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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 podcast


Paul Jay

Hi, my name’s Paul Jay, and welcome to 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

Well, now you’ve suddenly changed to another topic, to the economy. Obviously, the stock market isn’t the economy. The real fiction and what the Federal Reserve, Powell was saying, was that somehow a recovery in the stock market means a recovery in the economy. And all it means is that the wealthy investors are bailing out of the market and moving into their gated communities and, essentially, they’re pulling out. The whole stock buyback program of the last 10 years has been disinvesting. All of the insiders and the big investors know that the game is over. That’s why there’s so much talk of moving to New Zealand. But the Coronavirus has, all of a sudden, provided a wonderful opportunity for the 10 percent. It’s enabled them to have an excuse for a huge bailout and an excuse to essentially make, enable them to get out of stocks, get out of bonds and avoid the crisis that’s coming, leading the Federal Reserve and the suckers, as they would say, holding the bag when the economy collapses. Obviously, there’s going to be a collapse, and there was going to be a collapse even before the Coronavirus. Everybody was talking about the decline in oil prices, which is not only going to hit the fracking companies and the oil companies with the low oil prices, but it’s also leading to very large defaults by Third World countries. Raw materials prices are going down. So they’re going to be a lot of third world debt defaults. They’re going to be a lot of breaks in the chain of payments. But what the Corona virus did was somehow give an excuse for the government to create all of this money, saying it was going to be for small business. Well, obviously, it has not been for small business. And, you know, just think what the Fed could have done with this 10 trillion dollars. It could have put money, revive the economy by putting the money into building means of production. Mainly in this case what’s needed is infrastructure rebuilding things like the New York City subway so people can get to work without their being so crowded that you’re probably going to catch a new virus when the regular service begins again. They could have begun rebuilding the economy, but none of this money has gone into the real economy at all. So the economy’s been left holding the bag. But at least the Fed has used this money. They did notice that they don’t call it taxpayer money for the bailout. “Taxpayer money”—-they only use that phrase when it’s for real production, or to support employment or social spending. But when when the same money is created by the same process, the support of the stock and bond market, that’s never called taxpayer money. But it’s all the same thing. So you see that all of the lobbyists have sort of been waiting with a wish list of what they would like the government to do to take all of the bad loans off their hands. And the thing to realize is that the one percent, 10 percent realizes that the game’s over and they’re trying to—

Paul Jay

What do you mean when you say the game’s is over? What do you mean the game’s over?

Michael Hudson

The idea that the debts can be paid. The idea that somehow you can put money aside, and the money will grow for you. It will give you interest. The money will somehow be pushed into the stock market by buybacks without much income and push up stock prices. The idea that you can put in a million dollars and have the money go up through stocks or bonds or real estate without having the economy grow at all. That was a game because it’s not realistic.And it was a decoupling of the financial and real estate markets from the economy, and that whole decoupling—now, finally, you can only decouple so far before the fact that the rents are not being paid, the taxes are not being paid. The states and localities are having a huge tax shortfall that is forcing them to cut back services. And the commercial real estate; half of the Empire State Building tenants have not paid their rents for March and April. About maybe 40 percent of tenants, generally in the New York City commercial buildings, restaurants, storefronts—they’re just not paying. So everybody’s expecting a break in the chain of payments. And at a certain point, the government can’t simply keep the pretense up when the economy’s plunging, and the stock markets are going up. People are going to realize, “wait a minute. Why isn’t this money creation being spent to actually revive the real economy?

Paul Jay

So what happens when, in theory, this virus comes to an end? Oh, that, who knows? It could be year, two, three. But even before the end of the virus, these back grants, as you say are piling up. Debt servicing is piling up. At some point there’s going to be mass evictions. As you’ve written, mass evictions, foreclosures, bankruptcies are going to be inevitable. You’re advocating that these deaths should simply be written off. Is that what you’re proposing? And can you imagine them actually doing that?


Well, they’re not going to be paid one way or another. That’s the important thing. Imagine the 25 million unemployed. They’re not getting paychecks. How are they getting by? The only way they can get by is to run up their credit card debt. And by running it up, they’re going to be not paying the monthly usual charge. They’re going to be subject now to interest rates on the credit card that go up now from, maybe 20 percent to twenty nine percent or even more.

