Guest Post by Michael Hudson and Paul Craig Roberts
Out of habit, American economists worry about federal debt. But federal debt can be redeemed by the Federal Reserve printing the money with which to retire the bonds. The debt problem rests with individuals, companies, and state and local governments. They have no printing press.
We have explained that the indebtedness of the population means there is little discretionary income with which to drive the economy. The offshoring of middle class jobs lowered incomes, and after paying debt service—mortgage interest, car payments, credit card interest, student loan debt—Americans’ pockets are empty.
This situation has been worsened by Covid lockdowns. In the US the federal government has sent out a few Covid payments to help keep people’s heads above water as they face expenses without income. The financial press refers to these Covid checks as “fiscal stimulus,” but there is no stimulus. The Covid checks do not come close to replacing the missing wages, salaries and business profits from lockdowns.
Corporations have indebted themselves and impaired their capitalization by borrowing money with which to repurchase their stock. This has built up their debt in the face of stagnant or declining consumer discretionary income.
We propose to deal with the debt crisis by forgiving debts as was done in ancient times. Our basic premise is that debts that cannot be paid won’t be. Widespread foreclosures and evictions would further worsen the distribution of income and wealth and further contrain the ability of the economy to grow. Writing debt down to levels that can be serviced would clear the decks tor a real recovery. Income that would be siphoned off in debt service would instead be available to purchase new goods and services.
A few economists muttered that we were overlooking the “moral hazzard” of absolving people of their debts. But leaving the economy stagnated in debt is also a moral hazzard.
Policymakers did not endorse our proposal, but, in effect, policymakers adopted our policy. However, instead of forgiving the debt itself, they forgave payment of the debt service. Individuals and businesses who cannot pay their landlords or lenders cannot be evicted or foreclosed until June. This doesn’t hurt the lenders or banks, because the loans are not in default, and their balance sheet is not impaired. The banks add the unpaid payments to their assets, and their balance sheets remain sound.
When June arrives, the prohibition against eviction and foreclosure will have to be extended as the accrued debt service cannot be paid. Extending the moratorium on foreclosures and evictions will just build up arrears. Is the implication a perpetual moratorium?
The question is: If policymakers are willing to forgive debt service, why not just forgive the debt. The latter is neater and clears the decks for an economic renewal.
The US economy has been financialized. Debt has been built up without a corresponding gain in productive capital investment in order to carry the mounting debt.
In financialized capitalism, the main purpose of bank loans is to refinance existing investments, not to expand productive capacity with which to service the debt. It is not possible to grow out of debt in a financialized economy, because too much income is used for debt service. The way to deal with this problem is to write down debts.
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The dip shits could also remove income tax on persons earning under 100 k a year also, allowing them to grow and stimulating the economy with the extra money and a means or reason to climb out of poverty.
This is exactly why it won’t happen.
Yeah i know, to many are wedded to the present system. I have heard it enough from both right and left rejecting it when i’ve brought it up for a myriad of reasons.
The vast majority of people making under $100k pay no net tax already. The stupid around here burns.
Here are some facts for all the idiots out there.
47% of the population pays no tax. People on between $50k and 100k pay under 10% on average. People below $50k actually pay negative tax on average – they get more money back than they pay in.
So the idea that everyone who makes less than $100k should pay no tax is almost a reality already. Even that percentage that makes between $50 and $100k pay a pittance in federal tax.
But poor us – tax the rich! The people who pay almost all the tax are the top 10% of earners, and 90% of those are not amazingly rich. They are doctors, small business people, etc. But hey – tax them. Make them pay their fair share, while my fair share is zero.
Parasites. Get a clue.
This should not come as a surprise but, as the wealth/income gap widens, we will get more and more people calling for eating the rich. Will it happen?
I wasn’t aware Federal Income Tax is the only tax I pay.
Thanks for clearing that up!
I clearly said fed tax. But I suspect state income tax will be similar – those making over $100k will pay almost all the state income,tax, and those under will get more than they pay.
The stupid still burns.
Under $100 k per year? Nah, make it $2.5 million a year. These days $200k per year is lower middle class.
Liberty, as secured as a Constitutional Right in the Preamble, 5th & 14th Amendments, includes the Right to Pursue a Livelihood. Ref. Regents v Roth, 408 US 562. An excise income tax on nonresident aliens upon the PRIVILEGE of being in the US is at 26 USC 871. No similar provision exists as a tax upon WE THE SOVEREIGN CITIZENS.
