (5 Charts)

Part IV. The Need for a Clean Slate
19. From Democracy to Oligarchy: National Economies at the Crossroads
20. Scenarios for Recovery

INTERACTIVE ENDNOTES – Listed by Chapter (interactive in text only)

MICHAEL HUDSON Bio and Other Books by Michael Hudson
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Acknowledgements

I am grateful to Steve Keen, Henry Liu, Dirk Bezemer and Yves Smith for
the discussions we have had over the years in clarifying the chapters and
basic argument put forth in this book and to my Modern Monetary Theory
colleagues Randy Wray, Stephanie Kelton and Marshall Auerbach at the
University of Missouri (Kansas City).
For over ten years my Gang8 colleagues Geoffrey Gardiner, Gunnar
Tomasson and Arno Daastol (for many years my webmaster) have joined in
an ongoing critique of how orthodox schools retain the Ricardian tradition of
describing how economies would work without free credit creation and debt.
That is of course why these schools (like Ricardo himself) have received
backing from the financial sector, which seeks to make its product — debt —
invisible to economists, politicians and the general public.
In addition to setting this book in type, Cornelia Wunsch has been a part
of this project from the beginning, and has provided the most important
editorial guidance and encouragement. David Kelley, my fellow advisor to
Congressman Dennis Kucinich, has egged me on to focus my argument more
clearly.
Starting in 2005, Lewis Lapham gave me a popular forum for my ideas in
Harpers, for which Nigel Holmes provided the illustrations for the “The New
Road to Serfdom” article. He also illustrated the compound interest charts in
Chapter 2. Alex Cockburn at CounterPunch and Michel Chossudovsky at
Global Research provided me with popular electronic forums for my
reporting of current events. Yves Smith at Naked Capitalism and Stephanie
Kelton at UMKC’s New Economic Perspectives have published my articles
and provided discussants that have shaped some of these chapters.
In New York the late Bob Fitch, Bertell Ollman, Xulin Dong and Sjjabri
Oncu have read and given me instructive feedback on most of the chapters in
this book. My colleagues Jeff Sommers (along with Dirk Bezemer noted
above) have co-written articles with me on the neoliberal disaster in Latvia.
In Japan, Bill Totten has provided much help, and in the Basque Country,
Joseba Felix-Tobar has integrated my theories with my UMKC colleagues.
Pacifica Network broadcasters Bonnie Faulkner, Amy Goodman and Suzi
Weissman have conducted interviews that have led me to state my ideas more
forcefully. Likewise at i-tulip, Eric Janszen has been a good source of back-
and-forth discussion over the years.
Karl Fitzgerald at Prosper Australia in Melbourne has served as my web-
master for michael-hudson.com for the past few years. Lynn Yost has been
an indefatigable friend and editor, and Keith Wilde has been reading my
articles for many years.
In Germany, Frank Schirrmacher and Nils Minkmar at the Frankfurt All-
gemeine Zeitung have pushed me to discuss the political implications of my
financial analysis, while Martin Bartels and my colleagues at the Boeckler
Stiftung meetings in Berlin have helped spur me to define my theories more
clearly. Most recently, Rob Johnson has invited me to present my summary
paper (Chapter 20 in the present volume) at the April 2012 meetings in Berlin
of the Institute for New Economic Thinking (INET).
I could not have completed this book without the tender care and nurturing
given by my wife Grace, who has fought valiantly to keep me distraction
free.
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