Tag Archives: Banks

Putting an End to the Rent Economy

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By Michael Hudson and Vlado Plaga

Source: Unz Review

Interview with Vlado Plaga in the German magazine FAIRCONOMY, September 2017.

Originally, you didn’t want to become an economist. How did it come that you changed your plans and digged so deep into economics?

I found economics aesthetic, as beautiful as astronomy. I came to New York expecting to become an orchestra conductor, but I met one of the leading Wall Street economists, who convinced me that economics and finance was beautiful.

I was intrigued by the concept of compound interest and by the autumnal drain of money from the banking system to move the crops at harvest time. That is when most crashes occurred. The flow of funds was the key.

I saw that these economic cycles were mainly financial: the build-up of debt and its cancellation or wipe-out and bankruptcy occurring again and again throughout history. I wanted to study the rise and fall of financial economies.

But when you studied at the New York University you were not taught the things that really interested you, were you?

I got a PhD as a union card. In order to work on Wall Street, I needed a PhD. But what I found in the textbooks was the opposite of everything that I experienced on Wall Street in the real world. Academic textbooks describe a parallel universe. When I tried to be helpful and pointed out to my professors that the textbooks had little to do with how the economy and Wall Street actually work, that did not help me get good grades. I think I got a C+ in money and banking.

So I scraped by, got a PhD and lived happily ever after in the real world.

So you had to find out on your own… Your first job was at the Savings Banks Trust Company, a trust established by the 127 savings banks that still existed in New York in the 1960s. And you somehow hit the bull’s eye and were set on the right track, right from the start: you’ve been exploring the relationship between money and land. You had an interesting job there. What was it?

Savings banks were much like Germany’s Landesbanks. They take local deposits and lend them out to home buyers. Savings and Loan Associations (S&Ls) did the same thing. They were restricted to lending to real estate, not personal loans or for corporate business loans. (Today, they have all been turned into commercial banks.)

I noticed two dynamics. One is that savings grew exponentially, almost entirely by depositors getting dividends every 3 months. So every three months I found a sudden jump in savings. This savings growth consisted mainly of the interest that accrued. So there was an exponential growth of savings simply by inertia.

The second dynamic was that all this exponential growth in savings was recycled into the real estate market. What has pushed up housing prices in the US is the availability of mortgage credit. In charting the growth of mortgage lending and savings in New York State, I found a recycling of savings into mortgages. That meant an exponential growth in savings to lend to buyers of real estate. So the cause of rising real estate prices wasn’t population or infrastructure. It was simply that properties are worth whatever banks are able and willing to lend against them.

As the banks have more and more money, they have lowered their lending standards.

It’s kind of automatic, it’s just a mathematical law…

Yes, a mathematical law that is independent of the economy. In other words, savings grow whether or not the economy is growing. The interest paid to bondholders, savers and other creditors continues to accrue. That turns out to be the key to understanding why today’s economy is polarizing between creditors and debtors.

You wrote in “Killing the Host” that your graphs looked like Hokusai’s “Great Wave off Konagawa” or even more like a cardiogram. Why?

Any rate of interest has a doubling time. One way or another any interest-bearing debt grows and grows. It usually grows whenever interest is paid. That’s why it looks like a cardiogram: Every three months there’s a jump. So it’s like the Hokusai wave with a zigzag to reflect the timing of interest payments every three months.

The exponential growth of finance capital and interest-bearing debt grows much faster then the rest oft he economy, which tends to taper off in an S-curve. That’s what causes the business cycle to turn down. It’s not really a cycle, it’s more like a slow buildup like a wave and then a sudden vertical crash downward.

This has been going on for a century. Repeated financial waves build up until the economy becomes so top-heavy with debt that it crashes. A crash used to occur every 11 years in the 19th century. But in the United States from 1945 to 2008, the exponential upswing was kept artificially long by creating more and more debt financing. So the crash was postponed until 2008.

Most crashes since the 19th century had a silver lining: They wiped out the bad debts. But this time the debts were left in place, leading to a massive wave of foreclosures. We are now suffering from debt deflation. Instead of a recovery, there’s just a flat line for 99% of the economy.

The only layer of the economy that is growing is the wealthiest 5% layer – mainly the Finance, Insurance and Real Estate (FIRE) sector. That is, creditors living of interest and economic rent: monopoly rent, land rent and financial interest. The rest of the economy is slowly but steadily shrinking.

And the compound interest that was accumulated was issued by the banks as new mortgages. Isn’t this only logical for the banks to do?

Savings banks and S&Ls were only allowed to lend for mortgages. Commercial banks now look for the largest parts of the economy as their customers. Despite the fact that most economic textbooks describe industry and manufacturing as being the main part of economy, real estate actually is the largest sector. So most bank lending is against real estate and, after that, oil, gas and mining.

That explains why the banking and financial interests have become the main lobbyists urging that real estate, mining and oil and gas be untaxed – so that there’ll be more economic rent left to pay the banks. Most land rent and natural resource rent is paid out as interest to the banks instead of as taxes to the government.

So instead of housing becoming cheaper and cheaper it turns out to be much less affordable in our days than in the 1960s?

