The Great Michael Hudson on the economy
Excerpts from below link (in parenthesis) and commentary in [ …. ]
Russia really created the eurodollar market, because it was afraid to hold dollars in the United States in the 1950s, because the United States could simply grab the money, like it did with Venezuela. And so it held them in England.
[more accurately, the City of London created the Eurodollar market and set up tax havens in their territories. This was used by countries like Russia , drug king pins, tax evaders and intelligence agencies Covert operations funding that was backed by Gold from Nazis/Japanese that was in Swiss Banks]
And so what happened was Citibank and Chase Manhattan Bank found that they could then borrow these dollars from their London branches. And Chase’s largest depositor, when I was working for it, as their balance-of-payments economist in the 1960s, was the eurodollars from the London branch.
So all of these dollars that other countries would accumulate and be afraid to invest in the United States were put into British banks, that sent this money to the head offices back in the United States to essentially liquefy the American economy.
And there were no reserve requirements on eurodollars. So if Chase or Citibank would get a regular deposit from somebody, and make a loan against it, they’d have to keep reserves against it. But you didn’t have to have any reserve requirements for the eurodollar deposit.
So the eurodollar system was a free lunch for the commercial banking system in the United States in the 1950s and ’60s.
[The Eurodollar market and offshore tax havens started off slow and really exploded in the 1970’s after the end of the Gold -USD coupling and persisted through the 2000’s . Reagan then made it easier for those dollars from drug lords and Russians Oligarchs to flow into the US banking system and real estate]
1970’s-....the Treasury told Saudi Arabia, you can keep charging whatever you want for the oil, but all the export proceeds you have, you have to invest back in the United States.
You can invest it in the stock market. You can’t buy American companies. You can buy stocks and bonds, and especially government treasury bonds to finance things.
[MH left out Real Estate]
So petrodollars were a means of recycling oil export proceeds into the American banking system and into the U.S. government budget.
1980’s -America got rich by being a mixed economy, where the government took an active role in subsidizing basic infrastructure.
And all this changed in the 1980s.
And the neoliberalism has sort of pretended that Adam Smith was an advocate of basically the neoliberalism of Ayn Rand, instead of being anti-landlord, anti-monopoly, and not really thinking very much of the ethics of businessmen.
....1985, when there was the famous Plaza Accord, you had Reagonomics going full blast. And Secretary of State James Baker said, what is Reaganomics?
It means we want low interest rates; we want to cut taxes on the rich, and even though we’re going to cut taxes, we’re going to have a huge budget deficit.
Somebody is going to have to fund this. And in the past, countries running a budget deficit, which Reagan and Bush quadrupled America’s foreign debt from 1981 to 1992 – who is going to buy this debt?
Because if we make Americans buy this debt, we’re going to have to pay high interest.
So it told Japan, we want you to agree to buy a big chunk of our foreign debt. England and Europe said, ok, we’re going to go along and we’re going to buy a big chunk of it too.
So essentially, America forced Japan not only to buy the debt, but to revalue its currency. And its currency went from 240 yen per dollar to 200 yen, meaning a dollar would only buy 200 yen. And then finally, America would only buy 100 yen.
And all of a sudden, car prices, electronic prices in (from) Japan, export prices doubled; it lost the market. And essentially went broke.
And that was what was called the bubble economy.
The Reagan economy was a bubble economy in America, but the bubble was felt or absorbed by Japan, by England, and by Europe.
That was the the genius of Reaganomics, to make other countries bear the costs of the American tax cuts.
[ Note: 1980s, two-fifths of the money on deposit in Miami banks was reckoned to have originated overseas, particularly in Latin America.]
The following from
https://www.amazon.com/Treasure-Islands-Uncovering-Offshore-Banking/dp/0230341721
After 1976, the Florida region became the only one of the Federal Reserve’s regions to show persistent (and huge) cash surpluses.
“Half the property in Miami is owned by offshore shell companies, and the largest yachts on the Intracoastal Waterway are registered offshore,” said Blum. “Miami is the facility of choice for Latinex–heads of state, generals, drug king pins and former friends of the CIA.”
1981-In June , less than six months after Reagan’s inauguration, the United States approved a new offshore possibility, the international banking facility.
The United States was another step closer to becoming the tax haven imagined in the memo to Michael Hudson.
IBFs, as they are known, are kind of offshore Euromarkets-lite: They let U.S. bankers do at home what they could previously do only in places like London, Zurich, or Nassau: lend to foreigners, free from reserve requirements and from city and state taxes.
The bankers would sit in the same Manhattan offices as before and simply open up a new set of books and operate as if they were a branch in Nassau.
Once the IBFs were in place, the banks could dispense with the subterfuge entirely and book them openly in New York.
The United States had moved closer to the British offshore model. Bankers in New York signed on to the new possibility with gusto, followed by those in Florida, California, Illinois, and Texas.
In three years almost five hundred offshore IBFs had popped up inside the United States, draining money out of other offshore markets in the Caribbean and elsewhere.
It was a new get-out-of-regulation-free card for Wall Street and another hole in the American fortress.
Not only that, but as author Tom Naylor puts it, “The US hoped to use the IBFs as a bludgeon to force other countries to relax restrictions on the entry of US banks into their domestic financial markets.”
