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The following is a transcript of CounterPunch Radio – Episode 19(originally aired September 21, 2015). Eric Draitser interviews Michael Hudson.

Eric Draitser: Today I have the privilege of introducing Michael Hudson to the program. Doctor Hudson is the author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, available in print on Amazon and an e-version on CounterPunch. Michael Hudson, welcome to CounterPunch Radio.

Michael Hudson: It’s good to be here.

ED: Thanks so much for coming on. As I mentioned already, the title of your book – Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy – is an apt metaphor. So parasitic finance capital is really what you’re writing about. You explain that it essentially survives by feeding off what we might call the real economy. Could you draw out that analogy a little bit? What does that mean? How does finance behave like a parasite toward the rest of the economy?

MH: Economists for the last 50 years have used the term “host economy” for a country that lets in foreign investment. This term appears in most mainstream textbooks. A host implies a parasite. The term parasitism has been applied to finance by Martin Luther and others, but usually in the sense that you just talked about: simply taking something from the host.

But that’s not how biological parasites work in nature. Biological parasitism is more complex, and precisely for that reason it’s a better and more sophisticated metaphor for economics. The key is how a parasite takes over a host. It has enzymes that numb the host’s nervous system and brain. So if it stings or gets its claws into it, there’s a soporific anesthetic to block the host from realizing that it’s being taken over. Then the parasite sends enzymes into the brain. A parasite cannot take anything from the host unless it takes over the brain.

The brain in modern economies is the government, the educational system, and the way that governments and societies make their economic policy models of how to behave. In nature, the parasite makes the host think that the free rider, the parasite, is its baby, part of its body, to convince the host actually to protect the parasite over itself.

That’s how the financial sector has taken over the economy. Its lobbyists and academic advocates have persuaded governments and voters that they need to protect banks, and even need to bail them out when they become overly predatory and face collapse. Governments and politicians are persuaded to save banks instead of saving the economy, as if the economy can’t function without banks being left in private hands to do whatever they want, free of serious regulation and even from prosecution when they commit fraud. This means saving creditors – the One Percent – not the indebted 99 Percent.
It was not always this way. A century ago, two centuries ago, three centuries ago and all the way back to the Bronze Age, almost every society has realized that the great destabilizing force is finance – that is, debt. Debt grows exponentially, enabling creditors ultimately to foreclose on the assets of debtors. Creditors end up reducing societies to debt bondage, as when the Roman Empire ended in serfdom.

About a hundred years ago in America, John Bates Clark and other pro-financial ideologues argued that finance is not external to the economy. It’s not extraneous, it’s part of the economy, just like landlords are part of the economy. This means that if the financial sector takes more revenue out of the economy as interest, fees or monopoly charges, it’s because finance is an inherent and vital part of the economy, adding to GDP, not merely siphoning it off from producers to pay Wall Street and the One Percent. So our economic policy protects finance as if it helps us grow, not siphons off our growth.

A year or two ago, Lloyd Blankfein of Goldman Sachs said that the reason Goldman Sachs’ managers are paid more than anybody else is because they’re so productive. The question is, productive of what? The National Income and Product Accounts (NIPA) say that everybody is productive in proportion to the amount of money they make/take. It doesn’t matter whether it’s extractive income or productive income. It doesn’t matter whether it’s by manufacturing products or simply taking money from people, or simply by the fraud that Goldman Sachs, Citigroup, Bank of America and others paid tens of millions of dollars in fines for committing. Any way of earning income is considered to be as productive as any other way. This is a parasite-friendly mentality, because it denies that there’s any such thing as unearned income. It denies that there’s a free lunch. Milton Friedman got famous for promoting the idea that there’s no such thing as a free lunch, when Wall Street knows quite well that this is what the economy is all about. It’s all about how to get a free lunch, with risks picked up by the government. No wonder they back economists who deny that there’s any such thing!

ED: To get to the root of the issue, what’s interesting to me about this analogy that we’re talking about is that we hear the term neoliberalism all the time. It is an ideology I that’s used to promote the environment within which this parasitic sort of finance capital can operate. So could you talk a bit about the relationship between finance capital and neoliberalism as its ideology.

MH: Today’s vocabulary is what Orwell would call DoubleThink. If you’re going to call something anti-liberal and against what Adam Smith and John Stuart Mill and other classical economists described as free markets, you pretend to be neoliberal. The focus of Smith, Mill, Quesnay and the whole of 19th-century classical economics was to draw a distinction between productive and unproductive labor – that is, between people who earn wages and profits, and rentiers who, as Mill said, “get rich in their sleep.” That is how he described landowners receiving groundrent. It also describes the financial sector receiving interest and “capital” gains.

The first thing the neoliberal Chicago School did when they took over Chile was to close down every economics department in the country except the one they controlled at the Catholic University. They started an assassination program of left wing professors, labor leaders and politicians, and imposed neoliberalism by gunpoint. Their idea is you cannot have anti-labor, deregulated “free markets” stripping away social protections and benefits unless you have totalitarian control. You have to censor any idea that there’s ever been an alternative, by rewriting economic history to deny the progressive tax and regulatory reforms that Smith, Mill, and other classical economists urged to free industrial capitalism from the surviving feudal privileges of landlords and predatory finance.

This rewriting of the history of economic thought involves inverting the common vocabulary that people use. So, the idea of the parasitism is to replace the meaning of everyday words and vocabulary with their opposite. It’s Double Think.

Democratic vs. oligarchic government and their respective economic doctrines

ED: I don’t want to go too far off on a tangent, but you mentioned the example of Chile’s 1973 coup and the assassination of Allende to impose the Pinochet dictatorship. That was a Kissinger/Nixon operation as we know, but what’s interesting about that is Chile was transformed into a sort of experimental laboratory to impose the Chicago school economic model of what we now would call neoliberalism. Later in our conversation I want to talk a bit about some recent laboratories we have seen in Eastern Europe, and now in Southern Europe as well. The important point about neoliberalism is the relationship between totalitarian government and this form of economics.

MH: That’s right. Neoliberals say they’re against government, but what they’re really against is democratic government. The kind of governments they support are pre-referendum Greece or post-coup Ukraine. As Germany’s Wolfgang Schäuble said, “democracy doesn’t count.” Neoliberals want the kind of government that will create gains for the banks, not necessarily for se the economy at large. Such governments basically are oligarchic. Once high finance takes over governments as a means of exploiting the 99 Percent, it’s all for active government policy – for itself.

Aristotle talked about this more than 2,000 years ago. He said that democracy is the stage immediately proceeding oligarchy. All economies go through three stages repeating a cycle: from democracy into oligarchy, and then the oligarchs make
2KillingTheHost_Cover_rule themselves hereditary. Today, Jeb Bush wants to abolish the estate tax to help the emerging power elite make itself into a hereditary aristocracy. Then, some of the aristocratic families will fight among themselves, and take the public into their camp and promote democracy, so you have the cycle going all over again. That’s the kind of cycle we’re having now, just as in ancient Athens. It’s a transition from democracy to oligarchy on its way to becoming an aristocracy of the power elite.

ED: I want to return to the book in a second but I have to interject that one particular economist hasn’t been mentioned yet: Karl Marx. It’s an inversion of Marx as well, because Marx’s labor theory of value was that that value ultimately is derived from labor. Parasitic finance capital is the opposite of that. It may increase prices without value.

MH: Correct, but I should point out that there’s often a misinterpretation of the context in which the labor theory of value was formulated and refined. The reason why Marx and the other classical economists – William Petty, Smith, Mill and the others – talked about the labor theory of value was to isolate that part of price that wasn’tvalue. Their purpose was to define economic rent as something that was not value. It was extraneous to production, and was a free lunch – the element of price that is charged to consumers and others that has no basis in labor, no basis in real cost, but is purely a monopoly price or return to privilege. This was mainly a survival of the feudal epoch, above all of the landed aristocracy who were the heirs of the military conquers, and also the financial sector of banking families and theirheirs.

The aim of the labor theory of value was to divide the economy between excessive price gouging and labor. The objective of the classical economists was to bring prices in line with value to prevent a free ride, to prevent monopolies, to prevent an absentee landlord class so as to free society from the legacy of feudalism and the military conquests that carved up Europe’s land a thousand years ago and that still underlies our property relations.

The concept and theory of economic rent

ED: That’s a great point, and it leads me into the next issue that I want to touch on. You’ve mentioned the term already a number of times: the concept of economic rent. We all know rent in terms of what we have to pay every month to the landlord, but we might not think about what it means conceptually. It’s one of the fabrics with which you’ve woven this book together. One of the running themes, rent extraction, and its role in the development of what we’ve now termed this parasitic relationship. So, explain for laymen what this means – rent extraction – and how this concept evolved.

MH: To put the concept of economic rent in perspective, I should point out when I went to get my PhD over a half a century ago, every university offering a graduate economics degree taught the history of economic thought. That has now been erased from the curriculum. People get mathematics instead, so they’re unexposed to the concept of economic rent as unearned income. It’s a concept that has been turned on its head by “free market” ideologues who use “rent seeking” mainly to characterize government bureaucrats taxing the private sector to enhance their authority – not free lunchers seeking to untax their unearned income. Or, neoclassical economists define rent as “imperfect competition” (as if their myth of “perfect competition” really existed) stemming from “insufficient knowledge of the market,” patents and so forth.

Most rent theory was developed in England, and also in France. English practice is more complex than America. The military conquers imposed a pure groundrent fee on the land, as distinct from the building and improvements. So if you buy a house from a seller in England, somebody else may own the land underneath it. You have to pay a separate rent for the land. The landlord doesn’t do anything at all to collect land rent, that’s why they call them rentiers or coupon clippers. In New York City, for example, Columbia University long owned the land underneath Rockefeller Center. Finally they sold it to the Japanese, who lost their shirt. This practice is a carry-over from the Norman Conquest and its absentee landlord class.

The word “rent” originally was French, for a government bond (rente). Owners received a regular income every quarter or every year. A lot of bonds used to have coupons, and you would clip off the coupon and collect your interest. It’s passively earned income, that is, income not actually earned by your own labor or enterprise. It’s just a claim that society has to pay, whether you’re a government bond holder or whether you own land,

This concept of income without labor – but simply from privileges that had been made hereditary – was extended to the ideas of monopolies like the East India Company and other trade monopolies. They could produce or buy goods for, let’s say, a dollar a unit, and sell them for whatever the market will bear – say, $4.00. The markup is “empty pricing.” It’s pure price gouging by a natural monopoly, like today’s drug companies.

To prevent such price gouging and to keep economies competitive with low costs of living and doing business, European kept the most important natural monopolies in the public domain: the post office, the BBC and other state broadcasting companies, roads and basic transportation, as well as early national airlines. European governments prevented monopoly rent by providing basic infrastructure services at cost, or even at subsidized prices or freely in the case of roads. The guiding idea is for public infrastructure – which you should think of as a factor of production along with labor and capital – was to lower the cost of living and doing business.

But since Margaret Thatcher led Britain down the road to debt peonage and rent serfdom by privatizing this infrastructure, she and her emulators other countries turned them into tollbooth economies. The resulting economic rent takes the form of a rise in prices to cover interest, stock options, soaring executive salaries and underwriting fees. The economy ends up being turned into a collection of tollbooths instead of factories. So, you can think of rent as the “right” or special legal privilege to erect a tollbooth and say, “You can’t get television over your cable channel unless you pay us, and what we charge you is anything we can get from you.”

This price doesn’t have any relation to what it costs to produce what they sell. Such extortionate pricing is now sponsored by U.S. diplomacy, the World Bank, and what’s called the Washington Consensus forcing governments to privatize the public domain and create such rent-extracting opportunities.

In Mexico, when they told it to be more “efficient” and privatize its telephone monopoly, the government sold it to Carlos Slim, who became one of the richest people in the world by making Mexico’s phones among the highest priced in the world. The government provided an opportunity for price gouging. Similar high-priced privatized phone systems plague the neoliberalized post-Soviet economies. Classical economists viewed this as a kind of theft. The French novelist Balzac wrote about this more clearly than most economists when he said that every family fortune originates in a great theft. He added that this not only was undiscovered, but has come taken for granted so naturally that it just doesn’t matter.

