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Modern Monetary Theory: Coming Your Way Soon (Unless Big Changes Are Made)

Published by Anonymous (not verified) on Sat, 10/08/2019 - 12:26am in

Published in the Nikkei Asian Review 6/8/2019

Japanese leaders have, in the past, often railed against public criticism of their policies by overseas economists. Never before, though, have they issued strongly worded rebuttals of foreign praise. Yet this is what happened when Professor Stephanie Kelton of Stony Brook University voiced her approval of government economic policy during her recent visit to Japan.

Professor Kelton is an advocate of Modern Monetary Theory, known as MMT, a heretical challenger to mainstream economics which maintains that the only constraint on public spending is inflation. In fact, the theory goes, there is no need for government spending to be financed by bond issuance at all. The central bank can simply create as much money as it likes until inflation becomes a problem.

 Professor Kelton in Japan
Professor Kelton in Japan

Many supporters of MMT view Japan’s “Abenomics” as a case study that bolsters their argument. And that is exactly why the Japanese establishment has reacted as if being accused of membership in some wacky religious cult.

Finance Minister Taro Aso called MMT “an extreme and dangerous idea that weakens fiscal discipline” and Bank of Japan Governor Haruhiko Kuroda expressed “no sympathy whatsoever” with the theory.

The reaction amongst mainstream economists overseas has been similarly hostile. According to Larry Summers, MMT is “the voodoo economics of our time.” Kenneth Rogoff calls it a threat “to the entire global financial system.” Even Bill Gates dismissed it as “crazy talk.”

The nay-sayers’ main beef appears to be the risk of hyper-inflation as experienced by several Latin-American and African countries. MMT-ers riposte that such criticism caricatures their approach. Indeed, theoretically it could be compatible with inflation targeting as practiced in most developed countries today.

Professor Kelton is a former advisor to Bernie Sanders, the veteran left-winger once more seeking nomination as Democratic Party presidential candidate. A much younger radical American politician, Alexandria Ocasia-Cortez, has also shown strong interest in MMT. The theory has obvious attractions for the left because it seems to offer the prospect of limitless and costless public spending. In fact, though, it is closely linked to the “helicopter money” proposed by free-market enthusiast Milton Friedman as a cure for deflation.

Such money need not be spent by the government. It could be simply mailed to citizens to spend as they like.

Indeed, there is another potential recruit to the MMT cause on the other side of the American political spectrum. In “Fear: Trump in the White House”, author Bob Woodward recounts an argument between Trump and Gary Cohn, Treasury Secretary at the time. Trump suggests issuing a large amount of bonds to take advantage of historically low interest rates. Cohn slams the idea of breaching the politically-created “debt ceiling” as being harmful to US growth. Trump replies “Just run the presses – print money.” Woodward takes this as evidence of Trump’s ignorance. In fact, the president was probably referencing the latest economic theory.

Happier times - President Trump with Gary Cohn Happier times – President Trump with Gary Cohn

In many fields of intellectual enquiry, what was once heresy is now orthodoxy. Economics is no exception. The last time a paradigm shift occurred in macro-economic policy was in the 1970s, when monetarism, which placed emphasis on control of the quantity of money, displaced the post-war Keynesian consensus, which viewed fiscal policy as the key determinant of demand.

At the time, monetarism was a controversial fringe movement with little support amongst mainstream academics and policy-makers, but it seemed to offer a solution to a serious real world problem that the Keynesians had not anticipated and could not explain – the co-existence of high inflation and high unemployment.

A similarly puzzling phenomenon is visible in today’s world – this time the co-existence of low unemployment and low or no inflation (and likewise wage growth) in many developed countries. As in the 1970s, the Phillips curve, which purports to establish a reliable relationship between employment and inflation, has gone missing. And just as the monetarists brought in a radical new approach, now we have the MMT-ers advocating unfunded fiscal expansion.

Does the Japanese experience validate MMT, as Professor Kelton implied? Perhaps. It certainly raises serious doubts about the “fiscal discipline,” strongly advocated by Kenneth Rogoff, Christine Lagarde and many other experts and policy-makers since the global financial crisis of 2008. For Japan has been running large fiscal deficits for the past twenty years and has consequently amassed a Mount Fuji-sized pile of outstanding government debt, equivalent to 230% of Japanese GDP. Far from triggering a bond market rebellion and soaring interest rates, as doomsters consistently predicted, Japanese interest rates have fallen to vanishing point.

Since the start of Abenomics in 2013, the story gets even more interesting. Thanks to the quantitative easing programme of bond purchases introduced by Bank of Japan Governor Kuroda, some 40% of all outstanding Japanese government bonds now sit on the BoJ balance sheet. In other words, one arm of government owes a vast sum of money to another arm of government – which means that no debtor-creditor relationship exists. Despite the strident disclaimers of the Japanese authorities, this is not far removed from the world of MMT.

Happier days - President Trump with Gary Cohn

Having said that, the major cause of Japan’s public deficits was not fiscal expansion, but the collapse in tax revenues that happened during the two “lost decades.” In the first year of Abenomics, the government did increase public spending and the economy rebounded and inflationary expectations soared accordingly. Since then, however, fiscal policy was tightened. With one unnecessary and counter-productive tax hike being followed by another this autumn, it is no surprise that inflationary expectations have collapsed.

