Money
Moves
East!
So, Michael, I want to ask you, what is your analysis on the current state of the US economy?
Michael Hudson: It looks very bad. It never really recovered from the Obama depression that begun in 2009 when the banks were bailed out and all of the debts were kept on the books.
The debt has been growing very rapidly because of the Federal Reserve’s 14 years of zero interest rates that flooded the economy with money, which means debt, to try to prop up the stock market and the real estate market. The debt has grown much higher than it was way back in 2008, when you had the junk mortgage crisis.
The arrears and defaults are rising for student loans, for automobile loans, for credit card loans. Commercial property is not only defaulting, but large companies are simply walking away from their office buildings.
Many banks are in the same position that Silicon Valley Bank was in. There’s almost a negative equity because the mortgage holdings and their long-term bond holdings market value has gone way down below what they owe their depositors.
There is no way that it can restore its industry unless it writes down the enormous amount of debt and housing prices and medical insurance that the American wage earner asked to make.
Just imagine this. If you were to give wage earners everything they buy at the stores for nothing, give them all the food, all the clothing, all of the transportation, everything they need. They still couldn’t compete with foreign workers because they have to pay so much money on debt service, on housing, which takes between 30 and 40% of their income. They have to have medical care. That’s 18% of America’s GDP, higher than any other country.
So the money that is paid to the financial, insurance and real estate sector in America is so large that there’s no way that America can be competitive with other countries. So, what the Biden administration is trying to do is saying, “Well, okay, I understand that we can’t compete on prices. I understand that our labor cannot compete with foreign labor anywhere near it, but if we can militarily tell everybody not to go China, Russia, India, Asia and other countries what they need to make wafers, chips, and information technology, then they’ll have to buy everything here from high cost. We can charge monopoly prices and our prices will be so high that we can basically impoverish the rest of the world by controlling everything that they really need to work. We can control their energy, we can control their oil, we can control their computers by sanctions against China, Russia, Iran, Venezuela, any country that does not agree to let us control their economy and buy control of it.”
Any country that doesn’t agree to let America produce all of the monopoly goods that are most profitable, will be treated like we’ve treated Ukraine.”
..But what I’m hearing from you is that for the United States sanctions has not only become a political tool, but an economic necessity as well.
Hudson: Well, that’s what the sanctions are. They’re intended to be an economic tool of coercion. Sanctions are a form of coercion, saying, “If you can depend on us for your food, for your oil, and we can turn off your oil, then you’ll be freezing in the dark. If we can block food to you, then you can’t afford to eat. If we can get you high enough and debt to us that all of your export surplus has to go to paying the money that the IMF and the World Bank and other foreigners have lent you, then you’re totally dependent on [us].” And that’s what America’s strategy is — to make other countries dependent on it so that they don’t have a choice...
Oh, sanctions have been very, very effective, but I think you’ve got the players wrong. The sanctions were against Europe, not against Russia.
The United States calculated two years ago that it cannot compete with Eurasia. It’s losing. It knows that it’s lost the long-term fight for not only dominance, but the long-term fight to be a major player.
So it says, “What can we do? We know that we cannot compete with Eurasia, with China, Russia, Iran and the rest, but the one thing we can do is [to] lock in American prosperity by making Western Europe and the English speaking countries, Australia and New Zealand, completely dependent on us.”
Do you expect the debt ceiling deal to help stabilize the American economy or will it only make things worse in the long-run?
The intention was to make things worse. There was never any debt crisis at all. The government could have simply continued to pay its bills for projects that Congress had already approved. There is no way that the government was going to default on its Treasury debt because, after all, the Treasury debt is held by the wealthiest 10% and the government is not going to do anything that hurts the 10% and benefits the 90%... We have to vastly increase the military budget and because we’ve agreed on a spending limit, we’ve got to cut back the social programs that we’ve just cut back, and cut them back even more.”
So, what you’re seeing is right now the class war is back in business in the United States. This is class war with a vengeance. You’re seeing labor being squeezed. Local city and urban budgets are being squeezed throughout the country. That’s one of the big problems, the budgetary squeeze. You’re having the banks being squeezed by the defaults on commercial real estate that they’re exposed to, and the rising defaults on the personal debts that I mentioned before that they’re exposed to.
So, the economy is really in trouble...
..That’s right. It’s all just a made up. When they talk about cutting back the government debt, what they mean is cutting back social services. They would like to do what Biden and Obama wanted to do after 2009. They want to cut back Social Security...
But how much longer can the US just keep printing money in order to service this government deficits? Is this really sustainable indefinitely?
Well, what usually stops a situation like that is a political revolution. The answer is it’s sustainable until people fight back, until there is a revolution. But as long as you have a political system where you have only two parties that are really the same party, and as long as you have the Democrats as the only alternative to the Republican Party...
And why is financialization of the economy a bad thing? ... What’s the problem with that sort of model? Why can’t the United States just have an economy that’s built mostly on white collar professionals and offices?
