In stark detail Michael Hudson, a distinguished research professor at University of Missouri – Kansas City lays out the end game. In an interview with Paul Jay, SENIOR EDITOR, TRNN: The Real News Network.
JAY: So President Obama’s deficit commission has reported. The press, the media, and most of the political punditry all seem far more worried about government debt than depression. Why?
HUDSON: Because they’re essentially appointed by the banking interest. When the government runs into debt, it has to borrow from the banks. They want to scale down government debt in order to scale down government taxes. So it’s part of a one-two punch against the economy, basically. To the deficit commission, a depression is the solution to the problem, not a problem. That’s what they’re trying to bring about, because you need a depression if you’re going to lower wages by 20 percent.
Who said they wanted to lower wages?
SCHEMES
We have heard a few truths from the Republicans on their end game when they have said they believed the minimum wage is unconstitutional. Rand Paul told us last year that "We all work for and sell stuff to rich people." The GOP has tipped their hand when they say we should expect to earn less if we want jobs. But we also know that these two ideas are deeply unpopular even with their own base. How could they force us to accept something so blatantly unpopular?
They already have...
Deficit Hawks One Two Punch
In America, despite the amazing rise in productivity we’ve had in the last 30 years, real wages have actually gone down. All of the increase in productivity has been taken by the finance, insurance, and real estate sector, called the FIRE sector, almost all of it by the financial sector. So all of this growth has been siphoned off, not taking the form of rising living standards, but taking the form of debt service, mainly interest and fees. The fees are as large as interest for the credit card companies. So it’s all siphoned off financially.
Does this sound like your life? Even if you avoid personal debt, you are still a participant in so many ways. Every single part of your life is caught in their web of debt service. A portion of every dollar you spend goes towards paying interest on a debt that is owed to the banks. Your city slaps a sales tax on your purchase and a percentage goes to service debt. You buy a car and included in the purchase price is interest owed by the seller on his debt for holding that car on his lot. When you pay your electric bill, a portion of your bill goes to pay down the interest on the debt owed by the utility company. When you shop at Wall Mart and buy that really cheap lamp, you are contributing money to service a debt held by a bank. We are debt slaves.
You would think this would be enough, this tax the banks place on every single item we consume. No, they want more. So they work on selling us the other half of the end game.
Schemes of the Rich and Greedy
Everyone would like to be free of taxes. But only the rich have sufficient wealth to “buy up Congress” to give themselves enough tax breaks to shift the cost of running government off their shoulders onto the rest of society – and while they’re at it, to make sure that the government uses its resources to make the rich even wealthier, again at the cost of stifling the economy below them.
But to convince us they use the biggest lie of all; that only they can save us.
You know which lie I'm talking about. It was repeated ad nauseum by the lackey's who serve the Gods of business. Only they will create jobs, if we only give them more of our money.
So instead of having industrial capitalism a century ago, we have a finance capitalism that actually is stifling industrial capitalism here. So what Alan Greenspan and others call the postindustrial economy is really neo-feudalism. It’s a financialized economy where all of the surplus goes to the banks.
NAKED THEFT
Hudson outlines the tax shift that has been underway for the past 30 years. Do you wonder why Social Security is considered as part of 'debt' reduction?
This regressive tax shift off wealth onto wage earners has occurred in three ways. The largest and most egregious was the Greenspan Commission’s ploy of moving the cost of Social Security and Medicare out of the general budget (where it would have to be financed by taxpayers in the higher brackets) onto the bottom of the scale in 1982. Instead of being treated as “entitlements” paid by the highest tax brackets, it is treated as “user fees” by employees with a cut-off (currently about $102,000) for higher-income earners. The pre-saved “Social Security fund” was invested in Treasury bills and then lent to the government – enabling it to cut taxes on the higher brackets. “Social Security and Medicare” became a euphemism for giving the government enough “forced saving” of labor so that the Treasury could cut taxes on the higher income and wealth brackets.
He goes on to point out that most of the tax changes over the past 30 years have been a shifting away from property taxes and into income and sales tax. Loopholes were created to allow absentee property owners (not your everyday run of the mill homeowners) to depreciate their holdings as if they were losing value when in reality they were increasing in value. Taxes on large corporations and the FIRE sector are designed to accumulate wealth to them, and place the highest burden on the wage earner.
