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 TeasersMichael Hudson Blogview

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Michael Hudson’s landmark 2015 book “Killing the Host” exposed how the empires of finance, insurance and real estate captured the global economy through neo-liberalism and sold us down the road to neo-feudalism. Michael returns to the show to describe why the current global economic demise is the fruit of consummate greed, crony politics and rapacious finance – and what we must do if we are to ever get off this road. On a very positive note that shows that The People aren’t taking all this lying down, Ellen talks with one of the team members behind California’s new infrastructure bank bill, AB 310, which may set a national example for accelerating implementation of new state public banks.

EHB-Michael Hudson intervw – IOM show #132.mp3, July 20, 2020.

https://itsourmoney.podbean.com/e/it-s-our-money-with-ellen-brown-killing-the-host/

Ellen Brown: [00:00:00] My guest today is Dr. Michael Hudson, who we’re delighted to have on our Public Banking Institute Advisory Board, and who really should be advising the Federal Reserve and the Treasury, but BlackRock seems to have gotten the job. Paul Craig Roberts, who is former Assistant Treasury Secretary under Reagan, called Michael Hudson the greatest economist on the planet. He’s a Wall Street financial analyst, Professor of Economics at the University of Missouri, Kansas City, and author of over two dozen books, including Killing the Host and one called … and Forgive Them Their Debts, which are both particularly relevant today. So it’s great to be speaking with you, Michael.

Michael Hudson: [00:00:43] It’s good to be back, Ellen.

Ellen Brown: [00:00:45] Thanks. So, you recently wrote in The Washington Post the Corona virus outbreak is serving as a mind expansion exercise, making hitherto unthinkable solutions thinkable. Debts that can’t be paid, won’t be. A debt jubilee may be the best way out. So, for anyone who hasn’t heard you explain this before, could you explain what you mean by a debt jubilee, and why it may be the best way out, and what the real crisis is that it’s the best way out of?

Michael Hudson: [00:01:21] Well, there was the debt problem that’s been mounting up ever since World War II. Every economic recovery, every business cycle since 1945 has started from a higher level of debt. Most people thought they were getting rich off debt because most bank credit – 80 percent of bank loans – are mortgage loans. They’re made against real estate. Banks have sought to expand the market, and have lent more and more against real estate. In the 1960s when I first bought a house, you had to have debt service absorb not more than 25 percent of your income. You had to put down 30 percent of the price of the house. So basically, a house was worth whatever a bank would lend.

But by the time that the economy collapsed in 2008 – or rather, by the time the financial system collapsed – banks were making loans with zero down payment. You didn’t need 30 percent. The requirement that mortgage payment be affordable – 25 percent of your income – went out the window. Banks would lend any amount of money, regardless of what you were making. And even the interest didn’t have to be paid. Instead of having a self-amortizing mortgage where you’d own the house after 30 years of paying the bank, you’d pay the bank after 30 years and you wouldn’t own any more at all, because you wouldn’t be paying any amortization.

So basically, banks lent so much money against housing, inflating it up to such a high price, that after paying the mortgage costs – or, if you can’t afford a house, if you’re a renter – after paying the debt service and the credit card debt, the other debt, and after paying the insurance costs and taxes, you really don’t have much left for basic goods and services that you produce, except for the bare minimum of food, clothing and transportation.

So a point was reached already by the time the virus broke out of how the economy can continue to grow. For 95 percent of the population, the economy stopped growing in 2008, when Obama bailed out the banks and left all the bad debts in place. Since 2008, all the growth of GDP – all the increase in national income – has accrued just to the wealthiest five percent of the population. That means that for 95 percent of the population the economy hasn’t been growing at all. It’s been shrinking.

The question is, how are you going to grow if you leave all of the debt service in place, if you leave all of the debt pyramided housing in place? Bonds and stocks are so high-priced that they don’t yield an income for retirement anymore. The economy reached a point already by the beginning of this year that it had to choose either to pay all the debts, continue paying the growth in income to the five percent that basically are the creditor and financial class, or write down the debts and let the economy grow again.

The basic issue is, who is the economy going to be run for? Is it going to be run for the banks and Wall Street, or for Main Street? Well, you said I should be a adviser to the Federal Reserve and Treasury. They wouldn’t pay any attention to anything I say, because they run the economy for Wall Street. As you’ve just seen, the Federal Reserve has created a virus of quantitative easing since 2008. First, four and a half trillion dollars for the Obama bailout, and then another two trillion that is set to go up to 10 trillion, essentially just to buy stocks and bonds and push up the prices of assets that the five percent own.

So the Federal Reserve basically is working against Main Street. It’s working only for its constituency, which are the commercial banks, instead of trying to think how can the economy free itself from this debt overhead? It certainly can’t work its way out of debt because nobody’s earning enough money to amortize, that is to pay off the principal. All they can do is try to pay the current interest charges. So the economy has painted itself into a corner. And that’s the problem that I address in Killing the Host and all the books that I write and all the interviews that I do.

Ellen Brown: [00:06:51] I totally agree with all that. You mentioned this four and a half trillion, which is levered up. I just wondered, how do they get away with that? I mean, it’s not a bank. Why did they figure ten to one? Tthey could do 100 to one. The Federal Reserve can issue whenever it wants. I guess one of my basic questions about the Federal Reserve is that people say they could actually go bankrupt, their balance sheet doesn’t balance, and all that. Do they actually have a balance sheet that counts?

Michael Hudson: [00:07:25] Sure they have a balance sheet. The question is, what is a balance sheet? You have assets on the left-hand side and liabilities and net worth on the right-hand side. The Federal Reserve can create a credit / deposit, just like a bank does. If you go to a bank and want to borrow money, the bank will create an account for you just on the computer. “Here’s $100,000 we’re putting in your checking account. Go buy a house or do anything.” In exchange, the bank has an asset, a claim on you for repayment with interest. Well, the Federal Reserve also can do anything on its balance sheet. It can tell corporations and the banks, “We’re the Statue of Liberty: Give us your poor junk loans, give us your bad debts, give us all of the junk, and we will create a deposit – 100 cents on the dollar for it – and we will pick up all of your bad loans. And we know that the loans can’t be paid, because the economy can’t pay.”

 
• Category: Economics • Tags: Banking Industry, Debt, Federal Reserve 
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Michael Hudson: Well, I think you’re quite right in organizing the conference to point out that today’s pandemic crisis hastens and intensifies the internal contradictions that have been building up. Many of these contradictions are going to be blamed simply on the virus. But there is an underlying problem that the virus is exposing and turning into a crisis. That underlying problem is the debts that have been building up for the last few decades.

We are in a situation much like a war. There are winners and there are losers in a war. In this case the winner is the aggressor – the financial sector. Its demands for payment have set the stage for today’s economic breakdown. This has been the case throughout history. Finance always has been the great destabilizing factor. Right now, you’re having businesses – retail stores, restaurants, hotels, airlines and other businesses that are being closed down or operating at only a small capacity far below break-even levels. These businesses are not able to pay their stipulated rents or mortgage debt service. Their landlords are not able to pay their banks.

