Grim Stock Signals Piling Up as Wall Street Mulls Recession Odds [feedly]

Grim Stock Signals Piling Up as Wall Street Mulls Recession Odds
https://www.bloomberg.com/news/articles/2018-11-25/grim-stock-signals-piling-up-as-wall-street-mulls-recession-odds

Nine turbulent weeks and a correction in U.S. stocks have left analysts with a thorny question. What's the market saying about the economy?

And while few see incontrovertible signs investors are bracing for a recession, it's a word that's been coming up more as they seek a signal in the chaos.

From the ascent of defensive industries to the sudden craze for companies that resist volatility, stocks are acting in ways that have presaged slowing growth in the past. That makes sense: gains in the economy and corporate earnings are forecast to ease in 2019 from this year's torrid pace.

Befitting that, most of the charts that follow reflect observations by analysts who don't see a recession as the most obvious conclusion. Many view the sell-off as healthy after a 10-year run of gains. But with a trade war flaring and the Federal Reserve set to boost interest rates again, the number of stock researchers who are at least willing to mention the possibility is rising.

"What's driving the sell-off? The idea that the market sees something that we don't," said Bruce McCain, chief investment strategist at KeyBank. "That global growth and the global economy are much weaker than you would've thought otherwise reinforces concern that there aren't too many places to hide."

Momentum Scare

It doesn't take a degree in technical analysis to be concerned. More than $3 trillion has been lopped from U.S. equity values since late September, a sell-off that has driven the S&P 500 down 10 percent and tech stocks well past the threshold for a correction.

To see how violent it's been, look at the number of stocks where this year's once-robust price momentum has come asunder -- those trading below their 200-day average. Support is wearing thin, with just 37 percent of S&P 500 companies exceeding their long-term moving mean.

At the same time, the chart is an illustration of how it can be a mistake to take markets too seriously when looking for clues about the economy. While the preponderance of stalled stocks is high by historical standards, it does have a recent precedent: 2016. No recession followed that signal.

None is coming now, either, according to the people who are paid to anticipate such things. Odds the U.S. will fall into a recession in the next year stands at 15 percent, according to Bloomberg's U.S. Recession Probability Forecast index. While they see the economy losing a bit of speed next year and in 2020, the median estimate of economists calls for 2.6 percent economic growth in the next 12 months.

Economists haven't always done a great job predicting contractions. A 2014 study by the International Monetary Fund's Prakash Loungani found that not one of 49 recessions suffered around the world in 2009 had been predicted by the consensus of economists a year earlier. Loungani previously reported that only two of the 60 recessions of the 1990s had been anticipated a year in advance.

One way or the other, investors are acting worried. They're rotating into defensive sectors that do better when the economy is in trouble. Utilities, the only sector that's risen since September, had trailed the broader market in nine consecutive quarters.

Some investors seek shelter from market turmoil in stocks with muted price swings as opposed to their riskier brethren. Tranquil equities offer little alpha when things are good, but are supposed to shine during times of uncertainty. Those with risk aversion have piled into the Invesco S&P Low Volatility ETF and the fund has beaten the S&P since the market rout started in late September.

The performance gap between defensive and cyclical stocks suggests that investors are starting to price in a recession-like scenario, JPMorgan strategists led by Dubravko Lakos-Bujas said in a note this week. They view the dislocation as overdone and inconsistent with the fundamental backdrop.

Societe Generale's strategists including Roland Kaloyan evoked the R word within one of the more depressing stock outlooks to be issued lately. They see the S&P closing next year at 2,400, an 18 percent decline from its September record. Still, even in their skeptical eyes, the threat of a contraction is a long way off: early to mid-2020.

Equities still yield more than 10-year Treasuries, but are far from being the most-loved asset class. A recent survey by the National Association of Active Investment Managers shows that mutual funds' equity exposure has fallen to 30.5 percent, the least since 2016. It isn't helping much -- practically everything is falling. Treasuries, raw materials and corporate bonds are all down for the year.

Where'd You Go?

