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Wealth and Debt

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The same Western banking and financial practices that facilitated the rapid implementation of scientific and technological advances of the Industrial Revolution are now threatening to submerge much of the world, to paraphrase Dr. Michael Hudson, in a new Dark Ages of debt peonage.

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"It is this underlying confusion between wealth and debt which has made such a
tragedy of the scientific era. It is fundamentally ingrained in the Western mentality
and, could it be straightened out, a scientific civilisation might, at long last, yet be
put on the right road.
" Frederick Soddy - i

Introduction

The people who create your money have teamed up with your political leaders
and the media to mortgage your future. Bankers and politicians know all
they have to do is write checks and someone else will pick up the tab. They
borrow and create out of thin air the money that you have to work for. And
then they use that money to acquire more money and power. When they acquire
the privilege of creating money for the world, other nations are told they
must accept that money or be destroyed as a threat to the established order
- one based upon money and debt, just as under feudalism it was based upon
the control of land. That is 'the system'. It must be understood and
changed if our civilization is to have a future.

Money and Debt

It is no mystery why Wall Street, the too-big-to fail-banks and the U.S.
government are such good pals as are other Western governments, their banks
and financial institutions. They all create money as debt and use it to
appropriate society's wealth. Very little of the world's money takes the
form of currency or coins. Almost all of it is created as debt denominated
in the currency of the country in question. When a country's money acquires
reserve currency status - a currency which other nations accumulate and use
as a store of value or to settle accounts - its currency can be used to
appropriate wealth from beyond its borders. Bankers and financiers, the
merchants of debt, help governments extract real wealth from both domestic
and foreign populations in exchange for both government and private debt.
They do this by maintaining markets in which this debt can quickly be
converted into the money of the country in question and by fostering popular
misconceptions about the near-money debt they have been creating with such
abandon recently, principally that it has some creative power or inherent
value.



Government's contribution to the partnership is helping its private sector
partners get the money they create accepted. If debt is created by a
private party, there is an obvious risk it may not be repaid and the claim
to wealth it represents will be lost. If, on the other hand, that debt can
be transferred to a collective entity like government - to be backed by 'the
full faith and credit' of the people - the wealth the debt represents is as
secure as the government which has assumed responsibility for it. However,
by ceding the privilege of creating money - as debt or in any other form -
to private parties, governments expose themselves to the threat those
parties will refuse to create enough of it to fund either government's
legitimate activities, the needs of the real wealth-producing economy or
both.

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Perhaps the most valuable service performed by the merchants of debt for
governments is helping conceal the real costs of their corruption, waste and
wars. The Vietnam War ended in large part because the American middle
class refused any longer to pay the cost of policing this country's global
empire with the blood of its children. Had the financial costs of that or
any other of the 20th and 21st century imperial wars come fully out of the
public's pockets, there is reason to believe those wars would not have been
tolerated either. The same is true for the 'pork barrel' spending that has
long characterized American politics and the tax cuts for its wealthy.



With volunteer military service now the norm, the mortal threat to the
children of the middle class in the United States and other Western
democracies may have subsided for the moment. But the threat to its
financial future is reaching crisis proportions. Just as they bought the
wars to "make the world safe for democracy" or from Communism or Terrorism,
they bought their governments' and bankers' pitch that all the debt-based
money both were creating was actually some form of wealth. They have been
led to believe that 'Debts that can't be repaid somehow will be.'



This permits their governments, bankers and financiers to transform the
wealth created by past and current generations into debt-based money, a
weapon which can be used for the further subjugation of populations in their
own and other nations, the further expropriation of their wealth.
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This strategy of using government debt as a weapon is one which Dr. Hudson,
a Wall Street analyst and research professor for the University of Missouri,
described in his book "Super Imperialism" first published in 1972, a year after the
collapse of the 1944 Bretton Woods International Monetary System. "Super Imperialism"
was the outgrowth of a study he performed on the consequences of the demise
of that system. Dr. Hudson argued the use of government-backed debt as a
strategy for U.S. world domination it has employed in the years since 1971
was in large part the product of fortuitous historical circumstances and
innovative U.S. responses:

"Intergovernmental debts were first catalyzed in the 1920s by the breakdown
of world payments and trade in the wake of Inter-Ally war debts and
reparations, ..." - ii

Dr. Hudson has continued to develop this theme. See, for example, "Why the
IMF Meetings Failed":

"Finance is the new form of warfare -- without the expense of a military
overhead and an occupation against unwilling hosts." - iii

The knowledge that debt and money can be used aggressively has long preceded
him. In "America's 60 Families", former Wall Street Journal correspondent
Ferdinand Lundberg described the advantage of money compared to other forms
of wealth:

"But the securities of American millionaires can be exchanged in a flash for
any currency in the world, for land, for other stocks and bonds. The wealth
of the Indian princes is immobile, static; the wealth of their American
counterparts is mobile, dynamic. In the money markets of the world the
feudal wealth of the Indian princes is of no consequence." - iv



A primary cause of WW1 was competition between Europe's imperial powers for
markets to absorb the excess productive capacity of their industries, excess
at least at the prevailing wages and standards of living for the time. The
objective was the same for the competitive monetary devaluations, the
currency wars fought prior to WWII. A country could prevail in such wars by
simply making its currency and thus its products cheaper relative to those
of its competitors. Dr. Hudson argued this was exactly the outcome U.S.
creditors and competitors feared if the United States was made to fully
suffer the consequences of its profligacy. The political and economic
costs of challenging an international monetary system increasingly based
upon unpayable U.S. dollar-denominated debt were just too great.



At stake for everyone, world-wide, was a social order controlled by people
who already had more money than they could possibly spend or for whom
earning ever more money is just a way of 'keeping score'. The goal was not
the creation of real, needed wealth or even jobs for those who didn't have
money. It no longer functioned to promote the creation of needed wealth but
simply to preserve itself. The children of America's Robber Barons had
turned their wealth over to Wall Street and its bankers. Like the latter,
they were now fully committed to a form of capitalism where money was earned
by creating more debt - not wealth. Add the 'debt bombs', the "financial
weapons of mass destruction" being created by financiers and bankers to the
exponentially growing claims of conservatively invested 'old money', money
growing at compounded rates of interest, and maintaining the confusion
between wealth and debt (i.e. money) becomes an impossibility in a finite
world.



But until 2008, instead of education and jobs for its children, affordable
healthcare, an economic infrastructure to support a sustainable level of
resource consumption or renewable sources of energy to power its economy,
the Western middle class had been led to believe its prosperity rests upon
finding foreign buyers for the increasing levels of debt being created by
bankers and governments. To the extent their circumstances permit, other
industrial democracies have been emulating the U.S., paying for both
prosperity and social peace with debt. It is this debt that is being used
to pay for the products once made by their own workers; products the
populations of Western nations will need to survive but soon will no longer
be capable of producing. Western labor is being replaced by workers who
can be paid with less than nothing, with debt.



In a culture where the people have been taught that life is governed by the
laws of finance, all that matters are activities which lead to the
accumulation of ever-more money. The creation of real, needed wealth
becomes a risky, time-consuming obstacle to the fastest possible
accumulation of money. Rather than challenge a status quo under which they
are told that anything good for Wall Street - anything that increases the
monetary value of their stock portfolios - is good for them as well, in a
money-obsessed culture they become increasingly willing to participate in
activities that are antithetical to their survival. They accept, for
example, the fallacy that 'war is good for the economy'. To be fair, they
do this at least in part out of necessity in a culture where access to some
form of money is a prerequisite for survival.

Super Imperialism

Reserve currency status is a landmark event in the transition of a nation
from wealth creation to debt creation. The value of reserve currency
privileges has been understood by US bankers for a long time. Listen to
Thomas Lamont describe the considerations that should guide the national
interest two years before the U.S. entry into WWI:

"A third factor, and that, too, is dependent on the duration of the war
[sic!] is as to whether we shall become lenders to the foreign nations on a
really large scale. ... If the war continues long enough ... then inevitably we
shall become a creditor instead of a debtor nation, and such a development,
sooner or later, would certainly tend to bring about the dollar, instead of
the pound sterling, as the international basis of exchange." - v



For various reasons, the receiving country will hold much of its reserve
currency in the form of debt backed by the government of the issuing
country. Much as a bank is supposed to exercise its privilege of creating
money as debt responsibly, a country with what Valery Giscard d'Estaing,
then the French Minister of Finance, described as the "exorbitant privilege"
- vi of issuing a reserve currency is expected to exercise that privilege
responsibly as well. Since the end of WWII, however, the United States,
with a preeminent reserve currency status embodied in the 1944 Bretton Woods
International Monetary System, has failed to do so.



The flood of dollars U.S. investors and statesmen sent abroad to buy up and
police the globe overwhelmed the credibility of the U.S. government
commitment in the 1944 Bretton Woods agreement to redeem those dollars for
gold on demand. From 1971 forward, the U.S. dollar would be backed by
nothing but debt, by the promise of the U.S. government to pay. The United
States would launch its "Empire of Debt" (the title of a book by Will Bonner
and Addison Wiggin both of whom have solid credentials as financial
conservatives) - and begin its transformation from the world's factory to
its 'consumer of last resort'.