Before the global financial crisis, Japan’s rock bottom interest rates appeared to be a bizarre and unique phenomenon. No longer. Now there are over twelve trillion dollars of negative yielding bonds in the world, including some corporate bonds. In many countries the stimulatory effect of lower interest rates has already passed the point of exhaustion, raising the question of what governments will do to counter the next recession.

What the markets are asking them to do is clear – take advantage of these unprecedentedly low interest rates to issue boatloads of bonds and pump money into their economies. The Austrian government has just launched a tranche of its 100 year bond at an interest rate of 1.2%. Judging by the comparative yields of their 30 year bonds, Japan could probably borrow one hundred year money for less than 1%.

Instead of raising taxes on consumption and damaging growth, it could be investing in infrastructure, clean energy and fertility incentives that would increase the expected population and revive sadly depopulated regions.

Not every country is in the same position as Japan, which is the world’s largest creditor nation and has been clocking up current account surpluses since the early 1980s. But it is fairly clear that in many countries a combination of monetary easing and fiscal expansion, as well as tax reform (not hikes), is required to revive growth. If mainstream politicians and technocrats do not rise to the challenge, then the populists will fill the gap.

That could be dangerous because MMT has so far little to say about the varying financial conditions of different countries and the magnitudes of stimulus that are required for the remedy to work. It is all too easy to imagine countries that are, unlike Japan, already under-saving and over- consuming going too far – and ending up with out-of-control inflation.

Charge us More

Published by Anonymous (not verified) on Fri, 09/08/2019 - 10:45am in

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Trump’s claim that China is paying for the tariffs is completely false and basically serves to redirect income from his poor supporters to his wealthy supporters. Not only that, the policy will have the consequence of further isolating the United States, says Michael Hudson.

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Global Warming and U.S. National Security Diplomacy

Published by Anonymous (not verified) on Mon, 05/08/2019 - 10:34pm in

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Control of oil has long been a key aim of U.S. foreign policy. The Paris climate agreements and any other Green programs to reduce the pace of global warming are viewed as threatening the aim of dominating world energy markets by keeping economies dependent on oil under U.S. control. Also blocking U.S. willingness to help stem global warming is the oil industry’s economic and hence political power. Its product is not only energy but also global warming, along with plastic pollution.

This fatal combination of the national security state’s mentality and oil industry lobbying threatens to destroy the planet’s climate. The prospect of raising temperatures and sea levels along the coasts while inland regions suffer drought is viewed simply as collateral damage to the geopolitics of oil. The State Department is reported to have driven out individuals warning about global warming’s negative impact.[1]

The only attempts to restrict oil imports are the new Cold War trade sanctions to isolate Russia, Iran and Venezuela. The aim is to increase foreign dependence on U.S., British and French oil, giving American strategists the power to make other countries “freeze in the dark” if they follow a path diverging from U.S. diplomatic aims.

It was the drive to control the world’s oil trade – and to keep it dollarized – that led the United States to overthrow the Iranian government in 1953, George W. Bush and Dick Cheney to invade Iraq in 2013, and most recently for Donald Trump to isolate Iran while backing Saudi Arabia and its Wahabi foreign legion in Syria, Iraq and Yemen. Sixty years earlier, in 1953, the CIA and Britain joined to overthrow Iran’s elected President Mohammad Mosaddegh to prevent him from nationalizing the Anglo-Iranian Oil Company. A similar strategy explains U.S. attempts at regime change in Venezuela and Russia.

While seeking to make other countries dependent on U.S.-controlled oil, America itself has long aimed at energy self-sufficiency for itself. In the 1970s the Energy Research and Development Administration (ERDA) developed the environmentally disastrous plan to promote North American energy independence by tapping Canada’s Athabasca tar sands. About ten gallons of water are needed to make each gallon of synthetic crude oil. This water is treated as a free good, not factored into the cost of extracting syncrude. (I was the lead Hudson Institute economist evaluating ERDA’s plans, and was removed from the study when I protested that this might cause downstream water problems.) A byproduct of American energy self-sufficiency may be to make water scarcer and more expensive, especially as fracking pollutes local water resources while diverting an immense flow of fresh water as part of the extraction-and-pollution symbiosis.

The short-sightedness of America’s aggressive oil diplomacy is causing opposition in Europe as it buckles under unprecedented summer heat waves, just as U.S. cities are being devastated by drought, forest fires, floods and other extreme weather. Yet this has not dented the basic thrust of U.S. foreign policy to control oil.

Oil in the U.S. balance of payments

Control of oil has long been a major contributor to the U.S. trade and payments, and hence of the dollar’s ability to sustain the huge outflow of overseas military spending. In 1965 I conducted a study for the Chase Manhattan Bank and found that in balance-of-payments terms, every dollar of oil industry investment outflow is recovered in just 18 months. That is because hardly any of the reported import value of oil was paid to foreigners.

To the extent that the United States must import foreign oil, such trade has been limited to U.S. oil majors (on “national security” grounds), mainly from their own foreign branches. Only a small proportion of the price was paid in foreign currency. U.S. companies bought crude oil from their foreign branches at very low prices, and allocated all the price markup to their shipping affiliates in Panama or Liberia, along with shipping and freight costs, dividends and interest, managerial charges and charges for capital investment, depreciation and depletion. Most of what is counted as U.S. foreign investment in oil takes the form of machinery exports, U.S. materials and management, and so did not actually represent a dollar outflow. The effect has been to obtain oil imports at minimal balance-of-payments cost.

