Michael Hudson - spurningar og svör

Þetta var löng og mikil törn. Hudson byrjaði að svara spurningum miklu fyrr en ég gerði ráð fyrir og kannski eins gott, þær voru margar og krefjandi. Hudson var ánægður með spurningarnar og óskar Íslendingum alls hins besta. Ég tók saman allar spurningarnar og svörin og set hér inn til að þægilegra sé að fá samhengi í ferlið.

Dr. Michael Hudson - spurningar og svör - 5. maí 2009

1 - Spurning (#3):
- Could you suggest the path we can take (our politicians need all the help they can get!) if we decide to pay back the IMF loan and free ourselves from their structural adjustment program? Would we not have to rely on the goodwill of neighbouring countries, in order to get loans to either support the current currency we've got, or fund and adjust our economy to a new one?

Svar:
- I understand that none of it has been drawn down yet. So there is nothing to pay back.
As regards the goodwill of neighboring countries. The analogy here is a schoolgirl who gets popular by letting guys take advantage of her. Of course she is "popular" and they like to go out with her. But do they "respect" her?
- The strategy of creditors is to make debtors feel that they are committing a social sin by not paying. Yet creditors always try to avoid paying among themselves. A double standard is at work.
- Most people are willing to give you goodwill if they think you're fair. And if we're talking about what is fair, the fact is that here in New York, the terms of IMF and other foreign loans are not fair and indeed are deemed fraudulent. The definition of a "fraudulent loan" (under New York State's fraudulent conveyance law) is a loan that the debtor cannot pay in the normal course of living and doing business.
- IMF conditionalities require a change in such behavior. And to use such a loan to pay private-sector foreign debts is simply folly. It gives a free lunch to the irresponsible creditors who made these loans and pseudo-investments. Of course THEY will like you if you give them money that nations such as the United States have refused to give them on losses in the American subprime and mortgage market. But why would you want to have their "goodwill" under these circumstances?

2 - Spurning (#4):
- I would like to know why you think no one wants to look at the possibilities of taking up US dollar or similar currency status as Hong Kong and stay in EES but not EU and apply to NAFTA as well given the position of Iceland in the middle of the Atlantic and between America and Europe? Couldn't Iceland work well as a huge Tax Free station where imports are worked further for added value and then exported to the other side?

Svar:
- Every country should create its own money, because that is done freely by the government. If you use the US$ or other currencies, you have to export the products of your labor and natural resources to obtain this money. The government can simply create it. And it also can determine the interest rate, and allocate where the new money and credit are to be used. None of this is possible when a foreign government creates the money. And if private banks supply the dollars or other foreign currency, they do so in the process of loading the economy down with debt.
- Argentina tried to dollarized its economy, and the result was a foreign-debt disaster culminating in default.
- Regarding Iceland as a free-trade zone, here again it would lose the ability to protect its agriculture and industry. The "value" it adds would be relatively low-value, as the United States itself remains highly protectionist. Iceland should take advantage of its natural endowments and the highly skilled character of its labor force. The problem is that the rate at which its labor exchanges for that of other countries must be high enough to cover the expensive living costs and debt service that now confront Icelanders as a result of their "wealth creation" that turns out merely to have increased their cost of living and doing business.

3 - Spurning (#7):
- My question is regarding the current monetary and banking system of the world, and in Iceland.
- Since the end of WW2 the monetary system is based on debt based fiat currencies, put forth by the Allies and all the economies in the world have adopted this system. Along with this we've had a fractional reserve banking system.
- Iceland, as the rest of the world economies, has adopted both of these systems, and today, in short, we're left holding the bag. These systems are obviously not viable to me. We've seen faith in the national currency simply plummet, and run on the banks.
- Both of those systems require one main ingredient for it to work, simply trust, or faith. Today we have none of that, but it still looks like we're again building up our domestic banking system on those foundations once again! Do we never learn?
My question to you is: Do you believe that we should adopt the principles of sound money, e.g. gold or silver, and have 100% reserve banking?

Svar:
- There is a good argument for 100% reserve banking - in which commercial banks act like savings banks rather than creating credit freely. The problem is not the system as such, but the fact that banks have created credit for unproductive reasons - mainly takeover loans to purchase assets already in place at home and abroad. Credit has been created to gamble, not to produce and earn the money to pay back the loan with interest.
- Under a 100% reserve system (such as is now before the U.S. Congress in the "American Monetary Act" sponsored by Dennis Kucinich) the Treasury would create credit and supply banks with the funds to lend out over and above their basic deposit base. The important thing is WHAT the banks lend for, and the terms on which they lend.
- Gold might be used to settle international balances, but it is unnecessarily expensive as a domestic currency. Governments today have the option of creating credit and money freely. To rely on gold or silver requires a proportionate expense of labor on a one-to-one cost of production. So "hard money" advocates are no longer listened to, although creditors would love to promote this idea as it maximizes the power of wealth over living labor

4 - Spurning (#9):
- Recently you said in an article: "It [Iceland] has broken the cardinal rule of international finance: Never borrow in a foreign currency for credit that you can create freely at home." Also: "It is not necessary to join Europe, give its insiders fishing rights and its bankers the rights to create credit (which should be viewed as a public utility) to achieve fiscal efficiency.
- Loud voices here in Iceland hammer the issue of restoring confidence so we can gain access to foreign capital again, and joining the EU would be a big step to achieve this. Similarly they say giving foreign creditors stakes in the new banking system would be a very good thing.
Two questions:
1) The magnitude (scale) of this issue for the Icelandic economy.
2) How do you respond to such voices.

