Episode 216 – The US Dollar and other myths

In this episode, we have a crack at explaining how the US dollar replaced gold as the default currency.

Religious Privilege Rally

Only about 200

We let them pick our fruit

Pacific island nations affected by the climate crisis will continue to survive “because many of their workers come here to pick our fruit”, Australia’s deputy prime minister has said.

Michael McCormack’s comments were made after critical talks at the Pacific Islands Forum that  almost collapsed over Australia’s positions on coal and climate change.

Fears are growing the situation  might come at a diplomatic cost for Australiain a region where China has become increasingly influential.

McCormack, who has been the acting prime minister while Scott Morrison attended the forum in low-lying Tuvalu, attended a business function in Wagga Wagga on Friday.

“I also get a little bit annoyed when we have people in those sorts of countries pointing the finger at Australia and say we should be shutting down all our resources sector so that, you know, they will continue to survive,” he said.

“They will continue to survive, there’s no question they’ll continue to survive and they’ll continue to survive on large aid assistance from Australia.

“They’ll continue to survive because many of their workers come here and pick our fruit, pick our fruit grown with hard Australian enterprise and endeavour and we welcome them and we always will.

“But the fact is we’re not going to be hijacked into doing something that will shut down an industry that provides tens of thousands of jobs, that provides two-thirds of our energy needs … and I’m only talking coal, let alone all of our other resources.”

Alan Jones

Hoped Morrison had been briefed to shove a sock down her throat.

12th Man, should 2UE be able to sack him under a conduct clause?

How is that different to Falou?

They will say it was his job to make comments and it wasn’t Falou’s job but it wasn’t his job to make misogynistic asshole comments … or maybe it was.

Who cares what Falou thinks about gays? His job is to kick a football.

Who cares what Jones thinks about women or Adern. His job is to comment on politics and news.

More on Nuclear Weapons

For deterrence to work for the weaker country, the more powerful enemy must believe nuclear weapons will be used if attacked. If the enemy does attack, however, using nuclear weapons guarantees military devastation for everyone. Because the stronger party understands this, the existence of nuclear weapons will induce extra caution. But it won’t guarantee immunity for the weaker party. Indian missiles struck inside Pakistan and the two engaged in a dogfight in February.

Suppose sometime in the future, Australia possesses nuclear weapons and long-range delivery systems. For whatever reason, it’s attacked by China using sea-based and air-launched conventional munitions. Would we really threaten nuclear retaliation? What if China didn’t find our threat credible and persisted with its strikes. Would we launch nuclear strikes on Chinese targets? If we don’t, China will have called our bluff on a non-credible threat. If we do, we will have entrapped ourselves in a posture of mutual nuclear suicide in the name of national defence.

China Vs USA

Please tell me I have misunderstood The Fist’s position on China!

I heard “I’d rather take sides with an Asian fascist dictatorship than a Western democracy primarily because the former is going to be more economically powerful soon”.

The belt and road is amateur hour compared to the US dollar.

If we buddy up with the USA we continue to collect US dollars and US dollars are about to collapse.

I’m afraid of Americans.

The Europeans are cautious and prudent in their dealings with China, as they are with Russia and the US. A more recent PEW survey found that the US was regarded as a bigger global threat than China in France, Germany, Greece, Spain, Sweden, the Netherlands, and the UK. In addition, in the African and Latin American countries surveyed PEW found the US to be considered a greater threat to global security than China.

Even after its aggression in Georgia and the Ukraine, the annexation of Crimea, and facing the Russia massive military at their borders, Europeans regard the US a greater threat than Russia! The 1997 song, “I’m afraid of Americans” by David Bowie and Brian Eno is a more appropriate anthem for our times than Jennings’ constant refrain.

Trumps tariffs on China

Michael Hudson

PRESIDENT DONALD TRUMP: I just announced another 10% tariff on $300 billion worth of Chinese products that come into our country. The fact is China devalues their currency, they pour money into their system, they pour it in, and because they do that, you’re not paying for those tariffs. China’s paying for those tariffs. And until such time as there is a deal, we will be taxing the hell out of China. That’s all there is.

