“Debtors’ Prison”: Bob Kuttner on the Costs of Rentier Rule

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Bob Kuttner has an elegant and important article at American Prospect, “Debtors’ Prison“. It’s an evocative, historical form of the argument made here and elsewhere: that advanced economies have gone down a disastrously bad path in not writing down debt that can’t realistically be paid.

The usual poster child for “why not writing down debts is a bad idea” is Japan, but that isn’t gripping enough to evoke the right responses. Even though its post-bubble growth has been dreadful, Japan is still a well-run, tidy country with a low crime rate, universal health care, long life expectancy, and tolerable unemployment. That in turn is due to factors that do not obtain much of anywhere else: Japan was very cohesive to begin with, and its elites chose to have their incomes fall relative to everyone else to save jobs. Wage compression at large companies has increased dramatically. This is the polar opposite of what has happened in the rest of the world, where the gap between the haves and the have-nots has widened.

Kuttner provides another set of examples as to why we need to get the creditor boot off all our necks:


The creditor class views anything less than full debt repayment as the collapse of
economic civilization. In fact, however, debts are often not paid in full….Bankruptcy ingeniously
provides orderly relief from past debt so that the productive enterprise is not needlessly destroyed….But the same business elite looks askance when others—homeowners,
small nations, the entire economic system—seek relief from punishing and economically
perverse debt….

History’s two great negative and positive examples of how to deal with unsustainable debt are the periods after the two world wars. At the 1919 Versailles peace conference, the creditor mentality prevailed, and Europe’s postwar recovery was aborted. Britain and France imagined they could bleed defeated Germany to pay off their own immense war debts (mostly to the United States). Britain also pursued tight money to keep its own currency valued at prewar levels, in order to protect the creditor class.

The policy wrecked the German economy and kept British unemployment above 10 percent for two decades. The great critic of Britain’s folly was John Maynard Keynes, then an adviser to the British Treasury. Keynes’ 1919 book, The Economic Consequences of the Peace, prophetically warned that the policy of squeezing Germany until “the pips squeak” would cause depression and a second war. After World War II, history history gave Keynes a chance do it right. His Bretton Woods
system emphasized domestic recovery in the defeated as well as the victorious powers and created a global monetary system in which private financial speculators were denied the power to compel nations to pursue deflation.

Today, that expansionary logic has been reversed and creditors are once again hegemonic. Banks want cheap money for themselves, draconian terms for others. The banker-afflicted European Union is punishing Greece rather than finding a way to let it grow. In the United States, relief is denied to underwater homeowners because debt contracts are sacred, even as the policy prolongs the agony. Everywhere, budget austerity is advertised as the road to growth— though it denies the economy its productive potential.

Just as Lenin said capitalists would sell him the rope with which he would hang them, so too do ordinary people seem to be putting their necks in the banking class debt noose by siding with the rentier austerity logic. Until they decided to loot entire economies, the first thing that would cross a lender’s mind when his borrower got in trouble is whether he was worth more dead or alive. Normally, the answer is “alive” and restructurings and reschedulings were the norm. Now we are told, falsely, that it is a moral duty to pay every debt in full, when these are commercial transactions. Non-payment has bad consequences for the borrower, so unless they were scamsters, they don’t do it frivolously. But as Kuttner points out, the perverted logic of grinding down borrowers takes the entire economy down with it. It’s ultimately a lose-lose, but having secured political control, it’s going to prove hard to save them and us from their self-destructive behavior.

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  1. Foppe


    Not to point out the obvious, but that’s only a symptom of a larger disease too. Before the borrowers were being ground down, they were first made into borrowers, because aggregate demand had to be kept up. And AD had to be kept up this way because US workers were becoming uncompetitive because of import/export barriers and capital controls were being removed at ever-increasing speed. And while those ruling the ‘Asian Tigers’ at least were wise enough to develop domestic markets as well, more recent entrants to the world market have been almost entirely export-based economies, which is what the rentier class prefers, as it means there will be no local political push to increase wages. These things obviously still develop after a while, but by then it will have become interesting again to go to another poor country, to try the same export-based growth (leading to inequality) game once again, hoping to undermine the basis of the more developed, and less unequal economies. This is not to say I believe in cycles, but rather that the political dynamics seem to work out this way because people become complacent, at which point the politicians become susceptible once more to the following argument. Woodrow Wilson:


  2. RebelEconomist

    I would love to know about the personal finances of people that write arguments like this. Their debt-based assets like bank accounts should be first in the queue to be written down to provide relief for debtors. Kuttner gives away his prejudices when he writes “creditor class” rather than “creditors”. Actually, I dare say that the people with the highest proportion of their wealth in debt-based assets, and who would bear the cost of write-offs, are the middle class, whereas the seriously rich hold their wealth in the form of property (the Duke of Westminster), company stock (Rupert Murdoch), human capital (Cristiano Ronaldo), royalty rights (Paul McCartney) etc.