Svar:
- "Confidence" reflects faith in a country's ability to pay. If Iceland commits itself to pay the overhang of bad debts, it will have no room at all to take on new credit for many years. On the other hand, if it does what Argentina has done - and repudiated its foreign debt twice in the last decade - it will have free up its ability to pay and thus foreign creditors will have confidence that this time, Iceland is "doing it right" rather than gambling away its bank loans as in the past.
- Foreigners should NOT be given a "stake" in the banking system. Creating credit is free. It is a public utility. Why would Iceland want to give away a natural monopoly for free, whose gains belong basically in the public domain?
- Also, foreign-owned banks would do just what the recent "bad banks" did: lend against property already in place, and try to make a quick killing. That is the problem with finance: It lives in the short run. In order to subordinate credit creation to Iceland's long-term interests, the government needs to retain regulatory power. Letting foreign banks in will create lobbying pressure to corrupt and distort the financial system away from productive lending to purely extractive lending, alas.

5 - Spurning (#11):
- Mr. Hudson, you mentioned when you where talking to Egill Helgason in Silfur Egils (Egil's Silver) that governments around the globe were planning or have started measures to lower the debt ratio of common people with the goal to limit the payments of these debt to 32 per cent of their income.  Here in Iceland the government refuses to even talk about such move.  Do you have any comments or recommendations on this?

Svar:
- If Iceland's government does NOT lower the mortgage-debt payments to 32% as in the United States, then Iceland will find itself with a very high break-even point for its labor, pricing it out of world markets. Meanwhile, purchasing power will be drained to pay the banks, and the economy will shrink, creating even more unemployment and lower earnings by domestic businesses. Defaults will occur, and banks will foreclose, and Iceland's national character of high home ownership will be lost. The economy will polarize and the character of society will change as emigration accelerates, especially among younger people.
I doubt that this is what Icelanders want.

6 - Spurning (#13):
My first question for you is this:
- Big part of the problem here in Iceland is the magnitude of our deposits. To my best knowledge, regular deposits are around 10 billion dollars. Of course this big amount of money is like a sword hanging over our heads and perhaps one of the reasons why we can't release our "foreign currency barrier", at least in the closest future.
- My solution is rather simple. I want to lower deposit interest rate as much as we can, but to begin with, only the deposit interest rate.
- And while doing that, we will keep the "foreign currency barrier" even more strict.
What I expect to accomplish is the following:
- Eventually money will transfer from deposit account into the economy system and in the end, decreasing domestic depths mainly because of big difference of deposits- and depths interest rate. Plus we will experience a vitamin shot into our economy system as this money will not "stay for long" in negative "real interest rate" and hopefully would rotate in benefits for all of us, especially for all the unemployment here in Iceland!
- My opinion behind this idea, is the fact that one of our biggest mistake after the collapse last October, was the mistake to insure all the deposits, deposits which of biggest part was created by systems much like Ponzi Scheme, that is, has no real connection to our real economy.
My second question for you is this:
- What's your opinion of "Stock market system", especially for a small country like Iceland which only has 300 thousands inhabitants and what do you tell us here in the light of massive money production especially in help of the same system?
- Should we continue allowing such a system and in fact, "systems" alike?

Svar:
- Lower interest rates always are desirable. In Iceland's case, they are necessary for survival.
Unpayable deposits, or speculative "hot money" should not be insured. Interest often is described as payment for risk. Speculators borrowed low-interest money to make an arbitrage by lending at high rates to Iceland. They took a risk. They lost. As in horse races, when you lose your money, that's part of the gambling game.
- I'm not sure what you mean by "stock market system."

7 - Spurning (#17):
- What I worry about the most regarding the resurrection of Iceland's economy is how small the nation is. We're essentially more like an extended family than a "real" nation, and this of course leads to the kind of nepotism that you discussed briefly in the interview in Silfur Egils. What I'd like to ask is, how do you envision us steering clear of nepotism in the years to come? What do you recommend we do to ensure that only people truly qualified for a given task are given that task, and not someone's daughter-in-law or roommate from college? I think this is a major issue that we haven't discussed nearly enough (well, we've bitched about it a lot, but so far I haven't seen any serious discussion).

Svar:
- It often happens that a nation's - or person's - strongest point also turns out to be a weakness. Iceland has an advantage of most families knowing each other. To a classical Greek this no doubt would be a precondition for democracy.
- The problem is that close connections result in cronyism. Often, and I gather in Iceland's case, the glue that holds this cronyism is hereditary family wealth. Most countries (for instance, England after 1945) addressed this by creating tax systems based on hereditary taxation and strong estate taxes to "even the playing field" and make sure that peoples' wealth was really what they themselves created, not a free lunch. A property tax could help - and in the process would steer savings into productive new capital investment, both private investment and public infrastructure to lower Iceland's cost structure.
- For the nitty-gritty of how to prevent unfair patronage, America passed civil service reforms a century ago. A public ombudsman should be appointed - always from a party not in power.

8 - Spurning (#20):
- Many view the main source of our current disaster is the so called "responsible fisheries" and handing out the "quota" or the right to catch to few individuals, who acted as any (in) sensible human being, cashed in and retired.  Few large fishing companies bought up this quota and are now on the brick of bankruptcy, as their businesses are leveraged by uncaught fish for next generation.
Question:  In your view, what would be the most aggressive way to reverse this situation, and bring back the right to catch where it belongs (the Icelandic people)?