1984, the United States would bypass the Antilles irritant entirely and waive the 30 percent withholding tax under a new loophole.
American companies would no longer set up fictional entities in Curaçao but simply issue their bonds at home. Foreign investors would pay no tax on their bond income.
It was a classic tax haven gambit: plug the deficits by exempting foreigners from tax, and watch as the world’s hot money rolls in. It was just as the memo handed to Hudson in the elevator had anticipated.
The loophole was supposed to be available to foreign investors only. Unscrupulous wealthy Americans, of course, got around that simply by covering themselves in a cloak of offshore secrecy and pretending to be foreigners. “
The Wall Street types were as happy as clams,” said McIntyre. “The rules were designed to facilitate tax evasion. It was a very hot business: People in high places liked it and fostered it. They didn’t think it was an ethical issue. . . . Nobody seemed to object, except my brother Bob and I.”
The effects were immense. Having set up offshore-lite international banking facilities in 1981, America, by 1984, had a thriving homegrown offshore bond market. “
Suddenly,” noted Time magazine, “America has become the largest and possibly the most alluring tax haven in the world.”]
[Back to MH -Flash forward to 2020-2021]
The Federal Reserve has hardly spent any money into the economy at all.
It’s printing trillions and trillions of dollars, more money, more essential credit than ever before, but all of this credit has gone into the stock market and the bond market and the packaged loan market.
It’s all gone for assets that the 1 percent of the economy hold. It has financed asset price inflation, not domestic inflation. The domestic inflation is something that comes not from an increase in the money supply, but from supply shortages.
And this is a result of the neoliberal management philosophy that corporations have. In order to increase their reported profits, they have cut costs wherever they could. And one way they found of cutting costs is to minimize inventories.
80 years ago, every company would have enough inventory on hand so that if there was an interruption in its imports, in its raw materials, in the supplies that it needs, it has enough to get by.
But the corporate managers said let’s have something called just-in-time inventory. That is, if we need a part, we’re not trying to order it six months in advance and hold it in a warehouse; we’ll just pay for it that day and order it.
And all of the companies together in the United States thought, the economy is going to shrink, we don’t need any inventories, because everybody is going to be poor.
They thought they were going to be poor, because they were making the economy poor, by predatory practices that they were following.
They were getting rich by impoverishing the economy. They thought the economy couldn’t buy what they produce, so they didn’t need any inventories. Well, all of a sudden, they ran out; they depleted all of the inventories.
And there were huge, huge orders, [placed] in China, in Asia, in Japan, in Korea, for electronics exports, for chips, for everything else.
And now you see, the price of shipping has multiplied tenfold. It costs 10 times as much to ship a container from China to New York today than it did a year ago.
So what is happening is a shortage from just the neoliberal, really socially incompetent management of American corporations.
[Note:I disagree on incompetence. I think the supply shortages/inflation are part of the WEF plan (at the top corporations are members of the WEF and are interlocked with each other) to demolish the economies of the West for a Great Reset and BBB]
Other companies throughout the rest of the world have tried to, they keep inventories; they’re not having this problem....
In the case of housing, which has gone up – it’s the most rapid increase, over 10 percent in the last year, that’s essentially because BlackRock has said, the era of rising into the middle class by getting home ownership is over.
Our ideal here at BlackRock is the 19th-century ideal; really, it’s the 14th-century ideal. It’s the landlords. We want to turn the American economy away from a home ownership economy into a renter’s economy.
And if we BlackRock and our fellow landlords can monopolize the control of housing, and bid it all the way, we all of a sudden will have a monopoly in housing costs. We can raise it 10 percent this year, 10 percent next year.
And the banks are going to lend to us to buy out all of this real estate at 1 percent or 2 percent, and they’ll charge 3 or 4 or 5 percent to other people.
All of a sudden you’re going to have a concentration of home ownership in the hands of large corporations. And the middle-class ideal of home ownership is going to be squeezed out.
The other major growth is in pharmaceuticals and medical care. It’s way up, medical insurance, 10 or 15 percent.
The one thing that corporations in America are willing to fight to the death for is to prevent socialized medicine, to prevent public health.
Because they realize if we can prevent public health in America, then workers, the American population is going to have only one way of getting health care and avoiding the threat of bankruptcy if they get sick.
They’ll have to go to work for an employer. Because the health is going to, insurance is going to come from the employer. And if they don’t go to work for the employer, they won’t get health care, and they can go broke very easily.
And if they go on strike, they lose their health insurance, and then they’ll go broke. If they complain about the job, they’ll get fired, they’ll lose the health insurance.
The new way of controlling labor, the class war in the United States, is to privatize pharmaceuticals and health care and prevent people from having access to health care and pharmaceuticals, unless it’s through their employer.
And that’s why wages have not gone up. Because this is what Alan Greenspan called the traumatized worker syndrome. They’re powerless. They’re afraid to complain against the job. They’re completely dependent on the employer for everything they have.
And in some cases, it may be like a Soviet Russia, they’ll even become dependent on their employer for housing, as it was in Russia, because they can’t afford houses of their own, which are now all corporately owned.