From Marx to Goldman Sachs: The Fictions of Fictitious Capital
Source Charles Brown
Date 11/11/03/16:58

>From Michael Hudson:
>From Marx to Goldman Sachs: The Fictions of Fictitious Capital


FINANCE CAPITALISM HAS become a network of exponentially growing
interest-bearing claims wrapped around the production economy. The
internal contradiction is that its dynamic leads to debt deflation and
asset stripping. The economy is turned into a Ponzi scheme by
recycling debt service to make new loans to inflate property prices by
enough to justify yet new lending. But a limit is imposed by the
shrinking ability of surplus income to cover the debt service falling
due. That is what the mathematics of compound interest are all about.

Borrowing to make speculative gains from asset-price inflation
does not involve tangible investment in the means of production. It is
based simply on M-Mí, not M-C-Mí. The debt overhead grows
exponentially as banks and other creditors recycle their receipt of
debt service into new (and riskier) loans, not productive credit.

Half a century of IMF austerity programs has demonstrated how
destructive this usurious policy is, by limiting the economyís ability
to create a surplus. Yet economies throughout the world now base their
pension planning, medical insurance, state and local finances on a
faith in compound interest, without seeing the inner contradiction
that debt deflation shrinks the domestic market and blocks economies
from developing.

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