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(Crossposted at Docudharma)

I thought that a discussion of Hudson's book book would be pertinent in terms of recent discussions of indebtedness and in terms of Hudson's role in the run-up to next year's elections.  

Michael Hudson's site says he is "President of the Institute for the Study of Long-Term Economic Trends (ISLET), A Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super Imperialism: The Economic Strategy of American Empire (1972 and 2003) and of The Myth of Aid (1971).

In 2007, Dr. Hudson has been appointed Chief Economic Policy Adviser for the Kucinich for President campaign and is writing a new tax policy for the United States.

Recent rhetoric about how the US is "an empire, not a republic, has been fortified by the well-published words of neoconservative historian seeking to justify America's "imperial" stature.  On the other hand, a number of commentators have noted the obscenely high level of US government indebtedness.  So how is the US an "empire" if it's so thoroughly in debt?  The media rhetoricians dramatize the indebtedness part quite often.  Tuesday's Amy Goodman's "Democracy Now" mentioned a Democratic Party staff report which claimed that the Iraq war has cost $1.3 trillion dollars, or, (and this is supposed to be the clinching argument) $20,000 for every American family.  This report is supposed to have freaked out the Republicans as well.  (The link is in today's Raw Story -- every time I try to paste it onto this diary the software freaks out.)  Debt!  Oh me oh my!

Are we legitimately to expect American families to pay for the Iraq war?  Does anyone seriously think the US government will pay its debts?  What is seriously lacking from any discussion of the economics of US government spending is a discussion of dollar hegemony.  From Henry C. K. Liu's article on this matter:


World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars.

Since the foreign banks are obliged to take US dollars, and then to spend them on Treasury bills, thus allowing the US government to further issue more debt (which they will then cover), the US government has been granted a potentially endless credit line, which it has used to the point of a $9 trillion dollar debt.  Since disrupting this scheme would mean the collapse of the global economy, the foreign banks play along.

This, of course, is the origin of Dick Cheney's belief that "deficits don't matter."  On the other hand, you have the DLC slogan of "fiscal prudence," based on the taken-for-granted proposition that deficits do matter.  Do deficits matter?  I think it's a false choice.  Instead of complaining about deficit spending, we ought to be demanding our share of it - Iraq war spending is not bad because it's debt, but because it's money wasted.  (This brings us back to this poorly-discussed matter of whether or not we're getting anything for our tax moneys.  Demanding something of government might force the subject of dollar hegemony out of hiding, no?)

At any rate, the theory of dollar hegemony has a fairly old origin, which is why it's such a wonder that nobody discusses it.  One early origin can be placed in Michael Hudson's book Super Imperialism, which came out in a first edition in 1972 but is more relevant in the 2003 second edition.

Admittedly, the flaws of this work are significant, but it nevertheless contains some really vital discussions which are not enlivened today by the notion that the US has been ruined by its debts.  It is perhaps possible that the US could be ruined by its debts in the future, if there were to be a collapse of dollar hegemony; the problem is, as Hudson suggests, that no competing currency, neither the Euro nor the Yen, is at present capable of substituting for the US Dollar.  

Dollar hegemony ought to make clear some common, yet muddled, thinking about US government spending.  If there is supposed to be some immediate comeuppance for US spending on, say, Iraq, we might ask: where was the comeuppance during the Reagan administration two decades ago, when the national debt ballooned to $2 trillion?  At what point do we really get to see this imagined crisis?  At what point do the Powers That Be tell us we have to pay off this debt?

But, as Peter Hudis says in a November 2003 piece on "today's imperialism": "Nothing is more hollow than the claim that today's drive for permanent war lacks an economic basis." (1)  When the Bush administration opens the debt floodgates with large tax cuts for the rich while spending upon indefinite war, it has a rationale.  Super Imperialism explains this rationale, and so it deserves our attention.

Now, Super Imperialism is by no means a great book.  It's a tedious read, and its argument lines up its ducks in a one-sided manner with no stopping for reflection upon the complexity of the world.  One wades through a long list of tedious citations of economic diplomacy to get to Hudson's conclusions.  The book's conclusion is evident on p. 1: the US government has manipulated the world economy since 1914 for the sake of its own profit (although it remains hazy in Hudson's narrative as to who, precisely, the US government is), while living parasitically off of the nations with whom it deals.