Michael Hudson

Companies are reported in New York City just to be packing up and moving out of their offices, others taking all the assets they can, leading to the kind of commercial real estate collapse that people were talking about in 2008. So what’s happening now is really the end of the whole Obama bailout, the whole depression. It was all, it was never possible to have a recovery of the economy, leaving the debts in place that existed in 2008. And the Federal Reserve’s quantitative easing of about four point six trillion managed to sustain it to the coronavirus time. And then that’s left up. All of these people who don’t have a job, you can just imagine what the situation is. It’s already about half of Americans reported that they don’t have four hundred dollars available if there’s an emergency like a health emergency, and they’re reported living paycheck to paycheck. Well, if you’re living paycheck to paycheck, and you don’t have a paycheck, you can just imagine what’s going to happen. The homeless problem is going to increase.

Normally, there would be state and local spending to somehow revive the economy or make work jobs. But that’s not going to happen because the revenue is all falling. In New York and other states the quarterly, the real estate tax is going to be due in just a few weeks in June. And obviously, a lot of companies think, well, if we’re not going to be able to collect the rents because our tenants are moving out, we might as well take a risk and not pay the tax now because we may have a problem with the banks.

The banks are not lending money to the landlords, THE WORST THREAT ??? And they’re not lending money to the businesses that have been closed down so they can pay the landlords, so the landlords can pay their mortgages to the banks. So right down the line, there’s going to be this break in the chain of payments and nobody can come up with any scenario whereby the debts can be paid. Now, the question then is, how are they not going to be paid if they’re not going to be paid by large foreclosures?

The New York Times today just said that Goldman Sachs is up, foreclosed on 10,000 homes. If they’re not going to be paid by foreclosures, then the only thing to do is to bail out the debtors by wiping out their debts. Or the Federal Reserve could have even created the money to pay the debts to give to the banks and save them. That’s what Obama had promised to do in 2008. Somehow he was going to enable the victims of the junk mortgages to pay the banks while they write down the value of the mortgage, the real value of the property, not the fictitious value. None of that was done. So right now, if the debts can’t be paid and you have foreclosures, then you’re going to have a very sharp concentration of property in the country and also home ownership. You, you’ve had homeownership rates dropped from about 58 percent in 2008 to about 51 percent now. That’s more than a 10 percent drop in the proportion of Americans that own their own homes. You’re going to have a concentration of homes and companies that have been buying them up. Like Blackstone has been a very major company buying up foreclosed properties. Goldman Sachs bought up a lot of foreclosed properties. You’re going to have, basically, the financial centers buying up real estate and turning the economy into a landlord ridden economy, rather than an economy that is of home ownership, which is what made America’s middle class wealthy by giving it most of the networth that it had.

Paul Jay

And that’s going to happen, not just in the real estate sector, but every sector. The concentration of ownership, which is already at ridiculous levels, it’s going to be extraordinary. I mean, small businesses to a large extent, are going to be wiped out. And it’s going to be a field day for anybody with cash to pick up these sectors of the economy at a bargain basement price.

Michael Hudson

Well, that’s why some of the stocks are going up. Wal-Mart stocks are going up.


The big store chains have seen their stocks going up more than anyone else’s because the smaller stores, Macy’s and Sears and the other, J.C. Penney that went bankrupt last week. These companies, the retail sector was very largely bought out by predatory capital groups, private capital groups that essentially used them to loot them. The strategy was you’d buy a store. They tried to do this with McDonald’s, for instance. The idea was to buy a company. You immediately break it into two parts. You have the company sell the real estate to another part of another group that you’ve created. The group gets the real estate.The store that you’ve just bought out, instead of owning its property, signs a long term lease to pay a huge amount of rent to this real estate part that you’ve just created by splitting up the company. And you’ve created a value based on the prospective rental store income. And you pay yourself a management fee, you charge interest, you charge all sorts of other fees. And this is what is driven almost all of these stories. Toys R US, right down the line it’s driven them all under. Now, you’re going to have something like that occurring outside of the retail store industry for other sectors of the economy, as you point out. One sector after another. The companies that are struggling during this three month abatement are, all of a sudden, not going to be able to come up with the rent in three months or, supposedly your restaurant, for example. Restaurants your biggest expense is going to be the rent to the landlord. But if, you haven’t done any business for three months and you realize that if you go back to work and the landlord says, “OK, you’ll just pay it off in a year or two.” Well, then you realize that, wait a minute, all of the profit, all of the money that was paid to management is really just going to go for the landlord. And we’re not going to make any money at all ——left over after we pay the current rent and the back rent to the landlord, it’s best just to walk away, close down and move somewhere else. So there will be musical chairs as restaurants are closed down, stiff their suppliers, stiff anybody they can and hope that they may or may not start business somewhere else. But it’s going to be awfully hard to get bank credit once you stiffed the landlord and walked away from the bank financing. So there’s just not going to be financing for anyone except the very large and richest financial companies.