MICHAEL HUDSON: It would only be true that China pays if China’s firms would now reduce the prices they charge to Americans by the equivalent of 10%. In practice, this would be 30%. It would only be true if China would operate all of its export industry at a loss. And of course that’s crazy. No country would do that. China certainly wouldn’t do that.

He pretends that they’ll pay instead of Americans. But when you levy a tariff, import prices are going to go up. Americans will pay more. The demands he’s making on China are nonsensical. No country is going to give away their autonomy and abolish their socialist economy and say, all right, we’re going to become an American satellite. We’re going to follow Thatcher and Reagan policies and let America buy our companies out and push us back into the 19th century Opium Wars.

The Opium Wars are over and so it’s now Trump’s trade war. So this is nonsense.

But there’s another reason that Trump is doing this, and that’s because he has something in mind that most people just don’t even think of: the American budget deficit. The government budget is running up deeper and deeper debt as a result of Trump’s tax giveaway to the 1%. So he says,”How am I going to shrink the budget deficit?” He says, “I know. I’ll make my constituency pay. That is, the people that voted for me. I’ll make labor pay. If I can raise taxes on 300 billion of Chinese imports by another 10%, that’ll be all together I think 20% and will yield $60 billion to help us solve the budget deficit that I might give away to Wall Street and the wealthy corporations I’ve created.”

… There’s no way in which a change in currency values is going to shift production to the United States when we don’t have any factories to produce manufactures. When you look at the structure of world trade, you realize it has nothing to do with tariffs at this point, and nothing to do with currency values. It’s to do with the fact that Wall Street and the corporate employers have jumped ship, they’ve moved abroad, and they’ve hollowed out the United States. And once it’s hollowed out, the only way you can rebuild it is to have public infrastructure, to have public subsidy just like China’s doing and other countries are doing, public health just like other countries are doing, to cut the costs to employers.

Basically what China said is, “We’ve been using our factories to produce consumer goods for Americans. It’s time we begin using them to produce consumer goods for the Chinese.” So they’re going to raise their own living standards. They’re going to produce more for their own population. They’re going to develop much more trade with Europe.

Now that Europe has seen that America is trying to interfere with its trade with Russia, its oil trade, and is trying to get Germany and Europe to join the war against Iran, they’re saying, “Okay, the whole postwar unity with the United States is over. We’re now going to be part of Eurasia.”

So Trump has sort of sped the parting guest. He’s driven Europe, Russia, China, and Iran together. As I’ve joked before, he should get the peace prize for that. He’s unified the whole world outside of the United States.

The US Dollar

Dr. Michael Hudson is a financial economist and historian.  He is President of the Institute for the Study of Long-Term Economic Trend, a Wall Street Financial Analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City.  His 1972 book, Super Imperialism:  The Economic Strategy of American Empire, the subject of today’s broadcast, is posted in PDF format on his website at michael-hudson.com  Visit his website at michael-hudson.com.

From Guns and Butter

Imperialism is getting something for nothing. It is a strategy to obtain other countries’ surplus without playing a productive role, but by creating an extractive rentier system. An imperialist power obliges other countries to pay tribute. Of course, America doesn’t come right out and tell other countries, “You have to pay us tribute,” like Roman emperors told the provinces they governed. U.S. diplomats simply insist that other countries invest their balance-of-payments inflows and official central-bank savings in US dollars, especially U.S. Treasury IOUs. This Treasury-bill standard turns the global monetary and financial system into a tributary system. That is what pays the costs of U.S. military spending, including its 800 military bases throughout the world.

Trump wants interest rates to be low in order to inflate the housing market and the stock market even more, as if that is an index of the real economy, not just the financial sector that is wrapped around the economy of production and consumption.  Beyond this domestic concern, Trump imagines that if you keep interest rates lower than those of Europe, the dollar’s exchange rate will decline.  He thinks that this will make U.S. exports more competitive with foreign products.

