The collective West might be losing the war with Eurasia

November 10, 2022


by Francis Lee

‘’You can’t always get what you want.’’
Courtesy of the Rolling Stones

This aptly sums up the Eurozone/East-Asian/US relationship: In short US hegemony. Suffice it to say that – of all people, Leon Trotsky writing in, (War – In the International 1933) – opined … ‘’That prior to WW2 the US was Europe’s debtor but now Europe was relegated to the background. The United States is the principal factory, the principal depot and the Central Bank of the world.’’

US Ascendency in the 20th Century.

This much was self-evident, and true enough, but in any case, America’s hegemony over Europe long pre-dated WW2 and actually later grew larger with the addition of ex Eastern European states which had been formerly part of the Soviet sphere of influence. Western Europe had willy-nilly long since been subordinated to the USA. A while later (1946) the Americans gave the British short shrift reminding them that they would have to adjust to the post-war realities and take the medicine – the American loan, as Michael Hudson explains.

‘’In effect the Sterling Area was to be absorbed into the Dollar Area, which would be extended throughout the world. Britain was to remain in a weak position in which it found itself at the end of WW2, with barely any free monetary reserves and dependent on dollar borrowings to meet its current obligations. The United States would gain access to Britain’s pre-war markets in Latin America, Africa, the Middle East and Far East. This first loan on the post-war agenda – which President Truman announced in forwarding it to Congress would set the course of American and British economic relations for many years to come. Truman was well aware of the change of fortunes for the UK, for the Anglo-American Loan Agreement spelled the end of Britain as a great power.’’(1)

Sometime later and under the changed geopolitical and economic conditions President Richard Nixon and his economist acolytes placed their chief diplomat, Henry Kissinger, in charge of arrangements to put in place a policy to keep the Europeans subordinate and while they were at it to simultaneously endeavor to put a limit on Japanese expansion.

Then came the big game-changer: Gold was officially delinked from the US$ in August 1971. Nixon’s currency reforms – were designed among various other decisions and also generally aimed at European and Japanese interests. It should be noted that Japan did not play any political role at all but simply followed in America’s wake, as she invariably did in economic and even political matters since.

This unilateral decision by the Americans to deprive paper money from convertibility into gold was enough to tip the Europeans into disorder and turbulence. For all their protestations of loyalty in Europe, the leaders of each country feverishly groped for an outcome that answered their own interests. However still licking their wounds, and for all their weakness, the Europeans still constituted a new and serious – although declining – rival for God’s own People, American capitalism-imperialism, which says a lot about how far the former had slid down the slippery-slope.

Nixon conferred the job of curbing his ‘partners’ newly aroused appetites and steering them towards their own backyard to his man (and enforcer) Henry Kissinger. Kissinger was to read the riot act and inform these uppity Euro-elites that it was the US which was taking centre stage whilst the Europeans were just the supporting artists. Kissinger didn’t mince words with his global minions.

‘’The US has global interests and global responsibilities ‘’ the enforcer-strategist declared, ‘’Our allies have regional interests’’. Having thus put the Europeans in their place, Kissinger acknowledged that the US interests diverged ‘’with the new weight and strength of our allies …’’ But he firmly advised these allies: ‘’ That the gradual accumulation of sometimes petty, sometimes major economic disputes must be ended … A new equilibrium must be achieved in trade and monetary relations.’ Then he called upon the leaders of both Europe and Japan to subordinate their economic interests to these political considerations, organized and directed, of course, by the USA. Under the pressure of these scarcely veiled American threats, the Europeans were meant not just to bury the hatchet over a potential trade-war, but were in addition, and above all, expected to share the ballooning costs of global hegemony.’’ (2) In the popular vernacular of the time, Kissinger ‘socked it’ to the Europeans.

Suffice it to say the Europeans and, a fortiori, both the Japanese and South Koreans had since become thoroughly Americanized and house-trained. Most pathetically in the case of Japan’s geographical position which successfully made it into a long-term prisoner of the United States. The success of Japan’s industrial development and export drive so impressive at the time of comparison with competition with Europe and the United States, did not in any way guarantee that it would move into a hegemonic position. Investment in Japan’s trade surplus in the US always struck the reader as being rather overvalued and in a somewhat geopolitical weak position. Japan, economic giant, political pigmy.

Certainly, the East Asian producers and to a lesser degree the EU are still in a position of American dominance, both politically and strategically, to the United States. And most everyone knows this. In point of fact:

‘’The US economy lives like a parasite on its ‘partners’ in the global system, with virtually no national savings of its own. The World produces whilst North America consumes. The advantage of the United States is that of a predator whose deficit is covered by what others agree or are forced to contribute. Washington uses various means to make up for its deficiencies: for example, repeated violations of the principles of liberalism, arms exports, and the hunting down of oil super-profits (which involves the periodic felling of the producers: one of the real motives of the real war in Central Asia and Iraq). But the fact is that the bulk of the American deficit is covered by capital inputs from Europe and Japan, (and even) China and the global South including rich oil-producing countries and comprador classes from all regions, including the poorest, in the Third World – to which should be added the debt-service levy that is imposed on nearly every country in the periphery of the global system. The American super-power depends from day to day on the flow of capital which sustains the parasitism of its economy and society. The vulnerability of the US therefore represents a serious danger to the American project. (3)

It should be understood that the American possession of the US$ can enable them to simply finance their imports by issuing US paper dollars, or US Treasuries – not gold. That job goes to the man at the gold window of the Fed, who will simply give you more ‘paper assets’ -Treasuries and dollar bills – when you trade in your surplus dollars or gold. A neat trick, and very successful. This ‘exorbitant privilege’ as was articulated by the French politician Valery Giscard D’Estaing was a rent-free arrangement between the US and its ‘allies’ (sic).

