As mega-economist JK Galbraith said:
‘The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.’ Money, p. 5 J. K. GalbraithIndeed, and nothing is more fundamental to the deception than calling credit money.
In spite of backed by nothing, as the cited essay notes, that credit does call forth goods and services. He who provides the goods and services wants to be paid, and is paid, in credit (not money!) Credit against whom? For the credit was created ex-nihilo. "We owe it to ourselves" comes the answer. That answer is actually quite true, but disguises the implications. In essence, ex nihilo credit is the apotheosis of capitalism: privatize the profits, socialize the losses. The Hegemon's minions get the profits, we get the liability, the losses. We owe it to ourselves.
Yes, a mill is built, as are bridges to no where and wars for profit and defense against blowback, and Tuskegee experiments, are all financed as well backed by absolutely nothing. Yes, there are also homes financed this way, backed by absolutely nothing. But what homes? To whom? Where? Although economics prides itself on being a value-neutral science, it is the branch of study that produced the term "moral hazard."
We, ourselves, make good on the ex nihilo credit extended with inflation, a degradation of current goods and services although the prices remain constant, we pay for it by less in terms of wages, as the fruit of our labors is diverted to paying down what "we owe ourselves." When that credit is maxed out, we borrow, from say the Chinese. And when that is maxed out, we pile the debt on to future generations. Now note, for all of that, there is no money. It is all credit, ex nihilo credit.
But here is the problem. With bank credit created ex nihilo, by charter from the Hegemon, the range of goods and services that may be called forth is not the same that would be called forth in a money-based economy. There is no probity with ex-nihilo credit, only politics.
It is an undisputed fact that Nixon went off the gold standard (lite) because the Vietnam war was bankrupting USA. The first thing we bought on ex nihilo credit was 4 more years of defeat. Then we got around to other things no sane people would finance: Fukushima nuclear power plant in 1976, and the other USA power plants, and so much more. But but but, Fukushima is in Japan! Yes! And EximBank lends ex nihilo credit to Toshiba so Toshiba can buy from GE that in which no sane person would invest: crazy dangerous unstable massive nuclear power plants in an earthquake and tsunami zone. Am I editorializing? How come GE requires 100% indemnification on every plant it builds? Because they are safe? No. Upon whose account is this liability placed? We owe it to ourselves!
What could go wrong? Nothing. Because by the time something does go wrong, all the players are retired. Mistakes were made, let's move forward. As with all ex nihilo credit projects funded, the profits are privatized, the losses are socialized. Political agenda advanced. And it gets better: with no government backing, Toshiba has come up with a free market micro-nuclear power plant that meets the needs of small communities. Its safety and affordabilty has caused quite a stir, but, given regulatory capture, the regulators make sure we won't see safe nuclear power soon.
And since ex nihilo credit is a provision of the Hegemon, it is lent within bounds set by the Hegemon. It is not price signals and the market deciding what assets are allocated to what needs, it is an auction by the Hegemon to rent-seekers who have what projects they will pursue at what interest rates. The winners are those whose projects at that price intrigue or delight the Hegemon. Hmmmm... a billion to advance frankenfoods? Sold! War? You bet. Bailout the banks? Existential imperative. Domed stadium? Of course!
Banking has become a completely distorted program of granular work in this regard. We no longer have banking in USA. The lowest, closest form of banking to the market, the credit union, is no longer a credit union. It's just small.
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