Paul Jay

So, when one does this sort of projection forward., you know, a few months, a couple years, it gets worse and worse unless there’s a massive public social expenditure on infrastructure programs of various types, but at a scale that’s more than anything even Roosevelt imagined during the New Deal. And that leads to, you know, a kind of development of a public sector that the right wing of the elites. I shouldn’t say the right wing. All the elites, essentially, don’t want to see that kind of expenditure because it leads to people saying, “Well, if we’re spending all the public money, then why shouldn’t the public own this stuff?“

Michael Hudson

Well, that’s exactly where Wall Street was way ahead of you there. They knew that there would be pressure for just what you’re suggesting. The reasonable thing, if you really want to restore prosperity, is to develop an infrastructure for public spending programs, public transportation, to rebuild the roads and transports that have fallen apart, the parks. And so by giving this 10 trillion dollars all through the stock and bond market and for real estate mortgages. And by giving it all to the financial sector now, they can say, “We’re broke. We don’t have any money for social spending. We’ve already spent it. Look at how big the deficit is. And this is exactly what Mitch McConnell said to the states. He said the states have a tax shortfall. Well, let them take the money that’s in their pension funds. Let them lose the pension funds. Let them not pay any of the public sector workers that have agreed to get pensions in exchange for decade after decade of slow wage growth, saying, “Yes, we’d rather have a pension than a slow wage growth.

Now that that you tricked them into taking a long term promise, do what Donald Trump does, break the promise, break the deal and say, „I’m sorry, you’re not going to get anything. We’re broke. And we gave all the money to the 10 percent. And if you don’t like it, vote for the other party.“ When you have the same donor class behind each party. So basically, there’s not going to be any money to spend into the real economy. It’s all been spent on the financial sector.

what happenw\ed was the the right wingers can now say we’ve got already spent the money. Look at how large the deficit is. And you’ve already had Mitch McConnell come out and say, „ Well, the states that are known are getting their tax revenues have a solution. Let them raid their pension funds, let them break even and pay the bondholders what they owe, and the other suppliers by essentially borrowing or emptying out the pension.

So what you’ve had, is he wants the states to act like Donald Trump has acted: Break the long term deal. For decades, public service workers have accepted low wage growth in exchange for pensions. They’re looking long term. They say, „OK, we won’t increase our wage demands, but we want the security that when we retire, we’re going to get a good pension.“ That’s what made public sector work attractive. But now that the workers have already worked at a low price and the same thing in the corporate sector, taking low wages for years now, the pensions that they were promised are going to be used instead to pay the bondholders because the states have to make a choice. And the states are going to choose the financial sector to the financial sector. The workers and capital and agriculture are just overhead. All of the real money is supposed to go to the financial sector or the fire sector. So all of this money that has been ostensibly saved, is really going to be just emptied out and given to the bondholders.

Paul Jay

But there’s a political calculation here. Just a few months away from the presidential election, if they don’t do something by the time the election comes around, it’s already a whole sections of the working class that never knew what poverty was, are sinking into it. And by the time election comes along whole sections of the American population are going to be in desperate straits. And this is going to doom the Trump presidency. They‘re going to have to do something.

Michael Hudson

No. Well, Trump will try to blame it on the Democrats. He’ll say, „Give me control of Congress so that we can pass a law to get America back to work and make America great again. He will blame it on other Democrats and say that he didn’t cause the Corona virus. Of course, what he did——-And he can point out that the ten trillion dollar bailout was unanimous. Democrats and Republicans. The Democrats, Nancy Pelosi in Congress, which is in charge of writing the Cares Bailout Act, could have said, „Well, we want to make sure that the states and cities are bailed out, so the public services are not cut back and so they don’t have to raid the pension funds and screw all of the retirees as other Republicans want.