Svar:
- Of course the Icelandic people should control the fisheries. The simplest thing to do would be to annul the licenses, and go to the quota system. This is what is proposed for New York City taxicabs, where the number of medallions (cab licenses) has been limited and hence rise in price. The beneficiaries are now private owners, not the city. New cab drivers are obliged to work for low wages to the medallion-owners, who get a free lunch.
- For Iceland and its fisheries, the best solution from the outset would have been to auction off fishing quotas each year. Buying quota rights was a speculative act, relying on rising prices for what essentially is a "tollbooth" placed on the fishing waters. To the extent that quota rights rise in price, they are a loss to the state of what rightly should be payment for the public domain. To the extent that a loss occurs from the quota being unmet, this is news to me. If true, it means that speculators did not anticipate the reduction in stocks as a result from overfishing.
- But my understanding is that quota-rights licenses did indeed rise in price, but the fishing companies used these rights as collateral to borrow and gamble. They lost. That's what happens when you gamble away your home or net worth.
- What to do now? Obviously, phase out the licenses or simply annul them. I have not seen a report of who owns the licenses as between domestic companies and foreigners. But under international law, the way to recapture the value without "expropriation" would be a "resource rent tax" - a 100% (or less) tax on economic rent. This is what Yevgeny Primakov proposed for Russia to recapture the theft of its natural resources by the Yeltsin-Harvard kleptocrats - a tax on the rental value of exploiting Russia's mineral resources.
- The model would be a land tax designed to base public revenue on the collection of assets provided by nature, not by human labor and enterprise. This is what the French Physiocrats, Adam Smith, John Stuart Mill, Henry George and subsequent reformers advocated, so it has a fine classical pedigree.

9 - Spurning (#23):
- What would happen, if tomorrow all banks in Iceland would abolish the 17 per cent inflation premium on ALL home mortgages, and at the same time lower the interest rate on all saving account that bank pays on normal saving accounts to similar level as, for example USA has.
- Then at the same time, also forgive ALL loans on home mortgages for low income people?
- This is even mentioned in many placed in the Bible, as to start with a clean slate, ---- see below.
- DEUTERONOMY 15: 1-16
1 Every seventh year you shall grant a remission of debts.
2 And this is the manner of the remission: every creditor shall remit the claim that is held against a neighbor ---

Svar:
- If Iceland abolished the inflation premium, much less income would have to be paid for mortgage debt, making life more affordable and restoring the value of labor relative to property. Ditto for lowering the interest rate.
- Why only annul mortgages for low-income people? Creditors would block this by telling others that they had worked hard, yet others were benefiting more. A Clean Slate would have to be economy-wide, not restricted to any one group.
- The Biblical passage most relevant is Leviticus 25. It was based on Babylonian practice - even the Hebrew word (deror) is cognate to Babylonian andurarum. These acts were almost universal throughout the ancient Near East for over two thousand years. They kept the population free from debt bondage. However, most debts were owed to the temples and palaces, so the ruler was canceling debts owed to himself. In a sense, Iceland would be annulling debts owed to "itself," that is, its banks and pension funds. This act would lower the cost of housing, and the government could recapture the rental value of housing and commercial property by a land tax - thereby freeing the population from having to pay income and sales taxes. This would give Iceland a great international competitive advantage - such as the post-Soviet countries might have had, if they had not taken the bad Washington Consensus financial advice from the World Bank, Harvard et al.

10 - Spurning (#27):
- The history of the Icelandic króna is, generally speaking, one of inflation and devaluation. Some economist say it is inherently unstable and therefore problematic (even useless) for modern economy, adding cost to business, home loans and so forth through high interest rates. The Icelandic "solution" so-far has been high interest rates to stave off inflation, and CPI indexing of loans.
- Since discussion in Iceland about this issue renders the average listener utterly clueless, could you explain what causes inflation and devaluation of the króna. Is there a solution?

Svar:
- The problem is not a small currency. It's the way in which the financial and fiscal system is managed. High interest rates raise prices and the cost of living - and involve rising debt to attract funds. If there is too much purchasing power, it can be handled by progressive taxation.
- Inflation and deflation are caused mainly by the price of imports - and by the terms on which Icelandic labor and natural resources (energy) exchange for imports. Devaluation occurs when countries try to make imports more expensive in order to discourage them. But many imports are necessary for Iceland, so a selected tariff policy is required.
- One solution would be for Iceland to receive more for its natural resources, and to collect the various forms of "free lunch" (economic rent or monopoly profits) that occur. Foreign borrowing should be done only when the balance-of-payments deficit results from merely temporary factors, not as a long-term substitute for good domestic fiscal and financial policy.

11 - Spurning (#28):
- I just wanted to ask you about Icesave. Isn't it correct that we only have to take 70% of those debts. There is a regulation about that and is it 100% it applies to Icesave?
- And in your opinion couldn't we negotiate that down to 50% ? or even 40% ? And couldn't we then go on and negotiate every other debt we have around the world?
- And what about possible co operation with countries in following the money to off shore islands like Tortola?
- And finally do you think that the government is handling this correctly? Does it seem like they will find this money (or is there any will to do it?). Couldn't the government do a lot more to find this money and get this men accountable for their action. Does it seem right to let the people who have no real knowledge in economics take on all these debts? The only thing they could say about them is every four years with their votes! And there haven't really been real choices there throughout the years.
- Isn't it more right that creditors take a lot of these debts on themselves? They have these knowledge. They don't lend people blindly do they? It seems like they have! The creditors have a responsibility not to lend unwisely to people and if they do they should take financial responsibility of their action. Not a whole country in the Atlantic.