Equity exposure reaches the lowest level since 2016 amid a 10% S&P drop

Source: National Association of Active Investment Managers

"Both equities and commodities are reflecting some of the fears of a global growth slowdown, so you're not seeing positive returns at all," said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. "Meanwhile the Federal Reserve is raising interest rates for the next six months, if not longer, which is also causing fixed income to go down. Global slowdowns are weighing on credit. And that's giving investors no place to hide."

To be sure, the economic indicators that often precede recession -- yield curve inversion and rising unemployment -- are not flashing warning signs. The yield curve is flat but not inverted and the unemployment rate keeps falling, as opposed to rising when a recession approaches.

— With assistance by Lu Wang


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Mark thoma Links (11/21/18) [feedly]

Recent top econ  blog posts

Links (11/21/18)
https://economistsview.typepad.com/economistsview/2018/11/links-112118.html

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Progress Radio:No Name Becomes Citizens Progress Diner Program: The Drunks Delight Show

John Case has sent you a link to a blog:



Blog: Progress Radio
Post: No Name Becomes Citizens Progress Diner Program: The Drunks Delight Show
Link: http://progress.enlightenradio.org/2018/11/the-drunks-delight-show-first-show-from.html

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Recovery Radio:Recovery Rado" Pastor and author Diana Ferguson discusses "My Father's House"

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Blog: Recovery Radio
Post: Recovery Rado" Pastor and author Diana Ferguson discusses "My Father's House"
Link: http://recovery.enlightenradio.org/2018/11/recovery-rado-pastor-and-author-diana.html

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Economics of Mushroom Production: Kennett Square and the Rise of China [feedly]

Economics of Mushroom Production: Kennett Square and the Rise of China
http://conversableeconomist.blogspot.com/2018/11/economics-of-mushroom-production.html

Mushrooms are a relatively small US agricultural crop, with total production of about $1.2 billion in the 2017-2018 growing year. But they do illustrate some economic lessons, including how a local area that develops a specialization in a certain product can be hard to dislodge, and how the rise of China is reshaping global production in so many ways.

US mushroom production has for a long time been very geographically concentrated. The town of Kennett Square in southeastern Pennsylvania bills itself as the Mushroom Capital of the World, because about half of all US mushroom production happens in the surrounding area of Chester County.

The story here goes back to 1885, and to a florist named William Swayne who lived in Kennett Square. Swayne grew a lot of carnations, which required raised beds. He pondered whether it might be possible to grow a cash crop in the space under those raised beds. Mushrooms had been domesticated in France and England in the middle of the 19th century. Swayne sent away to England for mushroom spores, and began growing them. The demand was high enough that he built a "mushroom house," an enclosed building designed to grow only mushrooms. Other local farmers took note, and the Mushroom Capital of the World became established.

From an economic point of view, an obvious question is why mushroom production remains so concentrated in Chester County more than 120 years later. After all, the basic materials for growing mushrooms like compost from vegetative material (like straw and hay), along with animal manure, are not hard to find. The climate of southeastern Pennsylvania provides a usefully cool ground temperature in fall, winter, and spring, but there are many other locations with similar temperatures.

Although I do not know of a systematic study of mushroom technology, there are some obvious hypotheses as to why mushroom growing has stayed so geographically concentrated. Many types of production look fairly easy from the outside. But when it comes to large-scale commercial production that covers costs and makes a profit, it seems likely that growing mushrooms commercially requires detailed skill and knowledge that spreads among the workers and producers in a geographically close community--in much the same way that software developers flourish in the area around Silicon Valley. In addition to a local labor force with crop-specific skills, local producers build up a chain of processors, wholesalers, national distribution networks, and retailers that is not quickly duplicated. The producers around Kennett Square have shown an ability to dramatically increase production over time: for example, back in 1967 the total US production of mushrooms was 157 million pounds, with 57% coming from Pennsylvania mushroom farmers; in recent years, total US production of mushrooms has risen by a multiple of six at over 900 million pounds.  Finally, the relatively small size of the mushroom market can limit the incentives for new competitors to make substantial investments in trying to take over this market.  