    1. foppe

      Oh, I do love people who engage in ad hominem attacks. Those frequently tell you so much about the prejudices of the readers. For instance, in RE’s case, it tells you implicitly that he ascribes to the belief that only people with no assets will put forward arguments such as this, because everyone with “skin in the game” immediately puts personal gain before all other considerations. Or was your observation merely “ooh, Kuttner talks about class, he’s an evil commie”?
      As for your assertion that the “seriously rich” start to invest in real estate and similar: you are, to some degree, correct. This is why Neoliberals are so hot on (intellectual) property rights: it’s a very safe way of rent-seeking. However, considering the amount of fraud we see in the housing market, I suspect that this isn’t quite as safe as they hope. Similarly, while company stock might seem a safe bet, stock prices are based on demand and bubble effects, so drops in demand will also result in share price drops (while stock prices will also drop when enough money leaves the market). And if push comes to shove, there’s always nationalization, redistribution, and the abolition of IPRs (some of which is starting to happen now in Latin/South America.)

    2. F. Beard

      There is no need for anyone’s assets to be written down. Just:

      1) Abolish the ability of banks to issue new credit.
      2) Bailout the entire population equally, including savers, with new, debt-free fiat.

      Thus debt can be eliminated with no serious price inflation risk and savers would receive and equal amount too.

      Of course, we need fundamental reform too.

      1. RebelEconomist

        The idea that new money should be distributed equally seems fair, but it is not. It would disadvantage the holders of existing nominal claims. And it is hard to believe that issuing enough to “bail out the entire population” would not be inflationary.

        1. F. Beard


          It would disadvantage the rich only in relative terms because it would reduce wealth disparity. But the purchasing power of the rich should remain intact assuming price inflation could be prevented.


          The reason it would not be price inflationary is because the money supply would not grow. The bailout checks would be metered so as to just replace the amount of credit that was repaid monthly. Since 97% of the money supply is credit then that allows for a massive bailout.

          1. wunsacon

            I agree this idea, Beard, of issuing fiat to regular folk, fiat not backed by debt. (When Bernanke was talking about dropping money from helicopters, I thought that’s what he was referring to. That is, until I saw what he started doing.)

          2. Paul Jurczak

            Seth, I couldn’t agree more. Remember, safety first! There sure isn’t enough room on my lawn to land a helicopter. You need certain size property to deserve a helicopter visit.

    3. bmeisen

      Treating your checking account as a debt-based asset is a cocktail of the creditor class: hugely flavorful, especially if you chase it with a shot of Bermuda SPE. Most of us, I bet, treat checking accounts like the contemporary American necessities that are and nothing more.

    4. Francois T

      Well, that’s it!

      Let’s grind the whole world economy to a complete halt, so the ideological and moral imperative of repayment stay pure and inviolate.


    5. jonboinAR

      RE: -“Actually, I dare say that the people with the highest proportion of their wealth in debt-based assets, and who would bear the cost of write-offs, are the middle class…”-

      I guess the middle class is cool, then. We owe all this money, but we owe it to ourselves. Everything should be copacetic.

  3. Schofield

    It’s the usual short-sighted evolutionary adaption game being played by some human beings of all Individualism and no balancing of Mutual Cooperation. One day they might become adults !

    1. Seth

      I’d settle for a few more of them “reading the memo” from Jesus. He tried to replace “an eye for an eye” with “turn the other cheek” about 2000 years back, and even a lot of people who are heavy consumers of “Brand Christ” don’t seem to have gotten the message.

      Of course ‘evolutionary adaptation’ is a more illuminating metaphor than faith-based parables, but Jesus and similar prophets introduced their adaptive mutations through parables and other prophetic language. it’s just taking a dreadfully long time for some of these mutations to gain a firm hold in the general population.

  4. DownSouth

    So how are we to reconcile this post to Philip Pilkington’s post from a couple of days ago, Philip Pilkington: Debt, public or private?: The necessity of debt for economic growth?

    Pilkington stakes out a position diametrically opposed to Kuttner, arguing that debt is sacrosanct.

    More interesting was that Pilkington invoked MMT theory to justify this stance. And then even more interesting was how various MMTers circled the wagons around Pilkington. Things just keep getting curioser and curioser.

    But I don’t remember more thoughtful MMTers, like Marshall Auerback for instance, ever invoking MMT theory to argue that debt is sacrosanct. Correct me if I’m wrong, but hasn’t Auerback taken a position similar to that of Kuttner?

