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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Republished from The Vineyard of the Saker by permission of author or representative)
 
• Category: Economics • Tags: Coronavirus, Federal Reserve, Wall Street 
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  1. Biff says:

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

    I still have doubts…

    • Replies: @goldgettin
  2. @Biff

    I have the same doubt also.Maybe we missed something?Were we not

    talking about collapsing the economy?What would be a better way than

    wiping out the majority of banks first? Seems to me it worked well on all

    those’ little’ private ,… savings and loan institutions.

    Maybe all of these experts,versed in such highly worded verbiage,are so

    far above our pay grade we should no longer use reason and just war on be s?

    Peace,Love,Life

  3. “We are at the end of the 75-year upswing that began in 1945…” and appear on the cycle of history towards a crisis, one far greater than the Depression of the thirties, a world war far greater than the last one.
    https://www.ghostsofhistory.wordpress.com/

  4. “appear on the cycle of history towards a crisis, one far greater than the Depression of the thirties, a world war far greater than the last one.”
    That’s the question isn’t it?
    How long can this rotten edifice stay upright?
    Debt. Governments & “real” economies controlled by the FIRE sector….which like a malignant cancer has corrupted & devoured everything in its path.
    Environmental decay & collapse. Complex, flexible natural systems reaching the end of their tether…with no more than marginal, piecemeal plans for reform.
    War. A superpower that spends 50% of its discretionary budget on the “security” sectors. A superpower with an instinctive itch towards threats & violence & an impatience with rational dialogue.
    And billions of people semiconscious or confused, not really up to a struggle, more comfortable aspiring to some version of a 3 car garage.
    So, roughly speaking, these are our parameters for change.
    Not really inspiring ?

    • Replies: @goldgettin
    , @Realist
  5. @animalogic

    Superb synopsis.But you’re not inspired?
    Please let’s get inspired…There is NO “OTHER” choice/option.
    Is there?
    The TIME again is NOW. please.

    Life,Love,Peace

  6. “Please let’s get inspired…There is NO “OTHER” choice/option.
    Is there?
    The TIME again is NOW. please.

    Life,Love,Peace”

    You are quite right, of course.
    Without a burning desire to overcome there is nothing but the roll of a dice.
    Unfortunately, the dice has rolled many times over the last 40 years & no one, no solid movement has emerged to fight the “malignant class”.

    I’m at a loss.

    Must we wait until the world is near dead with physical & moral corruption – & all the consequent desperation from the “masses” – before we can start to irradiate our cancer?

    The Dooms-day clock is closer to midnight than its been since the peak of the Cold war.

    We seem to be in one of those traps in which one can never back out — the only way out is forward.
    As “inspiration” it’s not much, but it is, by necessity, positive.

  7. Hey, Saker:

    They have video now. Would you mind experimenting with this new (to you) technology the next time you do an interview?

  8. Realist says:

    Gold is fine also, but the problem is how to keep it free from theft.

    Buy a gun…buy a safe.

  9. Realist says:
    @animalogic

    War. A superpower that spends 50% of its discretionary budget on the “security” sectors. A superpower with an instinctive itch towards threats & violence & an impatience with rational dialogue.

    The US is the most belligerent, war mongering hegemon on the planet.

  10. tjoe says:

    There is a book called “Truth in Money”, first published in 1982 that makes a relationship between the simple math of compounding interest, since 1913 when the FED was created and today, (going on 110 years later). Use 6% as the average interest and capitalize it into the principle yearly. That very simple graph is what must occur in our debt based money system. It nearly perfectly predicted M3, the “money supply”…which they got rid of so it would not scare the mommy’s and daddy’s. Do the graph and think about the implications of so much of the system feeding the “FIRE” sector and how it grows exponentially as time goes on. That’s ((($1.00 x 1.06) x 1.06) x 1.06) x repeat for 110 years).

    • Replies: @tjoe
  11. tjoe says:
    @tjoe

    Germany made a non debt money and threw out the Wiemar Republic debt bankers. Then the Bankers declared war on Germany (March 23, 1933 London Daily Express) and in 5 years it was a hot war.

    So make a co-currency, with the US Treasury Dollar that is equal by law to a FED Reserve Note Dollar by law, for all debts public and private. Cap the FED and make the banks compete for customers….not government however. LIMIT THE QUANTITY and make a Constitutional Amendment that defines the new shared money system. No more making FED debt money….all new money for 10 years would be US Treasury Dollars (with strict quantity controls).

    • Replies: @Geowhizz
  12. Geowhizz says:
    @tjoe

    JFK was moving in that direction. Treasury dollars issued. Then Dallas and LBJ and no more Treasury dollars. How odd.

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