Trump is criticizing the Federal Reserve for not keeping interest rates even lower than those of Europe.  He thinks that if interest rates are low, there will be an outflow of capital from this country to buy foreign stocks and bonds that pay a higher interest rate.  This financial outflow will lower the dollar’s exchange rate. He believes that this will increase the chance of rebuilding America’s manufacturing exports.

Trump’s guiding idea is that lowering the dollar’s value will lower the cost of labor to employers. That’s what happens when a currency is devalued. Depreciation doesn’t lower costs that have a common worldwide price.  There’s a common price for oil in the world, a common price of raw materials, and pretty much a common price for capital and credit.  So the main thing that’s devalued when you push a currency down is the price of labor and its working conditions.

Workers are squeezed when a currency’s exchange rate falls, because they have to pay more for goods they import.  If the dollar goes down against the Chinese yen or European currency, Chinese imports are going to cost more in dollars.  So will European imports.  That is the logic behind “beggar my neighbor” devaluations.

How much more foreign imports will cost depends on how far the dollar goes down.  But even if it plunges by 50 percent, even if the dollar were to become a junk currency like the Argentinian or other Latin American currencies, that cannot really increase American manufacturing exports, because not much American labor works in factories anymore.  Workers drive cabs and work in the service industry or for medical insurance companies.  Even if you give American workers in manufacturing companies all their clothing and food for nothing, they still can’t compete with foreign countries, because their housing costs are so high, their medical insurance is so high and their taxes are so high that they’re priced out of world markets.

American parent companies have already moved their factories abroad. They have given up on America.  As long as Trump or his successors refrain from changing that system – as long as he gives tax advantages for companies to move abroad – there’s nothing he can do that will restore industry here.  But he’s picked up International Monetary Fund’s junk economics, the neoliberal patter talk that it’s given to Latin America pretending that if a country just lowers its exchange rate more, it will be able to lower its wages and living standards, paying labor less in hard-currency terms until at some point, when its poverty and austerity get deep enough, it will become more competitive.

That hasn’t worked for fifty years in Latin America.  It hasn’t worked for other countries either, and it never worked in the United States.

What currency depreciation does do when the dollar is devalued is to enable Wall Street firms to borrow at 1 percent and to buy European currencies and bonds yielding 3 percent or 4 percent or 5 percent, or stocks yielding even more.

He (Trump) thinks that if we devalue the dollar, we can undersell China and Europe.  But you can only undersell them if you have car-making factories available. If you don’t have a factory, you’re not going to be able to undersell foreign carmakers no matter how low the dollar goes.

… Donald Trump was installed as U.S. president to oversee the bankruptcy of the United States and the dismantling of the U.S. Empire …

In your seminal work from 1972, Super Imperialism:  The Economic Strategy of American Empire, you write:  “Whereas US domination of the world economy stemmed from 1920 through 1960 from its creditor position, its control since the 1960s has stemmed from is debtor position.  Not only have the tables been turned, but US diplomats have found that their leverage as the world’s major debtor economy is fully as strong as that which formerly had reflected its net creditor position.”  This sounds counter-intuitive. Could you break it down?

America was much more productive, not having suffered war damage here. Between the end of World War II and 1950 when the Korean War broke out, America accumulated over 75 percent of the world’s monetary gold. The United States had heavy agricultural exports, growing industrial exports, and enough money to buy up the leading industries of Europe and Latin America and other countries.

But beginning in 1950 with the Korean War, the U.S. balance of payments moved into deficit for the first time.  It got even worse when President Eisenhower decided that America had to support French colonialism in Southeast Asia, in French Indochina – Vietnam and Laos.  By the time the Vietnam War escalated in the 1960s, the dollar was running large balance-of-payments deficits.  Every week on Wall Street we would watch the gold supply go down, losing gold to countries that weren’t at war, like France and Germany.  They were cashing in the excess dollars that were being spent by the U.S. military.