Workers have been laid off, and they’re unable to pay their landlords or creditors. So they are falling more deeply into debt. Entire states and the cities, like New York State and New York City, are being squeezed. In addition to having to pay local unemployment insurance, they have to maintain basic infrastructure and social services. But their d tax revenues ae plunging as a result of fewer sales taxes and income taxes. So the pandemic is creating a fiscal crisis as part of the overall debt and real-estate crisis.

The question is, how do we get out of it? What is happening is what legal contracts call an Act of God. What do you do when economic activity is disrupted and the flow of payments that people have every month – their debt service, their rents or their mortgage, or their credit cards and other basic ongoing expenses. What do you do when they can’t be paid? I think that this crisis is laying the problem bare. It is a problem that’s occurred in Western civilization for the last 2,000 years. But what is so striking is how much more adroitly ancient civilizations handled this problem. They did so in a completely different wat from how other civilizations have handled things.

I have written quite a bit about Bronze Age archaeology in the ancient Near East. That is where the Act of God stipulation originated. It appears in the Laws of Hammurabi c. 1750 BC. The problem that the Babylonians had to deal with was what to do when there is a flood, a drought, warfare or a pandemic. What should be the rules when, suddenly out of nowhere, cultivators and the citizenry on the land are rendered unable to grow and harvest crops, out of which to pay the debts that they have run up during the year and are falling due. They owe the taxes, sharecropping or other rent that could not be paid.

Hammurabi was quite specific about how to handle this situation. Paragraph 48 of his Laws said that there would be a debt and a tax amnesty when the weather god, Adad, created a flood or otherwise prevented debts and other obligations from being paid. If the storm god floods the lands, the debts and rents don’t have to be paid. A fresh start was made under conditions of balance for the next crop season.

The basic problem was similar to that today: How does a society restore continuity and save itself from disruption creating a permanent loss and distortion of existing wealth and income relationships? What Hammurabi and every other Babylonian, Sumerian ruler and other Near Eastern rulers did between about 2,500 BC and the 1st century BC was to proclaim amnesties in such circumstances. If they hadn’t done that, cultivators would not have been able to pay their creditors and they would have fallen into bondage. They would have owed their labour and crops to their creditors.

This would have caused a serious fiscal problem for rulers. If victims of a crop failure or other economic interruption had to pay their creditors with their labour and crop surplus, this labor and crop tax wouldn’t be available to pay the palace its normal claims for taxes and corvée labour duties to build infrastructure or even serve in the army. Social balance and continuity would have been destroyed – from within. So when Hammurabi and every ruler of his dynasty proclaimed a clean slate cancelling the debts and rent arrears that had mounted up unpaid, proclaiming a return to the normal situation prevented a creditor oligarchy from emerging and seeking its own interest as distinct from that of the palace.

All this changed in Roman times. Classical antiquity protected the financial and rentier elites. Cicero and the other Roman leaders said that all the debts had to be paid, even (or indeed, precisely because!) this led to the enslavement of poorer Romans and Greeks. Rome’s creditor oligarchy used every crisis as an opportunity to grab the land of the smallholders, to force the population into bondage and to get control of their land.

We’re seeing the same basic dynamic occur throughout the post-Roman Western world. Creditors are now already planning to buy up distressed real estate from landlords that default as their rents are not paid. There is going to be a huge bankruptcy sale. Large private capital funds have already announced their intention to begin buying out the retail stores that have gone bankrupt, along with their real estate.

Individuals who are unable to pay their debts, workers who’ve been laid off, are told to borrow from their pension funds or social security accounts. That means that they won’t be receiving the retirement income they need to live. Likewise, the states and the cities that Jeffrey Sachs mentioned also are facing a debt crisis with their bondholders. Mitch McConnell, the Republican Senate head, said that Democratic states like New York, New Jersey and California should cover their shortfall by taking the pension funds that they’ve set up for public employees. The financial sector’s intention is to use this crisis to wipe out the pension funds and transfer the savings of the wage-earners to pay bondholders and other creditors. The promises that state and local governments made for pension in exchange for not asking for higher wages are to be wiped out.

The debts that have been built up are being used as a financial warfare tactic. It is more efficient than military warfare. Debt has been used to strip away the assets of middle-class people, of home owners, of employee pension funds, to suck their savings and property up to the top of the economic pyramid. The pandemic crisis has created a battlefield. Its rules have been written by the financial sector and their lobbyists as an opportunity for the largest property and financial grab since the Great Depression.

The result will be that much of the American and European economies are going to end up looking like the Greek economy five years ago, when it was unable to pay its euro-debts. You can look at Greece as the future of the United States, catalysed by the coronavirus pandemic.

Grigoris Zarotiadis: Thank you. Thank you, Tatiana, Professor Hubenova, thanks a lot. Michael, it’s your turn and allow me, before you start, because there was an extra question addressed to you, but also to the rest, included perhaps in the previous questions: who are the big winners, in economic terms, after current developments? Dear Michael, you have the floor.

Michael Hudson: I’ll talk about the questions in reverse order, beginning with the idea that there may be an inflation to help pay off the debts.

 
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The Federal Reserve is directly buying stocks, bonds, junk bonds, mortgages, junk mortgages, all to prop up the value of assets owned by the top 5%. This does not spur much new production or create jobs. Michael Hudson joins Paul Jay on theAnalysis.news podcast

Transcript

Paul Jay

Hi, my name’s Paul Jay, and welcome to theAnalysis.news podcast. Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, and also a professor at Peking University in Beijing. He’s written or edited over 10 books on international finance, economic history and the history of economic thought. His newest book is J is for Junk Economics and most recently, And Forgive Them Their Debts, which Martin Wolf of the Financial Times cited as a Book of the Year for 2018.

Thanks for joining us, Michael.

Michael Hudson

It’s good to be here, Paul.

Paul Jay

So with so much bad news in the world, and when the stock market crashed in late February, why didn’t it stay crashed? Two months after the crash to 14 month lows, So at a certain point, almost historic lows, the Nasdaq composite is closing in now on all time highs. Why?

Michael Hudson

There is only one reason for a stock or bond prices to go up. And that’s because of the flow of funds into the stock market. What had been supporting the stock market for the last 12 years was very largely stock buybacks by companies using their revenue to sort of close down their business, disinvest and buy their own stocks to at least keep the prices up. Well, what’s flowing into the market right now? Obviously, it’s not corporate profits buying their own stocks, and it’s certainly not popular money coming into the market by small investors thinking that stocks are going to earn more. All this money is coming into the market from the 10 trillion dollar bailout via the Federal Reserve. The Federal Reserve is going out directly and is buying stocks, bonds, junk bonds, mortgages, junk mortgages, all to prop up the value of assets.

Now, when it’s putting this money into the stock market, it’s buying stocks that are already issued and have long since —the proceeds have been spent on building factories or enterprises or as means of making money. So none of this bailout money, none of this 10 trillion going into the stock market has any effect at all on the real economy of production and consumption. It’s solely to support the assets that are held almost eighty five percent by the wealthiest 10 percent of the economy.