Credit creation has inflated asset prices. The resulting asset-price inflation is the distinguishing financial feature of our time. In a race tot he bottom, banks have steadily lowered the terms on which they make loans. This has made the economy more risky.

In the 1960s, banks required a 25-30% down payment by the buyer, and limited the burden of mortgage debt service to only 25% of the borrower’s income. But interest is now federally guaranteed up to 43% of the home buyer’s income. And by 2008, banks were making loans no down payment at all. Finally, loans in the 1960s were self-amortizing over 30 years. Today we have interest-only loans that are never paid off.

So banks loan much more of the property’s market price. That is why most of the rental value of land isn’t paid to the homeowner or commercial landlord any more. It’s paid to the banks as interest.

Was this the reason for the savings and loan crisis that hit the US in 1986 and that was responsible for the failure of 1,043 out of the 3,234 savings and loan associations in the United States from 1986 to 1995?

The problem with the savings and loan crisis was mainly fraud! The large California S&L’s were run by crooks, topped by Charles Keating. Many were prosecuted for fraud and sent to jail. By the 1980s the financial sector as a whole had become basically a criminalized sector. My colleague Bill Black has documented most of that. He was a prosecutor of the S&L frauds in the 1980s, and wrote a book “The best way to rob a bank is to own one”.

That’s a famous quotation, I also heard that.

Fraud was the main financial problem, and remains so.

Since 2007 Americans were strangled by their mortgages in the sub-prime crisis…

These were essentially junk mortgages, and once again it was fraud. Already in 2004 the FBI said that the American economy was suffering the worst wave of bank fraud in history. Yet there was no prosecution. Essentially in the United States today, financial fraud is de-criminalized. No banker has been sent to jail, despite banks paying hundreds of billions of dollars of fines for financial fraud. These fines are a small portion of what they took illegally. Such payments are merely a cost of doing business. The English language was expanded to recognize junk loans. Before the financial crash the popular press was using the word “junk mortgages” and “Ninjas”: “No Income, No Jobs, no Assets”. So everybody knew that there was fraud, and the bankers knew they would not go to jail, because Wall Street had become the main campaign contributor to the leading politicians, especially in the Democratic party. The Obama Administration came in basically as representatives of the bank fraudsters. And the fraud continues today. The crooks have taken over the banking system. It is hard for Europeans to realize that that this really has happened in America. The banks have turned into gangsters, which is why already in the 1930s President Roosevelt coined the word “banksters”.

I also heard the nice English sayings “Too big to fail” or “Too big to jail”…
But what has become of those 10 million households that ended up losing their homes to foreclosure? How are their economic and living conditions today? What has become of their houses? The economy has recovered…

Most of the houses that were foreclosed on have been bought out by hedge funds for all cash. In the wake of 2008, by 2009 and 2010 hedge funds were saying “If you have $5,000,000 to invest, we’re going to buy these houses that are being sold at distress prices. We’re going to buy foreclosed properties for all cash, because we can make a larger rate of return simply by renting them out.” So there has been a transfer of property from homeowners to the financial sector. The rate of home-ownership in America is dropping.

The economy itself has not recovered. All economic growth since 2008 has accrued only to the top 5% of the economy. 95% of the economy has been shrinking by about 3% per year… and continues to shrink, because the debts were kept in place. President Obama saved the banks and Wall Street instead of saving the economy.

That’s why we live in an “age of deception” as the sub-title of your latest book suggests, I guess?

“People have the idea that when house prices go up, somehow everybody’s getting richer. And it’s true that the entry to the middle class for the last hundred years has been to be able to own your own home…”

What is deceptive is the fact that attention is distracted away from how the real world works, and how unfair it is. Economics textbooks teach that the economy is in equilibrium and is balanced. But every economy in the world is polarizing between creditors and debtors. Wealth is being sucked up to the top of the economic pyramid mainly by bondholders and bankers. The textbooks act as if the economy operates on barter. Nobel prices for Paul Samuelson and his followers treat the economy as what they call the “real economy,” which is a fictitious economy that in theory would work without money or debt. But that isn’t the real economy at all. It is a parallel universe. So the textbooks talk about a parallel universe that might exist logically, but has very little to do with how the real economy works in today’s world.

If you had a picture you’d see me nodding all the time, because that’s what I also found out: if you look at the mathematics, it is polarizing all the time, it is de-stabilizing. Without government interference we’d have crash after crash… It is not under control anymore.

But you also suggest that there’s another factor that makes housing prices go up – and that’s property tax cuts. Why?

“Taxes were shifted off the Donald Trumps of the world and onto homeowners….”

Whatever the tax collector relinquishes leaves more rental income available to be paid to the banks. Commercial real estate investors have a motto: “Rent is for paying interest.” When buyers bid for an office building or a house, the buyer who wins is the one who is able to get the largest bank loan. And that person is the one who pays all the rent to the bank. The reason why commercial investors were willing to do this for so many decades is that they wanted to get the capital gain – which really was the inflation of real estate prices as a result of easier credit. But now that the economy is “loan up,” prospects for further capital gains are gone. So the prices are not rising much anymore. There is no reason to be borrowing. So the system is imploding.

So, how could we change the situation and make land a public utility?

