The Insider’s Economic Dictionary: B Is for Bailout

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The Insider’s Economic Dictionary: B Is for Bailout
Posted on Aug 10, 2013

By Michael Hudson


Bailout: Reimbursement to speculators and savers of losses incurred by bad loans, investments or deposits in banks that fail. The effect of this moral hazard is to preserve financial control in the hands of the economy’s wealthiest 10 percent, “making them whole” by shifting the loss onto the bottom 90 percent of the population in order to benefit those at the top of the pyramid (see Rentier and Oligarchy).

Balance of payments: Every country has offsetting trade and financial movements. And as in any balance sheet, every country’s payments are in overall balance by definition. The balance of payments is an accounting statement of international credits or inflows such as export receipts, the run-up of debt, and payments to foreigners for imports or to buy foreign companies.

The formal term should be “balance of international transactions,” because many transactions do not involve payments. U.S. foreign aid is extended “in kind” (military hardware, food dumping, etc.) rather than involving dollar payments, while many exports are financed on credit. Retained earnings by foreign branches of U.S. companies are treated as if they flow into the economy and then flow out again, although no flows of payments actually are involved.

This being said, there are many sub-balances that can be struck, most notably the current account (trade, services, and transfer payments such as immigrants’ remittances) and “capital” account (loans and investments). The most typical (im)balance is the rise in foreign indebtedness and loss (or rise) of international reserves. For the United States the “balance” used to consist of gold sales, but today it is the run-up of Treasury debt to foreign central banks (but not to private holders) to settle the imbalances on trade and investment accounts. The difference between the United States and other countries is that it can settle these imbalances in its own fiat currency – U.S. dollars – whereas other countries must depend on the U.S. monopoly of dollar creation to finance their deficits. ................(more)

The complete piece is at: http://www.truthdig.com/report/item/the_insiders_economic_dictionary_b_is_for_bailout_20130810/