Since 1974, Saudi Arabia and neighboring Arab countries have been told that they can charge as high a price as they want for their oil. After all, the higher the price they charge, the higher the profits will be for domestic U.S. oil producers. The “conditionality” is that they must recycle their export earnings into the U.S. financial market. They have to keep their foreign reserves and most personal financial wealth in U.S. Treasury securities, stocks and bonds. A global move away from oil would impair this circular flow of oil-production gains into U.S. financial markets supporting domestic stock prices.

Solar energy technology and other alternatives to oil will not contribute nearly as much to the balance of payments as oil. Not only will environmentally friendly alternatives be outside the ability of U.S. diplomats to control or cut off energy supplies to other countries, but China is taking a leadership position in solar energy technology.

A major factor bolstering the oil industry’s economic power has been its tax-avoiding “flags of convenience” located in offshore banking centers. U.S. oil companies have long registered taken their profits from production, refining and distributing in Panama and Liberia. Over fifty years ago the treasurer of Standard Oil of New Jersey walked me through how the oil industry pretended to make all its profits in the tax havens that had no income tax – paying a low price to oil-producing countries, and charging a high price to downstream refiners and marketers.

One implication of this is that there is little political chance of any cleanup of tax avoidance via offshore banking centers, by Western investors and indeed the world’s criminal class and corrupt politicians, given the fact that oil and mining are the major beneficiaries. Weakening the lobbying power to close the tax loopholes could curtail the oil industry’s economic power.

U.S. foreign policy is based on making other countries dependent on U.S. oil

U.S. diplomatic strategy is to make other countries dependent on vital materials that U.S. diplomats can use as an economic lever. An early example were the food sanctions imposed in the 1950s to spur resistance to Mao’s revolution in China. Canada broke the grain embargo.

If other countries produce their energy by solar power, wind power or nuclear power, they will be independent of U.S. oil diplomacy and its threats to cut off their energy supplies, grinding their economies to a halt if they don’t endorse U.S. neoliberal economic policies. This explains why the Trump Administration withdrew from the Paris climate agreement to slow global warming.

U.S. Cold War 2.0 policy is aimed at isolating Russia

U.S. energy self-sufficiency finds its counterpart in the demand that Europe become dependent entirely on American “Freedom Gas,” at a much higher price than is available from Russia’s Gazprom and reject the Nordstream 2 pipeline, preventing it from obtaining lower-priced rival gas from Russia.[2]

The Trump administration argues that to avoid dependency on Russia, Europe should buy its oil and gas at much higher prices from the United States – about 30% higher, in addition to the expense of building LNG ports to transport liquified natural gas by ocean tanker instead of by Russian pipeline. “We’re protecting Germany from Russia and Russia is getting billions and billions of dollars in money from Germany,” Trump complained to reporters at the White House during a meeting with Polish President Andrzej Duda.[3]

On July 31, 2019 the Senate Foreign Relations Committee voted 20 to 2 to back the “Protecting Europe’s Energy Security Act” sponsored by right-wing Republican Ted Cruz and Blue Dog New Hampshire Democrat Jeanne Shaheen. Companies in Switzerland and Italy were first to be censored.

Global warming and GDP accounting

Warmer air temperature means a higher rate of evaporation, and hence more rain, tornados and flooding, as we are seeing this year. A related result will be drought as glaciers melt and no longer feed the major rivers on which dams have been built to generate electric power. The seeming irony is that these effects of global warming and extreme weather have become bulwarks of the rise in U.S. GDP. The cleanup costs of air and water pollution, the expense of rebuilding flooded or damaged homes, crop destruction, the increased cost of air conditioning, of coping with the spread of injurious insects northward and the rise in medical and health costs may actually account for all its growth since 2008.

Neoliberals celebrated the End of History after the Soviet Union dissolved in 1991, promising an era of new growth as “the market” became the world’s planner. They did not spell out that much of this growth would take the form of coping with the short-termism of the oil industry and other rent extractors living in the present and taking their money and running.

What factors should a Green Policy emphasize?

As Mark Twain quipped, “Everyone talks about the weather, but nobody does anything about it.” In today’s political world, doing something about global warming means taking on a set of goliaths that go beyond the oil and gas industry. It is one thing to say that global warming, climate change and the resulting extreme weather are existential threats to present-day civilization and economies. It is another to spell out the preconditions for solving the problem in the sphere of economic and tax reform, military and U.S. national security policy.

A Green program cannot succeed without confronting the National Security state’s mentality aiming at U.S. oil supremacy. U.S. national security has become a war threatening the security of the entire globe. Threatening to freeze countries in the dark if they do not follow U.S. policy and isolate Iran and Russia, the United States is burning itself up along with the rest of the planet.

Stopping global warming requires a tax policy to close down the special privileges promoting oil industry profits including the use of “flags of convenience” in offshore banking centers as a means of tax avoidance. A Green program logically would include a natural-resource rent tax (as classical economists advocated throughout the 19th century), and charges for what economists call “external economies,” that is social costs that are “externalities” to the corporate balance sheet. Companies should become liable to reimburse society for such costs.

Imposing a tax on oil usage would raise the price of gasoline, but would not deter consumption much in the short run because car drivers and public utilities already are locked in to oil-using capital investments. A more effective response would be to reduce the profitability of oil by closing the tax-avoidance loopholes and “flags of convenience” that the industry’s lobbyists have created. “Oil industry accounting” leaves “Hollywood accounting” and Donald-Trump style real-estate accounting in the dust.