There are two ways to do this. One way is to fully tax the land’s rental value. Public investment in infrastructure – roads, schools, parks, water and sewer systems – make a location more desirable. A subway line, like the Jubilee tube line in London, increases real estate prices all along the line. The resulting rise in rents increases prices for housing. This rental value could be taxed back by the community to pay for this infrastructure. Roads and subways, water and sewer systems could be financed by re-capturing the rental value of the land that this public investment creates. But that is not done. A free lunch is left in private hands.

The alternative is direct public ownership of the land, which would be leased out to whatever is deemed to be most socially desirable, keeping down the rental cost. In New York City, for instance, restaurants and small businesses are being forced out. They’re closing down because of the rising rents. The character of the economy is changing. It is getting rid of the bookstores, restaurants and low-profit enterprises. Either there should be a land tax, or public ownership of the land. Those are the alternatives. If you tax away the land’s rent, it would not be available to be paid to the banks. You could afford to cut taxes on labor. You could cut the income tax, and you could cut taxes on consumption. That would reduce the cost of living.

To me that’s pretty close to the position of Georgists on how to handle land, isn’t it?

I don’t like to mention Henry George, because he didn’t have a theory of land rent or of the role of the financial sector and debt creation. The idea of land tax came originally from the Physiocrats in France, François Quesnay, and then from Adam Smith, John Stuart Mill, and in America from Thorstein Veblen and Simon Patten. All of these economists clarified the analysis of land rent, who ended up with it, and how it should be taxed. In order to have a theory of how much land rent there is to tax, you need a value and price theory. Henry George’s value theory was quite confused. Worst of all, he spent the last two decades of his life fighting against socialists and labor reformers. He was an irascible journalist, not an economist.

The classical economists wrote everything you need to know about land rent and tax policy. That was the emphasis of Adam Smith, John Stuart Mill… all the classical economists. The purpose of their value and price theory was to isolate that part of the economy’s income that was unearned: economic rent, land rent, monopoly rent, and financial interest. I think it is necessary to put the discussion of tax policy and rent policy back in this classical economic context. Henry George was not part of that. He was simply a right-wing journalist whom libertarians use to promote neoliberal Thatcherite deregulation and anti-government ideology. In Germany, his followers were among the first to support the Nazi Party already in the early 1920s, for instance, Adolf Damaschke. Anti-Semitism also marked George’s leading American followers in the 1930s and ‚40s.

So I guess I have to go back a bit further in history, to read the original Physiocrats as well…

John Stuart Mill is good, Simon Patten is good, Thorstein Veblen is wonderful. Veblen was writing about the financialization of real estate in the 1920s in his Absentee Ownership. I recently edited a volume on him: Absentee Ownership and its Discontents (ISLET, Dresden, 2016).

Germany’s land tax reform seems to go in the wrong direction. Germany has to establish new rules for it’s “Grundsteuer” that in fact is a mingled tax on land and the buildings standing on it, based on outdated rateable values of 1964 (in the West) and 1935 (in the East). The current reform proposals of the federal states will maintain this improper mingling and intend a revenue neutral reform of this already very low tax. It brings about 11 billion Euro to the municipal authorities, but this is only 2% of the total German tax revenue, whereas wage tax and sales tax make up for 25% each. We need a complete tax shift, don’t we?

Germany is indeed suffering from rising housing prices. I think there are a number of reasons for this. One is that Germans have not had a real estate bubble like what occurred in the US or England. They did lose money in the stock market, and many decided simply to put their money in their own property. There is also a lot of foreign money coming into Germany to buy property, especially in Berlin.

The only way to keep housing prices down is to tax away the rise in the land value. If this is done, speculators are not going to buy. Only homeowners or commercial users will buy for themselves. You don’t want speculators or bank credit to push up prices. If Germany lets its housing prices rise, it is going to price its labor out of the market. It would lose its competitive advantage, because the largest expense in every wage-earner’s budget is the cost of housing. In Ricardo’s era it was food; today it is housing. So Germany should focus on how to keep its housing prices low.

I’d like to come back to the issue of interest once more. The English title of “Der Sektor” is “Killing the host – How Financial Parasites and Debt Bondage Destroy the Global Economy”. It’s much more coming to the point. It struck me that you mention John Brown. He wrote a book called “Parasitic wealth or Money Reform” in 1898. I came across his book some years ago and thought that he was somehow America’s Helmut Creutz of the 19th century. He was a supporter of Henry George, but in addition John Brown analyzed and criticized the interest money system and its redistribution of wealth. He said that labour is robbed of 33% of its earnings by the parasitic wealth with subtle and insidious methods, so that it’s not even suspected. Why does almost nobody know this John Brown?

John Brown’s book is interesting. It is somewhat like that of his contemporary Michael Flürscheim. Brown’s book was published by Charles Kerr, a Chicago cooperative that also published Marx’s Capital. So Brown was a part of the group of American reformers who became increasingly became Marxist in the 19th and early 20thcentury. Most of the books published by Kerr discussed finance and the exponential growth of debt.

The economist who wrote most clearly about how debt grew by its own mathematics was Marx in Vol. III of Capital and his Theories of Surplus Value . Most of these monetary writers were associated with Marxists and focused on the tendency of debt and finance to grow exponentially by purely mathematical laws, independently of the economy, not simply as a by-product of the economy as mainstream economics pretends.