By the 1960s it became clear that America was on a trajectory to run out of gold within a decade because of this overseas war spending.

It finally did, by August 1971 when President Nixon stopped selling gold on the London exchange and the price was allowed to soar far above $35 an ounce.  The U.S. balance-of-payments was still running a deep deficit because of the fighting in Southeast Asia and elsewhere, creating a permanent balance-of-payments deficit.  The private sector was just in balance during the 1950s and 1960s.  The entire deficit was military.

When America went off gold, people began to wonder what was going to happen.  Many predicted an economic doomsday.  It was losing its ability to rule the world through gold.  But what I realized (and was the first to publish) was that if countries no longer could buy and hold gold in their international reserves, what were they going to hold?  There was only one asset that they could hold: U.S. Government securities, that is, Treasury bonds.

A Treasury bond is a loan to the US Treasury.  When a foreign central bank buys a bond, it finances the domestic U.S. budget deficit.  So the balance of payments deficit ends up financing the domestic budget deficit.

The result is a circular flow of military spending recycled by foreign central banks.  After 1971 the United States continued to spend abroad militarily, and in 1974 the OPEC countries quadrupled the price of oil.  At that time the United States told Saudi Arabia that it could charge whatever it wanted for its oil, but it had to recycle all its net dollar earnings.  The Saudis were not to buy gold.  The Saudis were told that it would be an act of war if they didn’t recycle into the American economy the dollars they received for their oil exports.  They were encouraged to buy U.S. Treasury bonds but, could also buy other U.S. bonds and stocks to help push up the stock and bond markets here while supporting the dollar.

Btw, what did the USA do with the money? Lent it to South America and crippled them. But that’s another story.

The United States kept its own gold stock, while wanting the rest of the world to hold its savings in the form of loans to the United States.  So the dollar didn’t go down. Other countries that were receiving dollars simply recycled them to buy U.S. financial securities.

What would have happened if they wouldn’t have done this?  Let’s say you’re Germany, France or Japan.  If you don’t recycle your dollar receipts back to the U.S. economy, your currency is going to go up.  Dollar inflows from export sales are being converted into your currency, increasing its exchange rate.  But by buying U.S. bonds or stocks, bid the price of dollars back up against your own currency.

So, when the United States runs a balance-of-payments deficit under conditions where other countries keep their foreign reserves in dollars, the effect is for other countries to keep their currencies’ exchange rates stable – mainly by lending to the U.S. government.  That gives the United States a free ride.  It can encircle the world with military bases, and the dollars that this costs are returned to the United States.

Bonnie Faulkner:  How does today’s monetary imperialism – super imperialism – differ from the imperialism of the past?

Michael Hudson:  It’s a higher stage of imperialism.  The old imperialism was colonialism.  You would come in and use military power to install a client ruling class.  But each country would have its own currency.  What has made imperialism “super” is that America doesn’t have to colonize another country.  It doesn’t have to invade a country or actually go to war with it.  All it needs is to have the country invest its savings, its export earnings in loans to the United States Government.  This enables the United States to keep its interest rates low and enable American investors to borrow from American banks at a low rate to buy up foreign industry and agriculture that’s yielding 10 percent, 15 percent or more.  So American investors realize that despite the balance-of-payments deficit, they can borrow back these dollars at such a low rate from foreign countries – paying only 1 percent to 3 percent on the Treasury bonds they hold – while pumping dollars into foreign economies by buying up their industry and agriculture and infrastructure and public utilities, making large capital gains.  The hope is that soon, we’ll earn our way out of debt by this free ride arrangement.

Imperialism is getting something for nothing.  It is a strategy to obtain other countries’ surplus without playing a productive role, but by creating an extractive rentier system.  An imperialist power obliges other countries to pay tribute.  Of course, America doesn’t come right out and tell other countries, “You have to pay us tribute,” like Roman emperors told the provinces they governed.  U.S. diplomats simply insist that other countries invest their balance-of-payments inflows and official central-bank savings in US dollars, especially U.S. Treasury IOUs. T his Treasury-bill standard turns the global monetary and financial system into a tributary system.

