Advanced Search
MyIDEAS: Login to save this paper or follow this series

Trade and Payments Theory in a Financialized Economy

Contents:

Author Info

  • Michael Hudson
Registered author(s):

    Abstract

    Ricardian trade theory was based on the cost of labor at a time when grain and other consumer goods accounted for most subsistence spending. But today's budgets are dominated by payments to the finance, insurance, and real estate (FIRE) sector and to newly privatized monopolies. This has made FIRE the determining factor in trade competitiveness. The major elements in US family budgets are housing (with prices bid up on credit), debt service, and health insurance-and wage withholding for financializing Social Security and Medicare. Industrial firms also have been financialized, using debt leverage to increase their return on equity. The effect is for interest to increase as a proportion of cash flow (earnings before interest, taxes, depreciation, and amortization, or EBITDA). Corporate raiders pay their high-interest bondholders, while financial managers also are using EBITDA for stock buybacks to increase share prices (and hence the value of their stock options). Shifting taxes off property and onto employment and retail sales spurs the financialization of family and business budgets as tax cuts on property are capitalized into higher bank loans. Payments to government agencies for taxes and presaving for Social Security and Medicare absorb another 30 percent of family budgets. These transfer payments to the FIRE sector and government agencies have transformed international cost structures, absorbing roughly 75 percent of US family budgets. This helps explain the deteriorating US industrial trade balance as the economy has become financialized.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.levyinstitute.org/pubs/wp_699.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_699.

    as in new window
    Length:
    Date of creation: Dec 2011
    Date of revision:
    Handle: RePEc:lev:wrkpap:wp_699

    Contact details of provider:
    Web page: http://www.levyinstitute.org

    Related research

    Keywords: International Trade Theory; Financialization;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_699. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.