If you look at the Forbes 100 or 500 lists of each nation’s richest people, most made their fortunes through insider dealing to obtain land, mineral rights or monopolies. If you look at American history, early real estate fortunes were made by insiders bribing the British Colonial governors. The railroad barrens bribed Congressmen and other public officials to let them privatize the railroads and rip off the country. Frank Norris’s The Octopus is a great novel about this, and many Hollywood movies describe the kind of real estate and banking rip-offs that made America what it is. The nation’s power elite basically begun as robber barons, as they did in England, France and other countries.

The difference, of course, is that in past centuries this was viewed as corrupt and a crime. Today, neoliberal economists recommend it as the way to raise “productivity” and make countries wealthier, as if it were not the road to neofeudal serfdom.

The Austrian School vs. government regulation and pro-labor policies

ED: I don’t want to go too far off on a tangent because we have a lot to cover specific to your book. But I heard an interesting story when I was doing a bit of my own research throughout the years about the evolution of economic thought, and specifically the origins of the so-called Austrian School of Economics – people like von Mises and von Hayek. In the early 20th century they were essentially, as far as I could tell, creating an ideological framework in which they could make theoretical arguments to justify exorbitant rent and make it seem almost like a product of natural law – something akin to a phenomenon of nature.

MH: The key to the Austrian School is their hatred of labor and socialism. It saw the danger of democratic government spreading to the Habsburg Empire, and it said, “The one thing we have to stop is democracy. Their idea of a free market was one free of democracy and of democratic government regulating and taxing wealthy rentiers. It was a short step to fighting in the streets, using murder as a “persuader” for the particular kind of “free markets” they wanted – a privatized Thatcherite deregulated kind. To the rentiers they said: “It’s either our freedom or that of labor.”

Kari Polanyi-Levitt has recently written about how her father, Karl Polanyi, was confronted with these right-wing Viennese. His doctrine was designed to rescue economics from this school, which makes up a fake history of how economics and civilization originated.

One of the first Austrian’s was Carl Menger in the 1870s. His “individualistic” theory about the origins of money – without any role played by temples, palaces or other public institutions – still governs Austrian economics. Just as Margaret Thatcher said, “There’s no such thing as society,” the Austrians developed a picture of the economy without any positive role for government. It was as if money were created by producers and merchants bartering their output. This is a travesty of history. All ancient money was issued by temples or public mints so as to guarantee standards of purity and weight. You can read Biblical and Babylonian denunciation of merchants using false weights and measures so see why money had to be public. The major trading areas were agora spaces in front of temples, which kept the official weights and measures. And much exchange was between the community’s families and the public institutions.

Most important, money was brought into being not for trade (which was conducted mainly on credit), but for paying debts. And most debts were owed to the temples and palaces for pubic services or tribute. But to the Austrians, the idea was that anything the government does to protect labor, consumers and society from rentiers and grabbers is deadweight overhead.

Above all, they opposed governments creating their own money, e.g. as the United States did with its greenbacks in the Civil War. They wanted to privatize money creation in the hands of commercial banks, so that they could receive interest on their privilege of credit creation and also to determine the allocation of resources.

Today’s neoliberals follow this Austrian tradition of viewing government as a burden, instead of producing infrastructure free of rent extraction. As we just said in the previous discussion, the greatest fortunes of our time have come from privatizing the public domain. Obviously the government isn’t just deadweight. But it is becoming prey to the financial interests and the smashers and grabbers they have chosen to back.

ED: You’re right, I agree 100%. You encounter this ideology even in the political sociological realm like Joseph Schumpeter, or through the quasi-economic realm like von Hayek in “The Road to Serfdom.”

MH: Its policy conclusion actually advocates neo-serfdom. Real serfdom was when families had to pay all their income to the landlords as rent. Centuries of classical economists backed democratic political reform of parliaments to roll back the landlords’ power (and that of bankers). But Hayek claimed that this rollback was the road toserfdom, not away from it. He said democratic regulation and taxation of rentiers is serfdom. In reality, of course, it’s the antidote.

ED: It’s the inversion you were talking about earlier. We’re going to go into a break here in a minute but before we do I want to touch on one other point that is important in the book, again the book, Killing the Host: How Financial Parasites and Debt Bondage Destroyed the Global Economy, available from CounterPunch – very important that people pick up this book.

MH: And from Amazon! You can get a hard copy for those who don’t want to read on computers.

Finance as the new mode of warfare

ED: Yes, and on Amazon as well, thank you. This issue that I want to touch on before we go to the break is debt. On this program a couple of months ago I had the journalist John Pilger. He and I touched on debt specifically as a weapon, and how it is used as a weapon. You can see this in the form of debt enslavement, if you want to call it that, in postcolonial Africa. You see the same thing in Latin America where, Michael, I know you have a lot of experience in Latin America in the last couple of decades. So let’s talk a little bit, if we could, before we go to the break, about debt as a weapon, because I think this is an important concept for understanding what’s happening now in Greece, and is really the framework through which we have to understand what we would call 21st-century austerity.

MH: If you treat debt as a weapon, the basic idea is that finance is the new mode of warfare . That’s one of my chapters in the book. In the past, in order to take over a country’s land and its public domain, its basic infrastructure and its mineral resources, you had to have a military invasion. But that’s very expensive. And politically, almost no modern democracy can afford a military invasion anymore.

So the objectives of the financial sector – of Wall Street, the City of London or Frankfurt in Germany – is to obtain the land. You can look at what’s happening in Greece. What its creditors, the IMF and European Central Bank (ECB) want are the Greek islands, and they want the gas rights in the Aegean Sea. They want whatever buildings and property there is, including the museums.

Matters are not so much different in the private sector. If you can get a company or individual into debt, you can strip away the assets they have when they can’t pay. A Hayek-style government would block society from protecting itself against such asset stripping. Defending “property rights” of creditors, such “free market” ideology deprives the rest of the economy – businesses, individuals and public agencies. It treats debt writedowns as the road to serfdom, not the road awayfrom debt dependency.

In antiquity, private individuals obtained labor services by making loans to families in need, and obliging their servant girls, children or even wives to work off the loan in the form of labor service. My Harvard-based archaeological group has published a series of five books that I co-edited, most recently Labor in the Ancient World. (It is available on Amazon.) Creditors (often palace infrastructure managers or collectors) would get people into bondage. When new Bronze Age rulers started their first full year on the throne, it was customary to declare an amnesty to free bond servants and return them to their families, and annul personal debts as well as to return whatever lands were forfeited. So in the Bronze Age, debt serfdom and debt bondage was only temporary. The biblical Jubilee law was a literal translation of Babylonian practice that went back two thousand years.

In America, in colonial times, sharpies (especially from Britain) would lend farmers money that they knew the farmer couldn’t pay, then they would foreclose just before the crops came in. Right now you have corporate raiders, who are raiding whole companies by forcing them into debt, and then smashing and grabbing. You now have the IMF, European Central Bank and Washington Consensus taking over whole countries like Ukraine. The tactic is to purposely lend them the money that clearly cannot be repaid, and say, “Oh you cannot pay? Well, we’re not going to take a loss. We have a solution.” The solution is to sell off public enterprises, land and natural resources. In Greece’s case, 50 billion euros of its property, everything that it has in the public sector. The country is to be sold off to foreigners (including domestic oligarchs working out of their offshore accounts). Debt leverage is thus the way to achieve what it took armies to win in times past.

ED: Exactly. One last point on that as well. I want to get your comment on and we see this in post-colonial Africa, especially when the French and the British had to nominally give up control of their colonies. You saw debt become an important tool to maintain hegemony within their spheres of influence. Of course, asset stripping and seizing control, smashing and grabbing was part of that. But also it is the debt servicing payments, it is the cycle of debt repayment and taking new loans on top of original loans to service the original loans – this process this cycle is also really an example of this debt servitude or debt bondage.

MH: That’s correct, and mainstream economics denies any of this. It began with Ricardo, who’s brothers were major bankers at the time, and he himself was the major bank lobbyist in England. Right after Greece won its independence from Turkey, the Ricardo brothers made a rack-renting loan to Greece at far below par (that is, below the face value that Greece committed itself to pay). Greece tried to pay over the next century, but the terms of the loan ended up stripping and keeping it on the edge of bankruptcy well into the 20th century.

But Ricardo testified before Parliament that there could be no debt-servicing problem. Any country, he said, could repay the debts automatically, because there is an automatic stabilization mechanism that enables every country to be able to pay. This is the theory that underlines Milton Friedman and the Chicago School of monetarism: the misleading idea that debt cannot be a problem.

That’s what’s taught now in international trade and financial textbooks. It’s false pleading. It draws a fictitious “What If” picture of the world. When criticized, the authors of these textbooks, like Paul Samuelson, say that it doesn’t matter whether economic theory is realistic or not. The judgment of whether an economic theory is scientific is simply whether it is internally consistent. So you have these fictitious economists given Nobel Prizes for promoting an inside out, upside down version of how the global economy actually works.

ED: One other thing that they no longer teach is what used to be called political economy. The influence of the Chicago School, neoliberalism and monetarism has removed classical political economy from academia, from the Canon if you will. Instead, as you said, it’s all about mathematics and formulas that treat economics like a natural science, when in fact it really should be more of a historically grounded social science.

MH: The formulas that they teach don’t have government in them,. If you have a theory that everything is just an exchange, a trade, and that there in’t any government, then you have a theory that has nothing to do with the real world. And if you assume that the environment remains constant instead of using economics to guide public and national policy, you’re using economics for the opposite of what the classical economists did. Adam Smith, Mill, Marx, Veblen – they all developed their economic theory to reform the world. The classical economists were reformers. They wanted to free society from the legacy of feudalism – to get rid of land rent, to take money creation and credit creation into the public domain. Whatever their views, whether they were right wingers or left wingers, whether they were Christian socialists, Ricardian socialists or Marxian socialists, all the capitalist theorists of the 19th century called themselves socialists, because they saw capitalism as evolving into socialism.

But what you now have, since World War I, is a reaction against this, stripping away of the idea that governments have a productive role to play. If government is not the director and planner of the economy, then who is? It’s the financial sector. It’s Wall Street. So the essence of neoliberalism that you were mentioning before, is indeed a doctrine of central planning. It states that the central planning should be done by Wall Street, by the financial sector.

The problem is, what is the objective of central planning by Wall Street? It’s not to raise living standards, and it’s not to increase employment. It is to smash and grab. That is the society we’re in now.

A number of chapters of my book (I think five), describe how the Obama administration has implemented this smash and grab, doing the exact opposite of what he promised voters. Obama has implemented the Rubin-omics [Robert Rubin] doctrine of Wall Street to force America into what looks like a chronic debt depression.

ED: Exactly right. I couldn’t agree more. Let’s take a short break and we’ll continue the discussion. Again, I’m chatting with Michael Hudson about his new book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

The case of Latvia: Is it a success story, or a neoliberal disaster?

ED: I want to go back to some of the important issues that we introduced or alluded to in the first part of our discussion. As I was mentioning to you off-air, a couple years ago I twice interviewed your colleague Jeffrey Sommers, with whom you’ve worked and co-published a number of papers. We talked a lot about many of the same issues that you and I are touching on. Specifically Sommers – and I know you as well – did a lot of work in Latvia, a country in the former Soviet space in Eastern Europe on the Baltic Sea. Your book has a whole chapter on it, as well as references throughout the book.

So let’s talk about how Latvia serves as a template for understanding the austerity model. It is touted by technocrats of the financial elite as a major success story – how austerity can work. I find it absurd on so many different levels. So tell us what happened in Latvia, what the real costs were, and why neoliberals claim it as a success story.

MH: Latvia is the disaster story of the last two decades. That’s why I took it as an object lesson. You’re right, it was Jeff Sommers who first brought me over to Latvia. I then became Director of Economic Research and Professor of Economics at the Riga Graduate School of Law.