That is what pays the costs of U.S. military spending, including its 800 military bases throughout the world, and its foreign legion of ISIS, Al Qaeda fighters and “color revolutions” to destabilize countries that don’t adhere to the dollar-centered global economic system.

That’s what makes the United States the “exceptional country.”  The value of our currency is based on other countries’ savings.  The money they save has to be held in the form of dollars or securities that we’re never going to repay, even if we could.

This is a huge free ride.  You’d think that Donald Trump would want to keep it going.  But he claims that China is manipulating its currency by recycling its dollars into loans to the U.S. Treasury.  What does he mean by that?  China is earning a lot of dollars by exporting its goods to the United States. What does it do with these dollars?  It tried to do what America did with Europe and South America:  It tried to buy American companies.  But the United States blocked it from doing this, on specious national security grounds.  The government claims that our national security would be threatened if China would buy a chain of filling stations, as it wanted to do in California.  The United States thus has a double standard, claiming that it is threatened if China buys any company, but insisting on its right to buy out the commanding heights of foreign economies with its electronic dollar credit.

That leaves China with only one option:  It can buy U.S. Treasury bonds, lending its export earnings to the U.S. Treasury.

China now realizes that the U.S. Treasury isn’t going to repay.  Even if it wanted to recycle its export earnings into Treasury bonds or U.S. stocks and bonds or real estate, Donald Trump now is saying that he doesn’t want China to support the dollar’s exchange rate (and keep its own exchange rate down) by buying U.S. assets.  We’re telling China not to do what we’ve told other countries to do for the past forty years:  to buy U.S. securities.  Trump accuses countries of artificial currency manipulation if they keep their foreign reserves in dollars.  So he’s telling them, and specifically China, to get rid of their dollar holdings, not to buy dollars with their export earnings anymore.

So China is buying gold.  Russia also is buying gold and much of the world is now in the process of reverting to the gold-exchange standard (meaning that gold is used to settle international payments imbalances, but is not connected to domestic money creation).  Countries realize that there’s a great advantage of the gold-exchange standard:  There’s only a limited amount of gold in the world’s central banks.  This means that any country that wages war is going to run such a large balance-of-payments deficit that it’s going to lose its gold reserves.  So reviving the role of gold may prevent any country, including the United States, from going to war and suffering a military deficit.

The irony is that Trump is breaking up America’s financial free ride – its policy of monetary imperialism – by telling counties to stop recycling their dollar inflows.  They’ve got to de-dollarize their economies.

The effect is to make these economies independent of the United States.  Trump already has announced that we won’t hire Chinese in our IT sectors or let Chinese study subjects at university that might enable them to rival us.  So our economies are going to separate.

In effect, Trump has said that if we can’t win in a trade deal, if we can’t make other countries lose and become more dependent on U.S. suppliers and monopoly pricing, then we’re not going to sign an agreement.  This stance is driving not only China but Russia and even Europe and other countries all out of the U.S. orbit.  The end result is going to be that the United States is going to be isolated, without being able to manufacture like it used to do. It’s dismantled its manufacturing.  So how will it get by?

So America is being left high and dry as a high-priced economy in a nationalistic world, while running a huge balance-of-payments deficit to support its military spending all over the globe.

Bonnie Faulkner:  So it sounds like when the United States went off the gold standard, the dollar basically replaced gold as the main asset in which foreign governments could hold their assets.  Now you’re saying that when there was no more gold standard, if foreign economies didn’t buy U.S. Treasuries, the price of their currency would rise and make them uncompetitive.