But from the perspective of global mushroom production, this sixfold increase in US mushroom production in the last half-century is only a modest part of the story. The growth of China's economy has led an extraordinary rise in global mushroom production in the last 20 years. Daniel J. Royse , Johan Baars and Qi Tan provide  background in "Current Overview of Mushroom Production in the World." which appears as Chapter 2 in the 2017 book Edible and Medicinal Mushrooms: Technology and Applications, edited by Diego Cunha Zied and Arturo Pardo-Giménez. As they note (references omitted):

World production of cultivated, edible mushrooms has increased more than 30‐fold since 1978 (from about 1 billion kg in 1978 to 34 billion kg in 2013). This is an extraordinary accomplishment, considering the world's population has increased only about 1.7‐fold during the same period (from about 4.2 billion in 1978 to about 7.1 billion in 2013). Thus, per capita consumption of mushrooms has increased at a relatively rapid rate, especially since 1997, and now exceeds 4.7 kg annually (vs 1 kg in 1997; Figure 2.2). ...

China is the main producer of cultivated, edible mushrooms (Figure 2.3). Over 30 billion kg  of mushrooms were produced in China in 2014, and this accounted for about 87% of total production. The rest of Asia produced about 1.3 billion kg, while the EU, the Americas, and other countries produced about 3.1 billion kg.

Here's a figure showing growth of mushroom production vs. world population.

And here's a figure showing global mushroom production by location:

For sales of fresh mushrooms within the US and Canada, Kennett Square doesn't appear to be under immediate threat. But a 2010 report of the US International Trade Commissionpointed out that the US became a net importer of processed mushrooms--typically grown in China--back in 2003-2004.  

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Dems Must Wield Power Against the Powerful to Win Back Rural America [feedly]

As usual .... look at the rural economies and see the hole R strategists drove a truck through

Dems Must Wield Power Against the Powerful to Win Back Rural America
http://cepr.net/publications/op-eds-columns/dems-must-wield-power-against-the-powerful-to-win-back-rural-america

Much of the commentary surrounding the midterm elections focuses on the divide between increasingly Democratic metropolitan areas and increasingly intensely Republican rural and small-town America.

Some pundits and former elected officials claim an emphasis on "the opioid crisis" and rural economic development policy proposals can address Democrats' weaknesses in areas with disproportionate power in the Senate.

Other pundits ignore Phil Bredesen's landslide defeat in the U.S. Senate race in Tennessee and imply Democrats could staunch their rural bleeding by nominating more conservative, more male and more white nominees. 

Progressive activists, alternately uninspired by technocratic policy papers and revulsed by the implication that only conservative white male candidates can win, scoff at those proposals, but as the saying goes, "A plan beats no plan."

Progressives need an alternative to selling out the party's greatly overdue commitment to diversity and something more attention-grabbing than ever-more clever policy proposals. 

A good solution requires a good understanding of the problem. I believe Democrats' problems are two-fold; one, a history of insufficient energy in office in fighting the villains victimizing rural and small-town America; and two, extreme difficulty communicating with voters in media deserts.

Thus, I propose that in 2019, Democrats do better than promising to fight on behalf of rural and small-town Americans. Democrats should actually wield government oversight power to fight for them. 

Here's how Democrats can address their substantive and communications problems in tandem. House Democrats can create a "Special Committee on Rural America" designed to investigate the very real struggles in much of small-town and rural America.

This committee might ultimately help standing committees develop legislation. However, the principal purpose of this committee would be to conduct congressional oversight that identifies the villains draining the lifeblood away from struggling sectors of the country and to very publicly pick fights with these villains.

The hypothesis is that in order to articulate solutions that might persuade the persuadable in those communities, policy prescriptions must be embedded in battles capable of gaining traction in both social media and news coverage. Trump's lies about a "caravan" are simply more provocative than even the best white paper. 

Thus, Democrats must not just identify economic problems in antiseptic policy proposals, but actually demonstrate an eagerness to wield power against the powerful on behalf of small-town America.

That would mean vicious cross-examination of rich opioid pushers, angry back-and-forth with executives from Monsanto, examining the practices of the processing goliaths and hauling before Congress the "seed, livestock and banking" monopolists who "are punishing rural America." 

