The Bubble and Beyond

Dr. Hudon's book is a collection of easily read chapters that allude to some of the ideas presented below while placing them in the historical perspective of economic theory. For instance he does mention that much of the world's economy is based on fraud and outright theft without quantifying the extent of this activity (would you believe far in excess of 50%?) or identifying specifics. For that I recommend my own article at [...]Economists like to treat money in an economy like a politician treats air in politics. It is absolutely necessary to the exchange of ideas but plays no fundamental role in history. Dr. Hudson’s book is an attempt to disabuse you of that idea.Money is fundamental to an economy. How it comes into existence, how much of it there is in circulation relative to how much is required to clear the markets of goods and services, how interest rates are established and how money is taxed determine the winners and losers in an economy. Money makes the economy more like Mt. Kilamanjaro than a level playing field.In the economy that we have created all money is debt. All debt must earn interest, otherwise it is not debt. This is because we have chosen to have a fractional reserve banking system and a central bank that uses its monopoly power to set interest rates without regard to market conditions. Economic rent is the profit one earns by simply owning something. Banks (especially central banks like the Federal Reserve) extract economic rent from the monopolistic privilege of creating money from nothing. In this system it is a tautology that total savings equals total debt since savings and debt are the same thing. From this we can infer that the total amount of money equals the total amount of savings equals the total amount of debt and the terms savings, debt and money are synonymous.The interest on this debt is exactly equal to the profits realized from commercial enterprise, rents extracted from the use of land and various forms of monopoly privilege.Because of compounding the interest on the debt grows much faster than the physical productive capacity of the economy to generate revenue. Eventually there comes a point where the economy can no longer service the debt (pay the accrued interest). This situation is delayed by financial asset inflation (stocks and real estate) generating capital gains coupled with deflation in the nuts and bolts sector of the economy which facilitates generating revenue from the asset stripping and looting of the physical economy. This further decreases the revenue generated from the economy’s productive capacity. The end result is that the economy slips into permanent debt peonage, a kind of financial feudalism, in which Gross Domestic Product and the standard of living continually decline.The historical alternative is WAR. War revitalizes the revenue generated from the physical productive capacity of the economy with government contracts for the implements of war while putting the economy further into debt. Exactly how this will play out in an economy that has a vanishing tax base and has already spent the accumulated surplus of the last century preparing for war is yet to be determined but the likely outcome is financial collapse and military defeat.A third alternative is to switch from 'trickle down' economics to 'percolate up' economics by transferring money from the 1% to the 98%. This can be done by increasing Social Security benefits paid to current recipients while removing the cap on income subject to Social Security taxes and providing a minimum guaranteed income to all U.S. citizens financed by a financial transaction tax and a steeply progressive income and estate tax. The purpose of this is to put money into the hands of people who will spend it thereby creating the demand for goods and services that will provide the investment opportunities for tomorrow's entrepreneurs. Regrettably the powers that be would rather eat their young than even consider such a proposal.I am only half way through this enjoyable and informative book so I can't tell you Dr. Hudson's solution to this quandary although I suspect that it has something to do with taxing economic rent.Buy the book and find out what this is. I highly recommend it.

Michael Hudson is an independent research analyst based at the University of Missouri, Kansas City.His latest publication represents a collection of essays that have formed the backbone of his thinking over many years. Taken together they offer a hefty rebuke to the flawed political economic practices issuing from the Federal Reserve and the neo-liberal camp that has so emphatically decriminalised fraudulent behaviour in the financial sector.The book opens with Michael taking us back through the nineteenth century to give us `Two Traditions of Financial Doctrine' that led us to our present impasse; Finance Capital (which has regressed into todays FIRE sector - Finance, Insurance, Real Estate) - and Industrial Capital, which represents the manufacturing, labour sector. It is the dichotomy between these two traditions and their present offspring that drives the narrative; the `scorched earth' practices of debt magnified through compound interest and the `free lunch' tax subsidies of the FIRE sector, versus the `circular flow' of the real economy between the producer/consumer of Industrial Capital.There is much else besides of course, ancient civilizations are discussed to show how societies debts were written off as a means of reviving the economy (hence `clean slate'), while those that didn't (the Roman Empire) become mired in debt, rebellion and bankruptcy.Michael also draws our attention to the principle of Fraudulent Conveyance; the paragraph is worth quoting in full . . ."The basic principle of Fraudulent Conveyance is that loans which cannot be paid under normal conditions were made irresponsibly at best, and with predatory intentions at worst. In either case they should be written down. The ethical principle is that the debtor suffers less than the creditor, especially in a world where international credit is now created electronically on computer keyboards - while repayment of such credit polarises and impoverishes debtor economies."This is a rambling, repetitive narrative full of great insight and quotable paragraphs on every one of its 481 pages. There are useful diagrams and graphs and a fabulous interview with Michael on YouTube conducted by Lauren Lyster back in 2010 is a good introduction to Michael's vigorous arguments.As if `The Bubble' wasn't bad enough, the real threat is not only to . . . "industrial capitalism and national self-determination but beyond that, the Enlightenment ideology of economic freedom and democracy". . . "All this threatens to turn the final stage of finance capitalism into debt-ridden austerity. That is what a neo - rentier economy means. Once entered into, it cannot be escaped from except by a violent political clash. The end game of finance capitalism will not be a pretty sight".

