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How banks are killing the host that feeds them

A review of Michael Hudson’s book, ‘Killing the Host’.

There is a growing suspicion on the left that the anti-Zuma and anti-Dilma Rousseff campaigns in SA and Brazil are part of a calculated demolition of BRICS by the West. Killing the Host by Michael Hudson attempts to explain how the global financial system works, and it bears no resemblance to what we were taught in university.

Michael Hudson is regarded by some as the best economist in the world, though his anti-establishment views guarantee he will never win a Nobel prize. His most recent book ‘Killing the Host’ is a brutal dissection of how a ‘parasitic’ financial sector has the world in a death grip.

Hudson started out studying music and the history of culture, but an evening spent with Terence McCarthy, then an economist with General Electric, altered the course of his life. He decided to become an economist. McCarthy explained why most economic crises happen during the northern hemisphere autumn, when crops are harvested and moved to market. The logic was simple: when crops failed, the banks were drained of cash and forced to call up their loans.

The current financial system carries within it the seeds of its own inevitable destruction, says Hudson. One factor above all others guarantees economic collapse: the mathematics of compound interest. The financial system expands faster than the underlying economy, overburdening it with debt which can never be repaid. Financial ‘parasites’ in the form of banks, hedge funds and investment firms have replaced governments around the world as collectors of economic rent in the form of interest payments on loans. Central banks are co-conspirators in this grand deception, by unleashing tidal waves of money to support stock and asset prices, primarily for the benefit of the elite.

Hudson is no ivory tower professor peddling an ideological theory (a charge that could be levelled against Thomas Piketty, author of the hugely successful ‘Capital in the 21st Century’, a kind of modern day Marxist treatise). Hudson worked as a balance of payments economist with Chase Manhattan Bank in the 1960s. His first task was to forecast the balance of payments of Argentina, Brazil and Chile, so New York banks could assess how much interest these countries could afford to pay.

The aim of the lending banks was to attach the entire economic surplus of these countries for payment of debts. Governments played along with the scheme, running up massive and unsustainable debts that would ultimately be shouldered by their citizens. The world today is captive to a system of debt peonage that has been a hundred years in the making. In short, we are headed for a train wreck.

The solution, we are told, is endless austerity, cut-backs on pensions and smaller government. That would be sensible if the savings were redistributed to the citizens in the form of infrastructure investment or consumer spending, but the purpose of austerity is to ensure the banks are repaid their loans plus interest. Viewed in this light, there is no longer any credible form of national sovereignty left in the world. Governments are hostage to a parasitic financial system: Greece, Ireland, Portugal and other countries have surrendered their fiscal and budgetary policy making to unelected technocrats hand-picked from the banks.

While at Chase, Hudson developed an accounting format to analyse the balance of payments for the US oil industry. Oil companies purchased oil under flags of convenience in Liberia and Panama which allowed them to escape paying tax either in the producing or the consuming countries. The key to this ruse was what has become known as transfer pricing. Shipping companies in these tax-avoidance centres would purchase oil at low prices from Saudi Arabia or Venezuela and sell the oil at marked-up prices to the US and Europe. The profits were booked in Panama, where they paid no tax.

Hudson’s next task at Chase was to come up with a scheme to divert criminal savings going to Switzerland and other hideouts. The US State Department had asked Chase and other banks to establish Caribbean branches to attract money from drug dealers and smugglers and their kin into dollar assets, to support the dollar as US foreign military outflows escalated. The Vietnam war was raging and most of the US balance of payments deficit went to feed the war machine. Unless arrested, the dollar was in trouble, so the US government decided to capture criminal financial flows to support its currency.

Hudson came to the stark realisation that modern economic theory, particularly that relating to international trade, was nonsense. Gunboats and military spending are absent from modern economic theory. So, too, is a torchlight on the all-important ‘errors and omissions’ entry on national accounts that hides capital flight, criminal money and transfer pricing intended to avoid tax. “These elisions are needed to steer trade theory towards the perverse and destructive conclusion that any country can pay any amount of debt, simply by lowering wages enough to pay creditors.”