The Democrat who ran against Rep. Steve King (R-Iowa), J.D. Scholten, made inroads in rural western Iowa in part by highlighting issues of monopoly power. How much greater traction could the party achieve as a whole if it actively used genuine government power, such as aggressive subpoenas, against these villains? 

Videos of angry back-and-forths of these oversight battles shared on social media would receive more attention than white papers. News of billionaires resisting subpoenas would yield more interest than policy proposals with which Trump never engages.

Policy proposals resulting from the context of melees with corporate executives are going to seem like a political party's authentic priority in a way that a paper posted on a corner of a candidate's website never can.

Basically, if the forces destroying the family farm, consolidating sources of farm credit and destroying small-town retail come to hate a political party, that political party will generate the credibility among small-town voters necessary to earn a real hearing.

This proposed committee would not be stuck in D.C.; hearings would be held across the country. The committee's efforts would require dedicated staffers to push each and every investigative step out on social media while making members available to rural radio, print, television and podcasts. 

This proposal has a historical basis in the considerable history of rural populist oversight in Congress. The banking committees were in large part led by populists popular in rural parts of Texas and Wisconsin from the 1960s until the early 1990s — Rep. Wright Patman (D-Texas) and Rep. Henry Gonzalez (D-Texas) in the House and Sen. William Proxmire (D-Wis.) in the Senate.

In addition, as an official Senate history noted, "No senator ever gained greater political benefits from chairing a special investigating committee than did Missouri's Harry S. Truman."

As Robert Weissman has noted, "committee investigations highlighted deceptive practices on credit reporting, interest overcharges, [...] and abuses in the securities industry," and even "relentlessly scrutinized the Federal Reserve Board for its tendency to favor creditors with tight money policies."

And as Martin Longman has demonstrated, anti-monopoly politics has a deep, albeit oft-forgotten, history of resonance in small-town America.

Democrats have a chance to return to the roots of past successes in non-urban America by wielding the actual power of congressional oversight against deserving villains — will they take it?

---

Jeff Hauser is the founder and director of the Revolving Door Project, an initiative which scrutinizes executive branch appointments to ensure political appointees serve the broad public interest, at the Center for Economic and Policy Research. 

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Everything You Thought You Knew About Western Civilization Is Wrong: A Review of Michael Hudson's New Book, And Forgive Them Their Debts

To say that Michael Hudson's new book And Forgive Them Their Debts: Lending, Foreclosure, and Redemption from Bronze Age Finance to the Jubilee Year (ISLET 2018) is profound is an understatement on the order of saying that the Mariana Trench is deep. To grasp his central argument is so alien to our modern way of thinking about civilization and barbarism that Hudson quite matter-of-factly agreed with me that the book is, to the extent that it will be understood, "earth-shattering" in both intent and effect. Over the past three decades, Hudson gleaned (under the auspices of Harvard's Peabody Museum) and then synthesized the scholarship of American and British and French and German and Soviet assyriologists (spelled with a lower-case a to denote collectively all who study the various civilizations of ancient Mesopotamia, which include Sumer, the Akkadian Empire, Ebla, Babylonia, et al., as well as Assyria with a capital A). Hudson demonstrates that we, twenty-first century globalists, have been morally blinded by a dark legacy of some twenty-eight centuries of decontextualized history. This has left us, for all practical purposes, utterly ignorant of the corrective civilizational model that is needed to save ourselves from tottering into bleak neo-feudal barbarism.

This corrective model actually existed and flourished in the economic functioning of Mesopotamian societies during the third and second millennia B.C. It can be termed Clean Slate amnesty, a term Hudson uses to embrace the essential function of what was called amargi andníg-si-sáin Sumerian, andurārumand mīšarumin Akkadian (the language of Babylonia), šudūtu andkirenzi in Hurrian, para tarnumarin Hittite, and deror(דְּרוֹר) in Hebrew: It is the necessary and periodic erasure of the debts of small farmers — necessary because such farmers are, in any society in which interest on loans is calculated, inevitably subject to being impoverished, then stripped of their property, and finally reduced to servitude (including the sexual servitude of daughters and wives) by their creditors, creditors. The latter inevitably seek to effect the terminal polarization of society into an oligarchy of predatory creditors cannibalizing a sinking underclass mired in irreversible debt peonage. Hudson writes: "That is what creditors really wanted: Not merely the interest as such, but the collateral — whatever economic assets debtors possessed, from their labor to their property, ending up with their lives" (p. 50).