This ‘long century’ has been a period of a long-term geo-political dominance by the Atlanticist bloc led by the United States and its global institutions – the International Monetary Fund (IMF) and World Bank (WB) which has been a fait accompli. These two institutions were initially set up during the Bretton Woods Conference in 1944, principally by the US but with the UK in tow. These two world economic pillars were to serve as vehicles to open up trade and financial markets to US exporters, and to enable US investors to buy control of natural resources and industry. This set the rules for Europe and other regions to subsequently join these two institutions, leaving no practical alternative means of organizing world trade and investment. The World Bank’s policies included opposing land reform and organizing loans mainly to create infrastructure linked largely to exports, not to create self-sufficiency. The aim was to lock in foreign dependency on US farm exports and other essentials.

The role of the IMF has been to all intents and purposes a financial vehicle – which due to its organizational structure and an inbuilt voting system which guarantees a majority on every occasion – has been a stranglehold of voting power over its allies and also is able to withhold credits from recalcitrant countries. Dollar credit is used as a lever to indebt foreign countries and force them to adopt ‘’free market’’ deregulation and tax policies which serve US interests.

‘’The broadest step in this strategy of underdevelopment is to use IMF pressure to turn public infrastructure into privatized monopolies by forcing their sell-off to raise money to settle trade and balance of payments deficits. (4) This was broadly in step with the classical phase of imperialism (1800-1950) based upon the division between industrialized cores and non-industrialized peripheries and a related tendency to reduce the latter to a colonial or semi-colonial status, and (5) the post-war phase (1950-1980) involved the victory of national liberation movements – China, Vietnam – in south east Asia and the middle-east – still ongoing – enabled the peripheries to impose a revision of the old asymmetrical terms of the global system and to enter into the industrial age. This period of negotiated globalization was exceptional, and it is interesting to note that the world then experienced growth that was the strongest known in history as well as the least uneven in terms of the distribution of what was produced and distributed

But whisper it softly there has occurred a slow geopolitical burn which is now not easily snuffed out and which goes from strength to strength. This emerging bloc of independent Eurasian states led in the main by Russia and China and organized in the BRICS (Brazil-Russia-China-India-SouthAfrica) and Shanghai Corporation Organization (SCO) represent an alternative system to the glaring global level of inequality and stands out like a beacon of light against the parasitism and orthodoxies of laissez-faire extractive capitalism/imperialism.

In more general terms Michael Hudson lays out a precis of a choice between the two alternatives. As follows:

‘’Finance capitalism is de-industrializing the US economy and that of its allied NATO satellites. The Destiny of Civilization explains that the resulting international diplomacy is not a competition for markets (as the Western Economies are already deindustrializing as a byproduct of financialization and capital’s war against wage labour), nor a conflict between democratic freedom and authoritarianism, but rather a conflict of economic systems juxtaposing the rentier economics of debt-deflation and austerity to socialist state-subsidized growth protecting the 99% by keeping the 1% in check.’’ (6)


I would go further into the work of Freidrich Engels in his description of ‘Condition of the Working Class in England 1844’. Where he writes his journey particularly in Manchester in the north of England as well as other cities.

‘’A horde of ragged women and children swarm about here, as filthy as the swine, they thrive upon the garbage heaps and in the puddles. In short, the whole rookery (slum housing) furnishes such a hateful and repulsive spectacle as can hardly be equaled in the worst court of the Irk. The sub-human race that lives in these ruinous cottages, behind broken windows, mended with oilskin, sprung doors, and rotten door posts, or in the dark, wet, cellars, in measureless filth and stench, in this atmosphere penned in as if with a purpose, this race must have nearly reached the lowest stage of humanity … But what must one think when he hears in at each of these pens, containing at most 2 rooms, a garret and perhaps a cellar, where on the average twenty human beings live; that in the whole region for which 120 persons one usually inaccessible privy (toilet); and that in spite of all the preaching’s of the physicians, and also in spite of the wretched conditions into which the cholera epidemic which plunged the sanitary police …

Engels goes on and on until it becomes virtually impossible and painful to read further. Yet this is the condition of those poor wretches in today’s third world who live among the conditions in Bangladesh or the Cameroons or Bolivia or Liberia, or Senegal! Or wherever. The World has a long way to go.