When Latvia was given its independence when the Soviet Union broke up in 1991, a number of former Latvians had studied at George Washington University, and they brought neoliberalism over there – the most extreme grabitization and de-industrialization of any country I know. Latvians, Russians and other post-Soviet countries were under the impression that U.S. advisors would help them become modernized like the U.S. economy – with high living and consumption standards. But what they got was advice to emulate American experience. It got something just the opposite – how to enable foreign investors and bankers to carve it up, dismantle its industry and become a bizarre neoliberal experiment.

You may remember the Republican presidential candidate Steve Forbes, who in 2008 proposed a flat tax to replace progressive taxation. The idea never could have won in the United States, but Latvia was another story. The Americans set the flat tax at an amazingly low 12 percent of income – and no significant property tax on real estate or capital gains. It was a financial and real estate dream, and created a classic housing and financial bubble.

Jeff and I visited the head of the tax authority, who told us that she was appointed because she had done her PhD dissertation on Latvia’s last land value assessment – which was in 1917. They hadn’t increased the assessments since then, because the Soviet economy didn’t have private land ownership and didn’t even have a concept of rent-of-location for planning purposes. (Neither did Russia.)

Latvia emerged from the Soviet Union without any debt, and also with a lot of real estate and a highly educated population. But its political insiders turned over most of the government enterprises to themselves. Latvia had been a computer center and also the money-laundering center of the Soviet leadership already in the late 1980s (largely as a byproduct of Russian oil exports through Ventspils), and Riga remains the money-laundering city for today’s Russia.

Privatizing housing and other property led to soaring real estate prices. But this bubble wasn’t financed by domestic banks. The Soviet Union didn’t have private banks, because the government had simply created the credit to fund the economy as needed. The main banks in a position to lend to Latvia were Swedish and other Scandinavian banks. They pounce on the lending opportunities to opened up by an entire nation whose real estate had almost no tax on it. The result was the biggest real estate bubble in the world, along with Russia’s. Latvians found that in order to buy housing of their own, they had to go deeply into debt. Assets were only given to insiders, not to the people.

A few years ago there was a reform movement in Latvia to stop the economic bleeding. Jeff and I brought over American property appraisers and economists. We visited the leading bank, regulatory agencies. Latvia was going broke because its population had to pay so much for real estate. And it was under foreign-exchange pressure because debt service on its mortgage loans was being paid to the Swedish and foreign banks. The bank regulator told us that her problem was that her agency’s clients are the banks, not the population. So the regulators thought of themselves as working for the banks, even though they were foreign-owned. She acknowledged that the banks were lending much more money than property actually was worth. But her regulatory agency had a solution: It was to have not only the buyer be obligated to pay the mortgage, but also the parents, uncles or aunts. Get the whole family involved, so that if the first signer couldn’t pay the cosigners would be obligated.

That is how Latvia stabilized its banking system. But it did so by destabilizing the economy. The result is that Latvia has lost 20 percent of its population over the past decade or so. For much the same reasons that Greece has lost 20 percent of its population, with Ireland in a similar condition. The Latvians have a joke “Will the last person who leaves in 2020 please turn off the lights at the airport.”

The population is shrinking because the economy is being run by looters, domestic and foreign. I was shown an island in the middle of the Daugava river that runs to the middle of Latvia, and was sold for half a million dollars. Our appraisers said that it’s worth half a billion dollars, potentially. There are no plans to raise the property tax to recapture these gains for the country – so that it can lower its heaviest labor taxes in the world, nearly half each paycheck for income tax and “social security” spending so that finance and real estate won’t be taxed.

A few years ago, I was at the only meeting of INET (George Soros’s group) that I was invited to, and in the morning one of the lead talks was on how Latvia was a model that all countries could follow to balance the budget. Latvia has balanced the budget by cutting back public spending, reducing employment and lowering wage levels while indebting its population and forcing to immigrate. The neoliberal strategy is to balance by selling off whatever remains in the public domain. Soros funded a foundation there (like similar ones he started in other post-Soviet countries) to get a part of the loot.

These giveaways at insider prices have created a kleptocracy obviously loyal to neoliberal economics. I go into the details in my chapter. It’s hard to talk about it without losing my temper, so I’m trying to be reasonable but it’s a country that was destroyed and smashed. That was the U.S. neoliberal model alternative to post-Stalinism. It wasn’t a new American economy. It was a travesty.

Why then does the population continue to vote for these neoliberals? The answer is, the neoliberals say, the alternative is Stalinism. To Latvians, this means exile, deportations and memories of the old pro-Russian policy. The Russian-speaking parties are the main people backers of a social democracy party. But neoliberals have merged with Latvian nationalists. They are not only making the election over resentment against the Russian-speaking population, but the fact that many are Jewish.

I find it amazing to see someone who is Jewish, like George Soros, allying with anti-Semitic and even neo-Nazi movements in Latvia, Estonia, and most recently, of course, Ukraine. It’s an irony that you could not have anticipated deductively. If you had written this plot in a futuristic novel twenty years ago, no one would have believed that politics could turn more on national and linguistic identity politics than economic self-interest. The issue is whether you are Latvian or are Russian-Jewish, not whether you want to untax yourself and make? Voting is along ethnic lines, not whether Latvians really want to be forced to emigrate to find work instead of making Latvia what it could have been: an successful economy free of debt. Everybody could have gotten their homes free instead of giving real estate only to the kleptocrats. The government could have taxed the land’s rental value rather than letting real estate valuation be pledged to pay banks – and foreign banks at that. It could have been a low-cost economy with high living standards, but neoliberals turned in into a smash and grab exercise. They now call it an idea for other nations to follow. Hence, the U.S.-Soros strategy re Ukraine.

ED: That’s an excellent point. It’s a more extreme case for a number of reasons in Ukraine – the same tendency. They talk about, “Putin and his gaggle of Jews.” That’s the idea, that Putin and the Jews will come in and steal everything – while neoliberals plan to appropriate Ukraine’s land and other resources themselves. In this intersection between economics and politics, Latvia, Lithuania, Estonia – the Baltic States of the former Soviet Union – are really the front lines of NATO expansion. They were some of the first and most pivotal countries brought into the NATO orbit. It is the threat of “Russian aggression” via the enclave at Kaliningrad, or just Russia in general. That is the threat they use to justify the NATO umbrella, and simultaneously to justify continuing these economic policies. So in many ways Russia serves as this convenient villain on a political, military and economic level.

MH: It’s amazing how the popular press doesn’t report what’s going on. Primakov, who died a few months ago, said during the last crisis a few years ago that Russia has no need to invade Latvia, because it owns the oil export terminals and other key points. Russia has learned to play the Western game of taking countries over financially and acquiring ownership. Russia doesn’t need to invade to control Latvia any more than America needs to invade to control Saudi Arabia or the Near East. If it controls exports or access to markets, what motive would it have to invade? As things stand, Russia uses Latvia it as a money laundering center.

The same logic applies to Ukraine today. The idea is that Russia is expansionary in a world where no one can afford to be militarily expansionary. After Russia’s disaster in Afghanistan, no country in the world that’s subject to democratic checks, whether it’s America after the Vietnam War or Russia or Europe, no democratic country can invade another country. All they can do is drop bombs. This can’t capture a country. For that you need major troop commitments.

In the trips that I’ve taken to Russia and China, they’re in a purely defensive mode. They’re wondering why America is forcing all this. Why is it destroying the Near East, creating a refugee problem and then telling Europe to clean up the mess it’s created? The question is why Europe is willing to keep doing this. Why is Europe part of NATO fighting in the Near East? When America tells Europe, “Let’s you and Russia fight over Ukraine,” that puts Europe in the first line of fire. Why would it have an interest in taking this risk, instead of trying to build a mutual economic relationship with Russia as seemed to be developing in the 19th century?

ED: That’s the ultimate strategy that the United States has used – driving a wedge between Russia and Europe. This is the argument that Putin and the Russians have made for a long time. You can see tangible examples of that sort of a relationship even right now if you look at the Nord Stream pipeline connecting Russian energy to German industrial output – that is a tangible example of the economic relationship, that is only just beginning between Russia and Europe. That’s really what I think the United States wanted to put the brakes on, in order to be able to maintain hegemony. The number one way it does that is through NATO.

MH: It’s not only put the brakes on, it has created a new iron curtain. Two years ago, Greece was supposed to privatize 5 billion euros of its public domain. Half of this, 2.5 billion, was to be the sale of its gas pipeline. But the largest bidder was Gazprom, and America said, “No, you can’t accept the highest bidder if its Russian.” Same thing in Ukraine. It has just been smashed economically, and the U.S. says, “No Ukrainian or Russian can buy into the Ukrainian assets to be sold off. Only George Soros and his fellow Americans can buy into this.” This shows that the neoliberalism of free markets, of “let’s everybody pay the highest price,” is only patter talk. If the winner in the rigged market is not the United States, it sends in ISIS or Al Qaeda and the assassination teams, or backs the neo-Nazis as in Ukraine.

So, we’re in a New Cold War. Its first victims, apart from Southern Europe, will be the rest of Europe. You can imagine how this is just beginning to tear European politics apart, with Germany’s Die Linke and similar parties making a resurgence.

The Troika and IMF doctrine of austerity and privatization

ED: I want to return us back to the book and some other key issues that you bring up that I think are most important. One that we hear in the news all the time, and you write extensively about it in the book, is the Troika. That’s the IMF, the European Central Bank (ECB) and the European Commission. It could be characterized as the political arm of finance capital in Europe, one that imposes and manages austerity in the interest of the ruling class of finance capital, as I guess we could call them. These are technocrats, not academically trained economists primarily (maybe with a few exceptions), but I want you to talk a bit about how the Troika functions and why it’s so important in what we could call this crisis stage of neoliberal finance capitalism.

MH: Basically, the Troika is run by Frankfurt bankers as foreclosure and collection agents. If you read recently what former Greek finance minister Yanis Varoufakis has written, and his advisor James Galbraith, they said that when Syriza was elected in January, they tried to reason with the IMF. But it said that it could only do what the European Central Bank said, and that it would approve whatever they decided to do. The European Central Bank said that its role wasn’t to negotiate democracy. Its negotiators were not economists. They were lawyers. “All we can say is, here’s what you have to pay, here’s how to do it. We’re not here to talk about whether this is going to bankrupt Greece. We’re just interested in in how you’re going to pay the banks what they’re owe. Your electric companies and other industry will have to go to German companies, the other infrastructure to other investors – but not from Russia.”

It’s much like England and France divided up the Near East after World War I. There’s a kind of a gentlemen’s agreement as to how the creditor economies will divide up Greece, carving it up much like neighboring Yugoslavia to the north.

In 2001 the IMF made a big loan to Argentina (I have a chapter on Argentina too), and it went bad after a year. So the IMF passed a rule, called the No More Argentinas rule, stating that the Fund was not going to participate in a loan where the government obviously can not pay.

A decade later came the Greek crisis of 2011. The staff found that Greece could not possibly pay a loan large enough to bail out the French, German and other creditors. So there has to be a debt write-down of the principal. The staff said that, and the IMF’s board members agreed. But its Managing Director, Strauss-Kahn wanted to run for the presidency of France, and most of the Greek bonds were held by French banks. French President Sarkozy said “Well you can’t win political office in France if you stiff the French banks.” And German Chancellor Merkel said that Greece had to pay the German banks. Then, to top matters, President Obama came over to the G-20 meetings and they said that the American banks had made such big default insurance contracts and casino gambles betting that Greece would pay, that if it didn’t, if the Europeans and IMF did not bail out Greece, then the American banks might go under. The implicit threat was that the U.S. would make sure that Europe’s financial system would be torn to pieces.

ED: And Michael, I just want to clarify, I guess it’s sort of a question: about what you’re talking about here in terms of Geithner and Obama coming in: These would be credit default swaps and collateralized debt obligations?