And such polarization is, by Hudson's definition, barbarism. For what is the most basic condition of civilization, Hudson asks, other than societal organization that effects lasting "balance" by keeping "everybody above the break-even level"?

"Mesopotamian societies were not interested in equality," he told me, "but they were civilized. And they possessed the financial sophistication to understand that, since interest on loans increases exponentially, while economic growth at best follows an S-curve. This means that debtors will, if not protected by a central authority, end up becoming permanent bondservants to their creditors. So Mesopotamian kings regularly rescued debtors who were getting crushed by their debts. They knew that they needed to do this. Again and again, century after century, they proclaimed Clean Slate Amnesties."

Hudson also writes: "By liberating distressed individuals who had fallen into debt bondage, and returning to cultivators the lands they had forfeited for debt or sold under economic duress, these royal acts maintained a free peasantry willing to fight for its land and work on public building projects and canals…. By clearing away the buildup of personal debts, rulers saved society from the social chaos that would have resulted from personal insolvency, debt bondage, and military defection" (p. 3).

Marx and Engels never made such an argument (nor did Adam Smith for that matter). Hudson points out that they knew nothing of these ancient Mesopotamian societies. No one did back then. Almost all of the various kinds of assyriologists completed their archaeological excavations and philological analyses during the twentieth century. In other words, this book could not have been written until someone digested the relevant parts of the vast body of this recent scholarship. And this someone is Michael Hudson.

So let us reconsider Hudson's fundamental insight in more vivid terms. In ancient Mesopotamian societies it was understood that freedom was preserved by protecting debtors. In what we call Western Civilization, that is, in the plethora of societies that have followed the flowering of the Greek poleis beginning in the eighth century B.C., just the opposite, with only one major exception (Hudson describes the tenth-century A.D. Byzantine Empire of Romanos Lecapenus), has been the case: For us freedom has been understood to sanction the ability of creditors to demand payment from debtors without restraint or oversight. This is the freedom to cannibalize society. This is the freedom to enslave. This is, in the end, the freedom proclaimed by the Chicago School and the mainstream of American economists. And so Hudson emphasizes that our Western notion of freedom has been, for some twenty-eight centuries now, Orwellianin the most literal sense of the word: War is Peace • Freedom is Slavery• Ignorance is Strength. He writes: "A constant dynamic of history has been the drive by financial elites to centralize control in their own hands and manage the economy in predatory, extractive ways. Their ostensible freedom is at the expense of the governing authority and the economy at large. As such, it is the opposite of liberty as conceived in Sumerian times" (p. 266).

And our Orwellian, our neoliberal notion of unrestricted freedom for the creditor dooms us at the very outset of any quest we undertake for a just economic order. Any and every revolution that we wage, no matter how righteous in its conception, is destined to fail.

And we are so doomed, Hudson says, because we have been morally blinded by twenty-eight centuries of deracinated, or as he says, decontextualized history. The true roots of Western Civilization lie not in the Greek poleis that lacked royal oversight to cancel debts, but in the Bronze Age Mesopotamian societies that understood how life, liberty and land would be cyclically restored to debtors again and again. But, in the eighth century B.C., along with the alphabet coming from the Near East to the Greeks, so came the concept of calculating interest on loans. This concept of exponentially-increasing interest was adopted by the Greeks — and subsequently by the Romans — without the balancing concept of Clean Slate amnesty.