Finance is really not part of the economy. There are two economies in every country. You have the production and consumption economy, which often people call the ‘real economy’, making things and selling them and using them, and you have the financial sector that provides credit for this. The financial sector lives in the short run... So, there’s a confusion about whether you are going to think of the economy as Wall Street and making money on stocks and bonds and lending money to real estate, or are you going to think of an economy employing workers and rising living standards, that kind of growth?
So, the people who are making the loans and the new absentee real estate companies are getting rich. But when housing prices go up, that means that wage earners have to pay higher and higher proportions of their wages to pay their rent and to take out a mortgage and buy their house.
As more and more personal income is spent on housing or medical care or retirement pension income, then they’re going to have less and less to spend on goods and services.
If you say “forget goods and services, we’ll have China and Asia and the foreigners produce them,” then all you really have is a hollowed out, empty economy... Well,
If that’s your equilibrium, the debts can only be paid, as they grow exponentially, by consuming less and less, by living standards going down and down, by real wages going down and down.
Social services being cut back more and more, by Social Security and Medicare being cut back more and more.
That’s the program:
Both American political parties!
What is your assessment of the current state of the US dollar? What’s going on here? Why are so many countries looking for options to dump the dollar?
Well, for the last year and a half, America has said, “if other countries hold their dollars and European banks or American banks and they do something that we don’t like, we have a right to grab all of their dollars and simply take them”
In order to make an alternative currency beyond merely holding each other’s currency, you would have to have an alternative to the International Monetary Fund. And that’s what Lula was talking about when he went to Asia. How do we make a common a common alternative bank? Well, the problem with an alternative bank is [that] you need its members to agree on who gets the credits... The kind of special money that this bank would create isn’t the kind of money that you spend at the grocery store. It’s not money that would spend domestically.
It’s money to do what gold does. And that is only subtle balance of payments deficits among central banks.
That’s what gold is now.
Before you had the dollar standard or Treasury bills standard in 1971, when countries would run a balance of payments deficit, they’d have to pay in gold. So every month during the Vietnam War, the soldiers and the army would spend money in Vietnam, in Southeast Asia, that used to be part of the French colonial empire. The banks were mainly French. The banks would send the dollars that were spent to the central bank in Paris.
And General de Gaulle would take these dollars and would say, okay, here are the dollars we have. Give us your gold at $35 an ounce. And that was how America’s gold stock was going way down.
And all of a sudden, if the United States is unable to have other people keep their savings in dollars, meaning buying Treasury securities, then how are they going to pay the international balance of payments cost of their military spending? They won’t be able to spend militarily abroad. The only way they can do it is drastically cut back imports in the America. And to do that, you have to cut wage rates by 20%. You have to make the American labor force the poorest labor force in the West so that all of the balance of payments, money that’s spent, is not on buying goods and services to consume, but only for military spending.
[re: opinions of] Paul Krugman in The New York Times and other mainstream outlets is that although there is some incentive for countries to move away from the dollar, there isn’t really a viable alternative at the moment, and that the countries of BRICS that, although they may have a common interest in forming a BRICS currency, an alternative to the dollar, these economies are too different too varied in order to be able to join forces and form their own alternative currency.
Well, let’s look at what happened with Colonel Gaddafi, the head of Libya. Gaddafi said we want a gold based currency for Africa. And so instead of holding dollars, he bought gold. So NATO bombed the country to smithereens, caught Colonel Gaddafi, tortured him to death and grabbed the gold from the central bank and nobody knows where it disappeared to.
But it seems to have disappeared into the State Department to play dirty tricks throughout the world. So Krugman advocates militarily forcing and destroying any country that wants an alternative to the dollar. He’s a hawk and basically says, “do it by force”. And in his notorious article in The New York Times, he said, “Well, everybody is so used to dealing the dollar, they can’t find an alternative.”
Well, most of my books are all about how to make an alternative to the dollar and the interviews that I’m doing, and my colleagues and I are spending our full time writing. We write for the Valdai Club in Russia. I write for the Chinese Academy of Social Sciences.
We’re writing for other countries to help create an alternative to the dollar because we don’t want to see the world militarized in the way that the US is militarizing it. We want to see a resumption of the economic potential that the world seemed to have leading up to World War One before the whole economy got derailed a century ago...
..But throughout history, the creditors, people who do not work for a living, who are simply inherit their money or have their money by exploiting people, are willing to [hire others to kill] for this right to [own] other people. But people actually produce the wealth. The victims are much less willing to fight militarily or by violence. And the first thing that creditors, the ruling class, do is to have a monopoly of violence.
You had assassinations every single century in Rome. The advocates of debt cancellation and redistribution of land were assassinated. That’s what you seem to be facing in the United States, just as the United States has been assassinating foreign leaders for the last 75 years. African leaders, Latin American leaders, Pinochet, the man coming in and assassinating Allende. The same thing happened in Africa. Same thing has happened throughout the Near East with Gadhafi.
As long as you have America saying, “We know the secret to economic stability, it’s assassinating everybody who disagrees with us and who wants independence from the United States.”
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