MH: Yes. U.S. officials said that Wall Street had made so many gambles that if the French and German banks were not paid, they would turn to their Wall Street insurers. The Wall Street casino would go under, bringing Europe’s banking system down with it. This prompted the European Central Bank to say that it didn’t want the IMF to be a part of the Troika unless it agreed to take a subordinate role and to support the ECB bailout. It didn’t matter whether Greece later could pay or not. In that case, creditors would smash and grab. This lead the some of the IMF European staff to resign, most notably Susan Schadler, and later to act as whistle blowers to write up what happened.

The same thing happened again earlier this year in Greece. Lagarde said that the IMF doesn’t do debt reduction, but would give them a little longer to pay. Not a penny, not a euro will be written down, but the debt will be stretched out and perhaps the interest rate will be lowered – as long as Greece permits foreigners to grab its infrastructure, land and natural resources.

The staff once again leaked a report to the Financial Times (and maybe also the Wall Street Journal) that said that Greece couldn’t pay, there’s no way it can later sell off the IMF loan to private bondholders, so any bailout would be against the IMF’s own rules. Lagarde was embarrassed, and tried to save face by saying that Germany has to agree to stretch out the payments on the debt – as if that somehow would enable it to pay, while its assets pass into foreign hands, which will remit their profits back home and subject Greece to even steeper deflation.

Then, a few weeks ago, you have the Ukraine crisis and the IMF is not allowed to make loans to countries that cannot pay. But now the whole purpose is to make loans to countries who can’t pay, so that creditors can turn around and demand that they pay by selling off their public domain – and implicitly, force their population to emigrate.

ED: Also, technically they’re not supposed to be making loans to countries that are at war, and they’re ignoring that rule as well.

MH: That’s the second violation of IMF rules. At least in the earlier Greek bailout, Strauss Kahn got around the “No More Argentinas” rule by having a new IMF policy that if a country is systemically important, the IMF can lend it the money even if it can’t pay, even though it’s not credit-worthy, if its default would cause a problem in the global financial system (meaning a loss by Wall Street or other bankers). But Ukraine is not systemically important. It’s part of the Russian system, not the western system. Most of its trade is with Russia.

As you just pointed out, when Lagarde made the IMF’s last Ukrainian loan, she said that she hoped its economy would stabilize instead of fighting more war in its eastern export region. The next day, President Poroshenko said that now that it had got the loan, it could go to war against the Donbass, the Russian speaking region. Some $1.5 billion of the IMF loan was given to banks run by Kolomoisky, one of the kleptocrats who fields his own army. His banks send the IMF’s gift abroad to his own foreign banks, using his domestic Ukrainian money to pay his own army, allied with Ukrainian nationalists flying the old Nazi SS insignia fighting against the Russian speakers. So in effect, the IMF is serving as an am of the U.S. military and State Department, just as the World Bank has long been.

ED: I want to interject two points here for listeners who haven’t followed it as closely. Number one is the private army that you’re talking about – the Right Sector which is essentially a mercenary force of Nazis in the employ of Kolomoisky. They’re also part of what’s now called the Ukrainian National Guard. This paramilitary organization that is being paid directly by Kolomoisky. Number two – and this relates back to something that you were saying earlier, Michael – that IMF loan went to pay for a lot of the military equipment that Kiev has now used to obliterate the economic and industrial infrastructure of Donbass, which was Ukraine’s industrial heartland. So from the western perspective it’s killing two birds with one stone. If they can’t strip the assets and capitalize on them, at least they can destroy them, because the number one customer was Russia.

MH: Russia had made much of its military hardware in Ukraine, including its liftoff engines for satellites. The West doesn’t want that to continue. What it wants for its own investors is Ukraine’s land, the gas rights in the Black Sea, electric and other public utilities, because these are the major tollbooths to extract economic rent from the economy. Basically, US/NATO strategists want to make sure, by destroying Ukraine’s eastern export industry, that Ukraine will be chronically bankrupt and will have to settle its balance-of-payments deficit by selling off its private domain to American, German and other foreign buyers.

ED: Yes, that’s Monsanto, and that’s Hunter Biden on the Burisma board (the gas company). It’s like you said earlier, you wouldn’t even believe it if someone would have made it up. It’s so transparent, what they’re doing in Ukraine.

Financialization of pension plans and retirement savings

I want to switch gears a bit in the short time we have remaining, because I have two more things I want to talk about. Referring back to this parasitical relationship on the real economy, one aspect that’s rarely mentioned is the way in which many regular working people get swindled. One example that comes to my mind is the mutual funds and other money managers that control what pension funds and lots of retirees invest in. Much of their savings are tied up in heavily leveraged junk bonds and in places like Greece, but also recently in Puerto Rico which is going through a very similar scenario right now. So in many ways, US taxpayers and pensioners are funding the looting and exploitation of these countries and they’re then financially invested in continuing the destruction of these countries. It’s almost like these pensioners are human shields for Wall Street.

MH: This actually is the main theme of my book – financialization. Mutual funds are not pension funds. They’re different. But half a century ago a new term was coined: pension fund capitalism, sometimes called pension fund socialism. Then we got back to Orwellian doublethink when Pinochet came to power behind the natural alliance of the Chicago School with Kissinger at the State Department. They immediately organized what they called labor capitalism. n labor capitalism labor is the victim, not the beneficiary. The first thing they did was compulsory setting aside of wages in the form of ostensible pension funds controlled by the employers. The employers could do whatever they wanted with it. Ultimately they invested their corporate pension funds in their own stocks or turned them over to the banks, around which their grupo conglomerates were organized. They then simply drove the businesses with employee pension funds under, wiping out the pension fund liabilities – after moving the assets into their captive banks. Businesses were left as empty corporate shells.

Something similar happened in America a few years ago with the Chicago Tribune. Real estate developer Sam Zell borrowed money, bought the Tribune, using the Employee Stock Ownership Plan (ESOP) essentially to pay off the bondholders. He then drove/looted the Tribune into bankruptcy and wiped out the stockholders. Employees brought a fraudulent conveyance suit.

Already fifty years ago, critics noted that about half of the ESOPs are wiped out, because they’re invested by the employers, often in their own stock. Managers give themselves stock options, which are given value by employee purchases. Something similar occurs with pension funds in general. Employee wages are paid into pension funds, which bid up the stock prices in general. On an economy-wide basis, employees are buying the stock that managers give themselves. That’s pension fund capitalism.

The underlying problem with this kind of financialization of pensions and retirement savings is that modern American industry is being run basically for financial purposes, not for industrial purposes. The major industrial firms have been financialized. For many years General Motors made most of its profits from its financial arm, General Motors Acceptance Corporation. Likewise General Electric. When I was going to school 50 years ago, Macy’s made most of its money not by selling products, but by getting customers to use its credit cards. In effect, it used its store to get people to use its credit cards.

Last year, 92% of the earnings of the Fortune 100 companies were used for stock buy-backs — corporations buying back their stock to support its price – or for dividend payouts, also to increase the stock’s price (and thus management bonuses and stock options). The purpose of running a company in today’s financialized world is to increase the price of the stock, not to expand the business. And who do they sell the stock to? Essentially, pension funds.

There’s a lot of money coming in. I don’t know if you remember, but George W. Bush wanted to privatize Social Security. The idea was to spend all of its contributions – the 15+% that FICA withholds from workers paychecks every month – into the stock market. This would fuel a giant stock market boom. Money management companies, the big banks, would get an enormous flow of commissions, and speculators would get rich off the inflow. It would make billionaires into hundred-billionaires. All this would soar like the South Sea Bubble, until the American population began to age – or, more likely, begin to be unemployed. At that point the funds would begin to sell the stocks to pay retirees. This would withdraw money from the stock market. Prices would crash as speculators and insiders sold out, wiping out the savings that workers had put into the scheme.

The basic idea is that when Wall Street plays finance, the casino wins. When employees and pension funds play the financial game, they lose and the casino wins.

ED: Right, and just as an example for listeners – to make what Michael was just talking about it even more real – if we think back to 2009 and the collapse of General Motors, it was not General Motors automotive manufacturing that was collapsing. It was GMAC, their finance arm, which was leveraged on credit default swaps, collateralized debt obligations and similar financial derivatives – what they call exotic instruments. So when Obama comes in and claimed that he “saved General Motors,” it wasn’t really that. He came in for the Wall Street arm of General Motors.

Obama’s demagogic role as Wall Street shill for the Rubinomics gang

MH: That’s correct. He was the Wall Street candidate, promoted by Robert Rubin, who was Clinton’s Treasury Secretary. Basically, American economic policies can run by a combination of Goldman Sachs and Citigroup, often interchangeably.

ED: This was demonstrated very clearly in the first days of Obama taking office. Who does he meet with to talk about the financial crisis? He invites the CEOs of Goldman Sachs and JP Morgan, Bank of America, Citi and all of the rest of them. They’re the ones who come to the White House. It’s been written about in books, in the New Yorker and elsewhere. Obama basically says, “Don’t worry guys, I got this.”

MH: Ron Suskind wrote this. He said that Obama said, “I’m the only guy standing between you and the pitchforks. Listen to me: I can basically fool them.” (I give the actual quote in my book.) The interesting thing is that the signs of this meeting were all erased from the White House website, but Suskind has it in his book. Obama emerges as one of the great demagogues of the century. He may be even worse than Andrew Jackson.

ED: So much of it is based on obvious policies and his actions. The moment he came to power was a critical moment when action was needed. Not only did he not take the right action, he did exactly what Wall Street wanted. In many ways we can look back to 2008 when he was championing the TARP, the bailout, and all the rest of that. None of that would have been possible without Obama. That’s something that Democrats like to avoid in their conversations.

MH: That’s exactly the point. It was Orwellian rhetoric. He ran as the candidate of Hope and Change, but his real role was to smash hope and prevent change. By keeping the debts in place instead of writing them down as he had promised, he oversaw the wrecking of the American economy.

He had done something similar in Chicago, when he worked as a community organizer for the big real estate interests to tear up the poorer neighborhoods where the lower income Blacks lived. His role was to gentrify them and jack up property prices to move in higher-income Blacks. This made billions for the Pritzker family. So Penny Pritzker introduced him to Robert Rubin. Obama evidently promised to let Rubin appoint his cabinet, so they appointed the vicious anti-labor Rahm Emanuel, now Chicago’s mayor, as his Chief of Staff to drive any Democrat to the left of Herbert Hoover out of the party. Obama essentially pushed the Democrats to the right, as the Republicans gave him plenty of room to move rightward and still be the “lesser evil.”

So now you have people like Donald Trump saying that he’s for what Dennis Kucinich was for: a single payer healthcare program. Obama fought against this, and backed the lobbyists of the pharmaceutical and health insurance sectors. His genius is being able to make most voters believe that he’s on their side when he’s actually defending the Wall Street special interests that were his major campaign contributors.

ED: That’s true. You can see that in literally every arena in which Obama has taken action. From championing so-called Obamacare, which is really a boon for the insurance industry, to the charter schools to privatize public education and also become a major boon for Wall Street, for Pearson and all these major education corporations. In terms of real estate, in the gentrification, all the rest. Literally every perspective, every angle from which you look at Obama, he is a servant of finance capital of investors, not of the people. And that’s what the Democratic Party has become, delivering its constituency to Wall Street.

A left-wing economic alternative

MH: So here’s the problem: How do we get the left to realize this? How do we get it to talk about economics instead of ethnic identity and sexual identity and culture alone? How do we get the left to do what they were talking about a century ago – economic reform and how to take the side of labor, consumers and debtors? How do we tell the Blacks that it’s more important to get a well paying job? That’s the way to gain power. I think Deng said: “Black cat, white cat, it doesn’t matter as long as it catches mice.” How do we say “Black president, white president, it doesn’t matter, as long as they give jobs for us and help our community economically?”

ED: I think that’s important and I want to close with this issue: solutions. One of the things I appreciate in reading your book is that it is broken up into sections. The final section, I think, is really important. You titled it: “There Is An Alternative.” That is of course a reference to Margaret Thatcher’s TINA (There Is No Alternative). That ideology and mindset took over the left, or at least the nominally left-wing parties. So you’re saying that there is an alternative. In that section you propose a number of important reforms. You argue that they would restore industrial prosperity. Now, I’m not asking you to name all of them, to run down the list, but maybe touch on a little bit of what you included, and why that’s important for beginning to build this alternative.