So it was inevitable that, over the centuries of Greek and Roman history, increasing numbers of small farmers became irredeemably indebted and lost their land. It likewise was inevitable that their creditors amassed huge land holdings and established themselves in parasitic oligarchies. This innate tendency to social polarization arising from debt unforgiveness is the original and incurable curse on our post-eighth-century-B.C. Western Civilization, the lurid birthmark that cannot be washed away or excised. In this context Hudson quotes the classicist Moses Finley to great effect: "…. debt was a deliberate device on the part of the creditor to obtain more dependent labor rather than a device for enrichment through interest." Likewise he quotes Tim Cornell: "The purpose of the 'loan,' which was secured on the person of the debtor, was precisely to create a state of bondage"(p. 52 — Hudson earlier made this point in two colloquium volumes he edited as part of his Harvard project: Debt and Economic Renewal in the Ancient Near East, and Labor in the Ancient World).

Hudson is able to explain that the long decline and fall of Rome begins not, as Gibbon had it, with the death of Marcus Aurelius, the last of the five good emperors, in A.D. 180, but four centuries earlier, following Hannibal's devastation of the Italian countryside during the Second Punic War (218-201 B.C.). After that war the small farmers of Italy never recovered their land, which was systematically swallowed up by the prædia(note the etymological connection with predatory), the latifundia, the great oligarchic estates: latifundia Italiam ("the great estates destroyed Italy"), as Pliny the Elder observed. But among modern scholars, as Hudson points out, "Arnold Toynbee is almost alone in emphasizing the role of debt in concentrating Roman wealth and property ownership" (p. xviii) — and thus in explaining the decline of the Roman Empire.

"Arnold Toynbee," Hudson writes, "described Rome's patrician idea of 'freedom' or 'liberty' as limited to oligarchic freedom from kings or civic bodies powerful enough to check creditor power to indebt and impoverish the citizenry at large. 'The patrician  aristocracy's monopoly of office after the eclipse of the monarchy [Hudson quotes from Toynbee's book Hannibal's Legacy] had been used by the patricians as a weapon for maintaining their hold on the lion's share of the country's economic assets; and the plebeian majority of the Roman citizen-body had striven to gain access to public office as a means to securing more equitable distribution of property and a restraint on the oppression of debtors by creditors.' The latter attempt failed," Hudson observes, "and European and Western civilization is still living with the aftermath" (p. 262).

Because Hudson brings into focus the big picture, the pulsing sweep of Western history over millennia, he is able to describe the economic chasm between ancient Mesopotamian civilization and the later Western societies that begins with Greece and Rome: "Early in this century [i.e. the scholarly consensus until the 1970s] Mesopotamia's debt cancellations were understood to be like Solon's seisachtheia of 594 B.C. freeing the Athenian citizens from debt bondage. But Near Eastern royal proclamations were grounded in a different social-philosophical context from Greek reforms aiming to replace landed creditor aristocracies with democracy. The demands of the Greek and Roman populace for debt cancellation can rightly be called revolutionary[italics mine], but Sumerian and Babylonian demands were based on a conservative tradition grounded in rituals of renewing the calendrical cosmos and its periodicities in good order. The Mesopotamian idea of reform had 'no notion [Hudson is quoting Dominique Charpin's book Hammurabi of Babylonhere] of what we would call social progress. Instead, the measures the king instituted under his mīšarum were measures to bring back the original order [italics mine]. The rules of the game had not been changed, but everyone had been dealt a new hand of cards'" (p. 133). Contrast the Greeks and Romans: "Classical Antiquity," Hudson writes, "replaced the cyclical idea of time and social renewal with that of linear time. Economic polarization became irreversible, not merely temporary"  (p. xxv). In other words: "The idea of linear progress, in the form of irreversible debt and property transfers, has replaced the Bronze Age tradition of cyclical renewal" (p. 7).

After all these centuries, we remain ignorant of the fact that deep in the roots of our civilization is contained the corrective model of cyclical return – what Dominique Charpin calls the "restoration of order" (p. xix). We continue to inundate ourselves with a billion variations of the sales pitch to borrow and borrow, the exhortation to put more and more on credit, because, you know, the future's so bright I gotta wear shades.