Svar:
- My understanding is that Icesave already has assets that nearly cover the debts involved - perhaps in the neighborhood of 85%. It would be reasonable for Iceland to offer Britain to take this rather than drag out settlement - especially because Britain's clumsy handling of the situation contributed strongly to the loss of asset values to cover the deposits.
- Regarding Iceland's other bank debts, they have been put in a "bad bank." So Iceland (what you call "we") don't owe these debts. The private sector bad banks owe them, and there is little there. Today's Wall Street Journal op-ed characterized foreign speculative arbitrage as "guys who served alcohol to the banks just before they took off down the highway." No need to negotiate them down. Foreign investors have claims on banks that have used the credit to gamble, and lost. So their foreign enablers will lose too. That's how financial markets work - just as German, Spanish and other European banks lost heavily on U.S. subprime mortgages.
- Of course offshore tax-avoidance money should be traced. Tortola (Anguilla) would either co-operate or be blacklisted by the Icelandic government.
- The government cannot readily prevent idiots from borrowing. It's supposed to be the job of lenders not to extend credit to idiots. The lenders screwed up - and hence, have lost their money. It looks like they did indeed lend blindly!

12 - Spurning (#29):
- Thanks for the reply of my post #13. I think you misunderstood my post (because of my poor English)
- Let's try again. When I was referring about lowering deposits interest rates, I was only talking about rates in deposit accounts, not the lending rate. The interest rate in deposit accounts is close to 17percent. The amount of krónas in deposit account is huge, over 10 billion dollars in regular deposits accounts, that would equal to USA as there would be 10.000 billion dollars in deposit accounts.
- It is not so complicated to calculate how much our "new banks" have to pay on annual basis.
- But the main goal by lowering deposit rates would be the burst by this money into our economy, as you know, Iceland is facing huge depression and almost 20.000 people unemployed today.
- My question to you is, would you recommend lowering deposit rates and keep the lending rate as it is until the economy system is more balanced?
- Eventually money will flow from deposit accounts in to the economy
------------------------------
- The second question was about the stock market. Our stock market in Iceland is very young, didn't  start until 1996 if I remember correctly.
- The stock market was a huge bubble here in Iceland, the total amount did go over 3.000 billion krónas or about 25 billion dollars. The main reason of huge amount in deposit accounts is this bubble and of cause, our Quota system in "gift paper"
- My second question to you was, what is your opinion about system as stock market in a land as small as Iceland is?

Svar:
- Lowering the interest rates on deposit accounts would naturally go hand in hand with lowering the inflation-index charge. The financial sector would be de-indexed. Otherwise, the banks could simply get an unfair windfall.
- Stock markets should be a way to raise money. If there were no market, the money would be raised privately, probably at a higher price and with less public information. Such markets are not bad as such, and profit-sharing with backers goes back to at least 2500 BC in Mesopotamia. So the size of Iceland is not a problem.

13 - Spurning (#30):
- Many people believe that a large scale write-down program is the only remedy to deal with the economic situation.
- Others have argued that this is not possible since the "new banks" must compensate creditors of the old banks for assets taken out of the bankrupt "old banks" and the public treasury empty.
- Do you think that it is feasible in practical terms to impose a new tax that would target payments made to the creditors of the old banks to fund a write-down program? Is it possible to impose such a tax that would not do to much damage to other economic activity?  

Svar:
- The question is too broad to answer. I would need details for just what it is you are proposing. I understand that the New banks have taken over deposits/liabilities from the Old banks. Any takeover of assets valued up to the amount of deposits does not require further compensation for creditors of the Old banks.

14 - Spurning (#33):
- Here in Iceland there is a strong debate about lowering people's loans, loans that are connected to our inflation rates. These loans have gone up by almost 20% in the last year alone. Do you think it is possible for the banks to correct this, that is by giving people a 20% discount on their loans or count out the 20% interest that have fallen on these loans the last year. Do you think that the Banks will be able to do something like this without going bankrupt again or our pension funds (that financed a lot of these loans) will be damaged by this?

Svar:
- The banks and pension funds COULD do this. But I think it would have to be general, and that is difficult. Best to start by putting the financial system on a better footing in the ways I outlined above (getting rid of inflation indexing) and regulation of bank lending to steer it into productive credit rather than mere speculation or extractive lending.

15 - Spurning (#38) frh. af #30:
- The "new banks" are taking over ca. 700 bn. IKR of deposits, 2 - 3.000 bn. worth of assets and no liabilities directly. The creditors will be compensated for the difference. I was thinking about something like a salestax on bank assets. 

Svar:
- Taxing assets is very difficult to do and poses a host of legal problems. It's simply not practical.

16 - Spurning (#41):
- Mr. Hudson, when you talk about abolishing inflation indexing - which is a laudable goal, if difficult in practice to achieve - are you referring only to new debts/obligations/contracts, or also to already existing debts/obligations/contracts?  I would like to point out that mortgage debt in Iceland is mostly held by the pension funds, and secondarily by a government-guaranteed housing fund; private investors (local and foreign) only hold a fraction of the total mortgage debt.