Professor Hudson also describes the scheme as it is being played out in Latvia and the trail of tears to Ireland. Wage Earners in Latvia are scheduled to be taxed at 68% in order to pay off 'their' debt and have little to show for it. The Latvian economy also experienced a real estate bubble that drove a debt bubble to burst. Property taxes are to rise from 1% to 2%, a minuscule amount in relation to the tax on wages. The resulting unemployment has forced 12% of younger wage earners in Latvia to work abroad, mainly in Ireland, that shining business utopia on the hill. You know, the one that recently imploded with it's own end game of 'austerity'.
It gets a little difficult to compare the situation there with ours here, but I believe the end game is the same; forced austerity on the wage earners through cuts to social programs, lower wages and a hidden tax on what we need to survive (more on this later). Since the GOP is supposed to be the party of "No Taxes" they will force us to pay another way. Hudson believes that a flat tax and a VAT are what is coming. I am not sure that the American populace has been softened up enough for that yet. After all, it has the taint of 'socialist' Europe that will not play well with their base. What I do believe they will do is what they have been doing for the past 30 years, and it is only accelerating. They will increase fees, privatize even more of our government, and continue to tell us the big lie, that if we only give them more tax cuts, they will save us.
HIDDEN TAX
I vacillate between believing that it is all a big conspiracy and that it is too unbelievable to be real. It is hard to picture a cabal of wealthy financiers meeting to discuss the methods for screwing over millions. But then I see this; A Secretive Banking Elite Rules Trading in Derivatives
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.
Now I know the word 'derivatives' can make your eyes roll back in your head, but one thing you should understand about them; Most medium to large businesses, banks, municipalities and public institutions use derivatives in some form or another on a daily basis. Most of them are simple 'hedges' which is exactly what it sounds like if you are a gambler and know the term, "hedge your bet". The purpose is generally benign, to make a future price for a future need more predictable, or to pay a current price for a future need.
But the group that controls the market for derivatives is closed to you and me and everyone else in the world except for these 9 men.
Imagine if you will that you want to buy something at a yard sale. You have a couple of specific items in mind but know you will have to haggle with the seller before the deal is done. Before you walk up the driveway, you are approached by a man who tells you that you can buy exactly what you want for a specific price, no haggling, and he will sell it to you and have it delivered at a time of your choosing. What a deal, you tell yourself. You agree to his price and the terms because you want to get on to other chores on your Saturday so you go on your merry way. What you don't see is that he walks up the driveway and then tells the seller he will buy all the specific items you want, plus items he's negotiated with other buyers for and he names a price. The seller is happy because he has sold a large number of items to one person and can spend less time on his yard sale and more time on his Saturday chores. Neither the buyers or the seller ever knows what each paid. The difference between the two is what the man at the end of the driveway keeps. He has extracted his profit, except for the small fee he must pay to someone else for delivery, and the only 'labor' he invested was to negotiate the deal. This is what is happening each and every day all over the world.
Just how much derivatives trading costs ordinary Americans is uncertain. The size and reach of this market has grown rapidly over the past two decades. Pension funds today use derivatives to hedge investments. States and cities use them to try to hold down borrowing costs. Airlines use them to secure steady fuel prices. Food companies use them to lock in prices of commodities like wheat or beef.
But why should you care, you may ask.
Well, the difference that is extracted by the derivatives market holders (those 9 guys) adds to the price of the food you buy. In a normal world a derivative would only be an exchange between those who own the commodity (food, fuel, metals) and those who need to use the commodity. The price you pay would be more stable and predictable. The affect on price would be known. The effects of the rise or fall in demand, and the changes in supply due to known factors would influence the price you pay. Remember the basic premise of Economics is supply and demand. This is how Economics is supposed to work. But in the world of Casino Capitalism a middleman, who has no interest in holding the commodity for his own use, decides to extract a profit from both sides of this equation. The truth is, both business and the consumer are hurt by this interference in the market. Maybe we should call it the "invisible hand."
On financial blogs the debate has been going on since the financial meltdown of 2008. Will we have inflation or deflation? If you want to know the answer, then have a look at this;
Grocery Shrink Ray
One Example...
Dial Hand Soap Bottle Grows Slightly Taller To Disguise Shrink Ray Attack
Todd reports that while the new Dial hand soap bottle has a sleek new design that is slightly taller and adds more sexy curves, it's all a facade to distract us from how the product has been Shrink Rayed. The old bottle was 11.25 ounces, and the new is 9.375. Todd writes, "But perhaps the most audacious part of it is the fact that they shrunk the bottle, redesigned the shape and label ever so slightly, and slapped a "NEW!" label on it, thinking we would never notice."