Foreign leaders have been aware of this situation for decades. They didn't
need to be familiar with Dr. Hudson's work. In the early 1970s Treasury
Secretary John Connally was reputed to have told world finance ministers the
dollar was "our currency but your problem" when they complained about the
deficits the United States was rolling up.



There are a number of theories about why the US dollar remains other
countries' problem to this day. They range from a fear of the less subtle
form of imperialism practiced by the former Soviet Union to the need for
access to energy supplies located in the world's most politically unstable
regions, access which only the United States could assure. Among the more
interesting theories is one advanced by William Engdahl. Engdahl in "A
Century of War" suggests that the US succeeded in substituting the Middle
East's oil as backing for the money as debt it was still creating when it
could no longer back that money with gold - by getting Saudi Arabia and
hence OPEC to require payment for their oil in US dollars and then
depositing the dollars they didn't spend in U.S. banks or government
securities.



Proponents of this theory point to the coincidence of U.S. military action
and contemplated action against former friends or at least cooperating
nations like Iraq, Libya and now Iran. In each case war or contemplated war
was preceded by the decision of the targeted country to effectively end
accepting US dollars as payment for their oil. Iran formally announced its
decision to do so in 2008. But it left a loophole allowing countries like
China with huge US dollar reserves to use those dollars in payment for
Iranian oil. It closed that loophole in response to toughened US sanctions
President Obama signed into law December 31, 2011.

Conclusion

We have allowed financiers, bankers and their political friends to define
'wealth' for us by ceding to them the power to create money as debt and
control its distribution. For more than a century, the United States has
been buttressing a world social order based upon money created as debt.
This is a 'system' that has worked well for the Old Money accumulated from
the labor of previous generations of Americans and the despoliation of a
continent. Globalization was never about comparative national advantage.
It was about the privilege of creating money as debt and using that money to
buy up and control the world.



It is also a system that has worked well for U.S. politicians and their
friends around the world. It has allowed them to dispense wealth and favors
to their constituents, and to preserve a political status quo in the United
States - what former President Eisenhower called the "Congressional military
industrial complex" and what since 1971 has become the 'financial petro
Congressional military industrial complex' - that emerged from a
half-century of global war. It is a system whose bankruptcy - on its own
terms - has been apparent but tolerated by the entire world since 1971. But
it is a system the world can no longer afford.



The world's economy has become dangerously distorted and unbalanced by
bankers', financiers' and war peddlers' efforts to mask the international
monetary system's realities and preserve their privileges. About the only
people who don't know what is going on are 'the people' - in the United
States and around the world. According to an article published in 2007 by
General Leonid Ivashov, whose credentials include Joint chief of staff of the
Russian armies:

"Writing-off this US indebtedness to the rest of the world would turn the
majority of its population into deceived depositors. It would be the end of
the well-established rule of the golden calf. ...



The moment is drawing closer when the financial crisis will make the world
realize that all of the US assets, all of its industrial, technological, and
other potentials do not rightfully belong to the country. Then, it must be
confiscated to compensate the victims, and the rights of ownership of
everything bought for dollars all over the world - everything drawn from the
wealth of various nations - are to be revised." - vii



It is past time for a global debt jubilee in which the debt created by the
money changers and their co-conspirators in the world's governments is wiped
clean. If the world has been deceived, it has been by the hand of its own
leaders and by its own inertia. The facts have been available at least
since 1972. Humanity and the planet can afford no more Empires of Debt.
Any such aspirations by some Chinese, Russian or international elite need
to be checked by a much enhanced public understanding of money, of the
difference between wealth and debt.



i Frederick Soddy, "Wealth, Virtual Wealth And Debt", New York, E. P. Dutton
& Co., Inc. , 1933, pp. 70-71.

ii Dr. Michael Hudson, "Super Imperialism: The Origin and Fundamentals of
U.S. World Dominance", Pluto Press, Second Edition, London, 2003, p. xiv

iii click here

iv Ferdinand Lundberg, "America's 60 Families", The Vanguard Press, New
York, 1937, p. 7

v Ferdinand Lundberg, "America's 60 Families", The Vanguard Press, New York,
1937, p. 139

vi "The exorbitant privilege is a term coined in the 1960s by Valery Giscard
d'Estaing, then the French Minister of Finance."
http://en.wikipedia.org/wiki/Exorbitant_privilege

vii http://globalresearch.ca/PrintArticle.php?articleId=5309




























 

Steven Lesh is a retired software engineer with a life-long interest in economics and history and an undergraduate degree in the latter.
The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

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There is a further verbal explanation of Hudson's ... by Kevin Cox on Tuesday, Jan 31, 2012 at 3:20:33 PM