So the Fed has revived the stock market downturn. It’s come up, and what it said is, “Folks, you can bail out of the stock market, give us your junk bonds. That’s sort of like the Statue of Liberty for wealthy people. Give us your stocks. Sell your bonds. We’ll buy them all up at Federal Reserve expense and will purchase them. And we’ll also do our own forward buying to manipulate the stock market by promising to buy our stock, so the higher price in the forward market. So that’s going to create a speculative demand for stock. So the speculative demand for stocks by Federal Reserve manipulation and the actual flow of funding money into the stock market from the government has been pushing it back up, giving the illusion of prosperity, at least for the 10 percent.

Paul Jay

But are they actually straightforwardly buying stocks to they’re buying corporate debt, which allows them to go buy their own stocks and also just making so much money, so cheap people can buy stock?But is the Fed actually straightforwardly buying stock?

Michael Hudson

That’s what it said it’s been doing. Or it’s buying packages. It’s buying—We don’t know exactly what it is buying because it doesn’t have the report. That’s why the Treasury left the Fed to do something that doesn’t have to be followed carefully. It took up Randy Wray at Bard College’s Libby Institute about a year just to untangle what the Fed had done after 2008 and 2009 with the big Obama bailout of quantitative easing. So we’re not going to know for later what’s been happening. But certainly corporations are not buying their own stocks now because that would make that that would be a political disaster and they just wouldn’t get more bailout money. So the money is coming almost entirely from speculators or from the Fed promising to buy what speculators buy at a higher price later on. So it’s manipulating the foreign exchange market just like the Leibor market was manipulated. Almost all the financial markets these days are manipulated by high finance in cahoots with the Central Bank. And if you don’t have that central bank backing, then there’s not going to be the flow of funds going into the markets.

And certainly small investors are not buying. Regular investors have already been getting out of the stock market for quite a few years now. It’s only for our professionals, often for a computer trading gets into the act. It’s an insider’s game that is basically fueled by the Central Bank.

Paul Jay

So you wrote an article called, The Coming Financial Horror, that the Federal Reserve Chairman Powell is essentially promoting a fantasy that there’s going to be relatively quick recovery, although recently he was saying it’s not going to be quite so quick as people thought. But this stimulus program they have, whether it’s propping up the stock market or buying corporate debt or funneling money directly to corporations—Is it going to have any effect that’s longer term than what it seems to be, because one can see that if they try to get the economy going again, and they haven’t done more on the side of consumer demand, who the heck’s going to buy us off to get the economy going again?

Michael Hudson

 
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[Intro] Welcome to the Knowledge Problem Podcast, the objective of this podcast is to engage policy professionals over thought provoking and sometimes sensitive topics. We aim to bring these professionals together in a way that does not feed the tribalistic narratives plaguing society today. It is my hope and the hope of all involved in this endeavor that by allowing these ideas to contend and challenge each other, with mutual respect, everyone who listens will learn something not previously considered.

[Disclaimer] The opinions and views of all guests do not necessarily reflect the views of the Knowledge Problem or of anyone involved in this production.

Regan: Hello everyone, thank you for tuning into this episode of the Knowledge Problem Podcast. I’m your host Regan Ferrell [and I’m Alex Pilkington] on today’s episode we explore the merits and shortcomings of capitalism. [1:00] We have Dr. Jeffrey Miron speaking first, followed by rebuttals from Dr. Michael Hudson.

Dr. Jeffrey Miron is a senior lecturer and director of undergraduate studies in the department of economics at Harvard University as well as a senior fellow at the Cato Institute. His field of expertise is the economics of libertarianism. He’s advocated for many libertarian policies including legalizing all drugs and allowing failing banks to go bankrupt. He has written four books including “Drug War Crimes: The Consequences of Prohibition” and “Libertarianism, From A-Z.”

Alex: And Dr. Michael Hudson is a financial analyst and president of the Institute for the Study of Long-Term Economic Trends. He is a distinguished research professor of economics at the University of Missouri-Kansas City and professor at the School of Marxist studies at Peking University In China. Dr. Hudson’s written or edited more than 10 books on the politics of international finance, economic history and the history of economics. His trade [2:00] books have been translated into Japanese, Chinese, German, Spanish and Russian. He sits on the editorial board of Lapham’s Quarterly and has written for the Journal of International Affairs, Commonweal, International Economy, Financial Times, and Harper’s, and is a regular contributor to CounterPunch.

Regan: Alright, and to begin, we’re going to ask a sort of general question: What is capitalism? How does it differ from feudalism in classical antiquity or from socialism for that matter?

Professor Myron: So, let me start by saying I don’t think capitalism is a great label for what I would what I would like to advocate for or defend, because you can easily imagine an economy that doesn’t have any capital, it doesn’t have buildings or machinery, it simply has goods produced with peoples labor effort and I would still call it capitalist if it satisfies the other things I want to emphasize. So the term I prefer would be free markets, by which I mean the absence of regulations, rules, [3:00] any other prior restraints on voluntary actions taken by consumers and firms. And I emphasize that this definition free markets, this noninterference, applies very broadly. It’s not just to the standard sort of businessy things that we think of as part of commerce: making groceries or widgets or airplane seats and things like that. It would include alcohol, drugs, thought about appropriately includes legalizing gay marriage, it includes gambling, education, sort of any private activity would all come under the sphere of what I would call free markets.

Professor Hudson: OK, well I think industrial capitalism is antithetical to what today is called a free market. I think following Britain’s protectionist take off, the United States and Germany created mixed economies and their government supported profit levels by protective tariffs and subsidies and by infrastructure investment. That was all coordinated by government supported military, [4:00] heavy industry and banking working together. So, the result was a mixed economy and its structure went way beyond the market as such. Countries that did not develop protection and transform their market structures fell behind. So, I think the aim of industrial capitalist nations, and I think we should distinguish industrial capitalism from finance capitalism, industrial capitalist nations wanted to minimize the cost of living and doing business.

Which is the same thing that you’re claiming the free market does, but they wanted to do it by having governments bear the cost of providing basic services such as healthcare, education, pension, transportation, and communications. And to provide these services at a subsidized cost or even freely, not by a privatized market pricing. So, in this definition, industrial capitalism is more than just a market. Feudalism had a market, it was based on serfdom. Bronze Age Babylonia [5:00] is where markets and money and prices were developed under Palace leadership. And, I should say that since 1984 I was working with the Peabody Museum at Harvard, with the Anthropology Department, to convene six colloquia on the origins of markets and economic enterprise in the palatial economies of the ancient near East. Now, ancient Rome had a market, but the structures affecting and in shaping these markets were quite different.

And I think the problem with focusing the discussion on market structures is that this sidetracks what the topic is supposed to be, namely what is capitalism. And I think an analysis of markets tends to be microeconomic, and to understand capitalism you have to look at how it’s purposes have been changed since they were formulated in the [6:00] late 18th and early 19th century by Adam Smith and Ricardo and John Stuart Mill and the classical economists. I think that I would define capitalism as employing wage labor, it’s not only labor producing as a profit, it’s the capitalist employs the wage labor to make profits to sell products to sell it a profit. And the idea is to reinvest these profits in more means of production and hiring more laborers. And I think that in doing this capitalism transformed the structure of market and that was its great contribution.

