The most serious problems lie in the financial sphere, where the economy's debt overhead has grown more rapidly than the 'real' economy's ability to carry this debt. [...] The essence of the global financial bubble is that savings are diverted to inflate the stock market, bond market and real estate prices rather than to build new factories and employ more labor.
Michael HudsonSo the Bush-Obama administration has taken a fiscal stance diametrically opposed to that of the patron saint of free enterprise. While escalating war in Afghanistan and maintaining over 850 military bases around the world, the administration has run up the national debt that Smith decried. By shifting the tax burden off property and off rent-seeking monopolies - above all, off the financial sector - this policy has raised America's cost of living and doing business, thereby undercutting its competitive power and running up larger and larger foreign debt.
Michael HudsonThe problem is indeed that one party's debt finds its counterpart in some other party's savings. Not paying debts therefore involves annulling some other party's financial claims on the debtor.
Michael HudsonThe concept of productivity in America is income divided by labor. So if you're Goldman Sachs and you pay yourself $20 million a year in salary and bonuses, you're considered to have added $20 million to GDP, and that's enormously productive. So we're talking in a tautology. We're talking with circular reasoning here.
Michael Hudson