MH: There are two main aims that classical economists had 200 years ago. One was to free society from debt. You didn’t want people to have to spend their lives working off the debt, whether for a home, for living or to get an education. Second, you wanted to fund industry, not by debt but by equity. That is what the Saint-Simonians and France did. It’s what German banking was famous for before World War I. There was a debate in the English speaking countries, especially in England saying that maybe England and the Allies might lose World War I because the banks are running everything, and finance should be subordinated to fund industry. It can be used to help the economy grow, not be parasitic.

But instead, our tax laws make debt service tax deductible. If a company pays $2 billion a year in dividends, a corporate raider can buy it on credit and, if there’s a 50% stock rate, he can pay $4 billion to bondholders instead of $2 billion to stockholders. Over the past twenty years the American stock market has become a vehicle for corporate raiding, replacing equity with debt. That makes break-even costs much higher.

The other point I’m making concerns economic rent. The guiding idea of an economic and tax system should be to lower the cost of living and doing business. I show what the average American wage earner has to pay. Under the most recent federal housing authority laws, the government guarantees mortgage loans that absorb up to 43% of family income. Suppose you pay this 43% of income for your home mortgage, after the 15% of your wages set aside for Social Security under FICA.

Instead of funding Social Security out of the general budget and hence out of what is still progressive taxation, Congress has said that the rich shouldn’t pay for Social Security; only blue-collar workers should pay. So if you make over $115,000, you don’t have to pay anything. In addition to that 15% wage tax, about 20% ends up being paid for other taxes – sales taxes, income taxes, and various other taxes that fall on consumers. And perhaps another 10% goes for bank loans besides mortgages – credit card loans, student loans and other debts.

That leaves only about 25% of what American families earn to be spent on goods and services – unless they borrow to maintain their living standards. This means that if you would give wage earners all of their food, all their transportation, all their clothing for nothing, they still could not compete with foreign economies, because so much of the budget has to go for finance, insurance and real estate (FIRE). That’s why our employment is not going to recover. That’s why our living standards are not going to recover.

Even if wages do go up for some workers, they’re going to have to pay it to the bank for education loans, mortgage loans (or rent), bank debt and credit card debt, and now also for our amazingly expensive and rent-extracting medical insurance and health care and medications. The result is that if they try to join the middle class by getting higher education and buying a home, they will spend the rest of their lives paying the banks. They don’t end up keeping their higher wages. They pay them to the banks.

ED: You don’t have to tell me. I’m living that reality. Interestingly, in that final section of your book you talk about alternatives, like a public banking option that many people have discussed. You talk about the Social Security cap that you were just mentioning, and focus on taxing economic rent. Some critics would suggest that these sorts of reforms are not going to be able to salvage the capitalist model that is so ensconced in the United States. So I want to give you a chance to sort of present that argument or maybe rebut it.

MH: I won’t rebut that criticism, because it’s right. Marx thought that it was the task of industrial capitalism to free economies from the economic legacies of feudalism. He saw that the bourgeois parties wanted to get rid of the “excrescences” of the industrial capitalist marketplace. They wanted to get rid of the parasites, the landowners and usurious creditors. Marx said that even if you get rid of the parasites, even if you socialize finance and land that he dealt with in volume II and III of Capital, you’re still going to have the Volume I problem. You’re still going to have the exploitation problem between employers and employees – the labor/capital problem.

My point is that most academic Marxists and the left in general have focused so much on the fight of workers and labor unions against employers that they tend to overlook that there’s this huge FIRE sector – Finance, Insurance, and Real Estate – tsunami is swamping the economy. Finance is wrecking industry and government, along with labor. The reforms that Marx expected the bourgeois parties to enact against rentiers haven’t occurred. Marx was overly optimistic about the role of industrial capitalism and industrialized banking to prepare the ground for socialism.

This means that until you complete the task of freeing of society from feudalism – corrosive banking and economic rent as unearned income – you can’t solve the industrial problems that Marx dealt with in Volume I. And of course even when you do solve them, these problems of labor exploitation and markets will still exist.

ED: Yes, absolutely. Well we’re out of time. I want to thank you for coming onto the program. Listeners, you heard it. There’s so much information to digest here. The book is really brilliant, I think essential reading, required reading – Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, available through CounterPunch, as well as on Amazon. Michael Hudson professor of economics at University of Missouri Kansas City, his work is all over the place. Find it regularly on CounterPunch, as well as on his website Michael Hudson thanks so much for coming on CounterPunch Radio.

MH: It’s great to be here. It’s been a wonderful discussion.

ED: Thank you.

Michael Hudson’s new book, Killing the Host is published in e-format by CounterPunch Books and in print by Islet. He can be reached via his website, [email protected]

(Republished from Counterpunch by permission of author or representative)
• Category: Economics • Tags: Neoliberalism, Wall Street 
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  1. damn, this needs to be on the front page.

  2. Kyle a says:

    Very compelling read.

  3. And what created the financial system and its aftereffects?


    • Replies: @anon
  4. Without a doubt, financiers are not angels, but you cannot sell me on the idea that one can create a better industrial society by investing the government with more power. I believe the US would have been far better off with slower growth, far more restrictions on corporations in the 19th century, and better off without “globalism”, but now we have the industrial tiger by the tail.

    As far as protestations that socialists do not seek more power, history shows that socialism cannot function in a diverse state without power. I believe as Bakunin did, “If you took the most ardent revolutionary, vested him in absolute power, within a year he would be worse than the Tsar himself.”

    • Replies: @anon
  5. guest says:

    I don’t have any idea what “neoliberal” means, because there are at least two mutually exclusive definitions. There’s a real problem with labeling things “new” as time goes by, for obvious reasons. There’ve been at least two editions of the “New Right,” for instance, and hundreds of iterations of “liberal.” It’s the same thing with “post.” I never know anymore if that’s supposed to mean “after,” like it’s supposed to. Postmodernism, for instance, never seemed different enough from modernism to deserve it’s own term.

    By the way, why are people suddenly referring to debt as “debt slavery” or “debt bondage”? It’s not like anyone’s sent to debtor’s prison or some work farm if they don’t make their nut. All that’s meant by the phrase, near as I can understand, is to be in debt for an extended period. But that’s not bondage. Such hyperbole reminds me of the ridiculous Marxist notion of “wage slavery.”

    Which are acceptable jokes, I guess, in the sense that everyone knew the “War on Drugs” wasn’t an actual war, that is before it turned out to be an actual war, with bullets and all. But I get the feeling people actually mean them, as if instead of not caring about the future and using their credit cards to buy frappuccinos every morning they were kidnapped from Africa and sent across the ocean to toil for a lifetime of little but food, shelter, the occasional banjo party, and endless whip cracking.

    • Agree: Wizard of Oz
    • Replies: @bunga
  6. Leftist conservative [AKA "radical_centrist"] says: • Website

    I agree that finance is a parasite, but so is all of Big Business. Parasites in the animal world parasitize by using biological weapons to control the host (molecular compounds etc).

    Big Business uses propaganda to control the populace and manufacture consent. The educational curriculum contains the propaganda, along with the news media and hollywood.

    Multiculturalism is also a part of this.

    • Replies: @Wizard of Oz
  7. I find it amazing to see someone who is Jewish, like George Soros, allying with anti-Semitic and even neo-Nazi movements in Latvia, Estonia, and most recently, of course, Ukraine.

    I don’t find it at all amazing. Zionists and Nazis share so much in common:

    – Both believe they are a Herrenvolk
    – Both promote the fiction that Jews are a distinct and unified ‘race’
    – Both are into ethnic cleansing and acquiring more Lebensraum

    A few years ago, I was at the only meeting of INET (George Soros’s group) that I was invited to … If you read recently what former Greek finance minister Yanis Varoufakis has written, and his advisor James Galbraith, they said that when Syriza was elected in January, they tried to reason with the IMF.

    Syriza was a cat’s paw for Soros right from the start. Varoufakis himself is a member of INET:

    No wonder Tsipras refused to leave the EU and join the Eurasion Union instead!

    • Replies: @Wizard of Oz
  8. @Seamus Padraig

    I am surprised that you say Zionists “promote the fiction that Jews are a distinct and unified race”.

    What is your authority for that? Can you cite evidence from recent decades? (Or earlier for that matter just as a matter of interest).

    My experience is that Jews reject any description of Jews as a race and indeed are reluctant to use the word or concept of race at all. A “people” or “community” but not a “race”. (I note that you say “Zionists” but am not sure you are making any distinction because you do not make a point about Soros being a Zionist, and I am not aware that he is).

    It would in fact be absurd for Israelis to proclaim Jewish Israelis as part of one race as they accept black Ethiopian Jews as authentically Jewish and entitled to settle in Israel.

    • Replies: @Sam Shama
    , @neutral
  9. Marian says:

    Good reminder why I hate economists. They all talk a good line of b.s. for the “peeples.” However in the end it’s about creating their version of the renter. People are like milk – the rich cream rises to the top, while the spoilage begins at the bottom. No economic theory or benign government will change that.

  10. CMC says:

    Finance is debt and debt grows exponentially? Sounds like you are talking about compound interest and usury. Do you use those terms in the book?

  11. I am really, really ignorant of Economics, and, I suspect, quite incapable of reverting that condition, so people shouldn’t expect much of my comments. I have read only part of the article (above “The Troika and…”), but here are the things that keep sticking into my obtuse mind.

    (1) Chile is the only Latin American country that has First World Human Development levels.

    (2) Michael Hudson is “a Wall Street financial analyst”.

    (3) “Russia serves as this convenient villain”, and “Russia has learned to play the Western game of taking countries over financially”.

    (4) “And from Amazon!”

    • Replies: @MarkinLA
  12. Sam Shama says:
    @Wizard of Oz

    Jews in Israel are most certainly NOT one race and never claim that. Ashkenazim( German, Polish, Scandinavian, Hungarian, certain Russians), Sephardics (Spanish, Italian, Bulgarian, Greek and Turkish), Mizrachim (Moroccan, Libyan, Algerian, Iraqi, Indian, Iranian and Yemenite), Falashas (Ethiopian) and a few other obscure groups like the Mashaddis all form rather distinct racial types. There is of course a fair bit of unhindered inter-marriage, but still, groups tend to keep to their own.

    Even the religion has so many sects. I think what is fair to say is that everyone feels common cause in the prosperity and safety of the state and its adherence to the notion that with the Jewish nation, it is finally perhaps in our provenance, a land that can unquestioningly grant refuge and sustenance. In this respect we are unique, not so much because Jews were persecuted, since many other groups have suffered greatly as well, but more because of a destiny finally fulfilled. (That Zionism in its current from distorts it, is quite another discussion.)

    On to Michael Hudson’s broader topic, I could write rather a lot, but will at this point simply observe or rather pose a simple question:

    Is there any place in his model for an individual citizen to accumulate wealth? If the answer is a positive, then what boundaries and regulations and indeed banking parameters would he set to produce this outcome.

    • Replies: @bunga
  13. nickels says:

    Wow. Just ordered the book. Looking forward to reading it.

  14. neutral says:
    @Wizard of Oz

    A jewish atheist can become a citizen of Israel because he is jewish, not because of religious affiliation. Hence jews are a race, if you want to argue this point take it up with Israel.

    • Replies: @Wizard of Oz
  15. @neutral

    You are not answering my point which was to question (though not deny necessarily) the supposed Zionist insistence that Jews are/were “a distinct and unified race”. And the point you make depends on your deploying a very individual notion of race because the criterion for citizenship of being Jewish can be met by converts and is not even a matter of “race” for the rest because it depends on having a Jewish mother (I presume until authoritatively contradicted). And, strictly speaking your argument is contradicted by the fact of citizenship for the children of Arab citizens….