    In Political Ponerology: Science of the Nature of Evil Adjusted for Political Purposes Andrew M. Lobaczewski postulates a process which he calls “ponerization” by which ideological movements become corrupted. As he explains:

    In the ponerogenic process of the pathocratic phenomenon, characteropathic individuals adopt ideologies,… recast them into an active propaganda form, and disseminate it with their characteristic pathological egotism and paranoid intolerance for any philosophies which may differ from their own.

    “Characteropathic individuals” Lobaczewski defines as “individuals who are insufficiently critical, frequently frustrated as a result of downward social adjustment, culturally neglected, or characterized by some psychological deficiencies of their own.”

    As the ponerization process proceeds, those who have been “injured by social injustice” get purged by the “essential psychopaths.” “From this time on,” Lobasczewski warns, “using the ideological name of the movement in order to understand its essence becomes a keystone of mistakes.” Eventually the essential psychopaths, which he dubs “pathocrats,” achieve absolute domination of the movement, and if the movement is successful in taking control of the government, this results in a state he calls “pathocracy.”

    Since Lobaczewski lived in Communist Poland, he uses the vitiation of Marxism as his example. But he says that all types of ideological movements—-social, political, and religious—-have fallen victim to ponerization.

    Using Lobaczewski’s framing, I would argue that Christianity became ponerized in the late medieval period. This triggered the Reformation.

    I would also argue that liberalism (along with liberal economic theory) became ponerized in the 19th century. This triggered Marxism.

    I certainly don’t buy wholesale into all of Lobaczewski’s conclusions, but he does offer a fairly novel way to look at social, political and economic cycles. He argues that looking at these phenomena through the lens of psychology instead of that of history, morality, theology, philosophy, political science, sociology, etc. offers a more effective way of protecting society from the “abuse of power and sadistic degenerations” that “come about all too easily.”

    1. Calgacus

      There is no contradiction. Pilkington does not argue that private debt is sacrosanct. I don’t think you understand his article. The MMT / creditary view is about understanding money and credit/debt, not saying they are sacrosanct. The MMT/creditary people who share common human morality suggest solutions like Kuttner’s or Pilkington’s, which would enlarge government debt (= money) in accordance with real growth, and lessen private debt. The MMT/creditary people with the morality of vampires who run Goldman Sachs use their conceptually correct analyses to better feed on blood/debt from the lesser 6+ billion of us.

      1. F. Beard

        which would enlarge government debt (= money) Calgacus

        Which government could simply create and spend.

        1. DownSouth

          F. Beard,

          I noticed that too. Calgacus is into propagating the same misinformation that Plkington is. From the above-linked comment thread:

          ■ Calgacus says:
          June 5, 2011 at 7:07 pm
          I suggest you set up a commune and issue your own currency. I wish you luck. My guess is that debts will start being incurred within six months. This is confused. Debts will be incurred (by the currency-issuer) the instant the currency is issued, because currency/money is a form of debt, as you correctly say elsewhere.

          There’s a wonderful video documentry that completely debunks the bankster myth that Calgacus and Pilkington are propagating:

          The Secret of Oz

          It details the history of where the myth originated and follows it right on up to today, and explains why it is ficticious.

          1. F. Beard

            Calgacus makes a rather narrow point that money always equals debt. But even if that were true (which is isn’t), the important point is that no 3rd party debt is ever required. Thus the Fed and banking system are unnecessary.

          2. Calgacus

            DownSouth, I don’t think you understand what I am saying. I don’t do videos on this slow connection. That “money is credit/debt” is the secret that the banksters have been trying to hide. When economists and people understood it, in the postwar Keynesian full employment golden age, the world saw the greatest prosperity of all time. When the monetarist/neoclassical morons revived their dead and stupid theories in the 70s, worldwide prosperity collapsed. F. Beard calls it a “narrow point”. Perhaps. But this trivial observation is the core of “MMT”. You can’t successfully fight the banksters until you understand their weaponry – money and credit.

      2. DownSouth

        Calgacus says:


        He doesn’t?

        Well go read the entire thing, including the comments section, where through ddebate positions tend to get clarified.

        Here’s but one example:

        Philip Pilkington says:

        June 4, 2011 at 9:41 am

        “One does not need to increase government debt to decrease private debt – in extreme private debt could be shrunk to 0 through bankruptcies without any impact on government debt level.” [Al Bundy]

        I missed this. I’m not too good on bankruptcies, but as far as I understand it bankruptcies punch holes in other private sector balance sheets — i.e. those of private sector banks.

        If the banks then cannot deal with these, they request a bailout. The alternative, in a modern system, would be financial and economic meltdown. So, the government takes on the debts anyway.

        Pretty sure this is what happened in Ireland. NAMA — which is sort of like TARP — holds the bad debts of a load of bankrupt property developers and it’s supported on the government balance sheet.