The public relations problem with this solution is that this practice of pretending to “earn” all one’s income in small island enclaves with no income tax has become so widespread that it has created an enormous vested interest now including the leading IT giants, industry and real estate. Depriving tax accountants of recourse to such tax-avoidance centers also threatens America’s National Security state by challenging its perceived national interest in attracting the world’s criminal capital to these enclaves as a bulwark of the U.S. balance of payments. The world’s wealthiest corporations and tax evaders are aligned against an economic policy that would most help reduce the carbon footprint by moving beyond oil and gas.

To implement a successful Green policy program, it thus is necessary to move beyond the environmental problem to take on a broad and wealthy array of vested interests. They will cite free-market ideology as justification for taking their money in the short run, without care for the weather disaster they are causing. That makes the task much more daunting, and also may limit the ideological appeal of a real Green program.

In countries such as Iceland and Germany, neoliberal Green Parties tend to be centrist and conservative when it comes to supporting banks and the financial sector, and endorse a market-based bonanza of carbon trading rights to be bought and sold by Wall Street speculators. The problem is that such “market-based” solutions must fail, because markets are short-term and do not take account of “externalities.” Are Greens willing to criticize this “market philosophy” and its tunnel vision? Without such a challenge, Green parties will appeal largely to “feel good” voters who want to register their politically correct concern without doing much to actually solve the underlying problem.

We indeed seem to be entering the End Time. It is turning out to be the antithesis of the neoliberal End of History that was being celebrated in 1991 as free market victory after the Soviet Union collapsed. It is a crisis of Western civilization, not its apex.

Footnotes

[1] Rod Schoonover, “My Climate Report Was Quashed,” New York Times op-ed, July 31, 2019, reported that the White House blocked his report on the adverse effects of climate change on the ground that “the scientific foundation of the analysis did not comport with the administration’s position on climate change.”

[2] Regarding U.S. National Security Strategy (NSS) of Energy Dominance, see Ben Aris, “Busting Nord Stream 2 myths,” Intellinews.com, August 27, 2018. U.S. Secretary of Energy Rick Perry has likened U.S. gas to American soldiers liberating Europe from the Nazis. “The United States is again delivering a form of freedom to the European continent,” he told reporters in Brussels earlier this month. “And rather than in the form of young American soldiers, it’s in the form of liquefied natural gas.” See also and https://truthout.org/articles/freedom-gas-will-be-used-to-justify-oppres....

[3] “Euro Slides After Trump Threatens Sanctions To Stop NordStream 2 (Again!),” Zero Hedge, June 12, 2019.

unsplash-logoMartin Reisch

Bird Sorrowing for Spring: Yoko Ran at Mandala

Published by Anonymous (not verified) on Mon, 05/08/2019 - 6:49pm in

In mid-July, we managed to catch a rare live concert by the reticent and ever-mysterious Yoko Ran at Mandala in Aoyama. Backed by cello, piano and acoustic guitar, she delivered a short, but moving set made up of a dozen or so Terayama songs and poems set to music.

Yokoran4

On screen, her most striking vocal performance is Sekishuncho, the theme song of Terayama’s surreal autobiographical masterpiece, Pastoral: To Die in the Country. Sitting on top of a ladder, Yoko Ran sings a haunting lament for the mother of an illegitimate child who is bullied into infanticide by superstitious villagers.

Terayama’s dark, ambiguous lyrics shadow a work by an older poet, Tomino’s Hell by Yaso Saijo. The story, it seems, concerns a girl (younger sister) being sold to a brothel-owner (the silver sheep) by her brother (the nightingale) in order to pay for medicines for their consumptive elder sister (who spits blood).

With her identity lost (no family register), she must suffer her fate of bonded prostitution (hell) alone.

In Terayama’s film, the young woman who drowns her baby comes back to the village many years later, having spent the prime of her life working in a big city brothel.

Among the songs featured in the Mandala recital were Hikoki Yo (“Oh, Airplane”), Kanashimi (“Grief”), Kami o Ageru (“I’ll Give You a Hair”) and Nozoki Karakuri Akai Obi (“Red Obi Peepshow Story”). For this last number, Yoko Ran donned the white gloves and top hat of a fairground barker.

The music was mostly in a slow tempo European style, which fitted Terayama’s glimmering images of lonely coasts, mysterious bottles and cursed “obi” kimono belts.

All songs performed can be found on the two CDs she has released: Sekishuncho (”Bird Sorrowing for Spring”), marking the 10th anniversary of Terayama’s death in 1983, and Samaataimu: Umi o Kudasai (“Summertime: Give Me the Sea”), commemorating the 20th anniversary.

Perhaps as a reflection of time passing – Terayama himself would be 84 if still alive today – the concert ended ahead of schedule, with a clearly tired Yoko Ran inviting the audience to drink and chat instead.

Yoko Ran (欄妖子) is a private person and has very little presence on the internet. Her unusual stage name – “Ran” means “orchid” and the character for “yo” in “Yoko” means “weird” or “ghostly” – appears to have been chosen for her by Terayama himself. Her real name is unknown.

yokoran5She joined Tenjo Sajiki, Terayama’s experimental theatre troupe, in 1968 and appeared in many productions and all of the feature films he directed. Terayama liked the texture of her voice and soon anointed her the “song princess” of his theatrical productions.

Fifty years on, his appreciation remains valid:

“Yoko Ran’s singing voice, filled with grief and resentment of blood, seems to drag the listener back into the darkness of the womb.”