The term free market is so abstract that it misses the whole meaning of all this. Free for whom? For crooks and junk mortgage bankers? They love the free market, but the rest of the economy suffers, as it did in 2008. Monopolists love being able to do what Adam Smith described in his doing: conspiring against their customers in society. [7:00] So, the key is what kind of a market are we going to have? is it going to be a market that provides healthcare and education and the post office as a human right? That’s different from one where the privatizes these functions. So, if we’re discussing capitalism, privatization is going to be higher costs and hence less competitive. So, calling mixed economies – unfree economies would be a simply a plea for privatized rent seeking and that really is the focus of what I have to say.

 
• Category: Economics • Tags: Capitalism, Free market 
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I have always held Michael Hudson in the greatest esteem. Not only do I consider him my favorite US economist out there, I also know that he is a kind human being. He manifested this kindness again when he agreed to reply to some very basic questions which a non-economist like myself would ask. I am deeply grateful to Michael for taking the time to reply to them!

The Saker: I suppose that like any system, the economy and financial system in the USA and, more generally, in the West can take some punishment, but there has to be a “point of no return” after which the entire systems comes tumbling down like a house of card. My first question is double: a) what would be this “point of no return” and do you think that we have (or will soon) reach it? b) What would be the signs that this “point of no return” has been reached (or is about to be reached)?

Michael Hudson: The point of no return would arrive when the Federal Reserve and government stop bailing out the bankers and the stock and bond markets and let real “free market” asset prices collapse to reflect the “real” economy’s shrinkage. There would be a sell-off without the Fed’s promise to be the buyer of last resort.

The problem is that the economy can never recover from the Obama Depression (resulting from his refusal to write down the junk-mortgage debts and the other debts to the leading financial institutions) as long as it keeps the present debt overhead on the books. But Sheila Bair’s comment still applies: “It’s all about the bondholders.”

So I don’t expect a soon “point of no return.” But when it finally does occur, it will be sudden – as all crashes are. It may be triggered by a bank or speculator making a bad trade and being unable to pay, as AIG’s London office was unable to do so in 2008.

That said, who would have believed that the stock market would continue to go up while the underlying “real” economy is shrinking drastically. Obviously, there has been a decoupling of the economy’s two sectors: the Financial, Insurance and Real Estate (FIRE) sector from the production-and-consumption economy.

I think that the Fed will let the large insiders sell out (and even make a fortune on selling stocks and bonds short) before they pull the plug. The key is that the collapse of the economy must be managed as a financial gain-seeking opportunity for the big banks and financial speculators.

The Saker: There is a lot of talk about the big corporations out there, but I want to ask you about the “little guy” (like myself and most of our readers): what can we do to prepare for a possible economic and financial collapse? For example, do you consider that our money is safe in US FDIC insured deposits banks? Or there be a “bank holiday” or even a full scale “run on banks” like what happened in Argentina? Should we pull our saving and keep cash? Or even get gold/silver? What do you recommend for the “little guy”?

Michael Hudson: FDIC-insured deposits are safe. They won’t let that go, because that would end the banking system.

There won’t be an Argentina-style run, because its foreign debt is owed in U.S. dollars, which it can’t print. But US debt is owed in its own currency, which the Fed and Treasury can create at will.

The stock market will zig-zag in approximately the current range, until the plunge is permitted to occur. The safest investment is in U.S. Treasury securities. Gold is fine also, but the problem is how to keep it free from theft. Like currency, it can be robbed.

For your small investors, the best aim to protect themselves is to get (and stay) out of debt, secure their home and livelihood from what may be a Third-World type austerity plan, IMF style resulting from state and local bankruptcy. (Avoid buying tax-exempt state and local bonds.)

The Saker: How bad is, in your opinion, the current crisis in financial/economic terms? Some say that this will (or, already is) worse than 2008, 9/11 or even the Great Depression. Do you agree and, if not, why?

Michael Hudson: The current depression is the worst since the 1930s. There will be a new wave of foreclosures, on commercial real estate as well as residential homes. The problem will not be merely junk mortgages, but the loss of income by rent-paying stores and other commercial property and residential housing.

We are at the end of the 75-year upswing that began in 1945 when the war ended with few private-sector debts and abundant savings. Now, the situation has been reversed: a heavy debt overhead, with little savings by most of the population. The growth in the economic surplus is now spent almost entirely on debt service and other financial charges and rentier payments to the FIRE sector. Rentier capitalism has replaced industrial capitalism.

The Saker: a lot of people (and corporations) out there are loosing millions and even billions. But others are making a killing (Amazon?). Who in your opinion benefits most from this crisis and how?

Michael Hudson: Financial and political insiders will benefit from the crisis, along with monopolists. The rest of the economy will lose – but the quickest fortunes often are made in a crisis. As Adam Smith noted, profits often are highest in countries going fastest to ruin. But this time it is not profits that are the key to fortunes, but “capital gains” from bank-inflated asset prices.

In a nutshell, the financial game has been rigged by political insiders and their financial backers. Their time frame is short-run.

 
• Category: Economics • Tags: Coronavirus, Federal Reserve, Wall Street 
Imagining How Financial Parasites and Debt Bondage Are Destroying Us
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Jim Vrettos: Welcome once again to the Radical Imagination. I’m your host, Jim Vrettos. I’m a sociologist whose taught at John Jay College of Criminal Justice and Yeshiva University here in New York.

Our guest today on the Radical Imagination is Michael Hudson. He was on our March 8th show. We had such an overwhelmingly positive response to that show that we’ve asked him to return today, and he’s been gracious enough to accept.

Unlike most economists, he’s been a fierce champion and advocate for the economic rights of the poor, workers, disenfranchised and the vulnerable around the world through his scholarship and lifelong activism. His unique economic analysis has explored history’s main engine of economic exploitation – the banking, creditor and financial systems’ ever-increasing extraction of value through interest payments. The rentier class and FIRE sector – Finance, Insurance and Real Estate – have long succeeded in depicting themselves as part of a productive economy. Yet for centuries, these sectors were recognized as being parasitic.

Now with the United States losing some 10 million jobs in just the past two weeks and the world awash in debt, the total world gross domestic product is $90 trillion. The public and private debt is a mind-boggling $260 trillion. The pandemic has given this parasitic sector yet another, even more vicious opportunity to exploit and devour humanity.

As our guest puts it, the recently passed Trump “Bank and Landlord Relief” bill, mistakenly named the Coronavirus bill, starts by providing banks with an even larger giveaway of wealth than they received from Obama in 2008. Helping the banks, financial and real estate sectors in a so-called free market system is conflated with helping the industrial economy and general living standards for most Americans. The essence of a parasite is not only to drain the host’s nourishment, but to dull the host’s brain so that it does not recognize that the parasite is there.