Michael Hudson:  Yes. Imagine if Americans would have to pay more and more dollars to buy German cars.  There’s going to be a larger demand for German currency, the euro, whose exchange rate would rise.  That was happening throughout the 1960s and 1970s, before the euro.  The only way that Germany could keep down the value of its mark was to buy something that cost dollars.  It didn’t buy American exports, because America already was making and exporting less and less, except for food – and Germany can only eat so much wheat and soybeans. S o the only thing that Germany could buy that was priced in dollars were U.S. Treasury bonds.  That kept the German mark from rising even more rapidly, and kept the balance of payments in balance.

The euro is only a satellite currency of the U.S. dollar

Some Americans worried that the euro might become a rival to the dollar.  After all, Europe is not de-industrializing.  It is moving forward and producing better cars, airplanes and other exports.  So the United States persuaded foreign politicians to cripple the euro by making it an austerity currency, creating so few government bonds that there’s no euro vehicle large enough for foreign countries to keep their foreign reserves in.  The United States can create more and more dollar debt by running a budget deficit.  We can follow Keynesian policies by running a deficit to employ more labor.  But the eurozone refuses to let countries run a budget deficit of more than 3 percent of its GDP.  That level is very marginal compared to the United States.  And if you’re trying not to run any deficit at all – and even if you keep it less than 3% – then you’re imposing austerity on your country, keeping your employment down.  You’re stifling your internal market, cutting your throat by being unable to create a real rival to the dollar.  That’s why Donald Rumsfeld called Europe a dead zone, and why the only alternatives for a rival currency are the Chinese yuan.  They’re moving into a gold-based currency area along with Russia, Iran and other members of the Shanghai Cooperation Organization.

Bonnie Faulkner:  The European Union not allowing European countries within the eurozone to not run deficits more than 3 percent was basically cutting their own throat.  Why would they do such a thing?

Michael Hudson:  Because the heads of the Central Bank are fighting a class war.  They look at themselves as financial generals in the economic fight against labor, to hurt the working class, lower wages and help their political constituency, the wealthy investing class.  Europe always has had a more vicious class war than the United States.  It’s never really emerged from its aristocratic post-feudal system.  Its central bankers and universities follow the University of Chicago free-market school, saying that the way to get rich is to make your labor poorer, and to create a government where labor doesn’t have a voice.  That’s Europe’s economic philosophy, and it’s why Europe has not matched the growth that China and other countries are experiencing.

Bonnie Faulkner:  So it sounds like then the United States has been able to dominate the world economy since 1971 from a debtor position.

Michael Hudson:  When it was losing gold, from 1950 to 1971, that wasn’t dominating; that was losing America’s gold supply to France, Germany, Japan and other countries.  Only when it stopped the gold-exchange standard and left countries with no alternative for their international savings but to buy U.S. Treasury bonds or other securities was it able to pay for its military spending without losing its power.

Bonnie Faulkner:  You write, “Today it would be necessary for Europe and Asia to design an artificial, politically created alternative to the dollar as an international store of value.  This promises to become the crux of international political tensions for the next generation.”  How does the world break out of this double-standard dollar domination?

Michael Hudson:  It’s already coming about.  And Trump is a great catalyst speeding departing guests.  China and Russia are reducing their dollar holdings.  They don’t want to hold American Treasury bonds, because if America goes to war with them, it will do to them what it did to Iran.  It will just keep all the money, not pay back the investment China has kept in U.S. banks and the Treasury.  So they’re getting rid of the dollars that they hold. They’re buying gold, and are moving as quickly as they can to be independent of any reliance on U.S. exports.  They are building up their military, so that if the United States tries to threaten them, they can defend themselves.  The world is fracturing.

Bonnie Faulkner:  What are foreign countries like China and Russia using to buy gold?  Are they buying it with dollars?

Michael Hudson:  Yes. They earn dollars or euros from what they’re exporting.  This money goes into the central bank of China, because Chinese exporters want domestic yuan to pay their own workers and suppliers.  So they go to the Bank of China and they exchange their dollars for yuan.  The Bank of China, the central bank, then decides what to do with this foreign currency.  They may go into the open market and buy gold.  Or, they may spend it in foreign countries, on the Belt and Road Initiative to build a railway and steamship infrastructure and port development to help China’s exporters integrate their economy with others and ultimately with Europe, replacing the United States as customer and supplier.  They see the United States as a dying economy.