So you recommend reading his book?

Sure, it is a good book, although only on one topic. Also good is Michael Flürscheim’s Clue to the Economic Labyrinth (1902). So is Vol. III of Capital.

Brown’s plan of reforms included the nationalization of banks and the establishment of a bank service charge in lieu of interest. The latter sounds remarkably up-to-date. In Germany the banks are raising charges because of the decrease in their interest margins. How is your view on the matter of declining interest rates?

Well, today declining interest rates are the aim of central bank Quantitative Easing. It hasn’t helped. The most important question to ask is: what are you going to make your loans for? Most lending at these declining interest rates has been parasitic and predatory. There’s a lot of corporate take-over lending to companies that borrow to buy other companies. There is an enormous amount of stock market credit that has helped bid up stock prices with low-interest credit and arbitrage. This has inflated asset prices for stocks, bonds and real estate. If the result of low interest rates is simply to inflate asset prices, the only way this can work is to have a heavy tax on capital gains, that is asset price gains. But in the US, England, and other countries there are very low taxes on capital gains, and so low interest rates simply make housing more expensive, and make stocks and buying a flow retirement income (in the form of stocks or bonds that yield dividends and interest) much more expensive.

I guess Brown is getting to the positive aspects of low interest also.

What Brown was talking about were the problems of finance. In the final analysis there is only one ultimate solution: to write down the debts. Nobody really wants to talk about debt cancellation, because they try to find a way to save the system. But it can’t be fixed so that debts can keep growing at compound rates ad infinitum. Any financial system tends to end in a crash. So the key question is how a society is NOT going not to pay debts that go bad. Will it let creditors foreclose, as has occurred in the US? Or are you going to write down the debts and wipe out this overgrowth of creditor claims? That’s the ultimate policy that every society has to face.

Very topical, the German Bundesbank sees the combination of low interest rates and a booming housing market as a dangerous cocktail for the banking sector. “The traffic lights have jumped to yellow or even to dark yellow”, Andreas Dombret said, after the Bundesbank had denied the problem in the last years by dismissing it as Germany’s legitimate catch-up effects. The residential property prices have gone up by 30% since 2010, in the major cities even by more than 60%. The share of real estate loans in the total credit portfolio is significantly rising. The mortgage loans of the households have increased in absolute terms as well as relative to their income. It’s only due to the low interest rates that the debt service has not increased yet. But the banks and savings companies are taking on the risk: the mortgages with terms of more than ten years have risen to more than 40% of the residential real estate loans. The interest-change risks lie with the banks. Don’t we have to face up to the truth that interest rates shouldn’t go up again?

What should be raised are taxes on the land, natural resource rent and monopoly rent. The aim should be to keep housing prices low instead of speculation. Land rent should serve as the tax base, as the classical economists said it should. Adam Smith, John Stuart Mill… all urged that the basis of the tax system should be real-estate and natural resource rent, not income taxes (which add to the cost of labor), the cost of labor and not value-added taxes (which increase consumer prices). So tax policy and debt write-downs today are basically the key to economic survival.

Banking should be a public utility. If you leave banking in the present hands, you’re leaving it in the hands of the kind of crooks that brought about the financial crisis of 2008.

Couldn’t the subprime-crisis have been prevented if the Fed had introduced negative interest rates in the 1990s?

No. The reason there was the crash was fraud and speculation. It was junk mortgages and the financialization of the economy. Pension funds and people’s savings were turned over to the financial sector, whose policy is short-term. It seeks gains mainly by speculation and asset price inflation. So the problem is the financial system. I think the Boeckler foundation has annual meetings in Berlin that focus on financialization and explain what the problem is.

Yes, that’s a big topic. The financial sector is interested, as you said, in short-term gains, but people who want to save for their retirement are interested in long-term stability – that is contradictory. Do you know the “Natural Economic Order by Free Land and Free Money” by Silvio Gesell?

It is not practical for today’s world, it is very abstract. The solution to the financial problem really has to be ultimately a debt write-down, and a shift to the tax system, as the classical economists talked about.

Gesell was also advocating the taxing of land. I think he had something in mind with bidding for the land, letting the market fix the prices.

He did not go beneath the surface to ask what kind of market do you want. Today, the market for real estate is a financialized market. As I said, the basic principle is that most rent is paid out as interest. The value of real estate is whatever a bank will lend against it. Unless you have a theory of finance and the overall economy, you really don’t have a theory of the market.

You are advocating a revival of classical economics. What did the classical economists understand by a free economy?

They all defined a free economy as one that is free from land rent, free from unearned income. Many also said that a free economy had to be free from private banking. They advocated full taxation of economic rent. Today’s idea of free market economics is the diametric opposite. In an Orwellian doublethink language, a free market now means an economy free for rent extractors, free for predators to make money, and essentially free for financial and corporate crime. The Obama Administration de-criminalized fraud. This has attracted the biggest criminals – and the wealthiest families – to the banking sector, because that’s where the money is. Crooks want to rob banks, and the best way to rob a bank is to own one. So criminals become bankers. You can look at Iceland, at HSBC, or at Citibank and Wells-Fargo in the news today. Their repeated lawbreaking and criminal activities have been shown to be endemic in the US. But nobody goes to jail. You can steal as much money as you want, and you’ll never go to jail if you’re a banker and pay off the political parties with campaign contribution. It’s much like drug dealers paying off crooked police forces. So crime is pouring into the financial system.