These debt-bondage economies of Western countries are heading us down a spiral of poverty, decline, injustice and human despair.

Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, a researcher at the Levy Economics Institute of Bard College, former Wall Street analyst, a political consultant of governments on finance and tax policy, and a popular sought-after commentator and journalist. He’s devoted his entire scientific and historical work to the study of domestic and foreign debt, loans, mortgages and interest payments. His analysis and warnings are even more profoundly necessary in these pandemic days and nights. This is just the first in a series of cascading crises.

Welcome so much. Thank you for being back again here on the Radical Imagination. Michael, it’s great to see you again. How are you doing? I know we’re all trying to keep safe and well and strong. How are things going?

Michael Hudson: I just got back from a walk in Forest Park here in Queens. There was hardly anybody on the streets, but there were a good number of people in the park. I finally was given a face mask by the building’s super, and my Chinese friends say that they’ve mailed me some masks to keep me safe. They’re sending foreign aid to New York like we’re a third world country.

Jim Vrettos: Well, in a sense, we are, aren’t we? We’re turning into it for more and more people. Tell us about this so-called bill that’s just been passed. What is wrong with it in your estimation? How does it perpetuate and exacerbate the problem in your analysis?

Michael Hudson: Well, it’s sort of like Obama’s bailout in 2009 and ’10 on steroids. It’s funny when you read people like Paul Krugman and others Democrats denouncing it all as if it’s a Republican bill, but it’s identical with Obama’s bill and Obama’s philosophy. And it was unanimously passed. Chuck Schumer likened it to Roosevelt’s New Deal. So I think you should think of it as the Trump-Pelosi bill. Trump simply lifted it wholesale from his campaign backers, who basically are the same as the Democratic National Committee.

The problem is that the bill pretends that by giving money to the banks to lend more money to get the country moving again that’s going to rescue the economy. It’s not going to rescue the economy. The bill injures the economy, because the money ends up with the banks. Part of its $10 trillion – $2 trillion – goes to citizens to spend, but ends up largely being paid to the banks and landlords. Specifically, there is an enormous giveaway that makes real estate tax exempt for the next 30 years.

Jim Vrettos: What about small businesses? Are you including them in this analysis?

Michael Hudson: Most small businesses they’re rescuing are the landlords. They have received the most Small Business Administration loans, usually by going through the local political party machine. When the Republicans or Democrats talk about small business, they mean the landlords, who are the proxies for the big real estate interests and the banks behind them.

So let’s look at this: The bill asks landlords to stop evicting people for three months but let the rent accrue, and personal debts also. Let’s look at what’s going to happen when the three months are over. You’re going to have restaurants and small businesses – whose major expense is rent and credit – not having done much business during these three months. They will end up owing this major cost of doing business for three months without having their usual income. What’s going to happen by the end of the summer?

A lot of restaurants here in Queens only have takeout service. So how are these small businesses going to pay the debts that have mounted up in the last three months? Many will have to go out of business, declare bankruptcy and start all over again, because otherwise all their earnings for this year and next year – and probably the year after that – would have to go to make up the arrears to their landlords, their creditors and the banks.

So what pretends to be a coronavirus bill is going to say, “You think the virus hit you? Wait till we hit you with the financial bill.” The financial bailout aims to enable the financial sector to extract so much money from the economy and drive so many small businesses under that the big venture capital firms and private equity can pick them up at low all prices. You could call it the “Monopolization of the US economy” bill or the “Contributors to Washington politicians” bill.

There was a wish list that the banks had, the real estate interests and corporate lobbyists, that they’d been saving up for just such a crisis opportunity. The coronavirus is equivalent of 9/11. As in 9/11 when President Bush and Cheney pulled out the Patriot Act that they had in their drawer just looking for an excuse. Right now the coronavirus, the Trump-Pelosi bill gives the banks and the real estate sector an excuse to not only be bailed out as if they’re losing money, but to evict their tenants.

Jim Vrettos: To profit even more?

Michael Hudson: Not necessarily profit. Profit you have to pay income tax on. Rich people don’t make profits. They make capital gains. Only the little people make profits.

Jim Vrettos: You said this was conscious on their part, right? This is a rational way in which they think about these things. There’s no moral dilemma to all of this by the large venture capitalists and so on, Wall Street, is that correct?

 
How the US Makes Countries Pay for Its Wars
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Economist Michael Hudson explains how American imperialism has created a global free lunch, where the US makes foreign countries pay for its wars, and even their own military occupation.

Max Blumenthal and Ben Norton discuss the economics of Washington’s empire, the role of the IMF and World Bank, attempts to create alternative financial systems like BRICS, and the new cold war on China and Russia.

PART 2 OF 2 (Interview recorded on April 13, 2020)

Part 1: “US coronavirus ‘bailout’ scam is $6 trillion giveaway to Wall St – Economist Michael Hudson explains

Michael Hudson’s website: michael-hudson.com

PDF of his book Super Imperialism: michael-hudson.com/wp-content/uploads/2010/03/superimperialism.pdf

Audio:

Transcript

(Teaser – 0:03)

MICHAEL HUDSON: The World Bank has one primary aim, and that’s to make other countries dependent on American agriculture. This is built into its articles of agreement. It can only make foreign-currency loans, so it will only make loans to countries for agricultural development, roads, if it is to promote exports.

So the United States, through the World Bank, has become I think the most dangerous, right-wing, evil organization in modern history — more evil than the IMF. That’s why it’s almost always been run by a Secretary of Defense. It has always been explicitly military. It’s the hard fist of American imperialism.

Its idea is to make Latin American, and African, and Asian countries export plantation crops , especially plantations that are U.S.- or foreign-owned. The primary directive of the World Bank to countries is: “You must not feed yourself; you must not grow your own grain or your own food; you must depend on the United States for that. And you can pay for that by exporting plantation crops.”

(Intro – 1:45)

BEN NORTON: Here at Moderate Rebels we talk a lot about imperialism. I mean it’s really the main point of this show. This program explores how US imperialism functions, how it works on the global stage, how neoliberal policies of austerity and privatization are forced at the barrel of a gun through the US military, through invasion and plunder.

We talk about it in Venezuela, Iraq, Syria and so many countries. But we often don’t talk about the specific economic dynamics of how it works through banks, loans, and bonds.

Well, today we are continuing our discussion with the economist Michael Hudson, who is really one of the best experts in the world when it comes to understanding how US imperialism functions as an economic system, not just through a system of military force. Of course the economics are maintained and undergirded by that military force. And we talk about how the military force is expressed through regime-change wars and military interventions.

But Michael Hudson also explains how the International Monetary Fund and the World Bank, the US financial system, banks and Wall Street all work together, hand in glove with the military to maintain that financial chokehold.

He spells this all out brilliantly in a book called Super Imperialism: The Economic Strategy of American Empire. He began to write that book in 1968, and then recently updated it in 2002, published again in 2003 with the war in Iraq and the war in Afghanistan, and kind of updated and showed how, even though the system that he detailed 50 years ago hasn’t really changed, it has shifted in some ways.