I have seen Michael Hudson interviewed on television on several occasions, and have always been impressed with his depth of understanding of the causes, and possible remedies, for the global economic crisis. It is wonderful to see a major work of his now in print. The disturbing fact that he has been ignored to such an extent by mainstream (read monetarist/neoclassical) economic reviews is scandalous, and speaks volumes about the supposed devotion to the scientific method in economics. Is conventional economics, as taught in most universities, a science at all when it ignores such empirical evidence as Hudson provides of its weaknesses?This book is full of valuable insights from what Hudson would call the 'other economic canon'. This 'blast from the past' contains, for example, the challenging ideas of Adam Smith's nearly forgotten contemporaries like James Steuart, and a refresher course on the strategy of industrial banking so effective in Bismarck's Germany, which seems highly relevant to contemporary banking reform. The discussion of the neglected warnings (at least since the classical and Marxist schools of the 19th century...with the possible recent exception of the late Hyman Minsky) about compound interest effects in debt servicing bringing down a capitalist boom economy is particularly enlightening, bearing in mind the dire situation in Greece, Spain and Italy.Thoroughly recommended...with one minor criticism. This book, perhaps because it was printed by a small publishing house, perhaps because it was rushed into print, appears to have been proof read by chimpanzees (and not the ones which are typing out the complete works of Shakespeare!). This is annoying, but the 'typos' don't detract one iota from the superb content. This treatise is an education in its own right, and should be supplied to all university economics students in their first year as an antidote to the disease of narrow-mindedness...preferably in a revised edition!

As a non-university-educated, non-intellectual, non-philosopher, member of the general public, I approached this book with low expectation of understanding the technical mumbo jumbo intellectual language generally used in this type of book. Much to my surprise I understood a surprising amount of it. The subject theme is DEBT. It sounds boring... not the way this book explains it. The title implies it’s about the credit crunch etc. In reality it’s a history of economics. Sounds boring... not the way this book explains it. I have read a number of books about the credit crunch... they are rubbish compared with this one. The others left me confused... this one didn’t. Want to understand the reasons behind WW1 and WW2, read this book. Want to understand why America got involved in WW1and WW2, read this book. Want to understand why the economy hasn’t recovered after the credit crunch... yes... read this book. Want to understand why it will never recover... ever... read this book. Even if you’re as thick as two short planks... read this book... it’s brilliant... you will never believe a word that comes out of a politician’s mouth... ever again.

It is twice as long as it needs to be and that is because Hudson repeats himself so many times you will lose track of the number. His main message is not difficult to understand yet he delivers it in almost the same words in multiple chapters. In addition, he introduces some useful graphics that help explain his text, but he waits until halfway through this large book to do so when they should be in the first chapter.The main message.There is a real economy that takes in money both through the sale of stock and the issuance of debt, using it to build and operate plant, pay employees (creating customers), creating tangible products that bring in sales, earning a profit that both rewards the investors and provides funding for expansion. Thus does industrial capitalism prosper. It takes money, does something productive with it, and returns money through real earnings.There is a second, "financial" economy that seeks simply to make money from money without producing anything. This is the economy of debt, which is the product of banks. By extending credit the price of whatever is purchased with the loan is driven up, giving the illusion of value when only price is increased. Easy credit brings speculation with prices limited only by how much credit can be obtained to allow a purchase. The object is to create more money to loan in an endless processes of leveraging. Remember house flipping? That's the idea, only extending it to everything, not just housing. That is the bankers' paradise.Good Read Highly Recommend

He isn't the best writer and he hasn't had a good editor. However, his ideas are clearly explained many times over. I have given him five stars as it was his thoughts and ideas I wanted to understand.He thoroughly explains how we developed our financial system and how it screws over practically everybody. As his explanations are logically correct and factually accurate, the required changes are easily understood and increases understanding of the entire financial and political system.What happens next is a financial collapse. Or an awakening and a financial crash. The author does provide details on how a collapse might be avoided but that requires humility from politicians, apologies from the ultra rich financial people and an active and thoughtful public. So, I will prepare for hard times, harder times and then the massive disruption of a global financial crash.The author is essentially correct but I do hope I am wrong. Perhaps politicians will soon accept that they are the source of the problems that they attempt to solve. Perhaps the wealthy will accept that most of their wealth doesn't exist and was gained at the expense of everybody else. Perhaps people will start asking questions and demanding satisfactory answers. The financial crash will still happen but perhaps we get a better chance at a more equitable financial system. I have just read the above and laughed. People don't change that much so quickly. Or do they?

I've seen Michael Hudson interviewed a number of times and found his arguments to generally be convincing. I decided to read his book on that basis, but was disappointed by how repetitive this book was. I felt like every 4 or 5 chapters he would introduce a new argument... and then re-introduce it again and again just in case you didn't get it the first dozen times. The book could have been condensed into a pamphlet without losing much in the way of actual unique content.