Svar:
- I'm referring to all debts. The role of pension funds is supposed to be to promote the interests of labor over their lifetime. It is bizarre that they should become part of a process that impoverishes the economy and therefore hurts the actual interest of labor. The real conflict is between financial functions and production functions. The financial dynamic with indexing has taken on an autonomous life of its own ­ and this dynamic does not serve industry and labor in the way it is now structured.

17 - Spurning (#42):
- You acknowledge that creditors to the "bad banks" will lose their money, as the banks are heading for bankruptcy (and by the way there is no intent for the IMF or the government to bail them out).  You also seem to be relatively optimistic that most of the Icesave obligations can be negotiated to our advantage.  What other debts to foreign creditors are you then recommending that we don't pay?  Our government is fortunately not very indebted abroad, apart from the IMF credit lines and the Icesave obligations.  Granted, our energy companies and some of our municipalities owe money directly to foreign creditors; are you referring to those?

Svar:
- I assume that what municipalities and energy companies owe is honest and in the normal course of business, and therefore normally should be paid. Probably the loan is secured by taxing power or assets. However, if foreign-owned energy companies "owe" interest to their own foreign affiliates or backers, this may be a "faux loan" merely for tax purposes. Interest should not be permitted to be charged as a tax-deductible expense.

18 - Spurning (#43):
- Is the Icelandic pre-funded retirement/pension system "sound" economics? How is it possible to store wealth using compounded interest regardless of production in the economy?

Svar:
- You've put your finger on the problem. Every model of "the magic of compound interest" without exception shows debt growing much faster than the economy ­ and hence, faster than can be paid. (On my website, michael-hudson.com, I have a paper on compound interest.) Therefore, pre-funded pension systems are not sound. The only sound system is a pay-as-you-go system, such as Germany has.
- For example, in 2008 the U.S. pre-funded retirement system has lost half its entire stock market savings. The decline forces employers to set aside much of their earnings to replenish their depleted pension programs ­ instead of investing in new capital formation, or even paying out more dividends. So the financialized pension system is shrinking the "real" economy, rather than dovetailing into the production and employment system to expand output and hence the means to support retirees.

19 - Spurning (#44):
- I would like to know your opinion on the US federal reserve, whether it is democratically and ethically justifiable that it is a private institution, i.e. not state owned, and whether there is not a great will, among those who are aware of this, for it to change?
- Also, I would like to know if you've had any feedback from our politicians, and if so, from whom (as I have heard the worst of them, and that's from a bad bunch already, criticize you without good foundation)?

Svar:
- The U.S. Federal Reserve acts as the lobbyist for the commercial banking system, promoting its interest. Although it has been brought into the government, its role is that of the financial sector's Trojan horse ­ to promote the commercial banking system's interests. This is done above all by "keeping money tight" ("fighting inflation"), meaning in practice to maximize the power of debt over living labor. This is just what Alan Greenspan did, and in the 2008-9 bailout the Fed bought $2 trillion of junk securities from the banking system, far exceeding Congress's $750 billion TARP program.
- The Treasury's role is to represent the public interest: to lower interest rates, and to subordinate finance to the national aim of economic growth. In this respect the Treasury under George Bush and Hank Paulson ­ and under Barack Obama, under Paulson's and Rubin's protégé Tim Geithner ­ has been absorbed into the Fed's role, bailing out Wall Street at taxpayer expense.

20 - Spurning (#51):
- The idea of an independent central (reserve) bank that can dictate interest rates, where does this come from, and is this a sustainable system long term?

Svar:
- It comes originally from the English government in 1794 needing money to pay off its war debts, and selling off the monopoly in printing money for £1.2 million pounds to the Bank of England ­ and most recently, from the 1914 decision to take financial policy out of the hands of the Treasury, acting on behalf of the government, and put it in the hands of bankers, whose interest is inherently opposed to those of the national government by favoring high interest rates rather than low interest rates, and by demanding that the only right to create credit should be in private hands ­ to decide what they want, without regulation and without criminal prosecution, even to engage in outright fraud as the major U.S. banks have been doing for the past few years.
- Most recently, the decision on the Federal Reserve setting interest rates stems from the 1951 ³accord² between the Federal Reserve and the Treasury. This agreement gave the Fed the power to raise interest rates whenever wage levels rose, in order to suppress living standards for the bottom 90% of the population to benefit the nation's wealthiest families ­the top 10% of the population ­ who acted as the creditors.
- The system is sustainable until the point where the economy is reduced to a state of debt peonage and the financial system dries up ­as occurred in Rome.

21 - Spurning (#52):
- Do you share my opinion that it is not the 'króna' that is the cause of the economic instability but the overall mismanagement of the economy in the country .
- Iceland has privileges and richness in it's natural exclusivities  that protects them from competition of any kind (as it can not be copied and placed elsewhere) In my opinion Iceland can in a considerably short time turn their fortune around by only focusing on their own god given values.  That would only require modest foreign currency but would on the other hand attract foreign currency.  In Iceland there is no direction in sight for people to follow in order to build up the economy from the inside. Icelanders are energetic beyond when they set their mind to something, the opportunities are in place, market is there as the fasted growing tourist market is exactly the target group that would be interested in exploring Iceland.  We are only ca. 350.000 and will not need a large % of the total tourist industry to build up colorful cultural tourist industry that could more or less support the whole countries financial needs. Do you think I am overoptimistic or that we have that business opportunity and tools to execute it in our hands?

Svar:
- Yes, the problem is not the króna as such, but the financial management, and the existence of privatized monopoly rights (the "free lunch" of economic rent) that rightly should belong in the public domain.
- Rather than attracting foreign currency in the form of borrowing denominated in foreign currency, Iceland should contract loans only in its own currency. This would strengthen it.