Tee Jay McNichols, our Producer’s Cousin, Murdered in Dayton Massacre

Published by Anonymous (not verified) on Mon, 05/08/2019 - 1:27am in

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Thomas James “Tee Jay” McNichols Jr., 25, the cousin of our assistant producer Jevin Lamar, was one of the 9 people murdered Saturday in Dayton, Ohio.

The post Tee Jay McNichols, our Producer’s Cousin, Murdered in Dayton Massacre appeared first on Greg Palast.

Even He Can’t Get Away With It

Published by Anonymous (not verified) on Sun, 04/08/2019 - 6:40pm in

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Trump’s New Tariffs on China Help Pay for his Corporate Tax Cut, TRNN, August 2, 2019,

Trump’s claim that China is paying for the tariffs is completely false and basically serves to redirect income from his poor supporters to his wealthy supporters. Not only that, the policy will have the consequence of further isolating the United States, says Michael Hudson

GREG WILPERT: Welcome to The Real News Network. I’m Greg Wilpert in Baltimore. President Trump announced on Thursday via Twitter that trade negotiations with China have stalled and that he will now impose a 10% tariff on $300 billion worth of goods imported from China. At a rally later in the day on Thursday, Trump said the following.

PRESIDENT DONALD TRUMP: I just announced another 10% tariff on $300 billion worth of Chinese products that come into our country. The fact is China devalues their currency, they pour money into their system, they pour it in, and because they do that, you’re not paying for those tariffs. China’s paying for those tariffs. And until such time as there is a deal, we will be taxing the hell out of China. That’s all there is.

GREG WILPERT: The announcement came as a surprise to financial markets, which plunged worldwide immediately after Trump’s tweet with the Dow dropping by over 700 points for example. China responded by saying that it will retaliate, but it did not specify how. Meanwhile, the IMF estimates that the US-China trade war will reduce global economic growth by at least 0.1%. International trade growth and business investment has stalled because of the trade war. Trump has long said that his main objective is twofold. On the one hand, he wants to China to make it easier for US companies to invest in China without giving away their intellectual property. On the other hand, he wants China to commit to purchasing more US-made goods in order to reduce the US-China trade deficit. The US and China had almost come to an agreement last June, but faltered over China’s unwillingness to change its approach to intellectual property.

Joining me now to discuss the US-China trade war is Michael Hudson, he is Distinguished Research Professor of Economics at the University of Missouri, Kansas City and Professor at Peking University, and recently met with China’s Academy of Social Sciences. His most recent book is J is for Junk Economics. Thanks for joining us again, Michael.

MICHAEL HUDSON: Good to be back here.

GREG WILPERT: So let’s start with what Trump claimed, which many have already criticized, but it bears repeating. That is, his claim that China’s actually paying for the tariffs and not US consumers. But if we end up paying more for Chinese products because of the tariff, is there any basis for this claim of Trump’s that the Chinese are paying this tax? And what purpose does this tax serve any way, other than to pressure the Chinese?

MICHAEL HUDSON: It would only be true that China pays if China’s firms would now reduce the prices they charge to Americans by the equivalent of 10%. In practice, this would be 30%. It would only be true if China would operate all of its export industry at a loss. And of course that’s crazy. No country would do that. China certainly wouldn’t do that.

Trump is pretending that Americans will not pay this price. He’s pretending that our prices in this country will not jump by one or two or three percent, and they’re going to be a lot of shortages as many imports simply stop from China.

Basically, what he’s trying to do is blame China and blame foreigners for the fact that a lot of Americans are really hurting. They’re not doing better. They’re not earning enough to break even. They’re going further into debt. But Trump is really saying that it’s not our fault. It’s China’s fault. Don’t blame the financial mismanagement. Don’t blame the corporations. Blame China.

He pretends that they’ll pay instead of Americans. But when you levy a tariff, import prices are going to go up. Americans will pay more. The demands he’s making on China are nonsensical. No country is going to give away their autonomy and abolish their socialist economy and say, all right, we’re going to become an American satellite. We’re going to follow Thatcher and Reagan policies and let America buy our companies out and push us back into the 19th century Opium Wars.

The Opium Wars are over and so it’s now Trump’s trade war. So this is nonsense.

But there’s another reason that Trump is doing this, and that’s because he has something in mind that most people just don’t even think of: the American budget deficit. The government budget is running up deeper and deeper debt as a result of Trump’s tax giveaway to the 1%. So he says,”Hhow am I going to shrink the budget deficit?” He says, “I know. I’ll make my constituency pay. That is, the people that voted for me. I’ll make labor pay. If I can raise taxes on 300 billion of Chinese imports by another 10%, that’ll be all together I think 20% and will yield $60 billion to help us solve the budget deficit that I might give away to Wall Street and the wealthy corporations I’ve created.”

It’s all a diversion so that people won’t look at what’s really happening, only at what Trump is saying. But as people find that they have to pay higher prices, I don’t think they’ll believe Trump. I think he’s lost all credibility. That’s why the stock market’s collapsing. They’re aghast. They think that even Trump can’t get away with this big a lie when it’s so obviously false.

GREG WILPERT: Yeah. I think that’s a very interesting point about where these taxes might be going. I already mentioned though, the short-term consequences of this trade war, which is lower investment, less trade and lower economic growth. But what are the long-term consequences for the US of this trade war?