        1. Calgacus

          He isn’t saying debt is sacrosanct here. You are reading things which aren’t there. To give you your due, I think Pilkington overestimates the meltdown problem caused by bankruptcies, if an intelligent government oversaw things ( a very big “if”). But the upshot is that one way or another there will be more government debt relative to private debt – which is a good thing, especially when the government debt is well-distributed, not concentrated at the top.

      3. jonboinAR

        Are you all arguing semantics at this point? Okay, how about, give Calgacus this point. Government issued money is debt. I don’t understand, because,say that we say the government will just print money to buy stuff from contractors, and this is how money will get into the private economy (is this an MMT approved system?), how does that obligate the government? It seems to me that “debt” implies an obligation to repay. But we’ll just agree that all money is “debt” even if I don’t comprehend why or how, yet.

        Okay, then. In that case, is not what gets the dander up of Down South and Attempter not so much the idea of debt, but usury, that is, the charging of interest? What if we eliminate that by bypassing the current banking system? Let the government print as much money as the economy needs to function, then spend it on solar panels, wind farms, free education, and universal health care. Will that lubricate the economy sufficiently? What will we do to amass large amounts of capital to invest in capital intensive businesses? Government loans? Oops! There we go with the “D” word again.

        I know Attempter wants to go back to the country, but I wonder if that’s practical for everybody (9 billion?).

        1. F. Beard

          Let the government print as much money as the economy needs to function, … jonboinAR

          Who knows how much that is? So let’s provide a pressure relief in case the government overspends relative to taxation – genuine alternative private currencies. Most people would prefer to use government money for its convenience but they should be allowed to use alternative private currencies “just in case” the government mismanages its money supply.

          Will that lubricate the economy sufficiently? jonboinAR

          Yes, if alternative private currencies were allowed then the government could spend freely without risking damage to the private sector. Price inflation in its money would be a sharp warning to the government that it was not spending wisely.

          1. F. Beard

            How do people who wish to engage in transactions convert all these private currencies. jonboinAR

            Every currency of consequence would have a free market exchange rate with the government’s fiat and thus to each other. Computers and modern communications would keep up with the details.

            It seems chaotic and inefficient.jonboinAR

            Folks could always choose to use the government’s fiat for all debts instead of just government ones. Alternative private currencies would be an option, not a requirement. But their existence would force the government to spend wisely or else only the government and its payees would suffer.

    2. Tao Jonesing


      Neoliberalism seems to be the modern ponerization of liberalism to me. Neoliberalism is the feudal wolf in liberal sheep clothing.

      1. DownSouth


        I agree.

        The United States has a mixed political economy that is a hybrid of liberalism (capitalism) and Marxism (the welfare and regulatory state, or socialism).

        Liberalism being much older, its vitiation occurred much sooner. Reinhold Niebuhr puts it succinctly:

        The earlier bourgeois man wanted to eliminate political power because it represented the special advantages which the old aristocracy had over him. The present bourgeois man wants to reduce it to a minimum because it represents the effort of a democratic society to bring disproportions of economic power under control. In the shift of motive from earlier to later bourgeois man lies the inevitable degradation of the liberal dogma. Marxism was bound to challenge this dogma, and to find the later form particularly vulnerable.
        ▬ Reinhold Niebuhr, The Irony of American History

        So democratic socialism and the welfare state (Marxism) were ushered in. But oddly, it wasn’t called Marxism or socialism in the United States. Instead, the meaning of the word “liberalism” was changed so that it now meant socialism.

        Jacques Barzun called this change of the meaning of the word liberalism “the Great Switch,” which he describes in From Dawn to Decadence:

        What Shaw and all the other publicists who agitated the social question helped to precipitate was the onset of the Great Switch. It was the pressure of Socialist ideas, and mainly the Reformed groups in parliaments and the Fabian outside, that brought it about. By Great Switch I mean the reversal of Liberalism into its opposite. It began quietly in the 1880s in Germany after Bismarck “stole the Socialists’ thunder”—-as observers put it—-by enacting old-age pensions and other social legislation. By the turn of the century Liberal opinion generally had come to see the necessity on all counts, economic, social, and political, to pass laws in aid of the many—-old or sick or unemployed—-who could no longer provide for themselves. Ten years into the century, the Lloyd George budget started England on the road to the Welfare State.

        Liberalism triumphed on the principle that the best government is that which governs least; now for all the western nations political wisdom has recast this ideal of liberty into liberality. The shift has thrown the vocabulary into disorder…

        So what we call liberalism today is really socialism or Marxism, and what we call neoliberalism is really liberalism.

        And I agree that there is absolutely no doubt that neoliberalism is ponerized. But is the socialistic portion of the economy, or the welfare and regulatory state, ponerized? I believe that it is, as is evidenced by the fact that big corporations have been the sole beneficiary of all recent “reform” of the regulatory and welfare state.