I think this is what’s going to cause a return to classical economics – the realization that you need government banks. Of course, government banks also can be corrupted, so you need some kind of checks and balances. What you need is an honest legal system. If you don’t have a legal system that throws crooks in jail, your economy is going to be transformed into something unpleasant. That’s what is happening today. I think that most Europeans don’t want to acknowledge that that’s what happened in America (USA). There is such an admiration of America that there is a hesitancy to see that it has been taken over by financial predators (a.k.a. “the market”).

We always hear that oligarchies are in the east, in Russia, but hardly anyone is calling America an oligarchy… although alternative media says that it’s just a few families that rule the country.

Yes.

 

Michael Hudson is the author of Killing the Host (published in e-format by CounterPunch Books and in print by Islet). His new book is J is For Junk Economics. He can be reached at mh@michael-hudson.com

 

Reimagining Money

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What if markets were designed to build trust instead of wealth?

By Douglas Rushkoff

(The Atlantic)

Bitcoin was conceived as a modern solution to an ages-old problem: How can two parties agree on and verify an exchange of value? In this sense, Bitcoin is an effective technology, in that it trains the massive processing power of distributed personal computers on the same situation that paper currency was built to resolve. But in important ways, Bitcoin transposes some of the shortcomings of traditional currency onto the digital realm. It ignores a whole host of questions about the potential to reimagine what money can be designed to emphasize: What sorts of money will encourage admirable human behavior? What sorts of money systems will encourage trust, reenergize local commerce, favor peer-to-peer value exchange, and transcend the growth requirement? In short, how can money be less an extractor of value and more a utility for its exchange?Around the world, people have proposed experimental, tentative answers to these questions. What follows are three ways that people have toyed with rearranging the priorities of transactions—all of which would encourage a radical reimagination of what money is and can do.

The simplest approach to limiting the delocalizing, extractive power of central currency is for communities to adopt their own local currencies, pegged or tied in some way to a central currency. One of the first and most successful contemporary efforts is the Massachusetts BerkShare, which was developed to help keep money from flowing out of the Berkshire region.

One hundred BerkShares cost $95 and are available at local banks throughout the region. Participating local merchants then accept them as if they were dollars—offering their customers what amounts to a 5-percent discount for using the local money. Although it amounts to selling goods at a perpetual discount, merchants can in turn spend their local currency at other local businesses and receive the same discounted rate. Nonlocals and tourists purchase goods with dollars at full price, and those who bother to purchase items with BerkShares presumably leave town with a bit of unspent local money in their pockets.

The 5-percent local discount may seem like a huge disadvantage to take on—but only if businesses think of themselves as competing individuals. In the long term, the discount is more than compensated for by the fact that BerkShares can circulate only locally. They remain in the region and come back to the same stores again and again. Even if nonlocal stores, such as Walmart, agree to accept the local currency, they can’t deliver it up to their shareholders or trap it in static savings. The best Walmart can do is use it to pay their local workers or purchase supplies and services from local merchants.

* * *

Unlike local discount currencies, cooperative community currencies don’t need to be pegged to the dollar at all. They are not purchased into existence but are worked into circulation. They are best thought of less like money than like exchanges.

The simplest form of cooperative currency is a favor bank, such as those founded in Greece and other parts of southern Europe during the Euro crisis. Incapable of finding work or sourcing Euros, people in many places lost the ability to transact. Even though a majority of what they needed could be produced locally, they had no cash with which to trade. So they built simple, secure trading websites—mini-eBays—where people offered their goods and services to others in return for the goods and services they needed. The sites did not record value amounts so much as keep general track of who was providing what to the community and coordinate fair exchanges. This casual, transparent solution works particularly well in a community where people already know one another and freeloaders can be pressured to contribute.

Larger communities have been using “time dollars,” a currency system that keeps track of how many hours people contribute to one another. Again, a simple exchange is set up on a website, where people list what they need and what they can contribute. The bigger and more anonymous a community, the more security and verification is required. Luckily, dozens of startups and nonprofit organizations have been developing apps and website kits via which local or even nonlocal communities can establish and run their own currencies.

Time exchanges tend to work best when everybody values their time the same way or is providing the same service. Time dollars are extremely egalitarian, valuing each person’s time the same as anyone else’s. An “hour” is worth one hour of work, whether it is performed by a plumber or a psychotherapist.

The Japanese recession gave rise to one of the most successful time exchanges yet, called Fureai Kippu, or “Caring Relationship Tickets.” People no longer had enough cash to pay for their parents’ or grandparents’ health-care services—but because they had moved far away from home to find jobs, they couldn’t take care of their relatives themselves either. The Fureai Kippu exchange gave people the ability to bank hours of eldercare by taking care of old people in their communities, which they could then spend to get care for their own relatives far away. So one person might provide an hour of bathing services for an elder in her neighborhood in return for someone preparing meals for her grandfather who lives in another city. As the Caring Relationship Tickets became accepted things of value, people began using them for a variety of services.