    • Agree: Sam Shama
  16. bunga says:
    @Sam Shama

    Jews in Israel or anywhere else are not definable as belonging to one race . Even race in nay geographical area or historical period has limited validity as a concept . It is a question of preponderance of some phenotypes sometimes but not always supported by specific genotype .
    But race is not limited to that – race includes faith,food,dress,types of jobs,type of recreation and a common political outlook – that means it has historical root. It is developmental that never stops evolving .

    But Judaism defines Jews as historical race with certain peculiar narrative that is based on some shared ancestral history, certain religious practices , based on avoidance of certain behaviors or belief,diet,dress,and observance of certain edicts . Any one claiming to be Jeiwish have to have the origin or experience of this arrow pointing towards this common set of genetic,religious,geographical,and certain experiential histories . Being historical , it runs into problem of nationality – problem of who to include within the nationality , what is citizenship when citizenship is based on religion and what is the religion when one can get only converted to Judaism by certain school of Rabbinate but even an atheist or secular or non Jews could be Jews if she could trace being Jewish by birth . This problem or contradictions then lead to who is Israeli and who can have Jewish passport and who can be Israeli national or citizen . This problem has led also to other problems for Israel , it has tried by never declaring its boundary or having a constitution because it is not established as secular state and not a religious state .This was done to avoid facing the contradiction at multiple levels

    • Replies: @Sam Shama
  17. bunga says:

    Greece and Argentina in recent times, S E Asia in 1998 and Russia in 1990 went through this slavery stage – manifested by plunging numbers in all domains of economics or social or political measurements

    African countries are living example as well for decades if not for centuries

  18. Analogies and metaphors are fine for rhetoric but apt to mislead. They need to be cross-checked and compared. Instead of your parasite metaphor how about thinking of a complex brain – as complex as the multifunction interconnected human brain – in which there are tumours affecting certain parts in various ways at various rates of progression, but also regression both from treatment and from (currently) unexplained causes?

  19. @Leftist conservative

    As I have suggested to the author, how about preferring brain tumours to parasites as your metaphor if you must argue by rhetorical simplification?

    • Replies: @anon
  20. Wally says: • Website

    Speaking of parasites, Hudson has this bizarre belief that governments are not.

    He apparently is not aware that every example in the world where governments are given control of economic matters results in an ever expanding, all controlling, all consuming, authoritarian, rights depriving regime. Without fail. I challenge him to show examples to the contrary.

    Talk about throwing the baby out with the bath water.

    He seems unaware that the problem is government involvement in the economy which distorts all pricing signals, gives taxpayers money to the very financial institutions / corporations he criticizes, funds a massive & corrupt ‘defense’ industry, on & on.

    All that Hudson complains about is because of government economic involvement, government’s picking of winners & losers in the marketplace. Take that away from government and there can be no buying of government favors by banks, corporations, or foreign powers.

    Tax & Spend Hudson’s ideas are the problem, not the solution. He can’t really be serious.

  21. Vendetta says:

    Take it away how? Those same banks and corporations will lobby and bribe the government into reclaiming power and restoring their favors.

  22. Wally says: • Website

    By laws that prevent the government from taking the bribes, kickbacks, that’s how.

    How will they reclaim power? By passing unnoticed legislation that repeals the anti-bribery, anti-kickback laws?

    Non-compliance would be obvious to all.
    i.e.: I rather doubt the TARP bailout would have gone unnoticed even if they had wanted it to.

  23. MarkinLA says:
    @Bras Cubas

    (1) Chile is the only Latin American country that has First World Human Development levels.

    I would add Argentina and Uruguay to that.

  24. MarkinLA says:

    Government involvement usually comes about because the saintly free market has turned into a den of thieves and screwed everything up. We don’t have an SEC because those great guys over on Wall Street were so swell in the 1920s. We have one because wealthy people got together and used their friends and media connections to organize entirely legal pump and dump schemes to screw the public.

    The laws regarding retirement didn’t just pop out of thin air because some politician was having a bad hair day. It was because the Depression wiped out peoples savings and they lost their retirement promises when the companies went bankrupt. It was also a common practice to fire people strategically to make sure they never got a pension which is why we have vesting laws (which are still abused anyway).

    As for buying favors. When the rich can get the US government to send in US troops to protect somebody’s investment (like used to happen in Latin America and probably still does with the CIA today) getting favorable legislation passed is nothing.

    • Replies: @Wally
  25. @Wally

    All that Hudson complains about is because of government economic involvement, government’s picking of winners & losers in the marketplace. Take that away from government and there can be no buying of government favors by banks, corporations, or foreign powers.

    I kept noticing the same thing as I read it. Especially this bit:

    “Latvia emerged from the Soviet Union without any debt, and also with a lot of real estate and a highly educated population. But its political insiders turned over most of the government enterprises to themselves… Latvians found that in order to buy housing of their own, they had to go deeply into debt. Assets were only given to insiders, not to the people.”

    The real swindle occurred at the very beginning. If you give everything away to insiders, you force the population into peonage to get whatever tiny scraps it can. Precisely what form that peonage takes — whether classical serfdom or labyrinthine financial instruments — is irrelevant.

  26. @Wally

    did you not read his comment? how do you pass laws against the very people, system that creates laws? almost every single one of them are bought and paid for.

    anti-bribery, anti-kickback laws? please. the supreme court just ruled that buying politicians is legal on top of lobbying/bribing.

  27. Wally says: • Website

    “We don’t have an SEC because those great guys over on Wall Street were so swell in the 1920s.”

    And how do you think the 1920s bubble economy occurred that wreaked havoc everywhere? Ah.

    “When the rich can get the US government to send in US troops to protect somebody’s investment (like used to happen in Latin America and probably still does with the CIA today) getting favorable legislation passed is nothing.”

    You’ve missed the point. The sending of troops to protect the rich’s investments would not occur if the government was prevented from receiving the mentioned bribery & kickbacks for doing so.

    • Replies: @MarkinLA
  28. Vendetta says:

    And who is going to pass those laws? How will they pass them? Life is not a middle school civics class. Big business and big government are a cartel. You are a credulous fool. Our laws are full of loopholes that go unnoticed until they have already passed. Our tax code is full of loopholes.

    And what happens after the federal governnent is erased? Same rent-seeking, bribery, and corruption taking place on the state level.

    Soon, we are China in the 1930s. Enjoy the Maoist era that follows.

  29. MarkinLA says:

    The sending of troops to protect the rich’s investments would not occur if the government was prevented from receiving the mentioned bribery & kickbacks for doing so.

    It already IS against the law. The US is one of the most strict countries in the world when it comes to anti-bribery. No defense contractor can take a gift worth more than 5 dollars. US trade reps cannot bribe foreign representatives or give them gifts which directly contradicts their culture.

    NOBODY can bribe government officials. They just hand them tons of money when they know they are retiring (they are allowed to keep excess campaign funds when the retire) and jobs as lobbyists or speaking engagements when they leave.

    And how do you think the 1920s bubble economy occurred that wreaked havoc everywhere? Ah.

    There were no controls to speak of in the 1920s. Stocks could be bought with 10% cash. This had nothing to do with the government.

    • Replies: @Wally
    , @Bill Jones
  30. Wally says: • Website

    You are truly lazy.

    “Few events in U.S. history can rival the Great Depression for its impact. The period from 1929 to 1941 saw fundamental changes in the landscape of American politics and economics, including such monumental events as America ‘s going off the gold standard and the founding of Social Security. It was a watershed for the growth of the federal government.
    The Great Depression created a widespread misconception that market economies are inherently unstable and must be managed by the government to avoid large macreconomic fluctuations, that is, business cycles. This view persists to this day despite the more than 40 years since Milton Friedman and Anna Jacobson Schwartz showed convincingly that the Federal Reserve’s monetary policies were largely to blame for the severity of the Great Depression. ”

    “Misguided federal policies caused the downturn that began in 1929, and they prevented the economy from fully recovering for a decade. Policy blunders by the Federal Reserve,
    Congress, and Presidents Herbert Hoover and Roosevelt battered the economy on many fronts.”

    “The 1929 stock market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock market crash was followed by two decades of economic growth with low unemployment. But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash– despite many outcries in the media that the government should “do something.”

    There’s plenty more, get off your tail and actually do some research.

    And then you desperately want to argue semantics; “bribe” vs. “hand them tons of money when they know they are retiring”, which are actually the same thing.

    I note that you avoid mentioning the vast ‘campaign contributions’ that government officials receive when they do the bidding of various interests.

    All this stop if laws are enacted which prevent receiving such monies.

    But then ultimately it all stops when government is not given control of economic matters in the first. And that is my overarching point … which you continue to miss.

    • Replies: @MarkinLA
  31. nickels says:

    Reading the comments and the Amazon comments, many claim Hudson has something of a pro government, socialist, Marxist flavour.

    I ordered the book, but, in the interest of actually learning something, can someone offer an alternative book or two, preferably of the differing viewpoint.

    I hate the commies, looking for an economy theory not aligned with them….


    • Replies: @Sam Shama
    , @another fred
  32. joe webb says:

    there is the parable of the 5 blind men trying to describe an elephant: one has hold of the elephant’s tail, and says it is like a snake. Another has hold of a leg and says it is like a tree, etc.

    There is more to a capitalist economy in trouble (or any economy ) than too much debt.

    I perseverate perhaps on surplus capital with nothing to do and its corollary, the working classes with little money to spend on consumer items. Hence, stagnation. Hence capital chasing real estate, and various non-productive and speculative ventures, to the starvation of production of real goods.

    There is a single-factor analysis in this stuff of Hudson, et al. And yes, Hudson, is a Marxist economist who thinks he has the key. More things in economics than are debt obsessed about in his johnny-one-note song of debt, debt, debt…la la la la laaa.

    Joe Webb

  33. Sam Shama says:

    This problem or contradictions then lead to who is Israeli and who can have Jewish passport and who can be Israeli national or citizen

    It is really not a problem. A converted Jew can be a citizen of Israel. However – and entirely consistent with religious requirements, the State, in order to prevent obvious mala fide applications for citizenship – conversion to the faith is quite rigourous and difficult. The rabbi has to be absolutely certain that the applicant is both sincerely motivated and capable. So it is nothing like the much simpler conversions to Christianity or Islam.

    It is worth mentioning a few points here:
    * Israeli Arabs (not WB Palestinians) are citizens of Israel with full vote and full members in the Knesset as represented by the Arab List.

    * Israeli Arabs without restrictions can participate in all aspects of life open to citizens, including education, serving the armed forces (not mandatory), access to healthcare and universal suffrage. No private or public agency can discriminate against Arabs, and such protections are guaranteed by the law. For example, read the following recent story:

    * While the situation of WB Palestinians is truly awful, Arabs in Israel are not in any way living in an Apartheid state. In apartheid South Africa, blacks could not enter restaurants, public facilities, schools, neighbourhoods selected for whites. Such arrangements are unthinkable in Israel. I know this personally and I have more than a few Arab friends.

    * The WB and Gaza situation needs to change. It is an awful mess created by hard-line zionists and their allies, the U.S., Egypt, Saudi Arabia, Gulf States, Turkey and even Iran today has relegated the Palestinian issue to lower priority.The intransigence and incompetence of PA leadership does not help either. Russia supports a 2SS. Many in Israel including Naftali Bennet support a 1SS. The proper realisation of either is a monumental undertaking and can in the end lead to horrors reminiscent of the India-Pakistan partition of 1947.

    • Replies: @bunga
  34. Sam Shama says:

    You could try this one. Its a collection of candid interviews by and of top economists:

    you could also read Piketty, whose book came out recently. He is a hard-core socialist but not a communist. The book itself is really data dense and the prose somewhat turgid in places.

    • Replies: @nickels
  35. @nickels

    Michael Pettis has a better grasp of what is going on than most I have ever read.

    His Blog is at:

    He is far more optimistic than I am about prospects for the future, but he does understand the depth of the problem. He has a bit of a European perspective as far as his personal politics and “solutions”, but he is not a communist. He believes that eventually the books must be balanced, but there is not enough money in the world to pay the debts. To him that means that a lot of “credits” are going to have to be written off and debts cancelled in order to avoid cascading bankruptcies as happened in the Great Depression.