        1. DownSouth


          I’ve also been interested to know if a ponerized Marxism and a ponerized liberalism have any ideological affinities.

          In Adam Curtis’ interview in today’s links he explains that both the current ideology of the right and the left is based on cybernetics. I, on the other hand, have often argued that they are both Fichtean. The ideologies seem to be antithetical, but in the mind of the pathocrat I think they can be reconciled because, as Lobaczewski explains, one ideology applies to the pathocrat himself and another applies to those “others” whom the pathocrat holds in complete disdain:

          Their world is forever divided into “us and them”; their little world with its own laws and customs and that other foreign world of normal people they see as full of presumptuous ideas and customs by which they are condemned morally. Their sense of honor bids them to cheat and revile that other human world and its values at every opportunity….


          So the pathocrat is a two-headed monster, preaching “liberation” out of one side so that he can have the freedom to rape, plunder and kill at will, and tyranny out of the other side so that he can force those “others” to do and be as he wishes.

          Hugh and Valissa have expressed the belief that what drives our current political and economic elite is egoism. Lobaczewski believes it is more complicated than that, that it is a combination of egoism, egotism, hedonism, and egocentricism that govern, and they can all be equally important to the pathocrat. Here are Lobaczewski’s definitions of those three:

          • Egoism: The doctrine that individuals are motivated solely by self-interest.

          • Egotism: The attitude, subconsciously conditioned as a rule, to which we attribute excessive value to our instinctive reflexes, early acquired imaginings and habits, and individual world view. An egoist measures other people by his own yardstick, treating his concepts and experimental manner as objective criteria. For such people, forcing others in their environment to feel and think like themselves becomes an internal necessity, a ruling concept.

          • Hedonism: The doctrine that pleasure or happiness is the highest good.

          • Egocentrism: Regarding one’s self and opinions or interests as the center of all things.

          1. Tao Jonesing

            Interesting. Where I find myself heading is back towards the old addage “Power corrupts. Absolute power corrupts absolutely.”

            The problem is the human animal’s innate bias towards loss aversion. When you reach a level of wealth beyond your comprehension, losing any of it becomes incomprehensible, and you’ll do monstrous things to make sure you keep it.

            It’s kind of the polar opposite of the saying “when people have nothing to lose, sometimes they just lose it.” When people think they have everything to lose, it just goes away, never to be seen again. (The “it” being the conscience.)

          2. DownSouth


            Everybody from Machiavelli to Lobaczewski agrees with you on the class distinction you point out:

            Turning now to the other case, when a private citizen becomes the ruler of his country not through perfidy or intolerable violence but rather through the aid of his fellow citizens, we may call what ensures a civil principality. I say that one becomes the ruler of such a principality through the support of either the common people or the nobles, for these two opposing parties are to be found in every city; and they originate from the fact that the common people do not want to be commanded or oppressed by the nobles, whereas the nobles do want to command and oppress them. From these conflicting desires will come one of three consequences: principality, liberty, or license.

            A principality, then, can come into being either by means of the common people or by means of the nobles, depending upon which of the two has the opportunity. When the nobles see that they can no longer withstand the people, they bestow power upon one of their own part and make him prince so that they can gratify their appetites under his protection. Likewise, when the common people see that they can no longer withstand the nobles, they bestow power upon someone of their own party and make him prince in order to find protection under his authority. The man who becomes prince through the help of the nobles will find it more difficult to remain in power than the man who becomes prince through the help of the people, for the former will be surrounded by men who will presume to be his equals. As a consequence, he will not be able to command them or control them as he would like.

            But the prince who comes to power through the support of the people will stand alone, and there will be few or none at all near him who will not be disposed to obey him. Besides, it is impossible to satisfy the nobles fairly without injuring others, whereas it is indeed possible to do so with respect to the people, for their wishes have more right, since they seek to avoid oppression while the nobles seek to oppress…

            As regards these nobles, a prince must be on his guard, and he must fear them as though they were professed enemies, for in time of adversity they will be out to ruin him.

            Thus one who becomes prince with the help of the people will have to preserve their good will—an easy matter, since they only ask that he avoid oppressing them. But one who becomes prince with the help of the nobles against the will of the people must above all else seek to win the good will of the people—again an easy matter so long as he will undertake to protect them…

            I will conclude by saying only that the good will of the people is vital to a prince; otherwise he will be helpless in times of adversity.
            ▬ Niccolo Machiavelli, The Prince


            During “happy times” of peace dependent upon social injustice, children of the privileged classes learn to repress from their filed of consciousness the uncomfortable ideas suggesting that they and their parents are benefitting from injustice against others. Such young people learn to disqualify and disparage the moral and mental values of anyone whose work they are using to over-advantage. Young minds thus ingest habits of subconscious selection and substitution of data, which leads to a hysterical conversive economy of reasoning. They grow up to be somewhat hysterical adults who, by means of the ways adduced above, thereupon transmit their hysteria to the next generation, which then develops these characteristics to an even greater degree. The hysterical patterns for experience and behavior grow and spread downwards from the privileged classes until crossing the boundary of the first criterion of ponerology: the atrophy of natural critical faculties with respect to pathological individuals.