Although a person can do a bunch of work in order to bank enough hours to get a whole bunch of services, most time exchanges put a limit on how many hours members can accumulate. They also put a limit on how many hours a person can owe. This way a freeloader can be removed from the system, and the entire community can absorb the cost of the unearned hours pretty easily.

* * *

How might traditional banks participate effectively in the financial rehabilitation of the communities they serve? Here’s just one possibility:

Sam’s Pizzeria is thriving as a local business, and Sam needs $200,000 to expand the dining room and build a second restroom. Normally, the bank would evaluate his business and credit and then either reject his loan request or give him the money at around 8 percent interest. The risk is that he won’t get enough new business to fill the new space, won’t be able to pay back the loan, and will go out of business. Indeed, part of the cost of the loan is that speculative risk.

In another approach, the banker could make Sam a different offer. The bank could agree to put up $100,000 toward the expansion project at 8 percent if Sam is able to raise the other $100,000 from his community in the form of market money: Sam is to sell digital coupons for $120 worth of pizza at the expanded restaurant at a cost of $100 per coupon. The bank can supply the software and administrate the escrow. If Sam can’t raise the money, then it proves the community wasn’t ready, and the bank can return everyone’s money.

If he does raise the money, then the bank has gained the security of a terrific community buy-in. Sam got his money more cheaply than if he borrowed the whole sum from the bank, because he can pay back the interest in retail-priced pizza. The community lenders have earned a fast 20 percent on their money—far more than they could earn in a bank or mutual fund. And it’s an investment that pays all sorts of other dividends: a more thriving downtown, more customers for other local businesses, better real-estate values, a higher tax base, better public schools, and so on. These are benefits one can’t see when buying stocks or abstract derivatives. Meanwhile, all the local “investors” now have a stake in the restaurant’s staying open at least long enough for them to cash in all their coupons. That’s good motivation to publicize it, take friends out to eat there, and contribute to its success.

For its part, the bank has diversified its range of services, bet on the possibility that community currencies will gain traction, and demonstrated a willingness to do something other than extract value from a community. The bank becomes a community partner, helping a local region invest in itself. The approach also provides the bank with a great hedge against continued deflation, hyperinflation, or growing consumer dissatisfaction with Wall Street and centrally issued money. If capital lending continues to contract as a business sector, the bank has already positioned itself to function as more of a service company—providing the authentication and financial expertise small businesses still need to thrive.

The bank transforms itself from an agent of debt to a catalyst for distribution and circulation. Like money in a digital age, it becomes less a thing of value in itself than a way of fostering the value creation and exchange of others.

This article has been adapted from Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity.

Slowly, Then All at Once

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By James Howard Kunstler

Source: Clusterfuck Nation

The staggering incoherence of the election campaign only mirrors the shocking incapacity of the American public, from top to bottom, to process the tendings of our time. The chief tending is permanent worldwide economic contraction. Having hit the resource wall, especially of affordable oil, the global techno-industrial economy has sucked a valve in its engine.

For sure there are ways for human beings to inhabit this planet, perhaps in a civilized mode, but not at the gigantic scale of the current economic regime. The fate of this order has nothing to do with our wishes or preferences. It’s going down whether we like it or not because it was such a violent anomaly in world history and the salient question is: how do we manage our journey to a new disposition of things. Neither Trump or Clinton show that they have a clue about the situation.

The quandary I describe is often labeled the end of growth. The semantic impact of this phrase tends to paralyze even well-educated minds, most particularly the eminent econ professors, the Yale lawyers-turned-politicos, the Wall Street Journal editors, the corporate poobahs of the “C-Suites,” the hedge fund maverick-geniuses, and the bureaucratic errand boys (and girls) of Washington. In the absence of this “growth,” as defined by the employment and productivity statistics extruded like poisoned bratwursts from the sausage grinders of government agencies, this elite can see only the yawning abyss. The poverty of imagination among our elites is really something to behold.

As is usually the case with troubled, over-ripe societies, these elites have begun to resort to magic to prop up failing living arrangements. This is why the Federal Reserve, once an obscure institution deep in the background of normal life, has come downstage front and center, holding the rest of us literally spellbound with its incantations against the intractable ravages of debt deflation. (For a brilliant gloss on this phenomenon, read Ben Hunt’s essay “Magical thinking” at the Epsilon Theory website.)

One way out of this quandary would be to substitute the word “activity” for “growth.” A society of human beings can choose different activities that would produce different effects than the techno-industrial model of behavior. They can organize ten-acre farms instead of cell phone game app companies. They can do physical labor instead of watching television. They can build compact walkable towns instead of suburban wastelands (probably even out of the salvaged detritus of those wastelands). They can put on plays, concerts, sing-alongs, and puppet shows instead of Super Bowl halftime shows and Internet porn videos. They can make things of quality by hand instead of stamping out a million things guaranteed to fall apart next week. None of these alt-activities would be classifiable as “growth” in the current mode. In fact, they are consistent with the reality of contraction. And they could produce a workable and satisfying living arrangement.