I can't seem to find any impartial discussion of Super Imperialism.  Readers either love this book or they hate it.  At any rate, here's a synopsis:

Michael Hudson starts his narrative of US financial imperialism at the beginning of World War I, when the US busies itself by lending lots of money to the British and French, later entering the war itself in order (or so we are told) to make good on its outstanding loans.  In order to pay back these loans (and doubtless for other reasons as well), the British and French stiff the Germans with reparations debt.

Throughout the 1920s, we are told, there is a triangular movement of moneys: the US lends money to Germany, who uses it to pay back reparations to the British and French, who send loan payments (and who were, says Hudson, on a debt treadmill) to the US. (66)  This situation ends in 1933 when the Roosevelt administration takes over in the US and when Hitler attains power in Germany.  From that point on, a general economic isolation precipitates from the failure of economic conferences to resolve debt.  

This is ended with World War II, in which the US becomes a creditor to the British war effort, and again with the Marshall Plan.  The attempt to exploit Europe as creditor after World War II differs from that which happened after World War I in that the Marshall Plan offered credit on far more generous terms and was intended to spread Keynesian capitalism as opposed to the classical variety.

The economic system imposed upon the capitalist world after World War II was one in which the US Dollar is made equivalent in value to gold (at the rate of $35/oz.), and lent out to Europe for the sake of hoarding gold reserves.  These reserves were then redeemed when the US spent itself into debt with the Korean conflict and the conflict in Vietnam.

This system lasted until March 18, 1968, when the jury-rigged "Gold Pool" system that protected the gold standard collapsed.  The global financial system then continued in limbo until 1971, when then-President Nixon dissolved the gold standard entirely.  At some later point in 1973 another financial system is put into place, around dollar hegemony.  Instead of getting gold back for their dollars, the other countries are only to receive Treasury bills, promising them more dollars.

The last chapter of Super Imperialism attempts to synopsize the developments in dollar hegemony over the thirty years thereafter, depicting a reality in which:


The technique of exploitation involves an adroit use of central banks, the IMF, World Bank and its associated regional lending institutions to provide forced loans to the US Treasury.  This rigged game has enabled the United States to flood the world with dollars without constraint as it has appropriated foreign resources and companies, goods and services for nothing in return except Treasury IOUs of questionable (and certainly shrinking) value.  (386)

I'm not quite sure how the forced-loan thing works, from Hudson's description.  At any rate, Hudson's' prognosis for this reality is "more of the same":

   Until Europe and Asia are able to replace the Dollar standard with a currency system of their own, and until they are willing to run the risk of a trade and investment war as an intermediate step toward achieving their own self-sufficiency, the US economy will have little reason to feel that it needs to live within its means.  (387)

Why do Europe and Asia lie down before dollar hegemony?  Hudson complains:

   There has been no political will for Europe or Asia to take an alternative route.  Only America has shown the will to create global international structures and restructure them at will to fit its financial needs as these have evolved to hyper-creditor to hyper-debtor status.  It is as if European and Asian society lack some gene for institutional self-programming for their own economic evolution, and have acted simply as the mirror image of America like a dancer following the partner's lead. (392-393)

There are sixteen chapters to this book if one includes the introduction, which summarizes the whole book over thirty-nine pages.  The first six chapters tell the long and sometimes tedious financial prehistory of dollar hegemony.  Hudson hopes to do for US financial history what Noam Chomsky or William Blum have done for US military incursions - chart the history of US imperialism to show that there is in fact such a thing.  Chapters 7 through 10 discuss the long history entangling the Third World in the net of structural adjustment programs required by the World Bank and the IMF as a consequence of development loans.  The structural adjustment programs are said to keep Third World countries in poverty while opening their economies to multinational corporate penetration.  This history is told in great detail (and more effectively) in a number of other books; Kevin Danaher's 50 Years Is Enough comes to mind.  Chapters 11 through 14 contain the immediate history of dollar hegemony, and chapter 15 summarizes its progress to the present day.  Readers in a hurry may wish to read the introduction and chapter 15 and leave it at that.