22 - Spurning (#53):
- I have three very important questions:
1. What would you do if you where ruling Iceland now? You have said that you would not pay IceSave and that an European country would never dear to do what it did to Iceland to a politically powerful country like the U.S.A.  How exactly would you implement this policy of not paying IceSave?
2. It seems that Iceland might be broke and that even the interests of the possible dept would be a big problem not speaking of paying back the debt. Do you think that is the case? If yes, which options does Iceland have? Some say that countries that go broke have to give away land or natural resources. Do you agree with this?
3. Barack Obama has spoken rather positively about Iceland. Do you think there is any chance to rebuild the good (and beneficial) relationship that Iceland had with the U.S.A? If yes, do you think that there is a realistic option for Iceland to bind further economically to the U.S.A. f.ex. as an alternative in case the EU negotiations result in unfavorable deal?

Svar:
(1) I'd agree with Britain to settle the Icesave deposits there with the assets the government has frozen ­ about 5/6. If they don't like it, let them take Iceland to court and fight it out.
(2) "Iceland" is not broke. The bankers are ­ and perhaps the corporations and other assets they owe outside of their banks should be taken by government so as to "pierce the corporate shell." There is no legal requirement for "Iceland" ­ meaning its government and people ­ to pay the debts of irresponsible bankers. Even former P.M. and central bank head David Oddsson emphasized this to me. He's right. And I gather that the other major parties agree ­ so don't worry too much about this. Countries that "go broke" paying their debts do so voluntarily and self-destructively.
(3) I haven't followed what Pres. Obama has said about Iceland. But there certainly is no reason why Iceland should not continue to have the same good relations with the United States that it has enjoyed all along. There is not even a need to make an unfavorable deal with Europe. Iceland is a sovereign country, and can do what it wants. (I won't even joke about offering North Korea the air base there.)

23 - Spurning (#54):
- I have a question concerning a devaluation of a currency.  Now the US has been printing money and buying their own debt.
The US government has become a giant parasite, sucking money out of the world in order to feed itself. It has 3 ways of acquiring this money: 1 = taxes, 2 = borrowing, 3 = printing the money.
- Taxes are out of the question, the economy is collapsing. Tax revolt is ongoing. So forget taxes.
- Borrowing is also impossible these days. China has stopped buying US treasuries. The world doesn't trust the US will be able to pay off its debts with dollars of equal value as those that were lent to it. So the money spigot for borrowing has dried up.
- That leaves printing. Now one could argue the US government could simply cut spending. This is impossible in this government, full of cronyism, pork, entitlements, corruption, vast wasteful expenditures. Medicaide and social security are enough in and of themselves to bankrupt the US. Where to cut? Any politician speaking of real change will get voted down. The US citizens want everything for free...
- So the US government must continue spending, but no money is available. Answer? US government issues US treasuries, the Federal Reserve buys them. Dollars are diluted. US government continues operations. This can go on only so long before people around the world start panicking and wanting to get rid of their dollar hoards.
- The US dollar, being the world's reserve currency, implies people are hoarding them as a store of wealth. Once they fear losing their purchasing power, they'll start selling their dollars. This will fuel the run on the dollar. Everyone around the world will be in a rush to exchange their dollars for things of real value.
- So everything, priced in dollars, will skyrocket. Dollars will collapse in value. Hyperinflation.
- End result is US economy in shambles. The US government will cease operations. And the US dollar will be worthless. All federal programs will be defunct. Social security, medicaire, Medicaide -- no money there.
- The US consumer will not be the one triggering the hyperinflation. It will be the US government and the rest of the world.
-If this happens? what would be the best for the Icelandic govn to do? Will Icelandic Krona also collapse? Bring foreign pensions funds back to Iceland.  Buy Gold for the IMF loan?

Svar:
- My book on Super-Imperialism (new ed. 2002) and other writings have explained how the United States has financed its domestic federal budget deficit by running a balance-of-payments deficit (largely on military spending) that floods the world's central banks with surplus dollars. These foreign central banks have little they can do with these dollars except to buy U.S. Treasury bills. If they do NOT recycle these dollars in this way, their currencies will rise and hence price their exporters out of world markets. This is their dilemma.
- The solution is a dollar-free international financial system, where payments deficits and military spending deficits are settled in "real assets" rather than U.S. Government IOUs. The problem is that half of U.S. discretionary Government spending is for military purposes. Thus, the global financial system rests on foreign countries financing U.S. military surrounding of them and covert military operations to fight and overthrow governments and undertake "color revolutions" (bordering the former Soviet Union) and even finance political corruption and massive assassination programs against any countries and leaders that would seek to free themselves from this dilemma.
- That is why, when my book first came out, the largest purchasers were the CIA and Dept. of Defense, who used it as a how-to-do-it book to get a free ride from foreign countries, and gave the Hudson Institute a large grant to explain to them just how the free lunch worked.
- You use the word "parasite." A parasite not only taps the host's blood for its nourishment, but also takes over the host's brain so as to protect the free luncher. In this case the aim of taking over the "brain" of foreign central banks is to convince them that they need the dollar and that there is no alternative. This is of course nonsense.
- Re your example, the effect of the U.S. bailing out the financial sector and running deficit is to increase ASSET prices, not wages and consumer prices. These sets of prices are not symmetrical, although monetarist textbooks only talk about consumer prices, not the price of wealth. The outlook for the U.S. economy is price and wage Deflation, not inflation. So the problem you pose won't affect Iceland.