Nowhere, Hudson shows, is it more evident that we are blinded by a deracinated, by a decontextualizedunderstanding of our history than in our ignorance of the career of Jesus. Hence the title of the book: And Forgive Them Their Debts and the cover illustration of Jesus flogging the moneylenders — the creditors who do not forgive debts — in the Temple. For centuries English-speakers have recited the Lord's Prayer with the assumption that they were merely asking for the forgiveness of their trespasses, their theological sins: "… and forgive us our trespasses, as we forgive those who trespass against us…." is the translation presented in the Revised Standard Version of the Bible. What is lost in translation is the fact that Jesus came "to preach the gospel to the poor … to preach the acceptable Year of the Lord": He came, that is, to proclaim a Jubilee Year, a restoration of deror for debtors: He came to institute a Clean Slate Amnesty (which is what Hebrew דְּרוֹר connotes in this context).

So consider the passage from the Lord's Prayer literally: … καὶ ἄφες ἡμῖν τὰ ὀφειλήματα ἡμῶν: "… and send away (ἄφες) for us our debts (ὀφειλήματα)." The Latin translation is not only grammatically identical to the Greek, but also shows the Greek word ὀφειλήματα revealingly translated as debita: … et dimitte nobis debita nostra: "… and discharge (dimitte) for us our debts (debita)." There was consequently, on the part of the creditor class, a most pressing and practical reason to have Jesus put to death: He was demanding that they restore the property they had rapaciously taken from their debtors. And after His death there was likewise a most pressing and practical reason to have His Jubilee proclamation of a Clean Slate Amnesty made toothless, that is to say, made merely theological: So the rich could continue to oppress the poor, forever and ever. Amen.

Just as this is a profound book, it is so densely written that it is profoundly difficult to read. I took six days, which included six or so hours of delightful and enlightening conversation with the author himself, to get through it. I often availed myself of David Graeber's book Debt: The First 5,000 Years when I struggled to follow some of Hudson's arguments. (Graeber and Hudson have been friends, Hudson told me, for ten years, and Graeber, when writing Debt; The First 5,000 Years, relied on Hudson's scholarship for his account of ancient Mesopotamian economics, cf. p. xxiii). I have written this review as synopsis of the book in order to provide some help to other readers: I cannot emphasize too much that this book is indeed earth-shattering, but much intellectual labor is required to digest it.

ADDENDUM: Moral Hazard

When I sent a draft of my review to a friend last night, he emailed me back with this question:

— Wouldn't debt cancellations just take away any incentive for people to pay back loans and, thus, take away the incentive to give loans? People who haven't heard the argument before and then read your review will probably be skeptical at first.

Here is Michael Hudson's response:

— Creditors argue that if you forgive debts for a class of debtors – say, student loans – that there will be some "free riders," and that people will expect to have bad loans written off. This is called a "moral hazard," as if debt writedowns are a hazard to the economy, and hence, immoral.

This is a typical example of Orwellian doublespeak engineered by public relations factotums for bondholders and banks. The real hazard to every economy is the tendency for debts to grow beyond the ability of debtors to pay. The first defaulters are victims of junk mortgages and student debtors, but by far the largest victims are countries borrowing from the IMF in currency "stabilization" (that is economic destabilization) programs.

It is moral for creditors to have to bear the risk ("hazard") of making bad loans, defined as those that the debtor cannot pay without losing property, status or becoming insolvent. A bad international loan to a government is one that the government cannot pay except by imposing austerity on the economy to a degree that output falls, labor is obliged to emigrate to find employment, capital investment declines, and governments are forced to pay creditors by privatizing and selling off the public domain to monopolists.

The analogy in Bronze Age Babylonia was a flight of debtors from the land. Today from Greece to Ukraine, it is a flight of skilled labor and young labor to find work abroad.

No debtor – whether a class of debtors such as students or victims of predatory junk mortgages, or an entire government and national economy – should be obliged to go on the road to and economic suicide and self-destruction in order to pay creditors. The definition of statehood – and hence, international law – should be to put one's national solvency and self-determination above foreign financial attacks. Ceding financial control should be viewed as a form of warfare, which countries have a legal right to resist as "odious debt" under moral international law.

The basic moral financial principal should be that creditors should bear the hazard for making bad loans that the debtor couldn't pay — like the IMF loans to Argentina and Greece. The moral hazard is their putting creditor demands over the economy's survival.

--

John Case
Harpers Ferry, WV

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