Deflation is a leakage from this circular flow, to pay banks and the real estate, called the FIRE sector – finance, insurance and real estate. These transfer payments leave less and less of the paycheck to be spent on goods and services, so markets shrink.
MICHAEL HUDSONAmerica needs an ineffective president. That’s much better than an effective president that’s going to go to war with Russia, that’s going to push for the Trans-Pacific Partnership, that’s going to protect Wall Street, and that’s going to oppose neoliberal austerity.
More Michael Hudson Quotes
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That’s the “magic” of double-taxation treaties: you can shop around for the lowest taxer.
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It will make his fellow developers rich, and it will make the banks that finance this infrastructure rich, but the people are going to have to pay for it in a much higher cost for transportation.
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Inflation usually helps the economy at large, but not the 1% if wages rise. So the 1% says that it is terrible.
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This is not really currency that circulates. It’s like the old joke about expensive vintage wine. Wine prices will go up and once in a while somebody will buy a 50-year-old bottle of wine and say, “Wait a minute. This has gone bad.” The answer is, “Well, that wine isn’t for drinking; that’s for trading.”
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I guess the main thing that came out of the Panama Papers was that Ukrainian President Poroshenko had promised to divest of his chocolate company and instead, he simply moved it into an offshore account.
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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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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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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 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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More and more money is being extracted from of the production and consumption economy to pay the FIRE sector. That’s what causes debt deflation and shrinks markets. If you pay the banks, you have less to spend on goods and services.
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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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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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We’re still in the collapse that began after 2008. There’s not a new collapse, there hasn’t been a recovery.
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New investment and employment fall off, and the economy is falls into a downward spiral.
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The seeming irony is that it’s so bad that it enables the Democratic Party to think, “A-ha, all we have to do is be the lesser evil.
MICHAEL HUDSON