When you sign a tax form over the caveat TAXPAYER’S NAME under threat of perjury, the courts will accept that as an acquience that you legally owe a tax and the process [indictment] does not have to allege it and submit it to contestation with the burden of proof upon the plaintiff.
Think of the world 100 years into the future.
The economy. AI everywhere. This is the normal factory. Push one button, out comes a toaster. Push another, out comes a washing machine, a car, a house, etc.
All with the address of the purchaser, and all transported there with no human intervention.
The question. How will the purchasers afford to buy them? UBI (Universal Basic Income) will be an absolute necessity.
All the old Republican ideas of (everyone needs to “work” in order to be accepted) will be ancient history.
Tens of trillions of people benefitting from vast new creations of wealth.
Except the real concept behind UBI isn’t to help you, it’s to control you. One wrong post and no income for you.
So, sort of like things are now – but plus $1000/month.
Richo says:
“UBI (Universal Basic Income) will be an absolute necessity.”
Ain’t gonna be no UBI! The Davos crowd, the Illuminati, WEF, the Billionaire Boys Club etc, won’t put up with billions of peons taking up space on their world. C’mon man.
Uhhhh I guess you didn’t get the memo? They plan on reducing the population big time and have said so many times.
Well Steve, that’s kinda what I meant with “…won’t put up with billions of peons taking up space on their world.”
The “memo” is somewhere in Georgia.
I bet we’re pretty much in agreement.
Yup, my bad…
Went and saw the “guidstones” 4 years ago. Creepy.
This guy is under the (IMO false) assumption that the ideal is to restore the US economy not destroy it.
” federal debt can be redeemed by the Federal Reserve printing the money with which to retire the bonds”
What!?!
But the Gov’t creates money by issuing a bond, the value of which the Fed prints up. Thus money is “loaned” into circulation.
To “retire” those bonds, the money that was created by their issuance must be paid back, plus interest (which, of course, was not created with the bond). That money is currently circulating in the economy, having entered through gov’t spending (purchases, salaries, pensions, etc.).
So, to retire those bonds, a sum of money significantly larger than the nominal bond amount must be ripped from the private sector economy (your wallet) in order to wipe out that gov’t debt.
If the Fed keeps printing, it just means that there are newer bonds created to retire others, and your part of the “debt” keeps increasing.
Ultimately, the only way to actually retire those bonds is via repudiation, default, or via giving the whole damn economy to the Fed in repayment.
Or at least that is how I understand it.
Question: if a patriot missile costs $1,000,000 to make, and it destroys infrastructure of $10,000,000, what is the net economic growth of that ? How much do we have to pay back to retire that portion of the debt, and from where does the money come?
The fairly obvious plan is for the FED to own it ALL with money(currency) created out thin air. They are the lender and buyer of last resort. The private member-owners of the FED will own everything including the shirt on your back.
True enough. Repudiation is proper on the basis that the proceeds of the “loan” didn’t exist before the debt was created. The money was loaned into existence by an entity(or entities) that didn’t have the money to begin with.
The procedure is the same as if you borrowed money from a stranger who stole it from you first and then pretended to hand it over.
to stop the left,’murica needs a rothbardian right–
https://en.wikipedia.org/wiki/Murray_Rothbard#Education
Stop being a fucking shabbos goy.
So….Murray Rothbard was an eevull joo. Great argument there, troll. FOAD.
Stupid cuck. No wonder you lose every time, you can’t comprehend the problem.
Eat a bullet.
good article about financialization from the mises institute
https://mises.org/wire/financialization-why-financial-sector-now-rules-global-economy
I’ve always said what if the stock market crashed and we refused to notice?
The sole purpose of 401Ks however.
Now I don’t have this slim hope because 90% mask wearers.
This is the contention that Keynesism [MMT, globalism new controlled money] is the salvation of society. Hudson got his start on Wall Street, was sent to DC to recruit government employees who would advance Wall Street’s control of the economy. It is a justification for hyper-inflation leading to bankruptcy that will result in Wall Street using their privately owned FRBOG to foreclose on the National Debt Ref.
Federal Reserve for Dummies.
Goldman did the same thing to Greece which is now controlled by the Trokia.
Blackrock.
http://dissident-mag.com/2020/06/01/jigs-up/