So today we’re gonna talk about how that international imperialist system dominated by the US works.

Michael Hudson, who in the first part of this talked about the scheme that is the coronavirus bailout — if you want to watch the first part you can go find that at moderaterebels.com; it’s on YouTube, Spotify, iTunes, any other platform.

Michael Hudson is an economist and he’s also a longtime Wall Street financial analyst. He is also a professor of economics at the University of Missouri, Kansas City, and you can find his work at michael-hudson.com, which I will link to in the show notes for this episode.

So without further ado, here is the second part of our interview with Michael Hudson.

(4:37)

MAX BLUMENTHAL: I think it’s a good transition point to talk about another kind of scam you’ve identified. There’s a really hilarious aside in the second preface to your book “Super Imperialism,” where Herman Kahn, who is, I think a founder of the Hudson Institute, which you went to work for. He was also the inspiration for the Dr. Strangelove character and Stanley Kubrick’s film.

There’s an award that the neocons give out every year named for him; Benjamin Netanyahu is a recent award winner.

But Herman Kahn was he was on a panel for one of your talks, where you laid out your theory of “Super Imperialism,” and how the United States actually gets other countries to subsidize its empire, and is able to expand and carry out this massive imperial project without having to impose austerity on its own population, as other countries have to do under IMF control.

So Herman Kahn comes up to you after the talk and says, “You actually identified the rip-off perfectly.” And your book starts selling like hotcakes in DC, I guess among people who work for the CIA, and people who work in the military-intelligence apparatus.

MICHAEL HUDSON: What he said was, “We’ve pulled off the greatest ripoff in history. We’ve gone way beyond anything that British Empire ever thought of.” He said, “That’s a success story. Most people think imperialism is bad; you’ve shown how it’s the greatest success story — we get a free lunch forever!”

MAX BLUMENTHAL: Right. So explain the ripoff you identified there, and how it is being perpetuated under the Trump administration in ways that I think are pretty amazing, including through the imposition of unprecedented sanctions on something like one-third of the world’s population.

(6:40)

MICHAEL HUDSON: Well I wrote “Super Imperialism” in 1972, and it was published exactly one year after President Nixon took America off gold in August of 1971. he reason he took America off gold was that the entire balance-of-payments deficit from the Korean War to the Vietnam War was military in character.

Especially in the ’60s, the money that America was spending in Vietnam and Southeast Asia had to be spent locally. And the banks were French banks, because it was French Indochina. So all the money would be sent to Paris, to the banks’ head offices, turned over from dollars into francs, and General de Gaulle would end up with these dollars. Then every month he would send the dollars and want payment in gold. And Germany would do the same thing.

So the more America fought militarily, it depleted its gold stock, until finally, in August 1971, it said, “We’ve been using gold as the key to our world power ever since World War I, when we put Europe on rations. So we’re going to stop paying gold.”

They closed the gold window. And most of the economists were all saying, “Oh my heavens, now it’s going to be a depression.” But I said, “Wait a minute, now that other countries can no longer get gold from all this military spending” — and when you talk about the balance-of-payments deficit, it’s not the trade deficit, it’s not foreign investment; it’s almost entirely military in character.

 
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Facing the Covid-19 pandemic, the US Congress rammed through the CARES Act — which economist Michael Hudson explains is not a “bailout” but a massive, $6 trillion giveaway to Wall Street, banks, large corporations, and stockholders.

Max Blumenthal and Ben Norton discuss the enormous financial scam with Hudson, who reveals how the economy actually works, with the Federal Reserve printing money so rich elites don’t lose their investments.

Michael Hudson’s website: michael-hudson.com

Michael Hudson, “A debt jubilee is the only way to avoid a depression,” The Washington Post, March 21, 2020

 

Transcript

(Teaser – 0:03)

MICHAEL HUDSON: Just think of when, in the debates with Bernie Sanders during the spring, Biden and Klobuchar kept saying, ‘What we’re paying for Medicare-for-All will be $1 trillion over 10 years.’ Well, here the Fed can create $1.5 trillion in one week just to buy stocks.

Why is it okay for the Fed to create $1.5 trillion to buy stocks to prevent rich people from losing on their stocks, when it’s not okay to print only $1 trillion to pay for free Medicare for the entire population? This is crazy!

The idea is that only the rich should be allowed to print money for themselves, but the government should not be allowed to print money for any public purpose, any social purpose — not for medicine, not for schools, not for personal budgets, not for full employment — but only to give to the 1 percent.

People hesitate to think that. They think, ‘It can’t possibly be this bad.’ But for those of us who have worked on Wall Street, for 60 years in my case, that’s what the numbers show.

But you don’t have the media talking about actual numbers. They talk about just words, and they use euphemisms. It’s a kind of Orwellian vocabulary, describing an inside-out world.

(Intro – 1:58)

BEN NORTON: The world is suffering right now from one of the worst economic crises in modern history. Definitely the worst crisis since the 2008 financial crash. And many economics experts are saying that we’re living through the worst recession actually since the Great Depression of 1929.

Well joining us to discuss this today, we have one of the best contemporary economists, who is really well prepared to explain what has been going on in this global recession during the coronavirus pandemic. And specifically today we’re gonna talk about the $6 trillion bailout package that the US Congress has passed.

The Trump administration is basically taking Obama’s corporate bailout on steroids, and injecting trillions of dollars into the corporate sector. And today to discuss what exactly the coronavirus bailout means, we are joined by the economist Michael Hudson.

He is the author of many books. And in the second part of this episode we’re gonna talk about his book Super Imperialism: The Economic Strategy of American Empire. So that’ll be much more in the vein of kind of traditional Moderate Rebels episodes, where we talk about imperialism, US foreign policy, and all of that.

Michael Hudson is also a former Wall Street financial analyst, so he’s very well prepared to talk about the financial thievery that goes on on Wall Street. And he is a distinguished research professor of economics at the University of Missouri, Kansas City.

So Michael, let’s just get started here. Can you respond to this global depression that we’re living through right now amid the Covid-19 pandemic? And what do you think about this new bailout that was passed?

(3:50)

MICHAEL HUDSON: Well the word bailout, as you just pointed out, really was used by Obama and only applies to the banks. The word coronavirus is just put in as an advertising slogan.

Banks and corporations, airlines, have a whole wish list that they had their lawyers and lobbyists prepare for just such an opportunity. And when the opportunity comes up — whether it’s 9/11 with the Patriot Act, or whether it’s today’s coronavirus — they just pasted the word coronavirus onto an act, which should be called a giveaway to the big banking sector.

Let’s talk about who’s not bailed out. Who’s not bailed out are the small business owners, the restaurants, the companies that you walk down the street in New York or other cities, and they’re all shuttered with closed signs. Their rent is accumulating, month after month.

Restaurants, gyms and stores are small-markup businesses, small-margin businesses, where, once you have no sales for maybe three months and rent accruing for three months, they’re not going to have enough money to earn the profits to pay the rents that have mounted up for the last three months.