            A greater resistance to resistance to hysterization characterizes those social groups which earn their daily bread by daily effort, and where the practicalities of everyday life force the mind to think soberly and reflect on generalities. As an example: peasants continue to view the hysterical customs of the well-to-do classes through their own earthy perception of psychological reality and their sense of humor. Similar customs on the part of the bourgeoisie incline workers to bitter criticism and revolutionary anger. Whether couched in economic, ideological, or political terms, the criticism and demands of these social groups always contain a component of psychological, moral, and anti-hysterical motivation. For this reason, it is most appropriate to consider these demands with deliberation and take these classes’ feelings into account.
            ▬Andrew M. Lobaczewski, Political Ponerology

          3. Valissa

            “Hugh and Valissa have expressed the belief that what drives our current political and economic elite is egoism.”

            I can’t speak for Hugh, but I certainly have a more complex view of the elites than that. You have a serious tendency to make assumptions about and oversimplify my (and other’s)viewpoints in your arguments in order to support your own points. Personally I tend not to assume too much about other people from a few words said, and enjoy a wide variety of opinions even if I disagree with them. I also feel most arguments are a waste of time and energy so am disinclined to participate.

      2. Seth


        Liberalism pwned by feudalism!

    3. JasonRines

      I like being a bit taboo lately. How about Islam Downsouth? It seems the reaction to predatory lending was to create a religion forbidding usery and extracting revenge against other religions that permitted it.

      I don’t believe many Muslims have ever considered this just like many Christians never read their own bible. Take Bin Laden. It seems his handlers thought he was a mere mercenary when it looks like he was a ‘true’ believer. A bait and switch in the manner of Adolph Hitler. Take the financeers money and kill them with it.

      Cause and effects of cycles is fascinating study. Societal evolution moves far faster than our physical evolution.

      1. F. Beard

        just like many Christians never read their own bible. JasonRines

        Particularly the Old Testament which forbids usury between fellow countrymen and commands debt forgiveness every seven years.

  5. Max424

    YS: “…the perverted logic of grinding down borrowers takes the entire economy down with it.”

    I believe that aside from Hubbert’s Peak (which is in essence, a modern civilization bubble), US household debt is the largest bubble in world history.


    The thing is, the household debt bubble was going to burst — at some point — and the question always was; after the bubble bursts, how does a consumer based economy sustain exponential growth, at a time when the consumer will be forced to simultaneously deleverage a very significant portion of a $13.4 trillion debt load?

    I think the ready answer always was; Don’t worry, when the time comes, we will figure out new and innovative ways for the consumer to take on more debt — even in the unlikely event they are not inclined to do so.

    The problem is; the same people who were going to figure out cool new ways for the consumer to take on more debt, are the same people who are now doing their damndest to force the consumer to pay back every penny of the $13.4 trillion they owe.

    But maybe they had this covered too, the theory being; if I steal all my customers money, true, it leaves them with no money to spend in my business, but, I have extracted all their money, so what’s the diff?

    It doesn’t seem to add up, though, does it? It would seem, by some law of natural math, that once I have stolen all the money, my business would run out of customers, my theft operation would run out of people to steal from, and all this would eventually leave me, the thief, in the same busted position as my victims…*

    * …errr, customers! (Oops)

    1. Income Prison



      The victims, you have with you always. They never seem to run out of other people’s money.

      I got no beef with wealthy folks. I got no beef with dirt poor, singing the blues, indigent folks. We have a beef with the crooks. The most dangerous crooks are the ones in government. “That is where the money is.” We got to watch them crooks day and night. We got to keep spread-sheets, dossiers, criminal records, DNA-results, finger-prints, and every swinging tool we got to fight them tooth and nail. It will be a fight to the death.

      Now you get to play the game.

      Good luck

    2. alex


      Or as a biologist might put it, a truly successful parasite does not kill its host.

      Ok, even I think that’s a little over the top as a generalization, but it’s fun to play Thorsten Veblen once in a while.

    3. Dave of Maryland

      You almost have it. The rich want all the money. The same way a sex-crazed guy wants to have every girl. Nothing else matters.

      The rich will go on sucking up all the money until they are stopped by one means or another. One way to think about this entire historic episode is that the rich, by sheer persistence, have removed all possible restraint on enriching themselves. Sort of like becoming a celebrity golf pro (or basketball pro) removes all hindrances to getting laid this afternoon . . . and tonight . . . and tomorrow morning, etc.

