A Debt Write Down, and Jubilee Year Clean Slate

Thinking the Unthinkable

Published on DissidentVoice, by Michael Hudson, Sept. 25, 2008.

We have reached the point where it may finally be able to break through the membrane of cognitive dissonance that has blinded people. The very first course in economics — starting in high school, followed up in college and then refined in graduate school — should explain to students why it is false to believe the advertisement that Wall Street has been trying to sell for the past half century: The deceptive promise that an economy can get rich off the mathematical “magic of compound interest” …

… Such debt writes-offs are a precondition for writing down America’s mortgage debts to levels that are affordable. But Mr. Paulson’s plan is to fight against this tide. He wants Wall Street to keep on raking in money at the expense of the economy at large. These are the big banks who lobbied Congress to appoint de-regulators, the banks whose officers paid themselves enormous bonuses and gave themselves enormous golden parachutes. They were the leaders in the great disinformation campaign about the magic of compound interest. And now they are to get their payoff.

The pretense is that not to pay them off would threaten “the economy.” The reality is that it only would stop their predatory behavior. Worse than that, for the economy at large a government take-over of these bad loans would prevent the debt write-down that the economy needs!

It gets worse. If Congress should be so destructive as to buy out $700 billion of bad loans (for starters), the sellers will do just what Russia’s kleptocrats did. They will take their money and move it abroad to a “hard” currency country. This will help collapse the dollar. Up will go gasoline costs and prices for other imports. America will be turned into a Russian-style post-Soviet economy, having endowed a new domestic kleptocracy of insiders, who use some of their gains to finance the campaigns of American Yeltsins such as McCain.

So let us admit that the economy has been taking a wrong track for a number of decades now. As John Kay noted : “When the dust settles, many banks and hedge funds will have lost more money on their trading activities in the past year or so than they had made in their entire history . . . The pursuit of shareholder value damaged both shareholder value and the business.”2

I worry that Wednesday’s jump in the Dow Jones average signals that the big betters have decided that there is a good chance of the vast giveaway going through. The Republican protests seem to me to aim not so much at really stopping the measure, but on going on record that they opposed it – before they voted for it. When the public wakes up to the great giveaway, the Republicans can say, “It was a Democratic Congress that did it, not us. Read our anguished protests.” Everyone is trying to cover themselves. With good reason.

Don’t let them speak on behalf of voters and then act against the economy, claiming that they are trying to save it. A giveaway of this unprecedented magnitude would cripple it for as far as the eye can see. (full text).

Link: World Economic Forum founder (Klaus Schwab): China to maintain fast growth despite world economic slowdown. (full text, Sept. 26, 2008).

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