The rackets and swindles unleashed in our futile quest to keep up appearances have disabled the financial operating system that the regime depends on. It’s all an illusion sustained by accounting fraud to conceal promises that won’t be kept. All the mighty efforts of central bank authorities to borrow “wealth” from the future in the form of “money” — to “paper over” the absence of growth — will not conceal the impossibility of paying that borrowed money back. The future’s revenge for these empty promises will be the disclosure that the supposed wealth is not really there — especially as represented in currencies, stock shares, bonds, and other ephemeral “instruments” designed to be storage vehicles for wealth. The stocks are not worth what they pretend. The bonds will never be paid off. The currencies will not store value. How did this happen? Slowly, then all at once.

We’re on a collision course with these stark realities. They are coinciding with the sickening vectors of national politics in a great wave of latent consequences built up by the sheer inertia of the scale at which we have been doing things. Trump, convinced of his own brilliance, knows nothing, and wears his incoherence like a medal of honor. Clinton literally personifies the horror of these coiled consequences waiting to spring — and the pretense that everything will continue to be okay with her in the White House (not). When these two gargoyle combatants meet in the debate arena a week from now, you will hear nothing about the journey we’re on to a different way of life.

But there is a clear synergy between the mismanagement of our money and the mismanagement of our politics. They have the ability to amplify each other’s disorders. The awful vibe from this depraved election might be enough to bring down markets and banks. The markets and banks are unstable enough to affect the election.

In history, elites commonly fail spectacularly. Ask yourself: how could these two ancient institutions, the Democratic and Republican parties, cough up such human hairballs? And having done so, do they deserve to continue to exist? And if they go up in a vapor, along with the public’s incomes and savings, what happens next?

Enter the generals.

Sumerian Economics

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sumerian-king-list

By Peter Lamborn Wilson

Source: Reality Sandwich

Public secret: everyone knows but no one speaks. Another kind of public secret: the fact is published but no one pays attention.

A cuneiform tablet called The Sumerian King List states that “kingship first descended from heaven in the city of Eridu,” in the south of Sumer. Mesopotamians believed Eridu the oldest city in the world, and modern archaeology confirms the myth. Eridu was founded about 5000 BC and disappeared under the sand around the time of Christ.

Eridu’s god Ea or Enki (a kind of Neptune and Hermes combined) had a ziggurat where fish were sacrificed. He owned the ME, the fifty-one principles of Civilization. The first king, named “Staghorn,” probably ruled as Enki’s high priest. After some centuries came the Flood, and kingship had to descend from heaven again, this time in Uruk and Ur. Gilgamesh now appears on the list. The flood actually occurred; Sir Leonard Wooley saw the thick layer of silt at Ur between two inhabited strata.

Bishop Ushher once calculated according to the Bible that the world was created on October 19th 4004 BC at 9 o’clock in the morning. This makes no Darwinian sense, but provides a good date for the founding of the Sumerian state, which certainly created a new world. Abraham came from Ur of the Chaldees; Genesis owes much to the Enuma Elish (Mesopotamian Creation Myth). Our only text is late Babylonian but obviously based in a lost Sumerian original. Marduk the wargod of Babylon has apparently been pasted over a series of earlier figures beginning with Enki.

Before the creation of the world as we know it a family of deities held sway. Chief among them at the time, Tiamat (a typical avatar of the universal Neolithic earth goddess) described by the text as a dragon or serpent, rules a brood of monsters and dallies with her “Consort” (high priest) Kingu, an effeminate Tammuz/Adonis prototype. The youngest gods are dissatisfied with her reign; they are “noisy,” and Tiamat (the text claims) wants to destroy them because their noise disturbs her slothful slumber. In truth the young gods are simply fed up with doing all the shitwork themselves because there are no “humans” yet. The gods want Progress. They elect Marduk their king and declare war on Tiamat.

A gruesome battle ensues. Marduk triumphs. He kills Tiamut and slices her body lengthwise in two. He separates the halves with a mighty ripping heave. One half becomes sky above, the other earth below.

Then he kills Kingu and chops his body up into gobs and gobbets. The gods mix the bloody mess with mud and mold little figurines. Thus humans are created as robots for the gods. The poem ends with a triumphalist paean to Marduk, the new king of heaven.

Clearly the Neolithic is over. City-god, war-god, metal-god, vs. country-goddess, lazy goddess, garden goddess. The creation of the world equals the creation of civilization, separation, hierarchy, masters and slaves, above and below. Ziggurat and pyramid symbolizes the new shape of life.

Combining Enuma elish and the King List we get an explosive secret document about the origin of civilization not as gradual evolution towards inevitable future, but as violent coup, conspiratorial overthrow of primordial rough-egalitarian Stone Age society by a crew of black magic cult cannibals. (Human sacrifice first appears in the archaeological record at Ur III. Similar grisly phenomena in the first few Egyptian dynasties.)

About 3100 writing was invented at Uruk. Apparently you can witness the moment in the strata: one layer no writing, next layer writing. Of course writing has a prehistory (like the State). From ancient times a system of accounting had grown up based on little clay counters in the shapes of commodities (hides, jars of oil, bars of metal, etc.) Also glyptic seals had been invented with images used heraldically to designate the seals’ owners. Counters and seals were pressed into slabs of wet clay and the records were held in Temple archives-probably records of debts owed to the Temple. (In the Neolithic Age the temples no doubt served as redistribution centers. In the Bronze Age they began to function as banks.)