There are, however, flashes of brilliance in the middle sections of Hudson's book.  The best of these flashes is given in the chapter on the World Bank/IMF:


Free trade is essentially a doctrine of the status quo.  Its workings tend to perpetuate existing patterns of comparative advantage - and disadvantage - upon nations. (201)

One of Hudson's critics, writing in the Journal of Finance, complains that Hudson assumes incorrectly that trade is a zero-sum game, when it's not.  This criticism utterly misses the point.  Dollar hegemony means that debt, as well as credit, can be leveraged by a better-off economic power (the United States) into economic advantage.  This lesson should have been easy to understand, if it were not for the fact that so many people do not seem to have gotten it.

But don't debts have to be paid off?

I hear you ask.  Whenever I hear this plaint I imagine this dialogue:


Rest of world: Pay up!
   United States: Make me!

The short answer, then, is "no."  Capitalist economy, rather than being an ethical system of fair exchange, is an arena for the rich and powerful to gain from the poor and powerless.  What matters is power, and account balances must shape themselves to fit that reality.  This itself holds significant dangers for the system as a whole.  In a recent piece in Asia Times Online, Henry C. K. Liu presents this challenge:


It is time for all countries to seek solutions to problems created by runaway exploitative terms of world trade by focusing again on fundamental issues of domestic development before the prodigal global trading system collapses from its own contradictions to bring forth a global depression.

Does this advice hold any value anymore?  Is anyone listening?  What do you think?

Originally posted to Cassiodorus on Wed Nov 14, 2007 at 12:51 PM PST.

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Comment Preferences

  •  Excellent essay Cassiodorus... (5+ / 0-)

    thanks very much.

  •  IMF forced loans... (3+ / 0-)
    Recommended by:
    GiveNoQuarter, Cassiodorus, jlms qkw

    First off, great diary...

    It's interesting... if you watch Paul Krugman's lecture on BookTV's coverage of the Miami Book Fair, you'll hear him say things like "America is NOT an empire" and "America does not demand tribute payments". I just about fell out of my chair when I heard that.

    First off... the IMF forced loans that you speak of are usually diktakt of Structural Adjustment Programs imposed on the debtor nations with highly unfavorable conditions. Such IMF/WB programs have been described in detail by writers like Greg Palast:

    A closer look at the Structural Adjustment Program suggests that the World Bank may not be putting Ecuador’s interests first. Paragraph III-2 requires electricity rates to rise to double the average price charged in the United States, far above production costs. This is quite a boon to the Ecuadorean electricity suppliers such as Noble Energy of Houston and Duke Power of the Carolinas. (link)

    Many of the IMF prescriptions were locked in with high interest rates back in the early 80s as well, meaning that nations ended up getting locked into those loans at those rates:

    Around 1980, when interest rates were soaring, Johnny Carson quipped on The Tonight Show that "Scientists have developed a powerful new weapon that destroys people but leaves buildings standing - it's called the 17% interest rate." Compound interest is the secret weapon that has allowed a global banking cartel to control most of the resources of the world. The debt trap snapped shut for many countries in 1980, when international interest rates shot up to 20 percent. At 20 percent interest compounded annually, $100 doubles in under 4 years; and in 20 years, it becomes a breathtaking $3,834.66 The devastating impact on Third World debtors was underscored by President Obasanjo of Nigeria, speaking in 2000 about his country's mounting burden to international creditors. He said:

    All that we had borrowed up to 1985 was around $5 billion, and we have paid about $16 billion; yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors' interest rates. If you ask me what is the worst thing in the world, I will say it is compound interest.7  