MICHAEL HUDSON: Well, it’s a war not only against China. It’s a war against the entire world. Trump has just recently stepped up the war against Russia a few days ago when the Senate agreed to penalize countries that help fund Nord Stream, like Germany. He has gone to war with the EU. He’s going to war with Germany.

He’s also gone to war with Venezuela, gone to war with Iran and Yemen. He is going to war with the entire world. So the long-term consequence is for China and Europe and Russia and Iran to draw closer together. America is going to be left isolated.

That’s what an isolationist policy is. It isolates America. Trump is doing it, and this is going to mean that America is going to have to fall back on its own resources. Trump’s pretense is that now that we have tariffs against China, we can restore manufacturing here. But there’s no way he can bring manufacturing back, because it’s already gone. It takes years and years to rebuild factories, to put in infrastructure. America basically is already overpriced because of the cost of healthcare alone. Not to mention housing and debt. So he’s locked America into an austerity program. This austerity program is going to get deeper and deeper over the next year or two.

GREG WILPERT: Now, if the effects of these tariffs are quite negative, as you point out. Wouldn’t that be an argument in favor of free trade then, in favor of neoliberalism? What’s your reaction to that notion?

MICHAEL HUDSON: What Trump wants is not free trade. It’s controlled trade. He’s telling other countries what they have to import from us and what they have to export to us. Colonialism was free trade. There is no way that America now can engage in free trade and win, because we’re a high-cost economy and we’re not producing.

There’s no way in which a change in currency values is going to shift production to the United States when we don’t have any factories to produce manufactures. When you look at the structure of world trade, you realize it has nothing to do with tariffs at this point, and nothing to do with currency values. It’s to do with the fact that Wall Street and the corporate employers have jumped ship, they’ve moved abroad, and they’ve hollowed out the United States. And once it’s hollowed out, the only way you can rebuild it is to have public infrastructure, to have public subsidy just like China’s doing and other countries are doing, public health just like other countries are doing, to cut the costs to employers.

But now that America and especially Trump, but also the Democrats want to privatize everything from healthcare to infrastructure, we’re going to be priced out of world markets whether it’s free trade or not.

GREG WILPERT: Now, finally, what do you expect the Chinese will do assuming that the US and China do not come to an agreement very soon?

MICHAEL HUDSON: Nobody expects them to come to an agreement. They think that America has made such outrageous demands that they surrender and become an American colony, that they’ve given up on America. They do not expect there to be a rapprochement. They are turning closer to Russia and to Europe.

Basically what China said is, “We’ve been using our factories to produce consumer goods for Americans. It’s time we begin using them to produce consumer goods for the Chinese.” So they’re going to raise their own living standards. They’re going to produce more for their own population. They’re going to develop much more trade with Europe.

Now that Europe has seen that America is trying to interfere with its trade with Russia, its oil trade, and is trying to get Germany and Europe to join the war against Iran, they’re saying, “Okay, the whole postwar unity with the United States is over. We’re now going to be part of Eurasia.”

So Trump has sort of sped the parting guest. He’s driven Europe, Russia, China, and Iran together. As I’ve joked before, he should get the peace prize for that. He’s unified the whole world outside of the United States.

GREG WILPERT: I think that’s a really, very powerful point. On that note, I’m going to have to stop here though for now. I’m speaking to Michael Hudson, Distinguished Research Professor of Economics at the University of Missouri, Kansas City. Thanks again, Michael, for having joined us today.

MICHAEL HUDSON: Thank you, Greg. It’s good to be back.

GREG WILPERT: And thank you for joining The Real News Network.

unsplash-logoLuca DelPiccolo

The Coming Savings Meltdown

Published by Anonymous (not verified) on Sun, 28/07/2019 - 10:25pm in

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Debts that can’t be paid, won’t be. That point inevitably arrives on the liabilities side of the economy’s balance sheet.

But what of the asset side? One person’s debt is a creditor’s claim for payment. This is defined as “savings,” even though banks simply create credit endogenously on their own computers without needing any prior savings. When debts can’t be paid and debtors default, what happens to these creditors?

As President Obama showed, banks and bondholders can be bailed out by new Federal Reserve money creation. That is what the $4.6 trillion in Quantitative Easing since 2008 was all about. The Fed has spent the last few years supporting stock market prices (and holding down gold prices) by manipulating the forward option markets.

But this artificial life support to keep the debt overhead afloat is nearing the reality of the debt wall. The European Central Bank has almost run out of available euro-bonds to buy. The new fallback position to keep the increasingly zombified U.S. and Eurozone financial markets afloat is to experiment with negative interest rates.

Writing down savings by a few percentage points helps bring the glut of creditor claims marginally back towards balancing bank deposits with the ability of debtors to pay. But such marginal moves are rarely sufficient. A quantum leap is needed.

Governments have long followed a basic guideline when faced with a need to devalue their currencies (for instance, as the dollar was devalued against gold in 1933). Nothing is worse for a politician or central banker than to be overly shy when it comes to devaluation. The motto is, “Always depreciate to access.” That means at lest 25 percent, often a third when a basic structural adjustment is needed.

The recent experiment in negative interest rates writing down savings as a necessary compliment to the inevitable debt writedowns means that financial policy makes are beginning to fact the hitherto unthinkable fact that many zombie companies and debtors have no foreseeable means of paying the amounts that they owe on paper.

The tendency of debts to grow exponentially at rates in excess of the economy’s ability to create an economic surplus to pay creditors has been known for nearly 5,000 years. My book “… and forgive them their debts” describes how ancient Near Eastern rulers recognized the inherent tendency of financial dynamics to cause instability, leading to debt bondage and forfeiture of land to creditors.