      That’s the simple definition of being rich. To the rich, there is no such thing as “running out of money”. There’s always money, and by definition, that money belongs to them. You were merely holding it until they arrived.

      If the rich get all the money, the economy will not be hurt because the economy simply can’t run out of money. Like the ocean can’t run out of water. So what are we complaining about? Pay the man the money & shut up ! Life is a game and he has won. Money is his due.

  6. Dan Pennell

    From my simple perspectiv..

    The banks and other lenders are like fishermen. The rest of us are the fish.

    Any good fisherman knows that if you want a sustainable catch you do not fish the grounds to the point where the population can no longer recover.

    Those who lend money net in a portion of the productivity the rest of us produce while they themselves produce nothing that can be eaten, slept under, worn, used to make us better when we are sick, or entertain.

    This is fine and can be useful. BUT, when the portion of the productive value that they take begins to prevent those that produced it from thriving both groups have a problem.

    I think too that the lender class/investor class, call them what you will, need to understand that they are ultimately the minority. With that comes risk to them. Ultimately they are dependent on the larger group not to rebel and take from them what they think is thiers. This may occur through a democratic process or it may occur through violance but whenever the needs of the larger group fail to be met and enough desperation sets in, bad things happen to the other.

    1. Matt

      The fishermen compete with each other fishing the commons which has led to extinction of a number of species in the past.
      In the US we are in the condition where Ponzi scammers lead both corporations and governments and as Bill Black would say, the people running the control fraud control all the finances.
      The fraudsters rise to the top everywhere because their powers of fraud improve with the Darwinian stuggles as those powers are required to dominate internally and externally.

  7. skippy

    Umm….when human capital becomes a negative carrying cost, yet must be kept alive too give the *illusion of validity*, of a electron promise debt system.

    Skippy…how much *future* can a few generations carry[?]. free range to automated debt feed lots in less than century…more antibiotics!

    1. Dave of Maryland

      When human capital “must” be kept alive, that’s the definition of slavery.

      When we don’t care if human capital survives or not, that’s abusive low-end capitalism.

      I don’t know really what is worse: Literally starving to death on starvation wages in debt peonage, or having your womenfolk forcibly bred every spring, with the male children castrated at birth. One was the American system since the Civil War, the other was the American system before the civil war.

      In case you didn’t get it, field slaves had black mothers & white (plantation owner) fathers.

      House slaves had white mothers (the plantation owner’s daughter) & the odd uncastrated black male father. Which will explain the South’s odd insistence on sexual purity.

  8. F. Beard

    What debts? Banks create money from nothing and lend it out for interest that does not even exist in aggregate. But where does the purchasing power for those loans come from? It comes from every money holder including and especially the poor who are usually not considered “credit-worthy” themselves.

    So what do banks lend? They lend stolen goods is what they lend. So why should they be paid back?

  9. Jack Straw

    There is another aspect of the debtor-creditor relationship that frequently gets ignored, IMO. With “legitmate” lending, rights, responsibilities and remedies are an explicit alternative system to loan sharking.

    I’ve always wanted to look further into this to see if there was a deeper aim by the writer/producer, but the implicit lack of consideration for social utility by Johnny Sac in the Sopranos when the Feds discussed the value of his estate seemed like commentary on his real crime in two different ways. In the mid-2000s, in New York, the head of the organization is worth only $5M? No wonder he had to move out of the city. No wonder the whole “business” was in decline.

    ChiSkool people don’t even deny that contractual enforcement should be subservient to utility – and I’m not sure the non-Randian Austries would, either.

    “Sanctity of Contract” is one of those concepts that ultimately has little support in history, moral philosophy or theology. The more complicated a contract, the longer its term, the more non-consenting third parties are likely to be affected, and thus, will be subject to political oversight. Not “should,” but “will.” “Loan sharking” – essentially unlimited creditor rights – is marginalized by the “legitimate” debtor-creditor relationship that includes some level of due diligence in underwriting debt, and bankruptcy as an option in the event the relationship fails.

    While inter-governmental, governmental or business debtors don’t get the up-front protection that individual consumer debtors get, it seems to me less a reflection of the sanctity of contract than the political judgment that it’s much more difficult to regulate uniformly or even adequately. In other words, it’s not less political, but politically different.

    Breach of conract is never without consequence, but contract law is always subservient to political goals, and Greece (and its creditors) are going to have to figure those out. I’m not necessarily of the opinion that Greece should outright default, but I definitely don’t think creditors’ rights are always superior, because that’s the ultimate result of loan sharking: economically wasteful imposition of power.

  10. Gentlemutt


    You nailed it, Yves. Thanks.

