"In this global contraction, will Japan, China, Russia, Brazil et al be able to continue to finance America’s twin fiscal and trade deficits? Not if they are in recession, too, because – and this is key – demand from the US for their exports are falling off a cliff because the housing bubble demand engine died, an engine that directly via credit expansion and indirectly via purchases of consumer goods to fill houses, justified the foreign lending in the first place."
itulip.com
For some background on the references to the FIRE (finance, insurance, real estate) economy in the above article, see the interview with Michael Hudson here:
counterpunch.org
“Tax favoritism for real estate, corporate raiders and ultimately for bankers has freed income to be pledged to carry more and more debt, which has been used to fuel asset-price inflation that raises the price of home ownership, corporate stocks and bonds – but not to increase production and output. ... Shaping the marketplace to favor finance and property over industry and labor does not create a ‘free market.’ It favors the debt-leveraged buying and selling of real estate, stocks and bonds, distorting markets in ways that de-industrialize the economy. [And] shifting taxes off property and finance is more a distortion than a virtue, unless debt leveraging is deemed virtuous.
"This is the tragedy of our economy today. Credit creation, saving and investment are not being mobilized to increase new direct investment or raise living standards, but to bid up prices for real estate and other assets already in place and for financial securities (stocks and bonds) already issued. This loads down the economy with debt without putting in place the means to pay it off, except by further and even more rapid asset-price inflation.
This is largely the result of relinquishing planning and the structuring of markets to large banks and other financial institutions, political lobbyists have rewritten most of today’s tax laws and sponsored general public deregulation of the checks and balances that were being put in place by the late 19th century. At that time, just over a hundred years ago, it seemed that wealth – and banking – were being industrialized, while landed wealth and monopolies would become more socialized and their rents fully taxed. Instead of real estate prices rising, the rental ‘free lunch’ would provide the basic source of public finance. Technology and productivity would increase industrial capital formation and raise labor’s living standards. These policies would free markets from rent extraction and also from taxes as the fiscal burden was shifted back onto property.
But this is not what has occurred. The financial system has used its power to extract fiscal favors for real estate and to press for deregulation of monopolies as the major source of its interest and collateral for its loans.” |