But the Democrats agreed with the Republicans to basically throw the workers under the bus, throw the retirees under the bus, throw the pensioners under the bus and focus on their donor class, the financial sector, the bondholders and the stockholders.

Paul Jay


In Canada and most of Europe, maybe all of Europe, the state subsidies have gone to businesses to continue paying wages, even if people are at home. Many countries are paying up to 80 percent, subsidizing 80 percent of workers wages. So, in fact, people aren’t suffering in the same way. And then when they want to start the economy again, everyone just goes back to work. And the U.S. didn’t didn’t do that.

Michael Hudson

Neither party did that because no politician in either party advocated that. Nobody is saying that. That is sort of the forbidden thing to say. And if you try to say it, people will say, „Well, if you don’t like it here, why don’t you go and live in Denmark?„

And so Trump will say, „Well, it’s true that the virus happened on my watch. I’m the guy who can get rid of it. Wouldn’t you rather have me than Who? Whoever the Democrats end up putting up?“ Wouldn‘t you rather have me, a businessman trying to put America on its two feet, just like a real estate company would be rescued, instead of living like a socialist in a socialist country?These are the people who wanted to close down the economy even more. I Trump,I’m the guy who opened up the economy. My opponents want to close it down. That‘s not going to make you recover. I’m the guy who can make you recover.

Paul Jay

But the polling is showing almost everywhere, that most people think that the economy is being opened up in certain states far too early. And in the states where they’re doing it, they’re getting spikes in Corona virus. So I’m not so sure that argument’s going to work for Trump. But let me ask you a question. Let’s assume I’m right and Trump isn’t going to win because I’m betting he’s not. But let’s say Biden does win and the phone rings, which is highly unlikely. But let’s say it is for the sake of the Simental argument or puzzle here. And they call Michael Hudson and ask, „OK, we’ve been listening to your interviews. And what do you think we should do now that we’ve become taken over? Let’s, for the sake of arguments, say they actually take the White House and both houses of Congress. What should they do?

Michael Hudson

Well, I’ll say the Federal Reserve has been buying 10 trillion dollars worth of stocks. Let’s sell off all these stocks so that it’ll have enough money to begin funding state and local public sector investments. Now, selling all the stocks, of course, will crush the stock market.

The good thing about not bailing out the landlords, about not bailing out the stock market is the banks that have made big bets, especially on insuring third world debt, are going to go broke. And I would say now this time when Citibank, Bank of America and Wells Fargo become insolvent, wiping out its net worth as they did in 2008, this time take them into the public sector, make them public banks, and as a public banks, let’s not lend for corporate takeover loans. Let’s not lend money to corporate raiders to outsource and downsize companies. Let’s make lend for actual for loans that will actually rebuild the economy with tangible means of production, tangible infrastructure and back to the real economy instead. I think Mr. Biden would say, „Well, how much money did you contribute to my campaign? Oh, I see, well, thank you very much, sir.“

Paul Jay

I don’t think there’s any amount of money you could contribute to the Biden campaign that would get him to do that program.

Michael Hudson

I think that’s right. His mindset—

Paul Jay

Well, let’s take it somewhat more incrementally. But certainly there’s some banks that could be, that will be at the point of bankruptcy that the federal government could buy.

Insolvency. In other words, they would make bad bets. A lot of banks—-it’s very much like when the Greek bonds were collapsing and Greece was going to default five years ago under Syriza. Obama and Tim Geithner went to Europe and told the European banks. „Well, you know, we know that the biggest bondholders are the German and the French banks, but they’re not going to lose a penny because they bought credit default insurance from the American banks. And the American banks and especially Citibank, are going to go under. And if they go under, we are going to retaliate against you in Europe, and we’re going to drive you under.“ So the threats they made them was, they forced Europe to essentially tear Greece apart and impose a chronic depression on it. Well, right now, you have the same thing. The banks have made all sorts of loans and guarantees that cannot be paid without Federal Reserve support. And so the question is the whole financial model of the last 12 years, you could say that model since 1980, the model of getting rich purely financially without any real economy growing, downsizing the economy, outsourcing its production to China and other Asian countries, basically making the GDP, and for the bottom 95 percent of the population going down for the last 12 years.