24 - Lokaorð (#55):
- I want to thank you for caring and giving thought and time to try to find and point out a way forward for Iceland. It is so sad and heartbraking to watch ignorance hold the steering wheel and all those hard working honest people fighting for their daily existance become helpless and desperate.

Svar:
- I've met many people in Iceland, including the Finance Dept., that are quite knowledgeable and sincere. I hope the incoming government will appoint additional responsible administrators, and that it contemplate removing the inflation index charge on its debts­ and recapturing natural wealth for the public domain.

Athugasemdir

[Jenný Anna Baldursdóttir, 6.5.2009 kl. 01:31]

Takk fyrir þetta Lára Hanna.

[Gunnar Tómasson (IP-tala skráð) 6.5.2009 kl. 01:36]

Kæra Lára Hanna, þetta var meiriháttar!

[Lilja Guðrún Þorvaldsdóttir, 6.5.2009 kl. 01:49]

Lára Hanna þú ert snillingur!

[Árni Daníel Júlíusson (IP-tala skráð) 6.5.2009 kl. 07:59]

Frábært framtak. Afar fróðleg og upplýsandi umræða.

[Björg F (IP-tala skráð) 6.5.2009 kl. 08:44]

Takk kærlega fyrir þetta Lára

Það sem mér finnst athyglisvert er að hann mælir sterklega með því að við höldum okkar eigin gjaldmiðli og ef rétt er úr spilað þá er það einmitt sterkasta tækið okkar til að komast út úr kreppunni sem við erum í.

 Þetta er einmitt það sem ég hef vellt sterklega fyrir mér og virtur Prófessor í Stærðfræði Halldór Elíasson skrifaði grein um í mogganum ekki svo lengi síðan. Það sem háir krónunni fyrst og fremst er arfa slæm efnahagsstefna sem rekin hefur verið hér undanfarin ár og virðist vera áfram rekin sama stefna..

 Það þarf fólk hér í ábyrgðarstöður sem kunna að hugsa út fyrir boxið, vera djarft og árræðið. Við þurfum að komast út úr þeirri minnimátarkennd sem við erum föst í.. það eru ekki "aðrir" sem geta bjargað okkur, það erum VIÐ sem eigum að gera það og verum hugrökk :)

Það er alveg á tæru að Michael Hudson veit hvað hann er að segja... og það besta er að hann hefur enga beina hagsmuni fyrir því sem hann heldur fram.

 Takk aftur Lára, ég vona að þú snarir þessu yfir á íslensku fyrir þann hluta þjóðar sem ekki er með 10 í fræðilegri ensku :)

[Jóhann Tómasson (IP-tala skráð) 6.5.2009 kl. 08:58]

Sæl Lára Hanna.

Framlag þitt til upplýstrar umræðu á Íslandi er ómetanlegt.

[Birgir Guðmundsson (IP-tala skráð) 6.5.2009 kl. 09:29]

Sæl Hanna og takk fyrir frábært blogg. Ég er þeirrar skoðunar að við eigum að kjósa til alþingis og allir ráðherrar sem skipaðir verða eiga að vera ráðherrar utan flokka. Þeir flokkar sem eru fjöllmennastir á þingi hafa ráða þá eðlilega mestu um hverjir verði ráðnir og standa og falla með vali sínu. Þetta fyrirkomu lag sem við erum að upplifa er búið að vera og hefur dæmt sig ónýtt. Ég vill sjá svona þungavikta menn í hagfræði ráða sem ráðgjafa alþingis í efnahangsmálum og að einhverjir "sjálfum glaðir" pólitíkusar seu ekki að komast upp með það að leika einhverja kónga á kostnað þjóðarinnar. Ráða hæfustu menn í hverja stöðu hverju sinni. Nú er tækifærið til að breyta þessu fúna fyrirkomulagi í eitt skipti fyrir öll.

Kveðja

Biggi

[Sigurbjörn Svavarsson, 6.5.2009 kl. 09:33]

Glæsilegt framtak. Þetta þyrfti að komast í meiri dreifingu.

[Haraldur Baldursson, 6.5.2009 kl. 11:07]

Flott framtak hjá þér Lára.

[Agla (IP-tala skráð) 6.5.2009 kl. 14:06]

Mikil vinna á bak við þessa færslu.

Michael Hudson er greinilega reyndur fyrirlesari og kann að vinna úr spurningum. Að sjálfsögðu óskar hann okkur Íslendingum alls hins besta og, að sjálfsögðu, var hann ánægður með spurningarnar. Hann er  kurteis maður og segir t.d. "I have met many people in Iceland, including the Finance Department, that are quite knowledgeable and sincere". Þessi umsögn gæti hugsanlega flokkast undir "damning with faint praise" en hvað um það. Prof. Hudson hefur greinilega kynnt sér stöðu Íslands og myndað sér skoðun um okkar vanda. Við hljótum þessvegna að hlusta á hann með athygli og vera ykkur þakklát sem hafa komið skoðunum hans á framfæri.

Mér finnst framlag hans til umræðunnar um vanda okkar mjög athyglisvert en mig vantar þekkingu til að meta það.Þá fer maður á google og reynir að átta sig á hver maðurinn er og heldur svo áfram. Mr. Hudson virðist m.a. hafa tengsli við Global research.ca og á síðum þeirra er ýmislegt fróðlegt að sjá.