The other people that are not being bailed out are the workers — especially the people they call the prime necessary workers, which is their euphemism for minimum-wage workers without any job security. There have been huge layoffs of minimum-wage labor, manual labor, all sorts of labor.

They’re not getting income, but their rents are accruing. And their utility bills are accruing. Their student loans are accruing. And their credit card debts are mounting up at interest and penalty rates, which are even larger than the interest rates. So all of these debts are accruing.

The real explosion is going to come in three months, when all of a sudden, this money falls due. The governor of New York has said, “Well we have a moratorium on actually evicting people for three months.” So there are restaurants and other people, individuals, wage-earners, who are going to be able to live in their apartments and not be evicted. But at the end of three months, that’s when the eviction notices are going to come. And people are going to decide, is it worth it?

Well, especially restaurants are going to decide. And they’re going to say, “There is no way that we can make the money to pay, because we haven’t had the income to pay.” They’re going to go out of business. They’re not going to be helped.

The similar type of giveaway occurred after 9/11. I had a house for 20 years in Tribeca, one block from the World Trade Center. The money was given by the government to the landlords but not to the small businesses that rented there — the Xerox shops and the other things. The landlords took all of the ostensible rent loss for themselves, and still tried to charge rent to the xerox shops, the food shops, and ended up collecting twice, and driving them out.

So you’re having the pretense of a bailout, but the bailout really is an Obama-style bailout. It goes to the banks; it goes to those companies that have drawn up wish lists by their lobbyists, such as the airlines, Boeing and the large banks.

The banks and the real estate interests are going to be the biggest gainers. They have changed the real estate law so that the real estate owners, for a generation, will be income tax free. They are allowed to charge depreciation, and have other fast write-offs to pretend that their real estate is losing value, regardless of whether it’s going up and up in value.

Donald Trump says that he loves depreciation, because he can claim that he’s losing money, and gets a tax write-off, even while his property prices go up.

So there’s a lot of small print. The devil is in the small print of the giveaway. And then President Trump has his own half-a-trillion-dollar slush fund that he says he doesn’t have to inform a Congress or be subject to any Freedom of Information law. He gets to give to his backers in the Republican States.

 
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Summary

After being attacked by monetarists and others for many decades, MMT and the idea that running government budget deficit is stabilizing instead of destabilizing is suddenly gaining applause from the parts of the political spectrum that long opposed MMT: the banking and financial sector, especially the Republicans. But what is applauded is in many ways something quite different than the leading MMT advocates have long supported.

Modern Monetary Theory (MMT) was developed to explain the logic of running government budget deficits to increase demand in the economy’s consumption and capital investment sectors so as to maintain full employment. But the enormous U.S. federal budget deficits from the Obama bank bailout after the 2008 crash through the Trump tax cuts and Coronavirus financial bailout have not pumped money into the economy to finance new direct investment, employment, rising wages and living standards. Instead, government money creation and Quantitative Easing has been directed to the finance, insurance and real estate (FIRE) sectors. The result is a travesty of MMT, not its original aim.

By subsidizing the financial sector and its debt overhead, this policy is deflationary instead of supporting the “real” economy. The effect has been to empower the banking sector, whose product is credit and debt creation that has taken an unproductive and indeed extractive form.

This can clearly be seen by dividing the private sector into two parts: The “real” economy of production and consumption is wrapped in a financial web of debt and rent extraction – real estate rent, monopoly rent and financial debt creation. Recognizing this breakdown is essential to distinguish between positive government deficit spending that helps maintain employment and rising living standards, as compared to “captured” government spending to subsidize the FIRE sector’s extraction and debt deflation leading to chronic austerity.

Origins and policy aims of MMT

MMT was developed to explain the monetary logic in running budget deficits to support aggregate demand. This logic was popularized in the 1930s by Keynes, based on his idea of a circular flow between employers and wage-earners. Deficit spending was seen as providing public employment and hence consumer spending to absorb enough production to enable the economy to keep producing at a profit. The policy goal was to maintain (or recover) reasonably full employment.

But production and consumption are not the entire economy. Modern Monetary Theory (MMT) was formally developed in the 1990s, with roots that can be traced by Abba Lerner’s theory of functional finance, and by Hyman Minsky and others seeking to integrate the financial sector into the overall economic system in a more realistic and functional way than the Chicago School’s monetarist approach on the right wing of the political spectrum. A key point in its revival was Warren Mosler’s insight that a currency-issuing country does not “tax to spend”, but instead must spend before its citizens can pay tax in that currency.

MMT was also Post-Keynesian in the sense of advocating government budget deficits as a means of pumping purchasing power into the economy to achieve full-employment. Elaboration of this approach showed how such deficits created stability instead of the instability that results from private-sector debt dynamics. At an extreme, this approach held that recessions could be cured simply by deficit spending. Yet despite the enormous deficit spending by the U.S. and Eurozone in the wake of the 2008 crash, the overall economy continued to stagnate; only the financial and real estate markets boomed.

At issue was the role of government in the economy. The major opponents of public enterprise and infrastructure, of budget deficits and market regulation, was the financial sector. “Austrian” and Chicago-style monetary theorists strongly opposed MMT, asserting that government budget deficits would be inflationary, citing Germany’s Weimar inflation of the 1920s, and Zimbabwe, and portraying government deficits (and indeed, active government programs and regulation) as “interference” with “free markets.”

MMTers pointed out that running a budget surplus, or even a balanced budget, absorbed income from the economy, thereby shrinking demand for goods and services and leading to unemployment. Without government deficits, the economy would be obliged to rely on private-sector banks for the credit needed to grow.

That occurred in the United States in the final years of the Clinton administration when it actually ran a budget surplus. But with a public sector surplus, there had to be a corresponding and indeed identical private sector deficit. So the effect of that policy was to leave either private debt financing or a trade surplus as the only ways in which economic growth could obtain the monetary support that was needed. This built in structural claims for interest and amortization that were deflationary, ultimately leading to the political imposition of debt deflation and economic austerity after the 2008 debt crisis.

Republican and financial sector opposition to budget deficits and MMT

If governments do not provide enough purchasing power by running budget deficits to enable the economy to grow, the role of providing money and credit will have to be relinquished to banks – at interest, and for purposes that the banks decide on (mainly, loans to buy real estate, stocks and bonds). In this respect banks are competitors with government over who will provide the economy’s money and credit – and for what purposes.

Banks want the government out of the way – not only regarding money creation, but also for financial and price policies, tax policy and laws governing corporate behavior. Finance wants to appropriate public monopolies, by taking payment in natural resources or basic public infrastructure when governments are, by policy rather than necessity, short of their own money, or of foreign exchange. (In times past, this required warfare; today foreign debt is the main lever.)

To get into this position, banks need to block governments from creating their own money. The result is a conflict between private bank credit and public money creation. Public money is created for social purposes, primarily to maintain production and consumption growth. But bank credit nowadays is created largely to finance the transfer of property and financial assets – real estate, stocks and bonds.