    In the late 1970s, the World Bank and International Monetary Fund began imposing "conditionalities" on loans to Third World debtor countries, requiring them to open up their capital markets, privatize their industries, and slash spending on social programs to insure that international lenders got their interest. By 2001, enough money had flowed back to First World banks from Third World debtors to pay the principal due on these loans six times over; but interest had consumed so much of those payments that the total debt actually quadrupled during the same period.88 In 1980, median income in the richest 10 percent of countries was 77 times greater than in the poorest 10 percent. By 1999, that gap had grown to 122 times greater. In December 2006, the United Nations released a reported titled "World Distribution of Household Wealth," which concluded that 50 percent of the world's population now owns only 1 percent of its wealth, while the richest 10 percent of adults owns 85 percent. Under current conditions, the debts of the poorer nations can never be repaid but will just continue to grow. (link)

    •  thanks dantyrant! (2+ / 0-)
      Recommended by:
      dantyrant, jlms qkw

      Your quoted statements are indeed echoed in the middle part of Super Imperialism -- there are other texts, of course, which have gone over this material as well...

      "Imagine all the people/ Sharing all the world" -- John Lennon

      by Cassiodorus on Wed Nov 14, 2007 at 01:47:02 PM PST

      [ Parent ]

      •  Btw... (3+ / 0-)
        Recommended by:
        GiveNoQuarter, Cassiodorus, jlms qkw

        I hadn't heard about Super Imperialism- thanks for the heads-up!

        To your earlier point, I agree that it's astonishing how little our monetary policies enter into our political dialog - as if the monetary system we have in place is somehow natural. The only two congressmen who I've heard talk about this in any sort of reasonable way are Ron Paul and Dennis Kucinich, and I disagree with Paul's prescription for the gold standard.

        Mike Whitney, in his excellent article The Great Dollar Crash of 07, writes about the same point which you articulate - namely that we cannot possibly hope to pay off our debts by growth alone or increasing exports:

        Just look at Bush’s budget for 2007-2008; $700 billion for foreign wars?!? There’s no way the US can pay off that debt through the normal means of increasing exports. In fact, Bush has already said that he plans to preserve his unfunded tax cuts whether they produce massive deficits or not.

        What Bush plans to do is force the foreign central banks to hold more dollar-based assets, thus, thrusting our gigantic debt onto our trading partners. According to Bob Chapman of The International Forecaster, "US debt was up 10.1% to $4.085 trillion and accounts for 58.8% OF ALL THE CREDIT ISSUED GLOBALLY LAST YEAR. The US is producing more debt than the rest of the world combined.

        As long as foreign lenders are willing to take our paper, Bush will keep expanding our debt. As Chalmers Johnson opined, "We are dependent on ‘the kindness of strangers’". (The Blanche Dubois economy)

        Of course, if the central banks grow tired of this pyramid-scheme and dump the dollar; the world can get on with the business of addressing global warming, poverty, AIDs, Peak Oil, nuclear proliferation etc. That won’t happen as long as the dollar reigns supreme and a small cadre of unelected racketeers at the Fed continue Gerry-rig the system.

        •  This is what supports dollar hegemony (3+ / 0-)
          Recommended by:
          GiveNoQuarter, dantyrant, jlms qkw

          If the banks were to tire of dollar-based assets, their current dollar-based assets would suffer major losses in value, that and the world economy would tank... at some point, however, the world economy could tank (and their assets would depreciate) anyway, making bank allegiance to dollar hegemony less relevant...

          "Imagine all the people/ Sharing all the world" -- John Lennon

          by Cassiodorus on Wed Nov 14, 2007 at 02:14:53 PM PST

          [ Parent ]

          •  This seems to be what's happening right now... (4+ / 0-)

            Japan and China led a record withdrawl of foreign funds from the United States in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields.

            Data from the US Treasury showed outflows of $163bn (£80bn) from all forms of US investments. "These numbers are absolutely stunning," said Marc Ostwald, an economist at Insinger de Beaufort.

            Asian investors dumped $52bn worth of US Treasury bonds alone, led by Japan ($23bn), China ($14.2bn) and Taiwan ($5bn). It is the first time since 1998 that foreigners have, on balance, sold Treasuries.

            Mr Ostwald warned that US bond yields could start to rise again unless the outflows reverse quickly. "Woe betide US Treasuries if inflation does not remain benign," he said. (link)

            And of course, there was last Wednesday's announcement which caused the dollar to drop two full cents relative to the CAD.