Í leit minni að Michael Hudson rakst ég á grein eftir hann  sem var birt á www.scoop.co.nz/stories/HL0904?S00068.htm undir fyrirsögninni "The Financial  War Against Iceland".Ég mæli eindregið með þessari grein. Ekki vegna þess að ég sé henni endilega sammála heldur  einfaldlega af því að ég held að hún eigi erindi til okkar.Hún gæti hugsanlega vakið spurningar tengdar okkar vanda.Ef maður veit ekki nóg til að spyrja er ekki haldgóðra svara að vænta og í því óvissu ástandi sem nú hefur heltekið okkur er greinilega brýn þörf á upplýsingum.

Ríkisstjórnin virðist loksins vera að byrja að átta sig á að upplýsingaþjónusta þeirra er fyrir neðan allar hellur. Hrunið hefur kannski vakið okkur af velferðarhádegisblundinum og tími til kominn því meðan við dottuðum rak okkur að feigðarósi. 

[Sóley Björk Stefánsdóttir, 6.5.2009 kl. 14:43]

Þetta er alveg frábært framtak hjá þér og þú átt allar þakkir skildar. Ég er sammála því að það væri mjög gott fyrir áframhaldandi umræðu um þessi mál hér á landi að snara þessu yfir á íslensku en finnst það helst til of mikils ætlast að þú takir það að þér. Ég legg því til að hver spyrjandi þýði sína spurningu og svarið við henni ef hann getur og þú getur kannski fundið einhvern til að fara yfir þýðingarnar. Þannig leggjast allir á plóginn. Hvernig lýst þér/ykkur á það?

[Katrín Snæhólm Baldursdóttir, 6.5.2009 kl. 16:56]

Frábært framtak og þúsund þakkir Lára Hanna. Er búin að lesa í gegnum þetta á ensku en það væri æðislegt að geta lseið líka á íslensku þar sem það eru hugtök þarna á milli sem maður skilur ekki alveg ennþá.

Hvar værum við á þín flotta kona?

[Anna Benkovic Mikaelsdóttir, 6.5.2009 kl. 22:32]

Er ekki spurningin raunverulega sú "erum við tilbúin að kollvarpa hefðinni"?

 Veit að núverandi og fyrrverandi Viðskiptaráðherrar eru ekki til í það!

[Arinbjörn Kúld, 6.5.2009 kl. 23:29]

Gott mál og frábært framtak. Nú fá þær gráu að vinna fyrir orkunni!

[Karl Ólafsson, 7.5.2009 kl. 00:36]

Lára, hafðu bestu þakkir fyrir frábært framtak. 

Til viðbótar við athugasemd 5 frá Björg F.

Ég hef verið hlynntur því að við skiptum um gjaldmiðil, en hef þó mínar efasemdir um að það sé það sem hentar okkur að gera í ástandinu eins og það er. Það er alveg rétt að með eigin gjaldmiðil höfum við meiri sveigjanleika og getum því unnið okkur hraðar út úr kreppunni en ella, t.d. með peningaprentun. En takið eftir og lesið aftur svör Hudsons þar sem hann leggur áherslu á að við verðum að losa okkur við verðtrygginguna. Verðtryggingin vinnur einmitt gegn þeim sveigjanleika sem verðfelling gjaldmiðilsins veitir okkur. Verðfelling gjaldmiðils er ætluð og henni er beitt til þess að endurstilla hagkerfið. Verðtryggingin stillir hins vegar samstundis allar lánastöður og verðtryggðar peningaeignir í upphaflega stillingu hvað raunvirði varðar og skekkir þar með og eyðileggur möguleikann á því að allar stærðir stillist af í eitthvað sem kalla mætti jafnvægi. Þetta er og verður stærsta og óyfirstíganlegasta vandamál heimilanna og fyrirtækjanna þangað til menn gera sér grein fyrir því að verðtryggingin verður að fara og byrja að gera eitthvað í því.

Mig langar líka að benda á athyglisverða grein í Irish Independent, sem Páll Vilhjálmsson (sem ég er reyndar afar sjaldan sammála) linkaði á. Takið eftir samhljóminum með okkar ástandi að öðru leyti en því að þeir geta ekki fellt sitt gengi, en ef þeir gætu það væru þeir ekki í sama vanda og við hvað varðar verðtryggingu. Í þessari grein er bent á eina leið til fjármögnunar ríkisins sem væri útgáfa verðtryggðra ríkisskuldabréfa, en það er í sjálfu sér í lagi þar sem seðlabanki ríkisins getur jú prentað peninga til þess að standa straum af þeirri verðtryggingu (veldur verðbólgu og allt það, en er engu að síður allt önnur staða en okkar þar sem almenningur og fyrirtæki eru látin um að prenta peninga án þess að hafa til þess nokkur verkfæri).

[Halldór Jónsson, 7.5.2009 kl. 11:33]

Ég held að ríkisstjórnin ætti að ráða þennan Hudson í margfalt  fleiri daga í mánuði en Evu Joly. Ætli sé einhver leið til að fá hana til að lesa þetta ?

Bestu þakkir fyrir þetta framtak.

[Jenný Stefanía Jensdóttir, 8.5.2009 kl. 04:41]

Lausleg þýðing og svar við spurningu númer 8 um Kvótakerfið og hraðvirkar lausnir á vanda þess,

má finna hér

http://jennystefania.blog.is/blog/jennystefania/#entry-872598

Kærar þakkir fyrir framtakið og hugmyndaflugið.