To prevent this rising indebtedness from tearing their realms apart, rulers started their first full year on the throne by clearing away the overhang of arrears that had been accruing on personal and agrarian debts. The aim was to restore an idealized “mother condition” in which bondservants were liberated, able to start with a Clean Slate with their self-support land returned to them, in balance with regard to their income and outgo.

An analogy would be the idyllic condition that the U.S. economy would achieve if we could restore the financial situation that existed in 1945. The end of World War II left an economy in which most families were almost debt-free. Families and businesses and were rife with cash, as there had not been much opportunity to spend during the wartime years, and the Great Depression had wiped out substantial debts. Returning soldiers were able to start families and buy homes by committing to pay only 25 percent of their income for 30 years. This era was as close as the United States came to a Clean Slate. Today it seems an unrecoverable golden age – as the ancient Near East seemed to be to debt-wracked imperial Rome.

Germany’s Economic Miracle consisted of its Allied Monetary Reform of 1948 – a Clean Slate erasing most personal and business. That debt cancellation was fairly easy because most debts were owed to Nazis, and the Allies were glad to see their savings claims for payment wiped out.

Fast forward to today: Indebted students graduate with an obligation to pay so much education debt that they cannot qualify for mortgages to buy homes of their own. Marriage rates are down, U.S. home ownership is plunging, and rents are rising.

Automobile debt also has soared, leading to rising default rates second only to student debt defaults. The overhang of junk-mortgage debts that crashed the economy in 2008 remains on the books of families who managed to survive the ten million foreclosures under the Obama bailout of Wall Street. (His constituency turned out to be his Donor Class, not the junk-mortgage victims among his voters. He characterized them as “the mob with pitchforks” to the banksters he invited to the White House to celebrate his bailout.)

By driving down interest rates, the Fed’s policy of Quantitative Easing has subsidized an enormous debt buildup without increasing the interest burden proportionally. This has enabled corporations to carry much higher debt and even indulge in leveraged buyouts and stock buyback programs.

This QE policy has made financial engineering much more enriching than industrial engineering. But it has painted the U.S. and European economies into a corner. At some points interest rates will inevitably begin to rise back up. Some countries will have to increase rates in order to borrow to stabilize their exchange rates when their balance of trade and payments falls into deficit. Other countries will simply see that the game is over and will give up the pretense that the personal, corporate and public-sector debt overhead can be paid.

It is to prepare for this inevitable eventuality that Europe is experimenting with its trial run of negative interest rates. Once the technique is established, it will prepare the way for the inevitable step of writing down national savings in line with the economy’s ability to pay.

That ability is shrinking much more than at any time since the 1920’s, which gave way to the Great Depression despite the many debt writedowns of 1931-32. The exponential mathematics of compound interest have created more and more claims on personal income and corporate cash flow, leaving less and less to be spent on goods and services.

Until a debt writedown occurs, storefronts will continue to close, arrears will mount, students will continue to postpone marriage and family formation, high-risk bonds will begin to give way and default.

That should be what economic theory is all about. But for the past generation, economic models have pretended that banks and creditors act responsibly enough not to make bad loans. Pension fund managers pretend that they can provide for future retirement by corporate or public employees by earning 8 percent annually ad infinitum, doubling every 7 years, as if this is really possible in an economy not really growing outside of the Finance, Insurance and Real Estate (FIRE) sector (and even so, growing at only 1 or 2 percent). How then can the economy pay its debts without imposing financial austerity much like Third World countries subjected to IMF austerity programs?

Today’s economic orthodoxy denies that this debt problem can exist. Debt dynamics and the exponential growth curve of compound interest does not exist in the parallel academic universe that somehow has been situated in the social science department instead of the literature department as science fiction.

Perhaps someday a revamped economics curriculum will include the study of history to see how earlier societies have coped with the inherent tendency of debts to increase faster than the ability to be paid. It is a long history with many examples. Western civilization has failed to solve the financial problem that Near Eastern societies were able to cope with by intervening from “outside” the economy.

But these formative debt experiences are as repressed today as sexual drives repressed academically before the work of Freud. Academic economists are financial prudes. Debt cancellation is historically the solution. Quantitative Easing and bailouts of the One Percent can only be a temporary substitute. We should think of them as “abstinence” from recognizing the need to write down bad loans (“savings”) along with the bad debts.

unsplash-logoMax Rentmeester

Big Plastic

Published by Anonymous (not verified) on Mon, 22/07/2019 - 10:53pm in

The plastic industry has an image problem:

Read about the industry’s spin control efforts here.

Sayonara to the Svengali of Boy Bands

Published by Anonymous (not verified) on Wed, 17/07/2019 - 6:16pm in

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Published in the Nikkei Asian Review 13/7/2019

John Hiromu Kitagawa, founder of Johnny & Associates — better known as “Johnny’s” talent agency — was an extraordinary character who grabbed an opportunity that could only have arisen in Japan’s post-war upheaval and ran with it all the way, creating some of the top “boy bands” of the past four decades.

Kitagawa, who died in Tokyo on July 10 at the age of 87, made an indelible mark on Japanese society and popular culture well beyond Japanese shores.

For better or for worse, J-Pop would not be what it is today without the innovations that Kitagawa pioneered. These had nothing to do with music and everything to do with the system he created, which gave him total control over the personal lives and careers of his stars and formidable influence over the Japanese media, by feeding its hunger for obedient, unthreatening celebrities.

