The Truth About the Economy
Michael Hudson: How Banks Create Money & Inflate Assets?
Have you ever felt a growing sense of unease, a nagging feeling that something is fundamentally wrong with the economy? You see housing prices soaring while wages stagnate. You witness the stock market reaching new heights, seemingly detached from the everyday struggles of working people. You’re not alone. The truth, as economist Michael Hudson reveals, is far more disturbing than you might imagine. His insights illuminate a hidden system, a financial engine driving inequality and making a secure future increasingly out of reach. This journey into Hudson’s world will challenge your assumptions and reshape your understanding of how money actually works.
The Illusion of Banking: Savings and Loans
We're taught a simple story about banks: they're safe havens for our savings, which they then lend out to deserving businesses and individuals. But what if that story is a carefully constructed myth? What if the reality is far more complex and, frankly, sinister?
As Michael Hudson explains, the prevailing view is fundamentally flawed. Banks don't simply redistribute existing money. They *create* it.
Think about it. When you apply for a mortgage, does the bank physically hand you a wad of someone else's savings? No. They credit your account with money that didn't exist before the loan was approved. This process, known as fractional-reserve banking, allows banks to create money "ex nihilo" – from nothing.
Where Does the Money Go? Following the Trail
So, banks create money. But where does all this newly created wealth actually go? The answer, according to Hudson, is the key to understanding the modern economy. It's not primarily channeled into productive industries or job creation. Instead, it flows into a sector Hudson terms FIRE: Finance, Insurance, and Real Estate.
This isn't a coincidence. The structure of our financial system actively incentivizes this flow. Consider the implications:
Real Estate: The availability of cheap credit fuels demand, driving up property values.
Finance: Speculation and financial engineering become more profitable than investing in actual production.
Insurance: The increased risks associated with asset price inflation generate ever-growing insurance premiums.
The Consequences: Debt Peonage and Asset Inflation
The consequences of this system are profound. As asset prices inflate, those who already own assets—the financial elite—get richer. The rest of us, struggling to afford homes, healthcare, and even education, are increasingly burdened with debt.
This, in Hudson’s view, leads directly to modern "debt peonage."
“The effect of debt is to transfer income and wealth from the productive economy to the financial sector.” - Michael Hudson
The logic is undeniable: If you are constantly paying interest, you're essentially paying the financial sector for the privilege of existing. The more debt you have, the more your income is diverted to the banks and the financial institutions.
You can see Michael Hudson explaining this concept in his own words:
The System's Built-In Imbalances
This isn't just an economic problem; it's a systemic one. The deck is stacked. Tax systems often favor asset holders over wage earners, creating further imbalances. Government policies, influenced by the FIRE sector, frequently exacerbate the problem.
Here’s the critical question: How long can this system continue? The answer is: not indefinitely. Sooner or later, a crisis is inevitable, often triggered by a bursting asset bubble or widespread defaults.
Beyond the Bubble: Towards a Different Future
So, what can be done? Recognizing the problem is the first step. Hudson's work provides a crucial framework for understanding the dynamics at play. It allows us to see through the deceptive narratives and understand the root causes of our economic woes.
Possible solutions require fundamental changes. We need to challenge the power of the FIRE sector. This means:
Reforming the tax system to favor labor and production over speculation.
Reining in the power of banks and financial institutions.
Investing in public services and infrastructure, rather than allowing assets to be privatized and monetized.
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Seeing the Hidden Engine
Michael Hudson’s analysis of the economic system provides us with an incredibly valuable lens through which to understand the world. By understanding the hidden engine of money creation and asset inflation, we can begin to unravel the complexities of our financial system. The ideas presented might be shocking. But the truth is that by recognizing the underlying issues, we can, at last, begin to imagine a more equitable and sustainable future.
It's time to open your eyes and question everything you thought you knew about money, banking, and the economy. The future depends on it.