            I don't think anyone wants to create a global financial crisis, but these countries holding dollars are seeing the  value of those holdings plummet in real times. And, the weakness in American financial markets has prompted lower interest rates, creating an additional downward pressure on the dollar. I don't think the dollar can survive much more of this abuse.

    •  From Armed Madhouse: (3+ / 0-)
      Recommended by:
      GiveNoQuarter, Cassiodorus, jlms qkw

      Now Argentina pays for its oil and power instead of selling it. Argentina effectively dumped its own currency by fixing it one-for-one to the US dollar. It opened its borders to free trade and ended capital controls – permitting money to move in and out. Predictably, the money moved out and out. At least $189 billion of the nation's savings in its own banks, once freed from capital controls, floated north on the Money Gulf Stream to seek a safe haven in U.S. Treasury bills and other North American securities. In return for safety, Argentines accepted 4% and 5% returns on their U.S. investments. But then Argentina's government had to borrow it all back, paying, in 2001, a 16% interest rate to U.S. lenders. Out to the United States at 4%, back in from the United States at 16%, then out and in again-the ebb and flow, Mr. Beale-a financial suicide cycle that exploded, in December 2001, into riots in Buenos Aires, national bankruptcy and starvation in what had been South America's breadbasket. (link)

  •  Sidebar: Commanding Heights (3+ / 0-)
    Recommended by:
    GiveNoQuarter, Cassiodorus, jlms qkw

    Commanding Heights: The Battle for the World Economy (3-Disc Series) (2002) Commanding Heights: The Battle for the World Economy, based on the best-selling book by Pulitzer Prize-winner Daniel Yergin and Joseph Stanislaw, confronts head-on critical concerns about the new interconnected world. The three parts -- "The Battle of Ideas," "The Agony of Reform" and "The New Rules of the Game" -- take an in-depth look at globalization and how it will affect our society's future.

    Starring: David Ogden Stiers
    Director: William Cran ...
    Genre:  Television
    Format:  Widescreen ...
    Language: English
    Subtitles: English
    Not rated. This movie has not been rated by the MPAA.

    John Edwards grew up in Robbins, N.C. where his father had to borrow $50 to get him out of the hospital after he was born.

    by pollwatch on Wed Nov 14, 2007 at 02:50:58 PM PST

  •  Unfolding scenario (4+ / 0-)

    Europe is too fractured to take down the US economically. Russia isn't populous enough. The Islamic world isn't advanced enough. Africa isn't even in the game. Latin America, like Europe is too divided, in addition to under-developed. That leaves Asia, under the leadership of China. Asia is capable of doing this and eventually will go for it, probably in a matter of several decades.

    The US knows this and is preparing for a military confrontation to thwart it. In order to solidify military hegemony, the US plan is to militarize space. The Chinese already sent a message that they will not permit this. The plot thickens.

    Live unity, celebrate diversity.

    by tjfxh on Wed Nov 14, 2007 at 03:45:15 PM PST

  •  thanks for writing (2+ / 0-)
    Recommended by:
    Cassiodorus, dantyrant

    i'm an anti-imp gal myself.  

  •  Great diary! (1+ / 0-)
    Recommended by:

    Really. Fascinating stuff.

    As someone who's busy trying educate myself on economic theories outside of the neoclassical framework, I really appreciate this.

    The way economics is taught in universities is a disgrace. Everything is reduced to the same neoclassical ideas, and yet we're never even told that this garbage is in fact historically generated.  Very rarely is economic history taught today. The neoclassicists would merely have you believe that their ideas are eternal laws of nature. It's bad ideology masquerading as universal truth.    

    •  Thanks GiveNoQuarter! (1+ / 0-)
      Recommended by:

      Good luck in your studies -- also look at Peter Gowan's The Global Gamble...

      "Imagine all the people/ Sharing all the world" -- John Lennon

      by Cassiodorus on Thu Nov 15, 2007 at 07:00:43 AM PST

      [ Parent ]

      •  Thanks a lot Cassiodorus. (1+ / 0-)
        Recommended by:

        I'll put the Gowan book on my list.