His power over the industry was so great that he survived even a court ruling – which he had contested – that he had sexually exploited some of his underage employees.

"Hey Say Jump" - all members born in the Heisei era (1989-2019) “Hey Say Jump” – all members born in the Heisei era (1989-2019)

Kitagawa did not create the idea of the boy band, but he was one of the first Svengali figures to realize that it was possible to manufacture them from scratch, with musical talent not just unnecessary but probably a hindrance.

Inspired by seeing the American musical “West Side Story,” he wanted his roster of (exclusively male) talent to be able to dance and act too. What he was manufacturing was the generic celebrity, a boy-man who could appear on quiz shows, open supermarkets, pitch products in television commercials and act in movies.

If rock stars, with their unconstrained egos and hedonistic excesses, represented the extreme of Western individualism, Johnny’s entertainers were “anti-rock stars,” representing the selfless devotion to the organization of Japan’s “sarariman” (salaryman) society of the era. Indeed, like employees of major companies, they were expected to live in a dormitory — in some cases from a very early age – with key details of their lives, including romantic liaisons, carefully mapped out.

The Four Leaves = boy band prototype The Four Leaves – boy band prototype

He launched The Four Leaves in 1967, but the real heyday of the Kitagawa operation came in the 1980s and 1990s, when you could hardly switch on a television set without coming across one of “Johnny’s” talents, singing, laughing or selling.

TV was intrinsic to his success. Fans consumed his product not by listening to songs on the radio — he actively dissuaded his stars from releasing CDs, which he considered a distraction from their real jobs — but by watching prime-time TV variety shows and enormous, circus-like live events. Looking good, in a boy-next-door sort of way, was much more important than sounding good.

Only a few, highly successful Johnny’s stars, such as Takuya Kimura, or “Kimutaku,” once of the celebrated boy band SMAP and now an in-demand actor, have had the confidence to strike out on their own. Most have stayed on the roster, knowing that crossing Japan’s premier impresario would probably lead to career doom.

Kimutaku flogs Gatsby facial wash “Kimutaku” flogs Gatsby facial wash

According to gonzo writer Hunter S. Thompson, the music industry is “a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs.” It is also hypocritical. Early this year, for example, when Pierre Taki, a Japanese actor and half of the synth duo Denki Groove, was arrested for cocaine possession, his record company rushed to stop all distribution, physical and digital, of his work, which is now unobtainable.

Pierre Taki at the Tokyo District Court Pierre Taki at the Tokyo District Court

Kitagawa survived scandals that many would consider far worse. He was never charged with any crime, but in the course of a libel battle in the early 2000s, the Japanese courts confirmed that Kitagawa had engaged in sexual exploitation of his young male talent in the dormitories and elsewhere. His power in the industry silenced would-be accusers and the mainstream media was loath to take him on.

In the 1970s and 1980s, there seemed to be a huge cultural gap between the J-poppers, boy bands included, who dominated the Japanese scene, and the supposedly more “authentic” Western stars. That was always an exaggeration. Manufactured stars — like Billy Fury and Adam Faith in Britain and Bobby Vee and Fabian in America — were nothing new.

Now, of course, boy bands are everywhere, though the definition is vague. In a 2012 poll of readers of Rolling Stone magazine, The Beatles were chosen as the second best boy band, while top place was taken by One Direction. In a world of manufactured talents such as Britney Spears and Justin Bieber, where former Disney child star Miley Cyrus plays Britain’s Glastonbury Festival, and where British impresario Simon Cowell — Kitagawa’s true successor — can make or break an act, authenticity is no longer a useful concept, if it ever was.

Miley Cyrus at Glastonbury 2019 Miley Cyrus at Glastonbury 2019

Kitagawa’s background was complex. His father was a Buddhist priest who had been sent to Los Angeles. The family moved to Japan on the eve of the Pacific War and young John spent the war years in Wakayama Prefecture, south of Osaka, before returning to the United States for high school and college.

Back in Japan again, he worked for the U.S. military as an interpreter and was dispatched to the Korean peninsula when war broke out there. Thanks to his talent for languages, he picked up Korean quickly.

Ironically, it is the stars of South Korean “K-Pop” who have truly globalized the boy band concept, while Japanese boy bands have failed to break out beyond their domestic market. Rather as South Korea’s Samsung Electronic has gone from strength to strength while Japan’s Sony and Panasonic have struggled to restructure their businesses, K-poppers have outshone their Japanese counterparts.

South Korean hit band BTS recently played London’s Wembley Stadium in front of 60,000 fans and topped the U.K. album charts with their “Persona” release, feats that no Japanese boy band could hope to emulate.

BTS in action BTS in action

Though Kitagawa did not manufacture or manage BTS or any other K-pop band, BTS’s global following is probably the best tribute to his commercial foresight. Now somebody from a new generation needs to come up with a global vision and do for J-Pop what has already been done for anime and manga.

 

 

 

Palast & Badpenny: An Announcement

Published by Anonymous (not verified) on Tue, 16/07/2019 - 9:40am in

High in the thin, cold air where the ridge of the Alps marks the border with Italy, by local tradition, weddings are announced by leaving a small purse of candied almonds with the names of the betrothed at the doors of village homes. The ribbons announce that on July 31, Leni Badpenny will marry Greg Palast at

The post Palast & Badpenny: An Announcement appeared first on Greg Palast.

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