In 2014 the US slapped Banc Paribas with a $9 billion fine for dealing with its arch-enemy Iran, and then imposed trade and financial sanctions on Russia for reclaiming Crimea from the rump of Ukraine after the US engineered an anti-democratic coup in that country.

Hudson argues that the BRICS countries are being targeted by the West. Why? Because BRICS intends to transact trade and investment in their own currencies as well as the US dollar, insulating them from dependency on Wall Street. Venezeula, a long-time adversary of US imperial ambitions, is also curiously in the throes of political turmoil.

Reading ‘Killing the Host’, these political developments seem a little less random than most South Africans suppose. Indeed, it challenges the economic suppositions on which we have been nurtured for decades. Hudson shows that economic crises are created events that provide the financial conquerors an opportunity to rape and pillage their victims.

This is a must-read for anyone seeking to understand the financial insanity that has sucked the oxygen out of our industries and left ordinary workers worse off than they were 30 or 40 years ago.

 

 

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We can’t handle the truth. Where is my safe space?
Great article!

When the USA defaulted on it’s debt in 1971, in an event known as the “Nixon Shock”, it went off the gold standard and unilaterally cancelled the Bretton Woods Agreement.
Since then, a dollar is nothing but a cheque as payment, without any funds in the bank. This is called a “Fiat currency” or money by decree. This implies that the dollar only has value because it is “backed” by the US Army. The US needs to ensure that all commodities are traded in dollars to create a demand for the dollar and for US treasuries.

Under this system we will see ongoing sanctions firstly, and if it does not have the required effect, wars to enforce the use of the dollar as means of exchange in the trade of commodities. All countries that export commodities are exposed to this threat and for countries that intend to trade commodities in Yuan, Gold, Yen or Euro, political instability, violent protests, a destabilized government and eventually war is imminent.

America is your friend for as long as you lend them money by using the US Dollar, the moment you start using another currency, you become their enemy.

Agree with the comment. However, wish to suggest that not all concerning surplus economies (such as the USA has been or still is) is problematic in all aspects. When Zimbabwe or Somalia needs food or food aid, is it not the surplus economies that provide it? Who else can feed them?

One trait of Ponzi scheme perpetrators, they always latch onto one or other emotional community cause. The passport to being a “good guy” and for all to see.

It is an interesting point you make.
Take Zim for instance – by using the US Dollar they are in fact creating a demand for dollars printed by America. That demand allows America to increase the money supply while keeping interest rates relatively low to favor American farmers in this case, who in turn can produce a surplus because of the low cost of capital. This surplus is then dumped in Zim as “food aid” and thereby destroys Zimbabwean agriculture, creating a permanent market for “food aid”.
We se this scenario repeat itself all over Africa, locally with imports of chicken.

What it comes down to is- countries that use the dollar as reserve currency are in fact lending money at low rates to American businesses to create surplus produce to compete with the country that used the dollar.
The superiority of the USA is not due to the fact that they are more hard-working, better entrepreneurs or better educated that the rest of the world, but simply due to the fact that the rest of the world lends them a never-ending stream of money at cheap rates.

This is the reason why the US will use their military might to enforce the use of the dollar in international trade.

Isn’t it amazing that the US is ”swopping or trading ” all their ”Fiat Currency” or ”junk money” for all the trading products in the world (record trade deficits)in the world that wants to trade with them.

The West and the East are exporting all their prime products to the US, and the US is selling them any ”junk” in return for payment!

This can only be done if you are the leader in the world !

One thing that has always bothered me is that we read about the miracle of compound interest and it being the 8th ‘wonder’ of the world. But the same ‘wonder’ applies to inflation and unserviced debt.

“One factor above all others guarantees economic collapse: the mathematics of compound interest.”