The banks, basically the financial model of getting rich, purely financial engineering instead of industrial engineering hasn’t worked. The idea that the economy can grow and give all of the growth in GDP since 2008 only to the top five percent of the population. For 95 percent of the population the economy is already shrinking. Well if it’s already shrinking for 12 years, imagine the plunge that it’s going to take now. There is no way that an economy can grow when you’re doing to the American population what Europe and US diplomacy, did to Greece: mass unemployment lifespans shortened, suicide rates rose and the Greek economy is now in utter stagnation while the wealthy Greeks have taken their money and run. They put it in Switzerland. So Greece, owed 50 billion euros to banks in Italy and France and Germany. But 50 billion euros were already on according to Christine Lagarde, the IMF already stashed away in Switzerland by tax avoiders. Now, obviously, in order to revive the economy here, you have to have a different model of growth. And instead of a financial model of growth, you need to do a number of things. You stop encouraging debt pyramiding because all the debt pyramiding is what has been shrinking the economy and leading to debt deflation. You would remove the tax deductibility of interest. That’s an obvious thing. You’d remove all of the special tax advantages that the real estate and the financial sector get like pretended depreciation on buildings again and again and again. Donald Trump says that he loves depreciation, and that’s why he’s never had to pay income tax. Insurance companies are not paying right now. The insurance companies are all simply refusing to pay the restaurants and the other economies for interruption of business because they said, „Well, we listed interruption of business for a number of causes, but you didn’t put the Corona virus on. You’ll have to sue us.“ Well, when you sue an insurance company, they get to take the entire claim off their book as if it’s a current payment and if it takes five years to get your case in the court to collect on the insurance, that costs about fifty thousand dollars in legal fees.

I’ve gone through this. And then at the end of five years, the insurance company figure, they will have made back enough money just by speculation so that they don’t have to spend an extra penny to repay. It’s all free tax write off money. So in order to re restore this financial life growth, you have to change the tax code and all of the gimmicks that have made financial speculation more profitable than direct investment and actually producing goods and services.

Paul Jay

Let’s assume that none of this gets done. Not much of it gets done. What happens in China now? Is China in a better position to recover? Can China recover if the American market is so depressed? And if China can recover in a way with somewhat decoupling from the United States, if that’s possible, what does that do to the geopolitics?

Michael Hudson

Well, China can recover for two reasons. Number one, most debts ultimately are owned to the public, to the government. The government runs the banks. They’re not upright, private banks, except to decide what to do. The banks are owned by the governments or the government. When a corporation in China is unable to pay the debt, the government doesn’t say, „OK, we’re going to have to close you down and sell you to the cheapest bidder and let some American buy you out at a distressed price.

The government will simply say,“ We’re going to write down the debt that we’ve given you so that we want to keep you in business. And we want to keep your employees in business so others not see the debt problem in China because the debts are forgiven when they can’t pay. That’s normally what socialist governments do. Secondly, others already for the last five years, I’ve had discussions in China about how to re reorient their economy for the Chinese people. The Chinese people, although they now have housing, it’s not the best housing in the world. And the idea is, they say, „Why should we use all of this factory capacity to export, to support the US, to export to the US and earn dollars? What do we need the dollars for? We’re just recycling the dollars into loans to the U.S. Treasury to hold it in bonds instead of getting foreign exchange and just acting as a workshop to the United States. Why don’t we act as a workshop to the Chinese people? We don’t need export income anymore. We’ve got the Belt Road Initiative. We’re developing markets throughout the Near East, Russia, Europe and China. We don’t need the U.S., but most of all, we have enough savings in our foreign exchange reserves and gold that we can begin to pay our workers more and create a thriving domestic market.

Well, one of the problems they had is what the Chinese do when they earn more money. The first thing they want to do is to buy a car. They’re buying a lot of Mercedes now. And there are already too many cars in China. So the problem China has is how can we make our factories work and produce more goods and services for China? And that aren’t cars and won’t add to pollution and won’t distort matters, won‘t distort the air?