        I've also been told to read Edward Griffin's "The Creature From Jekyll Island".  I know it's a book about the creation of the Federal Reserve.  But I don't know much more about it than that. You ever read or heard anything about this book?

        I just finished a really great book pertaining to what's been talked about here: David Harvey's "A Brief History of Neoliberalism". (Harvey is, nominally, a Marxist geographer, but that appellation doesn't do justice to his work. His is a truly interdisciplinary endeavor. From economic theory and history, to philosophy, sociology, architectural criticism and geography, Harvey's work spans across virtually all of the humanities.) I'd recommend this book for anyone trying to get a detailed, complex yet approachable view on the globalization phenomenon. Unlike Thomas Friedman's silly paeans, Harvey recognizes the fundamental truth of what globalization is all about. (And no, Tom, it's not about making the world better for everyone.) Globalization is about the reconstitution of elite class power. As the embedded liberal consensus (Keynesianism) began to break down in the 70's (stagflation and the rest of it), the economic royalists saw an opportunity and took advantage of it. And so what they did was dress up a discredited economic ideology in new language and sold it to the Establishment as some new fangled miracle of modern economic "science".

        Great stuff for those who want to go beyond the rhetoric of the so-called "Washington Consensus."

        Also check out Lenin's "Imperialism, the Highest Stage of Capitalism", which, despite the dated economic statistics, and despite its largely derivative character, does a nice job of laying out the facts with respect to the shared interests of business and finance capital.  

        "Meet the new boss. Same as the old boss."

        •  I will try to acquire Harvey -- (0+ / 0-)

          tho' the book you recommended has been checked out by other patrons in the two college libraries where I have patron cards.  I may have to buy it, tho' right now I'm resisting.

          Thanks for responding.

          "Imagine all the people/ Sharing all the world" -- John Lennon

          by Cassiodorus on Thu Nov 15, 2007 at 06:39:34 PM PST

          [ Parent ]

  •  good one!! (1+ / 0-)
    Recommended by:

    Why do Europe and Asia lie down before dollar hegemony?  Hudson complains:

          There has been no political will for Europe or Asia to take an alternative route.

    Political will or confident control by the european banking elites?

    Excellent article. the world needs more talk on this subject.

    •  Indeed -- (0+ / 0-)

      instead, we spend a lot of time propagandizing about those evil Republicans and the debts they're leaving behind for our children.  The far greater evil, IMHO, is that the economy is being "top-loaded" (this is Hudson's term: it means that the disparities in wealth are at unhealthy extremes), thus making a crisis of overproduction probable.

      "Imagine all the people/ Sharing all the world" -- John Lennon

      by Cassiodorus on Thu Nov 15, 2007 at 11:29:08 AM PST

      [ Parent ]

  •  yep (2+ / 0-)
    Recommended by:
    Halcyon, Cassiodorus

    this core issue crosses all political divides. dont look to any of the democrat front-runners for solutions. neo-liberalism and neo-conservatism are different branches on the same tree.
    the banking elites run this world, and its not paranoid conspiracy theory. If the west is capitalist then by default those who sit at the top of the capitalist pile run the show. its simple logic. modern politicians are mere administrators for policy that is not shaped by the people and is generally of no benefit to the people. these elites dont even comprehend notions of equality or social justice. they come from centuries old families and i think many an american politician is in awe of them.

    they have been attacking the US system since independance and the end of the civil war and they are very close to their goal of complete control, and a modern day fuedal monarchism. Bush et al are nothing but pimps and may have actually been too hasty in much of their work. plenty of people are now only to aware of the direction we are all headed. im personally very aware that i, as a member of the middle class, is becoming poorer and being forced into debt (which i refuse).

    I would reccommend this little documentary cartoon for anyone who doesnt understand just how "top-loaded" are financial system is. Click Here One note, worthy of comment, on this documentary, is that it highlights that every President who tried to reform this system has been assassinated. Something to think about.

    btw i should state for the record that i am not from the USA but Belfast, Northern Ireland.

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