People may spin and colour the truth, but mathematics does not lie. Countries that have experienced even relatively brief periods of hyperinflation, such as Brazil and Israel several years ago took three zeroes off their currency after experiencing this.

I tend to be very negative on conspiracy theory, but believe that this article gives some profound insights. Among these are the questions – Is the high level of world monetarised debt sustainable? If some think yes, how about for countries that have already borrowed too much of other people’s currency?

The conspiracy theory documentary ” Zeitgeist ” came out in 2007 and highlighted this exact scenario to the letter. Its fairly obvious that if you borrow money and can only pay back the initial sum , that you will be indebt forever due to interest. WE all know this , but the system does not allow for any other way.

http://www.zeitgeistmovie.com/

Well he is a clevva boy

No solutions though……………………other than an implication to simply not repay the debt.

Nothing really new here. The establishment’s defence is, of course, not to argue the point but to call people names (the favourite is “conspiracy theorist”).

Of course, the issue is that we all become beholden to the banks as we as society owe money that does not exist and more can only be created by an act of borrowing. Compound interest? more like compound debt, I say.

I for one, don’t blame the banks but the banking system. The banks will also be casualties when the economy grinds to a halt and there is massive “de-leveraging” a euphemism for the grand debt pyramid collapsing. Many banks will go under.

When one cuts to the chase the real issue is irredeemable debt – a form of slavery -hence the deflationary collapse we are witnessing. They squeeze, we wheeze.

The system as it is now is designed that they own the assets by issuing debt money and society shoulders the crushing debt burden.

The solution is simple- remonetise gold. Gold is the only form of money that is nobody’s liability thus the debt can be repaid even when the money supply is expanding. The solution does not lie with Keynesian or Monetarist mumbo jumbo but new Austrian Economics (Fekete, Menger, Hayek).

Educate yourselves.

I agree with going back to the gold standard. One should not be able to lend something that does not exist. Banks deal with promises and make massive mark-ups on them. Tightening the rules on leveraging allowed by banks would also help. Citizens (via their governments’ treasuries) are required to live by and are judged by their ability to keep to a national budget i.e. don’t spend what you cannot afford. Yet banks are allowed to lend not only what they have but what they expect to have in the future. The problem is who will put up their hand and say “let’s go back to the gold standard”. Certainly not the parasites and their co-conspirators, governments. A headless monster running on its own momentum.

The world today is captive to a system of debt peonage that has been a hundred years in the making. In short, we are headed for a train wreck.

Interesting. All comments till now point to people who exactly know what is going on in the world of high finance.

It sounds like all that’s wrong is that politicians are selling out their constituencies and getting them into debt. While capitalists are playing them off against each other to avoid playing tax.

Who wouldn’t have expected that?

Everything is as it should be. Sheople get who they vote for and dodgy tax extractors get outmaneuvered.

BRICS countries are being targeted by the West…. what utter hogwash. South Africa is run by a corrupt one party cartel that has no interest in fostering an economic system that will create wealth for its citizens. It is far easier to steal from them and then blame ‘white monopoly capital’ when things go from bad to worse.

As to external factors BRICS members Russia and South Africa are both hugely reliant on commodities for their income and they have suffered severely due to the crash in the oil price. Russia relies heavily on oil and gas, as any fule kno.

As for Venezuela, they basically runs their entire economy on oil. Ironically, we have also felt the sting of fellow BRICS partner China flooding the world with cheap steel. It has also cut back on buying commodities like copper, iron ore, aluminium etc due to its own economic woes.

I suppose ‘the banks’ are manipulating the price of oil? Or is it simply that there is a glut of supply combined with reduced demand and the price has dropped accordingly. Simple economics 101. No conspiracy needed!

Not really. You cannot divorce the price of commodities (and gold!) from the strength of the US$. The commodities boom (misdirection of investment) was a response to the deliberate weakening of the US$. Now the deflationary collapse continues and the dollar strengthens.

It’s all linked to the destabilisation of the interest rate structure used by central banks.

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