Yes this has been going on a long time, but it seems to be accelerating. Many stores and manufacturers began reducing prices across the board right after the financial meltdown because they knew their customers were more price conscious. We thought they were on our side right? Wrong. I have been a relatively faithful comparison shopper for years and more and more of the products I buy have been subjected to the Grocery Shrink Ray. Now in some cases the shrinkage goes along with a reduction in price, a 'sale'. But in reality, they are telling you they reduced the price of their product while not telling you they reduced the amount.
If you thought it was only food, think again...
Shrink Ray hitting JCPenny clothing now too?
Kyle just wrote to us that the 36" sleeve on a Large Tall sweatshirt from JCPenney has been reduced to 35". It's not just a manufacturing accident, because the new length is printed in the retailer's sizing charts. But Kyle says for years he's had no problem with JCPenney shirts, and that this all started happening within the past year or so
So what the hell are we supposed to do?
PARASITES AND CASINO CAPITALISM
The medicine suggested by Keynes; Euthanasia of the 'rentier' system
But what's the Rentier System?
Hudson
A century ago when the classical economists, Adam Smith, John Stuart Mill, in the reform era, tried to say: look, there are some incomes that are not earned. Rent is not earned, it’s an excess price. Interest is not earned, it’s a monopoly price. Monopoly profits aren’t earned, they’re extortionate.
What did Keynes have to say on the rentier economy?
...the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce.
We might call that a Monopoly.
Since the Teabaggers and the new House GOP are so concerned with the constitution, lets ask what the founders thought.
Howard Zinn
It started way back when the founding fathers met in Philadelphia in 1787 to draft the Constitution. The year before, they had seen armed rebellions of farmers in western Massachusetts (Shays's Rebellion), where farms were being seized for nonpayment of taxes. Thousands of farmers surrounded the courthouses and refused to allow their farms to be auctioned off. The founders' correspondence at this time makes clear their worries about such uprisings getting out of hand. Gen. Henry Knox wrote to George Washington, warning that the ordinary soldier who fought in the Revolution thought that by contributing to the defeat of England he deserved an equal share of the wealth of the country, that "the property of the United States...ought to be the common property of all."
Meet the first Rentiers.
In framing the Constitution, the founders created "big government" powerful enough to put down the rebellions of farmers, to return escaped slaves to their masters and to put down Indian resistance when settlers moved westward. The first big bailout was the decision of the new government to redeem for full value the almost worthless bonds held by speculators.
The first TARP.
Hudson describes our problem like this;
Well, if you study biology, you know that there are more species of parasites than there are of hosts–of course it’s not sustainable. But to a parasite, you don’t have to be sustainable, because you’re a parasite. That’s your mindset. And you want to take what you can, and at a certain point you devour the host and skip to new hosts. That’s what they’re doing: they’re going to shrink the American economy, and they’re going to move to Asia or to other countries
There is only one thing to do when you discover a parasite, kill it.
But there is a problem with that.
THE END GAME
If the fraud stops, the financial system collapses
The Power Elites of the status quo, both political and financial, are well aware of the system's total dependence on legerdemaine, misrepresentation of risk, manipulation, lies, fraud and well-oiled machines of embezzlement (for instance, the entire mortgage and mortgage-backed securities markets).
So we ask ourselves the same question that was asked when Obama was elected. Why won't the crimes of the previous administration be investigated and those who were responsible be punished?
The answer?
Because so many were complicit, it would bring the whole house down.
So why did our new Financial Regulation Legislation seem to do so little? Why aren't the blatant crimes of Mortgage Fraud, commodity price manipulation, back door bailouts of the banks, and Rating Agency fraud, or the suspension of property rights creating a firestorm in Congress? Why were there rules in place that could have been used to stop the financial implosion but our regulators refused to regulate? Why did our government shrug off the alarms that were being sounded as far back as 2001?
The Power Elites of the U.S. are now dependent on an organized financial crime syndicate. Like parasites living the high life in a household funded by the Mafia's trading in addiction and corruption, the American Power Elites don't dare allow "law and order" to sweep through Wall Street and the banking/mortgage sector, lest their privileged lifestyle abruptly end.
Either way, we are screwed.