As I picture the invention of real writing took place within a singly brilliant family of temple archivists over three or four generations, say a century. The counters were discarded and a reed stylus was used to impress signs in clay, based on the shapes of the old counters, and with further pictograms imitated from the seals. Numbering was easily compacted from rows of counters to number-signs. The real break-through came with the flash that certain pictographs could be used for their sound divorced from their meaning and recombined to “spell” other words (especially abstractions). Integrating the two systems proved cumbersome, but maybe the sly scribes considered this an advantage. Writing needed to be difficult because it was a mystery revealed by gods and a monopoly of the New Class of scribes. Aristocrats rarely learned to read and write — a matter for mere bureaucrats. But writing provided the key to state expansion by separating sound from meaning, speaker from hearer, and sight from other senses. Writing as separation both mirrors and reinforces separation as “written,” as fate. Action-at-a-distance (including distance of time) constitutes the magic of the state, the nervous system of control. Writing both is and represents the new “Creation” ideology. It wipes out the oral tradition of the Stone Age and erases the collective memory of a time before hierarchy. In the text we have always been slaves.

By combining image and word in single memes or hieroglyphs the scribes of Uruk (and a few years later the pre-dynastic scribes of Egypt) created a magical system. According to a late syncretistic Greco-Egyptian myth, when Hermes-Toth invents writing he boasts to his father Zeus that humans never need forget anything ever again. Zeus replies, “On the contrary my son, now they’ll forget everything.” Zeus discerned the occult purpose of the text, the forgetfulness of the oral/aural, the false memory of the text, indeed the lost text. He sensed a void where others saw only a plenum of information. But this void is the telos of writing.

Writing begins as a method of controlling debt owed to the Temple, debt as yet another form of absence. When full-blown economic texts appear a few strata later we find ourselves already immersed in a complex economic world based on debt, interest, compound interest, debt peonage as well as outright slavery, rents, leases, private and public forms of property, long distance trade, craft monopolies, police, and even a “money-lenders bazaar.” Not money as we understand it yet, but commodity currencies (usually barley and silver), often loaned for as much as 33 1/3rd % per year. The Jubilee or periodic forgiveness of debts (as known in the Bible) already existed in Sumer, which would have otherwise collapsed under the load of debt.

Sooner or later the bank (i.e. the temple) would solve this problem by obtaining the monopoly on money. By lending at interest ten or more times its actual assets, the modern bank simultaneously creates debt and the money to pay debt. Fiat, “let it be.” But even in Sumer the indebtedness of the king (the state) to the temple (the bank) had already begun.

The problem with commodity currencies is that no one can have a monopoly on cows or wheat. Their materiality limits them. A cow might calve, and barley might grow, but not at rates demanded by usury. Silver doesn’t grow at all.

So, the next brilliant move, by King Croesus of Lydia (Asia Minor, 7th century BC) was the invention of the coin, a refinement of money just as the Greek alphabet (also 7th cen.) was a refinement of writing. Originally a temple token or souvenir signifying one’s “due portion” of the communal sacrifice, a lump of metal impressed with a royal or temple seal (often a sacrificial animal such as the bull), the coin begins its career with mana, something super-natural, something more (or less) than the weight of the metal. Stage two, coins showing two faces, one with image, the other with writing. You can never see both at once, suggesting the metaphysical slipperiness of the object, but together they constitute a hieroglyph, a word/image expressed in metal as a single meme of value.

Coins might “really” be worth only their weight in metal but the temple says they’re worth more and the king is ready to enforce the decree. The object and its value are separated; the value floats free, the object circulates. Money works the way it works because of an absence not a presence. In fact money largely consists of absent wealth-debt — your debt to king and temple. Moreover, free of its anchor in the messy materiality of commodity currencies, money can now compound unto eternity, far beyond mere cows and jars of beer, beyond all worldly things, even unto heaven. “Money begets money,” Ben Franklin gloated. But money is dead. Coins are inanimate objects. Then money must be the sexuality of the dead.

The whole of Greco-Egypto-Sumerian economics compacts itself neatly into the hieroglyphic text of the Yankee dollar bill, the most popular publication in the history of History. The owl of Athena, one of the earliest coin images, perches microscopically on the face of the bill in the upper left corner of the upper right shield (you’ll need a magnifying glass), and the Pyramid of Cheops is topped with the all-seeing eye of Horus or the panopticonical eye of ideology. The Washington family coat of arms (stars and stripes) combined with imperial eagle and fasces of arrows, etc.; a portrait of Washington as Masonic Grand Master; and even an admission that the bill is nothing but tender for debt, public or private. Since 1971 the bill is not even “backed” by gold, and thus has become pure textuality.

Hieroglyph as magic focus of desire deflects psyche from object to representation. It “enchains” imagination and defines consciousness. In this sense money constitutes the great triumph of writing, its proof of magic power. Image wields power over desire but no control. Control is added when the image is semanticized (or “alienated”) by logos. The emblem (picture plus caption) gives desire or emotion an ideological frame and thus directs its force. Hieroglyph equals picture plus word, or picture as word (“rebus”), hence hieroglyph’s power and control over both conscious and unconscious — or in other words, its magic.