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Subtitel: Fictitious Capital, Debt Deflation and Gobal Crisis: ISLET,
Dresden, 2012, 535 pgs, index, extensive illustrations, tables, charts, graphs
and models; this is a new issue with two added chapters; paperback
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Reviewer's comment: In many ways this is the capstone to the many
books, articles, and interviews Dr. Hudson has produce, many of which are
included in this list. It about the same theme, that extradornary expansion of
debt has and continues to wreck contemporary economy, and that ancient
societies in Egypt and Mesopotamia solved the same problem by government fiat
that periodically abolished debt. Dr. Hudson then recommend that solution to
solve debt today. He is one of a very few economists who has studied ancient
Mesopotamian economic history. His analysis focuses on the role of debt in the
economy and government actions to ameliorate its results. But being a Marxist,
he simply ignores the study of religious history to see that it was religious
beliefs that determined the entire society's 'worldview' and was the cause of
all the decisions that resulted in the historical actions he describes. Of
course nearly other economists, including non_Marxist theoriticians) also
ignore any facit of human action except the economic and also ignore history,
especially ancient history. So in that respect his attention is much needed.
Religion was NOT 'the opiate of the people'.
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Acknowledgements:
In this section Dr. Hudson comments: 'how orthodox schools retain the Ricardian
tradition of describing how economies world work wihtout free credit creation
and debt'. Right there is is stating the problem, namely, that in the 20th 21st
centuries governmetns ARE creating free credit and its counterpart in debt'.
But why and how are governments creating 'free credit' and what does that mean.
"Free credit" is credit generated and given out to consumers in a
'welfare state' without it being an exchange for production. The debt is not
based on a promise for credit extinction by the future of expanded production.
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Preface:
Again, the author starts right out to describe his theory. "This treatise
in economic theory traces how industrial capitalism has turned into finance
capitalism. It claims that the finance, insurance and real estate (FIRE) sector
creates "balance sheet wealth" not by new tangible investment and
employment, but financially in the form of debt leveraging and rent-extraction.
Such 'rentier gains are an overhead that is overpowering the economy's ability
to pay."
All very true but why and how specifically. Instead of finace capitalism
replacing industrial capitalism I propose the theory of 'consumer capitalism
replacing production capitalism" Actually it is consumer anti-capitalism
because all capital consists of the 'retained earnings' of production that is
not consumed but employed with the objective of generating MORE 'retained
earnings' hence more capital. Only capital that creates more capital can expand
an economy and it is credit is capital in the temporary form of credit that can
be invested in the time consuming production process to fund expansion BEFORE
the results are achieved. But credit that is given 'free' by the welfare state
rulers absent any existing collateral or even a promise to expand future
production that actually DESTROYS capital.
Dr. Hudson is right to note that the 'Bubble Edconomy' is unstable and has
become a 'casino capitalism'. But that is because the insiders in the
parasitical finance industry extract fees and charges from the 'retained
earnings' and quickly convert the fitcious 'value' of unbacked credit into
real, material assets especially real estate and stock market investments to
support insurance and pensions.
He continues: "This situation confronts society with a choice: either to
write down debts to a level that can be paid or indeed, to write them off with
a Clean State), or to permit creditors to foreclose, concentrating property in
their own hands (including whatever assets are in the public domain to be
privitized) and imposing a combination of financial and fiscal austerity on the
population.
What he means by 'Clean Slate' will become clear in several chapters. But he
believes it would be the same as imposed by edict by ancient mesopotamian
rulers. But there is a fundamental difference between then and now. Then the
rulers (and their friends and officials) were the creditors and the debtors
whose debt was extinguisned were the farmers and artisans. But today is is the
rulers (national and local) who are the debtors and the private persons from
whom production assets without an exchange of assets has been extacted with the
credit promise to create new assets in the future. Moreover, today credit is
practcially ALL of the money supply.
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Part I -Fictitious Capital and Economic Fictions
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Chapter 1 - Two Traditions of Financial Doctrine
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Chapter 2 - The Magic of Compound Interest: Mathematics at the the Root
of the Crisis
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Chapter 3 - How Economic Theory Came to Ignore the Role of Debt
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Chapter 4 - The Industrialization of Finance and the Financialization
of Industry
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Chapter 5 - The Use and Abuse of Mathematical Economics
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Chapter 6 - The Financial Character of Today's Crisis and Why
Economists Avoid Confronting It
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Part II - Inflated Debt and Debt Deflation
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Chapter 7 - A Property is Worth Whatever a Bank Will Lend
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Chapter 8 - The Real Estate Bubble at the Core of Today's
Debt-Leveraged Economy
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Chapter 9 - Junk-Bonding Industry
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Chapter 10 - Privatizing Social Security to Rescue Wall Street
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Chapter 11 - Saving, Asset -Price Inflation and Debt Deflation
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Chapter 12 - Saving our Way into Poverty: The Political Implications
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Part III - The Global Crisis
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Chapter 13 - Trade and Payments in a Financialized Economy
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Chapter 14 - U.S. Quantitative Easing Fractures the Global Economy
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Chapter 15 - America's Monetary Imperialism
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Chapter 16 - How the Dollar Glut Finances America's Military Build-Up
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Chapter 17 - De-Dollarization and the End of American's Empire
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Chapter 18 - Incorporating the Rentier Sectors into a Financial
Model
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Part IV - The Need for a Clean State
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Chapter 19 - From Democracy to Oligarchy: National Economies
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Chapter 20 - Scenarios for Recovery
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Bonus Chapter: The Road to Debt Deflation, Deb Peonage and Neofeudalism
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Bonus Summary
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