There are two definitions of deflation. Most people think of it simply as prices going down. But debt deflation is what happens when people have to spend more and more of their income to carry the debts that they’ve run up – to pay their mortgage debt, to pay the credit card debt, to pay student loans.
MICHAEL HUDSONThe United States and Europe are in a state of debt deflation, where people and businesses have to pay banks instead of spending their income on goods and services. So markets shrink, sales and profits fall, and the stock market turns down.
More Michael Hudson Quotes
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You have to have at least fifty percent of the European population emigrate, either to Russia or China. You would have to have mass starvation. Very simple. That’s the price that the Eurozone thinks is well worth paying.
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People are putting their money into treasuries because they worry that the risk of putting their money into the bond market, the stock market or even the money markets is very high.
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Elites play the role today that landlords played under feudalism. They levy interest and financial fees that are like a tax, to support what the classical economists called “unproductive activity.”
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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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So we are in for years of debt deflation. That means that people have to pay so much debt service for mortgages, credit cards, student loans, bank loans and other obligations that they have less to spend on goods and services. So markets shrink.
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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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You get a constituency; you make them believe your promises, and then you turn them over to your financial campaign backers. That’s what politics has become and that’s as much an art of deception as economics is.
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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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The one sure mark of a con, though, is the promise of free money.
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I think I’m just going to move out and buy a cheaper house.” So it’s very risky when you have only a 3% or 3.5% equity for the loan. The bank really isn’t left with much cushion as collateral.
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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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Mathematically, debts grow exponentially at compound interest. Banks recycle the interest into new loans, so debts grow exponentially, faster than the economy can afford to pay.
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When we say “people worry” about inflation, it’s mainly bondholders that worry. The labor force benefitted from the inflation of the ’50s, ’60s and ’70s.
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Once the speculative demand ended, all of a sudden the added production facilities that had been brought into production by the high prices went out of production again, and there was a glut.
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The only way people can repay the debt is by cutting their living standards very drastically. It means agreeing to shift their pension plans from defined benefit plans.
MICHAEL HUDSON