    Lots of luck to him on that happening in a non-chaotic manner, but at least he understands where the choices lie. I understand that debts are going to be cancelled, that’s pretty simple math unless you believe in the “growth fairy”, but I think it will happen more in the realm of political alignment of nations in blocs than in a worldwide way.

    He also has an understanding of economic history and that booms and busts were common even before the Great Depression (the Federal Reserve was founded to try to put an end to them). He understands that rapid growth creates instability by its nature.

    My personal opinion is that most economists lack an understanding of human nature, and that is where they fail. Dig deep enough in any commie and you will eventually find they deny human nature.

    Nature bats last.

    • Replies: @nickels
  36. bunga says:
    @Sam Shama

    I simply don’t believe the Zionist whether they are here in Us or in Israel
    Thugs and liar are the words that should precede their names.

    —-That growth is tiny compared with the aggressive development goal — 100,000 new residents across the Golan in five years — being promoted by Naftali Bennett, a senior Israeli minister and one of many Israeli leaders and thinkers seizing on the chaos in Syria to solidify Israel’s hold on the Golan.
    With Syria “disintegrating” after years of civil war, they argue, it is hard to imagine a stable state to which the territory could be returned. Further, they say that international — or, at least, American — recognition of Israel’s 1981 annexation of the Golan would be an appropriate salve to Israeli security concerns in the wake of the nuclear deal with Iran. Some proponents of this push, who unlike Mr. Bennett support a two-state solution with the Palestinians, also see this international recognition as an important way to distinguish the status of Golan from the West Bank and Gaza Strip.

    Ross begins his account by saying he just happened to be in Jerusalem in 2013 — two years after leaving the Obama administration; Ross may well have been chairing a board meeting of the Jewish People Policy Institute, which opposes Jews marrying non-Jews — when Netanyahu asked him to drop by his office. – See more at:

    role as an officer during a 1996 attack in Lebanon that killed 102 civilians, including four U.N. officials. The story doesn’t seem to have much traction in Israel and Electronic Intifada points out that Bennett has bragged about killing Arabs. – See more at:

    Haim Saban, a leading Israel supporter in the U.S., openly confronts Israeli minister Naftali Bennett: “We live in different realities… Are you willing to cut commercial ties with Europe, because this is what’s going to happen if you have your way in annexing Area C.” – See more at:

  37. nickels says:
    @another fred

    Agreed on the human nature. I’ve been making huge progress reading about the cultural and political side of things and that is definitely a huge takeaway. Now onto economics..
    Thanks, I’ll check Pettis out.

  38. MarkinLA says:

    Milton freedman’s opinion is worth about what you paid for it. And this nonsense you wrote about no government intervention after 1987 is ridiculous. This is when Greenspan started his crap about the Fed providing “liquidity” after every “crisis” that has dug the hole so deep that even zero percent interest rates can’t get the economy moving now. Maybe you heard about something called the Greenspan Put.

    The 1987 stock market crash was so different to the 1929 crash that any attempt to compare the two is ridiculous. In 1920 you could buy stock on margin of 90% so there was virtually no money to back up any fall in the price of a stock. In 1987 there was far less margin allowed 50%. In addition, there are fiduciary responsibility rules as to what a brokerage is allowed to put clients into unlike in the past.

    I have news for you economics is not a science and all the cutting and pasting in the world proves nothing. It is just somebodies opinion. Those quotes you posted mean absolutely nothing. We have been listening to these charlatans for years and nothing they say is worth a dime. So telling me that Milton Friedman “showed” “convincingly” some moron at CATO is worth less than a dime. NOBODY knows the exact reason for the Depression any more than they knew the exact way to get out of it.

    The best way to determine if the actions that FDR did after the Depression started worked is not by asking some economists or reading their books it is by seeing if the majority of the people were happy with what was going on. From the love the people showed FDR, I would say they thought his policies worked.

    There’s plenty more, get off your tail and actually do some research.

    That is what you are calling reading some morons opinion and never thinking at all if it is true or not?

    • Replies: @Seamus Padraig
    , @OutWest
  39. Mike1 says:

    The main issue is simply the complete lack of interest people have in how things work. Everyone picks an ideology (or more typically, inherits an ideology) then finds ways to justify it. Hudson has done more work than normal to bolster his viewpoint but he very clearly is a Marxist. That style of running things has been tried many times. The results should be so obviously appalling that any sane person would not want to recreate it.

    Two things in this interview are telling: the end where the interviewer asks for solutions and the answer is – for practical purposes – crickets. Zero real world solutions! The second is the complete glossing over of private money and credit creation.

    Private money and credit creation is the ONLY thing that needs to be described if Hudson was actually serious. Anyone with any genuine desire to move the argument would describe what this actually means. I suspect Hudson himself has no idea.

    Banks create money at no cost beyond the expenses of keeping the shop open. They are, however, responsible for the money they let loose into the world. Bad loans must be paid for out of earned interest or capital.

    Hudson never even raises the fiction that banks are funded by deposits. This is the biggest area that gives banking social standing. Money is seen as being borrowed from those who have been thrifty. People never make the connection between the absence of savings in their own accounts and the idea that those savings somehow translate into their being able to get a mortgage for hundreds of times their savings.

    A banking license is quite literally a license to print money. Work out what this means. If people got it, it would end the Marxist nonsense or the “audit the Fed” gibberish. The Fed is the public face of private money creation. People get upset in the US that the Fed is owned by the banks. It makes no difference. In many other countries the local reserve bank is fully under government control. The results are identical.

    It is possible to have money created by the government (which almost everyone currently believes is what happens) but it would need a very active, intelligent citizenry to avoid a rapid descent into a Marxist nightmare. I don’t see the conditions for that anywhere.

    The simplest way would be for a fixed sum of money per citizen. This would need to be small while the person was young and raised as the person enters productive years. It would need to contract after the person reached old age and disappear at death. The money would not go to the person directly, of course, but would be pumped into the monetary system. The mechanism of putting the money into the system would be difficult but not insurmountable.

    Banking as it is collapses when people stop signing dumb contracts. The power to change things is the lack of a signature away. It wouldn’t need anything like a majority to end how things are running. Take Vancouver: don’t sign the contract for $2.2 million for the median house in that city and the price will reset violently. The only possible reason to “pay” $2.2 million is the hope that someone will sign a piece of paper for $3 million.

    • Replies: @Sam Shama
  40. @MarkinLA

    And it works so well.

    There is no government so bought and paid for as that of the US.

  41. @MarkinLA

    And this nonsense you wrote about no government intervention after 1987 is ridiculous.

    You forgot to mention the Resolution Trust Corporation, formed by the govt. in the wake of the S&L crisis. All the bankrupt S&Ls were nationalized, liquidated, and their remaining assets were sold off to viable banks–there were NO BAILOUTS. The S&Ls, it seems, were not ‘too big to fail’.

    That’s what we should have done with the investment banks in 2008.

    • Replies: @MarkinLA
  42. The thought that never seems to occur in the minds of most people is that stability is a human dream, not a feature of nature.

    What if there is no system that will be fair, just, and stable? That’s what I see.

    As other writers, some of whom have been published on Unz Review, have said, man is still evolving. The dice are loaded genetically, some people really are at a disadvantage in this world. Others just have bad luck, being born in the wrong place, e.g..

    Evolution is a cruel and profligate process, ruthlessly distilling vast numbers of creatures to see which survives. If this seems monstrous to you from a Christian perspective I suggest you read the last chapter in the Book again. The morality is not the same, nor the message, but the process is, at least until the Guy on the horse comes riding out of the sky.

    Stability is a human desire. It is one thing to try to “keep your shit together”, it is another to order a nation or the world.

    • Replies: @MarkinLA
  43. MarkinLA says:
    @another fred

    Stability is not possible but it is possible to cut your losses short and do as little damage as possible and teach people a lesson about sticking your neck out too far. The problem is that politics is involved and people with political influence would get hurt or in some cases wiped out, and the political system won’t allow that and looks for ways to kick the can down the road.

    If Carter had spent the unimaginable amount of 15 billion dollars to wind down the insolvent S&Ls we never would have careened from dumb idea to dumb idea to the eventual S&L crisis and Resolution Trust Corporation where wealthy people could game the system and pick up assets cheap.

    Carter and Reagan both bought into the idea that there was a way for S&Ls to “grow” their way out of their problems. Regulatory agencies thought they could make deals with healthy S&Ls to take over bad ones and the rules got changed in mid-stream ruining the healthy ones and their shareholders (CalFed and GlenFed just to name two).

    Greenspan thought the economy was basically OK after the 1987 stock crash and did his liquidity trick that reinflated the assets values and kept the commercial real estate bubble going 3 more years at least. This only made the crash of the S&L crisis even harder. His answer was another attempt at asset reinflation and more liquidity sloshing around to help inflate the dot com bubble. His hand in trying to make sure investors didn’t take their lumps in the Mexican Peso crisis, Asian tiger crisis, LTCM crisis, and dot com bubble let everybody think he was “the Maestro” when all he was really doing was digging the hole deeper each time.

    Each time interest rates were lowered in the hopes of inflating assets and getting things moving. Now we have reached a point where interest rates cannot go lower and the economy is stuck in first gear for everybody but those making a living trading on inflated asset prices.

  44. MarkinLA says:
    @Seamus Padraig

    The RTC era was a gold mine for well connected people. A lot of that real estate was essentially unowned by any surviving entity and was snapped up by wealthy people in tax lien auctions. This was also a gold mine for scam artists who would represent clients. On the local business channel we had one such operator. If you gave him 25 grand he would go to the various auctions around the country and bid as your agent. If the owner of the property paid the lien you got a decent return. If the waiting period expired you could take possession of the property.

    How much do you want to bet that he got all the really prime properties for his account and you got the scraps while he used your money? Still if you did get a property it was for unpaid taxes in places like the south where taxes are tiny compared to the value of the property. 100 to 1 was a typical return on those places if you could sell it. I didn’t trust him enough to give the guy my money, he seemed a bit sleezy advertising on a local UHF station.

  45. Sam Shama says:

    The Fed is the public face of private money creation. People get upset in the US that the Fed is owned by the banks. It makes no difference. In many other countries the local reserve bank is fully under government control. The results are identical.

    It is good to finally find someone in the UR readership who understands the matter which so confounds most others screaming about the Fed’s money printing machines enriching Jews etc….I have been at it for a while, having patiently and with every bit of candour I could muster, discussed issues such as TBTF, QE and its need in 2008, Dodd Frank and the general discussion of inequality, only to be met with cries of “audit the Jewish Fed” and “bring back the Gold Standard”.

    I feel a bit better now!

  46. Most parasites are smaller than their host. The cuckoo chick grows larger than the “parent” birds that feed it: but not 100 times larger.

    The parasitic financial economy dwarfs the “real” economy – at least in terms of sums of money. It reminds me of “dark matter” in astrophysics, which along with “dark energy” may comprise more than 90% of the matter in the universe. The matter and energy that we can see and feel is but a thin layer on top of the dark stuff, and may even be irrelevant to the large-scale structure of the universe.

    The “real economy” is the thin layer on top of the financial economy. This is more optimistic than it sounds, because a 1% adjustment to the governance of the financial economy could result in a 10% improvement in the “real economy”.

    • Replies: @Sam Shama
  47. Sam Shama says:
    @James N. Kennett

    The “real economy” is the thin layer on top of the financial economy. This is more optimistic than it sounds, because a 1% adjustment to the governance of the financial economy could result in a 10% improvement in the “real economy”.

    An interesting notion. Would you care to expound a bit on what you mean by governance? A reduction in its size or stricter regulations for lending and financial speculation?

  48. @MarkinLA

    Now we have reached a point where interest rates cannot go lower and the economy is stuck in first gear …

    Yup. It’s called the liquidity trap. The only the thing the Fed can do now is yet more QE. But investors (such as China) don’t like lots of QE. In the short term, it protects bond yields, but over the long-haul, it means the US is slowly monetizing its debt by inflating away the face value of its bonds.