That is what their current plan is. They’re decoupling from the US. And they’ve made a decision with Russia, Iran, other countries to essentially decouple their economy from the US and essentially try to write down military spending and unnecessary foreign spending as much as possible.

Paul Jay

So if that happens and it begins to work for China, one would think it fuels those forces within the United States that want to get more aggressive with China, even militarily. Steve Bannon has openly advocated a military confrontation in the South China Sea. When I mentioned this several times on air on the Analysis, when the Trump administration defense secretary was explaining to Congress why they needed such a record high military budget, he justified it with three words China, China, China. They’re already fairly poised in an aggressive fashion, but if the American economy is really down the toilet, and the Chinese begins to recover, it seems to me that that situation gets even more dangerous.

China doesn’t seem that worried about it. Because what can happen? The American naval presence is largely large aircraft carriers and ships that are very open and are really not a good weapon to have in the modern world. They’re very exposed. All the Americans really can do is threat. And you remember when Mao called them a paper tiger? Well, I think China still thinks that the US Army is a paper tiger. And it can make threats, but it can’t really follow through. And if there were any thought of it following through, China would make overtures to its neighboring countries and pretty much be able to share the China Sea and its oil rights with them. And very quickly trade almost the equivalent of Chinese Monroe Doctrine regarding the United States. So the US knows that it’s on the way out, that there’s very little that it can do militarily. And all of you, the U.S. can’t ever invade a country and there are no troops. Nobody’s going to invade China. You can’t defeat a country unless you invade it. All you can do is drop bombs and try to destroy it. But America’s very exposed in the east and so is Japan that hosts American troops in Okinawa. There are just too many exposures that the Americans have that China doesn’t have so much.

Paul Jay

So you think a lot of this rhetoric about China, China. China is just spending a lot of money on arms.

Michael Hudson

It’s not scaring the Chinese, and it’s all meant to just scare the Chinese.


And they’re like the Russians who say, „Well, what are you really going to do?“ And there is no scenario. I understand that the War College here tried to work out all sorts of scenarios. There’s no scenario in which the US comes out on top.

Paul Jay

Without leading to nuclear war, which leads to nobody coming out on top.

Right. I mean, presumably there could be nuclear war, but that wouldn’t benefit anyone. So, I mean, I suggested to China, „Well, now that Trump has raised tariffs 25 percent on Chinese imports, why don’t you impose a countervailing 25 percent export there? Told Trump that you want to help, and you want to help raise Chinese prices and make America more competitive. So you’re increasing your export tax and vastly increasing the prices that Chinese goods would cost to Americans. America is going to be left in as a high cost economy. And there is no way that the United States here can replicate Chinese industry without spending on rebuilding a generation of rebuilding, without higher living standards, without essentially any kind of political acquiescence by the people. So the America’s disinvested physically in its factories and in the industry and also financially by the stock buybacks that have left companies up without the cash.

So American industry is all debt ridden and pyramided. And China’s isn’t because the government can always write down the debt and keep its industry going. So you essentially have a conflict between a productive financial system in China, very much like the Germans before World War One and an unproductive, predatory financial system in the United States. That’s added the cost and overhead and enormous wealth for one percent of the population by impoverishing the 99 percent and preventing its living standards from rising. And by forcing labor to survive only by going deeper and deeper into debt, leading ultimately to a grand default.

Paul Jay

All right. Thanks very much for joining us, Michael.

Michael Hudson

It’s good to be here.

Paul Jay

And thank you for joining us on the Analysis.News podcast.

(Republished from The Analysis by permission of author or representative)
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  1. “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.”

    According to S. Keen.

    “Central Banks should buy shares directly to support share prices, rather than simply buying bonds under Quantitative Easing, to prevent a stock market collapse undermining both business and banks (Japan’s Central Bank is already doing this, though for other reasons). . . .
    Banks will also suffer badly. The asset side of their ledgers includes corporate shares: if these fall in value, banks will find their assets plunging, while their liabilities remain constant. A private non-financial company can continue to operate, so long as it can pay their debts as and when then fall due, so they can operate for a time with negative equity: their liabilities can be greater than their assets. But a bank cannot: it must have assets that exceed its liabilities, or it is bankrupt.
    A credit-driven, private sector monetary system is not capable of handling a systemic crisis like this.
    In fact, if the rules of such a system are enforced, it will make the crisis worse. Renters and mortgagors will be evicted, putting them on the streets, where they are more likely to catch and transmit the virus. Personal hygiene and public health will suffer, when one is needed to slow the pandemic, and the other must be functional to support its current victims. Stock markets will crash. Banks themselves will fail as their shareholdings plunge in value, bringing the payments system to an end. Even those unaffected by the crisis will be unable to shop.
    It is, on the other hand, possible for Central Banks and financial regulators, once authorised by their governments, to take actions that prevent the medical crisis from becoming a financial one.”