Opposing the logic for running budget deficits

The Reagan-Bush administration (1981-82) ran budget deficits not to pay for social spending, but as a result of tax cuts, above all for real estate.[1] The resulting budget deficit led to proposed “cures” in the form of fiscal cutbacks in social spending, starting with Social Security, Medicare and education. This aim became explicit by the Clinton Administration (1993-2000), and President Obama convened the Simpson-Bowles “National Commission on Budget Responsibility and Reform” in 2010. Its name reflects its recommendation that “responsibility” meant a balanced budget, which in turn required that social spending programs be rolled back.

 
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Host Jim Vrettos interviews Professor Michael Hudson, Economist, Wall St. Analyst, Political Consultant, Commentator and Journalist; who offers his views in the way finance works and

Welcome, welcome once again to the Radical imagination. I’m your host, Jim Vrettos. I’m a sociologist who’s talked at John Jay College of Criminal justice and Yeshiva university here in New York. Our guest today, on the Radical Imagination, is one of only eight economists named by the financial times who foresaw the credit crisis and ensuing great recession erupting in 2008. It was conventional wisdom at the time to say that no one saw the gravity of the crisis coming, including almost every leading economist and financier in the world.

In fact, many had seen it coming. It was seen by everyone except economists from Wall Street; as our guest put it. They were ignored by an establishment according to then, the Federal Reserve chairman Alan Greenspan that watched with innocent quote-unquote shock disbelief as its whole intellectual edifice collapsed in the summer of 2007.

Official models missed the crisis not because the conditions were so shockingly unusual, they missed it by design because the world they lived in was not a world of how finance really works. They missed it because their mathematical models made it impossible to warn against a debt-deflation recession.

Their innocent model worlds were worlds where debt simply did not exist. It’s a world that most of our economic policymakers still live in, and it’s no wonder that everyday people see most economists far removed from their practical economic concerns and interests their everyday concrete reality. Our guest today is an internationally renowned economist who’s followed a much different path of interest and concern.

Michael Hudson is a distinguished research professor of economics at the University of Missouri, Kansas City, a researcher at the Levy Economics Institute at Bard College, a former Wall Street analyst; political consultant to governments on finance and tax policy, a popular commentator sought after speaker and journalist.

He identifies himself as a Marxist economist. But his interpretation of Karl Marx that differs in most other major Marxists. He believes parasitical forms of finance have warped the political economy of modern capitalism. History has regressed back to a neo feudal system. He’s also a contributor to the Hudson report, a weekly economic and financial news podcast produced by Left Out.

His many books include Killing the Host, J is for Junk Economics, The Bubble and Beyond, Super Imperialism, and “… and Forgive Them Their Debts.” Michael has devoted his entire scientific career to the study of debt —both domestic and foreign, loans and mortgages, and interest payments.

In 2006 he argued that debt deflation would shrink the real economy, drive down real wages and push our debt-ridden economy into a Japan-style stagnation or worse. And just for reference, the typical American household now carries an average debt of over $137,000 up from $50,000 or so in 2000. The average American has about $38,000 in personal debt, excluding home mortgages.

The average credit card debt per U.S. household is $8,500, and outstanding student loans are at an all-time high, in 2019, of $1.41 trillion, a 33 percent spike since 2014, and a 6 percent increase from 2018. Only 23 percent of the population say they carry no debt. As Hudson presciently puts it, debts grow and grow, and the more they grow, the more they shrink the economy.

When you shrink the economy, you shrink the ability to pay the debts. So, it’s an illusion that the system can be saved. The question is, how long are people going to be willing to live in this illusion? Every day people have to face reality. Our economic policymakers urgently need to get it too.

So welcome Michael to The Radical Imagination. Thank you very, very much for coming here and being with us. Your work is so interesting; it’s so new and different. You’re a Marxist economist and yet…

[Michael] I’m a classical economist…

[Jim] You are classical, ok.

[Michael] Marx was the last great classical economist. Classical economics basically runs from the French Physiocrats through Adam Smith via John Stuart Mill to Marx.

[Jim] Along with Ricardo.

[Michael] Yes, they were all talking about the rentiers. In their time the landed aristocracy were the main rent recipients. But Adam Smith also talked about monopoly rent. And finance was the major monopoly. And today, the role of the landlords played in the 19th century of stifling industrial capitalism is being played by the banks and the rest of the financial sector. Right now the collectors of land rent, which was the main focus of the labor theory of value to isolate what was unnecessary, is being paid to the banks as mortgage interest.

[Jim] Right

[Michael] So, we no longer have a small privileged private landlord class when you have 80 percent of the European population and two thirds of the American population being homeowners. However, they have to pay the equivalent of the rental value of their housing to the bank, in the form of mortgage interest.

[Jim] To the banks, right!

[Michael] My analysis follows from classical economics, as did Marx’s analysis. So Marx is simply the last great classical economist. They were all talking about how industrial capitalism sought to free itself from unnecessary costs of production, and hence how its political fight was against the landlord class and other rent extractors. Where Marx went beyond his predecessors was in looking at the laws of motion of industrial capitalism. He saw these as leading toward socialism. Later, Rosa Luxemburg said that if it’s not towards socialism, it will be toward barbarism.

[Jim] So capitalism would evolve into the possibility of socialism.

[Michael] Yes.

[Jim] Did he foresee the sort of predatory financial system that you worked out?

[Michael] No one described it better in his time than Marx, in Volume III of Capital.

[Jim] Volume III. Ok!

[Michael] Marx analyzed the “real” economy’s circular flow between employers and wage labor buying the products they produced. But then, in Volume III, he said that rentier debt claims by the financial sector was a separate dynamic, independent from the economy of production and consumption. This industrial capitalist economy is wrapped in a financial sector composed of debt and property claims. These are external to the economy. They slow it and ultimately cause a crash. Marx was one of the first to talk about business cycles of about 11 years and the internal contradictions that led to a market collapse. He pointed out that the financial sector had different mathematics of growth – the mathematics of compound interest. These are exponential and inherently unsustainable. In Volume III of Capital and also of his Theories of Surplus Value – which was Marx’s history of economic thought and the theories leading up to him – he collected everything from Martin Luther to other analyses pointing out that debts grew so rapidly at compound interest that it is impossible to pay them.

[Jim] You have a great chart where you talk about compound interest, a penny that was invested at 5% interest from Christ’s time to 1776.

[Michael] Richard Price was an actuarial accountant. He calculated that a penny saved that at the time of Jesus’s birth at 5% interest would become a solid sphere of gold extending from the sun out to the planet of Jupiter.

[Jim] Amazing.

[Michael] Obviously, many people did save pennies at the time of Christ, and the annual interest rate then in Rome was 8 1/3%, one twelfth per year. But of course nobody has a sphere of gold extending out to Jupiter. That’s because debts that can’t be paid, won’t be.

 
• Category: Economics • Tags: Financial Debt 
Michael Hudson
About Michael Hudson

Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of The Bubble and Beyond (2012), Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971).

ISLET engages in research regarding domestic and international finance, national income and balance-sheet accounting with regard to real estate, and the economic history of the ancient Near East.

Michael acts as an economic advisor to governments worldwide including Iceland, Latvia and China on finance and tax law.