    • Replies: @Sam Shama
    , @another fred
  49. Sam Shama says:
    @Seamus Padraig

    In the short term, it protects bond yields, but over the long-haul, it means the US is slowly monetizing its debt by inflating away the face value of its bonds.

    True enough. Is a slow process though, sort of like the frog in cold water on a very low flame.

    Well on second thoughts, not really, because with duration weighted yield of U.S treasury outstandings about 1.4% and core pce running about 1.2%, one could think that 0.2% is just about the right real return to bondholders who primarily seek a safe asset.

    The Fed has been signalling as best it can to our elected representatives to engage in long-term infrastructure spending. Outside the Fed, Larry Summers has been particularly vocal, and so have Krugman, Stiglitz etc. But then, expansionary fiscal policy is a four letter word for the conservative doctrinaires in this country today.

    • Replies: @MarkinLA
  50. @MarkinLA

    You are almost there. As far as cutting losses goes remember Fed Chairman William McChesney Martin who said it was his job to “take away the punch bowl just as the party gets going.” Also understand Kennedy and Johnson leaned on him for easy money. What has happened may not be a steady flow, but there has been a regular ratcheting of policies for easy money for over one hundred years.

    The founders understood from the start that the nation would fail once the people voted themselves access to the treasury and that is essentially what has happened. Trying to cite one instance or another as a turning point (as even I have done at times) misses the big picture.

    Easy money vs. tight (stable) money has always been an issue in this country. Since the Democrat convention of 1886 and Bryan’s “Cross of Gold” speech, easy money has been mother’s milk of the Democrat Party. I doubt that it is a coincidence that the Republican “Southern Strategy” to bring southern Democrats to their side was accompanied by easier money policies in the Republican Party.

    The problem is that politics is involved and people with political influence would get hurt or in some cases wiped out, and the political system won’t allow that and looks for ways to kick the can down the road.

    I think this statement misses the greater truth that the mass of people want the party to continue. As Mencken said, the only real talent politicians have is getting people to vote for them. They vote for easy money because that is the way to get elected.

    Since the ’70s (at least) any attempt to “cut your losses” would have resulted in a deep recession or a depression and the repudiation of the party that triggered it. Nixon understood that when he closed the gold window. Stability may have been prolonged if the Fed had been allowed to keep taking the punch bowl away in the ’60s, but the political pressure was too great. The “responsibility” for that lies with the people – it is human nature, especially for those with shorter time preference (Google “marshmallow test”), but that is another topic altogether.

    • Replies: @Sam Shama
  51. MarkinLA says:
    @Sam Shama

    The Fed has been signalling as best it can to our elected representatives to engage in long-term infrastructure spending. Outside the Fed, Larry Summers has been particularly vocal, and so have Krugman, Stiglitz etc. But then, expansionary fiscal policy is a four letter word for the conservative doctrinaires in this country today.

    The problem with infrastructure spending today is that it hires very few people for the money spent as compared to the past. If you watch a modern road crew, you have huge machines that grind off the top of the old road. Another machine lays down the new top. The only thing needed is the material to put in the road building machine and now they have portable cement mixing stations so that there are fewer cement trucks needed to keep the road building machine’s hopper full.

    • Replies: @another fred
    , @Sam Shama
  52. @Seamus Padraig

    Further to the liquidity trap is the phenomenon most succinctly described by Hyman Minsky where people are sensitive to the amount of overhanging debt and adjust their behavior accordingly. This is one of the key areas where economists have ignored human nature.

    People with money are also people who are more intelligent and have a better understanding of human nature (on average). They sense the danger and become more cautious, less likely to invest in less liquid assets like factories and more likely to “invest”* in more liquid assets like stocks that they can sell in a hurry.

    *Actually this is speculation. In this regard I use Ashby Bladen’s definition of investment: to apply capital in a manner that will return payments justifying the venture, while speculation is to purchase something in hopes of selling it later at a greater price.

  53. @MarkinLA

    I think there are some “local” politics at work also. Most of the crumbling infrastructure is in the NE and Midwest – largely the result of all that salt they put on their roads in the winter plus the damage done by freeze/thaw. Age and traffic are also issues.

    California has the need of earthquake retrofit and replacement.

    I have some working experience with the matter and roads and bridges in the south are pristine compared to the rust belt.

    Cherchez la money.

  54. Sam Shama says:
    @another fred

    They vote for easy money because that is the way to get elected.

    Since the ’70s (at least) any attempt to “cut your losses” would have resulted in a deep recession or a depression and the repudiation of the party that triggered it.

    You make several excellent points in this comment thread with MarkinLA. As you noted, rates have been ratcheting down for multiple decades and more. The common street view (especially among rates and swap traders) is that such yield compressions are the results of the actions undertaken by central banks’ to stoke inflationary forces at the behest of the political power structure and keep the party going. Thus Greenspan’s actions around the many stated crises, followed by Bernanke are seen as the latest episodes for the benefit of the same goal. Yet there is a greater underlying dynamic that people tend to miss.


    The Central banks have been feeling this dynamic for many decades. In some ways their policies (OMOs of the FOMC and more importantly the unsterilised LSAPs) can be thought of as actions undertaken to correct market failures. The “market ” in this case is that for credit across all maturities, critically for the 5yr+ durations. Global credit is the child of the banking system’s creation and it attempts to grow to the required height and girth by estimating the need for it, based in its turn, on estimates of the forward demand and supply for real goods and services. Mismatches between realised demand and supply for goods and services, leads to excess demand or excess supply. If e.g., excess supply over estimates results, planned credit would not match the outcome, followed by a general deflationary environment. The opposite fosters an inflationary environment.

    Global production processes have in fact outstripped demand, and planned credit expansions invariably fallen behind, over all these many decades, leading to the inexorable step-wise ratcheting down of inflation and yields. Surely everyone experiences this on a daily basis as the costs of most durables, electronics, etc have moved in only one direction. Enter political mandates for universal affordable housing, which requires as input perhaps the only non-depreciating item: land. The Fed in its attempt to counter general deflationary pressures of worldwide excess supply (or savings), prompts a deluge of global credit to chase the one asset class that has both a government mandate and land as an input with a fixed supply, viz. housing. Home prices rise for almost a decade, MBS and MBS derivatives proliferate, hedge fund billionaires are created etc. We know the rest of the story culminating to the Minsky moment followed by financial crisis and the great recession.

    Not to appear an apologist for central banks, I do believe it is important to stress the size and inertia of global excess savings. The voices lined up screaming in unison about the inevitable release of hyperinflation following QE, our vulnerability to China selling it’s $2tr of treasuries with the promise again of dollar devaluation and super high inflation have all come to naught. For how long now? Well 7 years and counting with no signs of those economic beasts anywhere in the offing! Why? Didn’t China just sell $150b+ of treasuries to counter their own capital flight, and if so why did yields not head north? Yes of course China did do that, and no rates did not move up. Did the Fed not stop QE, and if so did 10 yr yields not shoot up? ‘Yes’ and emphatically ‘No’. So what happened to those dire predictions? Well those predictions missed the key insight that the Fed and global CBs can only do two things, basically: (1) set the target federal funds rate (not the actual one which is determined by the market) (2) Engage in QE type of activity and try to ‘guide’ the path of long-term rates. In both cases, with (1) being a great deal easier as a policy tool to use, market forces ultimately determine the clearing yields, certainly for the longer end. If global excess savings keep on re-generating, the path and direction of yields are clear: headed further south.

    I am sure you have been trying to communicate the same thoughts (I reckon from your previous posts) and hammer in the effects of the interactions of CBs and regulatory externalities. These are ideas worth repeating. Finally if I may, any politician worth their salt (and brains) should actually promote fiscal investment expansion, for it will kill two birds with one stone: their own re-election and the betterment of the nation and it’s citizenry.

    • Replies: @another fred
  55. Sam Shama says:

    You are right. There are two things at play: (1) sharp capital intensive technological progress that increases the productivity of labour and (2) consolidation of capital in fewer hands due to differences in initial endowments, training, and distortionary tax laws that favour capital over labour. What is true nevertheless is that expansionary fiscal investments will indeed raise GDP, as opposed to the alchemy of expansionary austerity.

    So (1) in inevitable, and we must endeavour to find avenues to make better use of the free hours on our hands (yoga and contributions to worthy blogs, games of skill, come to mind).
    (2) Fairer distributive tax policies on income and wealth may be straightforward solutions, ones that balance economic incentives, spread the ownership of capital, provide all citizens with a social safety net and at the risk of sounding like a toff, keep the restless sections from making mischief. Noblesse oblige is a fine sentiment and christian charity has its place but imho it is something of a luxury good, which the super rich use to stoke their own egos. I am always wary of very smart and rich people sitting around a conference table trying to do good. The outcomes are often comical to say the least. In other words charity cannot replace a good tax policy.

  56. @Sam Shama

    Thanks for the kind words. You obviously have a better grasp of CB actions than I. While I understand that we have no choice but to expand fiscal spending I am far more sanguine about “betterment of the nation and it’s citizenry”. We have to do it, and eventually will, to avoid near term disaster, but it will lead to longer term problems and will most likely end in blood and tears.

    To give you the short version we are well on the path to the end of effective “democracy” in this country. The problems are too large and the population too diverse (and becoming more so). I sense that you recognize this but are more optimistic about granting more power to government to solve our “problems”. But (IMO) we are in a quandry. If one has a problem there is a solution, when one is in a quandry any action only leads to more trouble.

    As I said in my first post on this thread,

    I believe the US would have been far better off with slower growth, far more restrictions on corporations in the 19th century, and better off without “globalism”, but now we have the industrial tiger by the tail.

    I am about to leave for a few days and cannot spend time on this (although I could write volumes) but I don’t think this is going to end well. I recognize that there is no turning back, but there are catastrophes in the road ahead.

  57. anon • Disclaimer says:

    The banking sector bribed, bullied and baffled politicians to give the banking sector what they wanted.

  58. anon • Disclaimer says:
    @another fred

    The critical point is reducing the power of the banking sector.

  59. anon • Disclaimer says:
    @Wizard of Oz

    A parasite actively seeks to create ideal conditions for it to thrive whereas a brain tumour doesn’t.

    The banking sector actively sought to create ideal conditions for the banking sector.

  60. anon • Disclaimer says:

    In its current form the banking sector is parasitic and the primary cause of the global economic malaise.

    The direct reason is debt-based consumption is inherently damaging because to make a profit money lenders have to extract more than they put in.

    Indirectly the great wealth that accrues to the banking mafia as a result of money lending allows them to promote economic policies that suit them, like offshoring and importing of cheap labor which are also damaging to the economy long term.

    More indirectly the corruption of the political process by the banking mafia allows other lobbies to buy government policy which adds to the overall harm.


    There are different levels of solution but the simplest is to return the banking sector to how it was:

    1) separate investment and commercial banks
    2) no taxpayer guarantee for the investment banks
    3) regulate the commercial banks so their business model relies on deposits

    On a much deeper level close down the central banks and let the treasury increase and decrease the money supply through a balance of spending on infrastructure (increase) and taxation (decrease).

    If the government creates and spends new money you still get the counterfeiting effect but in theory at least the increase in public goods compensates the public for the loss whereas when the central banks do it is is just straight theft.


    However the number one most critical factor is for enough people to realize that money-lending for consumption is inherently parasitic and damaging because for the money lender to make a profit they *must* extract more than they put in.

    So when they hear pundits on the TV saying borrowing for consumption helps the economy they’ll know who the banker shills are.

  61. Anonymous • Disclaimer says:

    This Hudson is either woefully ignorant of Austrian economics or being deliberately misleading because it’s consistently been the fiercest ideological critic of modern economic orthodoxy.

  62. OutWest says:

    I don’t believe that there is any question that FDR got the country out of the depression by getting it into WW2. Of course WW2 would have done the same thing for the country if we hadn’t been a belligerent.

  63. Anonymous • Disclaimer says: • Website

    There will also be the option to ‘Join the Pork Side’ and play as the villainous pigs.

    Once again Jane has smoked you on the Angry Birds Friends weekly tournament.

    The mooncake will appear just left of the pigs structure.

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