  2. TG says:

    Excellent post, kudos.

    But hey, one black man was unjustly killed by one white cop (out of a country of 340+ million), so you see, all the problems we are facing are not due to Wall Street or the super-rich looting the country, it’s all about racism! That’s why people are going to be evicted and crushed into poverty. Racism.

    To deny that the coming collapse is not primarily due to racism and white supremacy and the legacy of slavery, that it’s mostly about class war, is just you using your white privilege.

    Saying that working class blacks and whites should not be fighting each other, but the corrupt oligarchs that are crushing them both into the mud, is to deny the racism inherent in society and makes you a de-facto proponent of slavery.

    That’s gonna be the corporate media meme, count on it. Public anger must be deflected onto targets other then the people in charge…

    • Replies: @james charles
  3. Good lord, this site could really use some serious proofreading and editing. Jay and Hudson come across like functional illiterates.

    • Replies: @Ann Nonny Mouse
  4. @Stablemind

    Yes. Looks like automated audio transcript that wasn’t edited. A sentence is restarted and the first start is left there, giving one big jumbled sentence. Again and again. The economists themselves need to edit it, not leave it to every reader who it not an economist to work it out.

    • Agree: RadicalCenter
  5. Promoting QE errs will not produce the patter of little feet

    It just allows the deep state to put their big foot in chargeof themasses

  6. ruralguy says:

    It needs more than editing. Economics has been a dismal science, lacking rigor. This dialog doesn’t help it. The function of the Fed isn’t to make investors rich, but to provide monetary control — control of the money supply. When there is little liquidity, or too little short-term money in the economy (e.g. today, in the repo market, or during 2008 during the sub-prime mortgage collapse), the Fed injects money into the economy by buying long-term treasuries. If it doesn’t do this, world growth is choked off (the dollar is the world’s reserve currency). It does the opposite to prevent inflation or to provide buffer for the next QE event.

    The economy is complex and almost impossible to predict –whoever can, would be a near instant billionaire/trillionaire. But, there are good indicators when the debt can’t be serviced. The CBO and Fed have been saying the debt is not sustainable for some time. The indicators were going to reach critical thresholds by 2028+, but this coronavirus crises might have moved that up.

  7. @TG

    “Mac Donald: Statistics Do Not Support The Claim Of ‘Systemic Police Racism’ . . .
    A solid body of evidence finds no structural bias in the criminal-justice system with regard to arrests, prosecution or sentencing, Mac Donald writes; rather, crime and suspect behavior, not race, determine most police actions.”

  8. JHW says:

    You have made the case that the US will fail, but have not addressed the ultimate consequences of that failure. It would seem that if the US follows the route pictured here that internal revolt is inevitable. That revolt might fail leaving a bitter, resentful population which has to be policed.

    In that case the only thing between the rulers and the ruled would be the military. Unfortunately, given the economic collapse envisioned that military may well be hollowed out. It might have difficulty maintaining internal control and would be faced with possible foreign intervention.

    Given such a scenario why would it not be likely a nuclear war would be waged in an effort to seize the world before such a gambit becomes impossible? It is difficult to see how the looters themselves will manage to keep their loot if events are simply left to follow the course above. This argues for war.

    A major question is the logic of the whole procedure. The 1% may well be ruthless enough to sacrifice the 99% but how does the 1% hope to stay out of the coming smash?

  9. TG says:

    No billionaire left behind.

  10. Greg44 says: • Website

    The fact that they buy bonds is no longer surprising, but what is happening now is a completely different way of pumping the “economy”. There is nothing to cheat the real economy is in most countries, and the markets are still bouncing. I just wonder what the next steps will be, whether it will all collapse or print so much money that inflation will not allow spoadki. We live in interesting times 🙂

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