The other dynamic keeping the stock market up – both for technology stocks and others – is that companies are using a lot of their income for stock buybacks and to pay out higher dividends, not make new investment,.
MICHAEL HUDSONThe economy is being run primarily by the banks for their own interest.
More Michael Hudson Quotes
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A bubble is only called that after it bursts, after the insiders get out, leaving the pension funds and small investors, Canadians and other naïve investors holding the bag.
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Today, people are having to spend so much of their money, to acquire a house and to get an education that they don’t have enough to spend on goods and services, except by running into yet more debt on their credit cards and other borrowings.
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The reason is that every recovery since 1945 has begun with a higher, and higher level of debt. The debt is so high now, that since 2008 we’ve been in what I call, debt deflation.
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Then, all of a sudden, the Fed can raise interest rates, let the stock market prices collapse and the people will lose even more in the stock market than they would have by the negative interest rates in the bank. So it’s a pro-Wall Street financial engineering gimmick.
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It’s amazing that Europe says, “What are we going to do with these refugees?” It’s as if it doesn’t realize that being part of NATO and bombing these countries forces them to choose to live by fleeing, or to stay and get bombed.
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Somehow most people believed they could get rich by going into debt to borrow assets that were going to rise in price. But you can’t get rich, ultimately, by going into debt. In the end the creditors always win.
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When people are running up more and more debt for housing, they call that “real wealth.” It exposes what’s wrong in the mainstream economics and why most of the economics that justifies austerity programs and economic shrinkage is in the textbooks is not scientific.
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One basic myth is that rich people get wealthy by earning income. But that’s not how most get rich. Most of the gains of the rich people since 1945 have been “capital gains”.
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The ideological foundation of today’s business schools is that economic control should be shifted out of government hands into those of financial managers – that is, Wall Street.
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If you’re a wealthy heir with a trust fund, and you sell stocks, make your 10% gains since Donald Trump, and then you buy other stocks, you can avoid paying taxes. And if your accountant registers your wealth offshore in a Panamanian fund, like Russian kleptocrats do – and as more and more Americans do.
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The economy is being run primarily by the banks for their own interest.
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I think we’re in the take-the-money-and-run stage of the economy. So the banks may go under, but the bankers, who make the policy, clean up.
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Debt deflation is when there’s less money that people have to spend out of their paychecks on goods and services, because they’re paying the FIRE sector. Oil going down is a function of the supply and demand of oil in the market. It’s a separate phenomenon.
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You have to abolish pension plans. You have to abolish social spending. You have to raise taxes.
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It thought that if it could subsidize banks lending homeowners enough money to buy houses from people who are defaulting, then the bank balance sheets would end up okay.
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When economists speak of money, they neglect that all money and credit is debt. That is the essence of bookkeeping and accounting. There are always two sides to the balance sheet. And one party’s money or savings is another party
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The price decline is a result of having to pay debts. That drains income from the circular flow between production and consumption – that is, between what people are paid when they go to work, and the things that they buy.
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If the bank goes under, they get to keep all of these salaries and options – and the government will bail out the bank. These guys will take their money and run, which is pretty much what they’re doing now.
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In fact, there’s no way that banks can be paid everything that they’re owed.
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If you look at payments to labor as a proportion of national income or gross domestic product, you find profits going way up, investment and savings going up.
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New investment and employment fall off, and the economy is falls into a downward spiral.
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The financial time frame always has been short-term. Projects with long-term paybacks are cut back, because CEOs and financial managers simply want to take their money and run. That is the financial mentality.
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The bankers are the people running these banks. They’re the chief officers, and they push the loans because they don’t care if they go bad. For one thing, they may package these bad loans and sell them off to gullible institutional investors.
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Since 2008 you’ve had the largest bond market rally in history, as the Federal Reserve flooded the economy with quantitative easing to drive down interest rates.
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“We’ll help you get a better job. We’ll arrange a loan so that you don’t have to pay a penny for this education.” Their pet bank gets them the government-guaranteed loan, and the student may get the junk degree, but doesn’t get a job, so they don’t pay the loan.
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Nobody prefers to earn income any more, because that’s taxable. Rich people prefer to make capital gains.
MICHAEL HUDSON