  11. DavidE

    The debts of countries such as Greece cannot be realistically repaid. If the austerity plan includes a big haircut for the banks, then maybe it should be supported. At the very least, interest should be cancelled. Greece would then have to pay $8 billion a year or so in principal until the debt was paid in full.

  12. alex

    It’s an excellent article as far as it goes, but what it fails to mention is that the “creditor class” has a double standard. They’ve been bailed out (and are continuing to be bailed out), but think everyone else should continue to be yoked.

    1. Sufferin' Succotash

      That, for most practical purposes, is what banks were under Glass-Steagall, but thankfully that Long Dark Totalitarian Night ended twelve years ago.
      And Phil Gramm made the Sign Of The Dollar.

    2. F. Beard

      So-called “credit” creation is theft of purchasing power from all money holders for the sake of the so-called “credit-worthy.”

      Who then should be allowed to steal from his fellow countrymen?

  13. EoH

    If paying debts should be viewed exclusively as a moral obligation, how have such things as “strategic bankruptcies” arisen, in which the losers are always labor and the little guy and the winners are large corporations and the executives who managed those companies into bankruptcy?

    How is it that second mortgages and boats and whatnot can be written down in bankruptcy, but not credit card debt and mortgages on the primary home, which is the only one most people are lucky enough to have?

    Definitions of “moral” and “morality”, at least as applied to economics, have a habit of enhancing the wealth and power of the PTB, an observation that has been true since before Constantine made the Church his sword.

    1. Yves Smith Post author

      Strategic defaults appear to be an urban legend ex second homes. I’ve written about that at some length and people who deal with stressed borrowers (mortgage counselors, foreclosure defense lawyers) confirm it. We’ve also written that the studies on this alleged phenomenon are embarrassingly bad.

      I don’t know what you mean re “strategic bankruptcies”. For individuals, there is no such thing. They take all your non-retirement assets in Ch. 7 and in Ch. 13, the repayment levels required are draconian.

  14. Wyrock

    The greatest line in movie history is from the movie, “The International” where the Italian businessman is patiently explaining to Clive Owens and Naomi Watts why the “International” bank was interested in financing a civil war in Africa. As the Italian said, “When you control the debt, you control everything. Does that upset you?” Of course, the writers have the Italian assinated a few minutes later (for speaking the truth?).

    Why this movie (or at least this scene) does not receive more attention is beyond me. I would encourage you to use this reference whenever the opportunity arises. I do.

    Remember, the most important eight words in the English language: “When you control the debt, you control everything.”

    1. Fifi

      “When you control the debt, you control everything.”

      Yes, until it becomes “When you control the guns, you control everything.” :-)


    I couldn’t have said it better myself… Lending to the debtors to pay off the creditors is not a sustainable solution….

    1. F. Beard

      But bailing out the entire population would fix the banks too. And also tax revenues.

  16. Anjon R

    Fantastic Post. Goes beyond the tired left/right frame and instead focuses on the hegemonic power of the creditors.

    Much of what the creditor class wants is a self-contradictory mash-up whose only consistency is their own perceived short-term interest. Kind of lik an immaculate transfer: Cheap money (for their “liquidity”)simultaneously with low inflation (to protect the value of their financial assets), government guarantees of their assets, no write downs on debt, no downward re-pricing of their “legacy” assets, no defaults by borrowers. Much of this is contradictory, and therefore, self defeating in the long-run, even for the creditors themselves. What they are risking is mass bankruptcy, in which case the value of their assets will be decided by the cold logic of market pricing, rending the banking cartel insolvent several times over

  17. Richard

    I agree that there need to be reduction in debt. However, since creditors seem to be reticent in writing off debt, why not have debtors initiate that by filing for bankruptcy? That is the ultimate safeguard against onerous debt, after all.

  18. Benedict@Large

    The greatest of all moral hazards, it seems, is to allow a banker to write a loan without fear that the loan might later be written down.

  19. davver


    Such as? It seems credit is easy to get the the consequences of reneging on it aren’t all that bad (unless its a student loan). Otherwise I wouldn’t see all these “bad credit, no problem” advertisements. And the world around me is littered with people using credit frivolously.

    1. Yves Smith Post author

      Boy, are you detached from reality. Let’s just start with the basics: the only evidence you cite to support your bizarre argument is from services known to be scams to sell very expensive loans to people with bad credit. That actually proves the point.

    2. F. Beard

      And the world around me is littered with people using credit frivolously. davver

      Not to pile on but a government backed counterfeiting cartel creates perverse incentives to borrow. Negative real interest rates discourage saving and encourage consumption and speculation.

      It really is mostly the fault of the banks.

  20. refi tips

    I still think mortgage/ refinance system is broken, it is only helping the people who can afford it in the first place.

    People you really need refinance most of the time their application is turned down.

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