Bonnie Faulkner:  Can the Chinese build up their Belt and Road infrastructure projects with dollars?

Michael Hudson:  No, they are getting rid of dollars.  They already are receiving such a large surplus each year that they only use the dollars to buy gold or some goods, such as Boeing airplanes, but mostly food and raw materials.  When China buys iron from Australia, for instance, they sell dollars from their foreign-exchange reserves and buy Australian currency to pay Australians for the iron ore that they import.  They use dollars to pay other countries that are still part of the dollar area and still willing to keep adding these dollars to their official monetary reserves instead of holding gold.

Bonnie Faulkner:  How far along is the dollar’s demise as the world’s reserve currency?

Michael Hudson:  It’s already slowing.  Trump is doing everything he can to accelerate it, by threatening that if foreign countries continue to recycle their export earnings into dollars (raising the dollar’s exchange rate), we’ll accuse them of manipulating their currency.  So he would like to end it all by the end of his second term in 2024.

Bonnie Faulkner:  What would the United States look like if the dollar is no longer the world’s reserve currency?

Michael Hudson:  If it continues to let Wall Street do the economic planning, the economy will look like that of Argentina.

Bonnie Faulkner:  And what does Argentina look like?

Michael Hudson:  A narrow oligarchy at the top, keeping labor at the bottom, taking away labor’s rights to unionize – an economy whose financial and military sectors have won the class war.

Michael Hudson:  There’s an attempt by the United States to penetrate China.  In the recent trade agreements China did permit U.S. banks to create their own credit.  I’m not sure that this is going to really take off, now that Trump is accelerating the trade war.  But basically, in America you have private banks extending credit to corporations.  In China you have the government banks extending the loans.  That saves China from having a financial crisis in the way that the United States does.

About 12 percent of American companies are said to be zombie companies.  They’re already insolvent, not able to make a profit after paying their heavy debt service.  But banks are still giving them enough credit to stay in business, so they won’t have to go bankrupt and create a crisis.  China doesn’t have that problem, because when Chinese industry and factories are not able to pay, the public Bank of China can simply forgive the debt.  Its choice is clear:  Either it can let companies go bankrupt and be sold at a low price to some buyer, mainly an American; or, it can wipe the bad debts off the books.

If China had been crazy enough to have student loans and leave its graduates impoverished instead of providing free universities, China’s central bank could simply write off the student loans.  No investors would lose, because the banks are owned by the government.  Its position is, “If you’re a factory, we don’t want you to have to close down and unemploy your labor.  We’ll just write down the debt.  And if your employees are having a really hard time, we’ll just write down their debts, so that they can spend their money on goods and services to help expand our internal market.”

America’s banks are owned by the stockholders and bondholders, who would never let Chase Manhattan or Citibank or Wells Fargo just forgive their various categories of loans.  That’s why public banking is so much more efficient from an economy-wide level than private banks.  It’s why banking should be a public utility, not privatized.

Well at least the USA solved world poverty ….

Victorian Confession Laws

The Catholic Archbishop of Melbourne has said he would rather go to jail than report admissions of child sexual abuse made in the confessional.

A bill which would make it mandatory for priests to report suspected child abuse to authorities, including abuse revealed in the confessional, was introduced to Victoria’s Parliament on Wednesday morning.

The Catholic Church last year formally rejected the notion that clergy should be legally forced to report abuse revealed during confessions.

Archbishop Comensoli said he would encourage someone who admitted to abuse to tell police, and tell him again outside the confessional where he could then report it without breaking the seal of confession.

But if the person confessing refused to do that, he said he would not break the Catholic tradition: “Personally, I’ll keep the seal,” he said.

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