(1) Super-Imperialism – Michael Hudson – Quoted in Gardner Ibid. p.208

(2) The text of Kissinger’s speech on US relations in Europe was published in the New York Times – 24/04/1973

(3) Beyond US Hegemony – 2006 – Samir Amin – p.12

(4) The Destiny of Civilization 2022– Michael Hudson – p.53

(5) Ibid. – Samir Amin 2006 – p.12

(6) The Destiny of Civilization – Michael Hudson – p.283.

The Real Progressive interview of Michael Hudson (with transcript!)

November 08, 2022

RP Live with Michael Hudson: The Destiny of Civilization

Real Progressive webinar Sept 2022

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[00:00:06] Luke Parcher: All right. For those who might not know me, I’m Luke Parcher, I’m a student and activist. I volunteer with Real Progressives. I’m on our leadership team and I also do a show on Sundays covering politics and current events, and I do some interviews throughout the week and things which you guys can find on Real Progress in Action.

I want to quickly talk about Real Progressives. If you’re interested in learning more about us, you can go to We have articles, content, podcasts, all sorts of things. And if you’re interested in helping us out, we are a nonprofit. You can go to I also want to plug our founder and CEO, Steve Grumbine’s shows. He does the Rogue Scholar on YouTube on Real Progress in Action. He also does the Macro N Cheese podcast, where you can find our guest today, Michael Hudson, as one of many fantastic guests on that podcast.

So without further ado, I’d like to introduce our guest today. Michael is an economist, a professor of economics at the University of Missouri, Kansas City. He’s also a researcher at the Levy Institute at Bard College. He’s a former Wall Street analyst, political consultant, and commentator and author. Michael, thank you so much for taking the time.

[00:01:06] Michael Hudson: Well, thanks for inviting me.

Question | Luke Parcher

[00:01:08] Luke Parcher: I wanted to kick things off for the first question. The title of your book is The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism.

Can you just explain how you came to such an all-encompassing title?

[00:01:20] Michael Hudson: Well, the world economy is now fracturing between two parts, the United States and Europe is the dollarized part. And this Western neoliberal unit is driving Eurasia and most of the Global South into a separate group. The conflict really is between finance capitalism in the United States and Europe against other countries – China, Russia, Iran, India – that are following the more traditional ethic and strategy of industrial capitalism.

The question is: how are countries going to be economically planned? Because every economy is planned by somebody. In the United States, the central planning has been taken out of the hands of government and put in Wall Street. In the City of London. A very rightwing philosophy. In other countries, there is a mixed economy – China and the rest of Eurasia – and their objective of planning and money creation and credit is to create industrial capital to create the means of production.

Obviously, also environmental cleanup now, not merely the means of production but an overall economic system, not simply to make fictitious capital, finance capital, without any reference to the industrial capital base, the earning of labor and industry together.

So there are two economic philosophies and I began the book by contrasting the dynamics of industrial capitalism with finance capitalism. And industrial capitalism in the United States, Germany, England, and every country where it took off, was to promote a public investment in basic infrastructure monopolies in transportation, communication, education, healthcare.

The idea is that if the government would provide these basic services and basic human rights at subsidized rates – or freely, as in the case of education and healthcare – then employers would not have to pay labor a high enough basic wage to make labor pay for healthcare – as in the United States where 18% of GDP is for healthcare – or to pay for education, the 1.7 trillion that goes for student debt in the United States, not mentioning the education that is not debt-financed.

Finance capitalism basically sought to break away all of the public infrastructure. Most financial fortunes and financial fortunes in history were made just in the way that Zola had described, by prying thefts from the public domain.

But the financial capitalism doesn’t say… You don’t have to steal it; you actually make it your policy, giving away the financial domain in the way that President Yeltsin gave away all of Russia’s natural resources, public utilities, electric companies, anything that yields an economic rent that can be just easy income without any investment. And you financialize it.

You’ve had, for the last – really since the 1980s, but even since World War 1 – this movement to prevent industrial economies from being low cost. But the objective of finance capitalism, contrary to what’s taught in the textbooks, is to make economies high cost, to raise the cost every year.

That actually is the explicit policy of the Federal Reserve in the United States. Turn over the central planning to the banking system to essentially inflate the price of housing, with government guaranteed mortgages, up to the point where buying a home is federally guaranteed up to absorbing 43% of the borrower’s income.

Well, you take that 43%, you take the wage withholding for social security and healthcare, you take the taxes; the domestic market shrinks and shrinks. And the finance capital strategy is exactly what it is in the United States today, in Europe. Shift all of the money away from the profits of industrial capital that are reinvested in making new means of production. To expand capital into a shrinking economy where the financial sector intrudes more and more into the economy of production and consumption and shrinks the economy.

The rest of the book all spells out how this transformation from industrial capitalism to finance capitalism occurred and how the fight between the United States and Russia, China, Iraq, Iran, and India – it’s really a conflict of economic systems. There’s no rivalry because they’re not trying to do the same thing. The objectives of the U.S. and Europe are completely different from the economic objectives of Eurasia. It’s a war of economic systems. And that’s why the United States is trying to prevent other countries from following the same path to industrial prosperity that made the United States, Germany and other countries originally rich.

So you have on the one hand a high productivity, high standard of living economy that used to be in the West and is now in Eurasia, as opposed to an economy of austerity planned by the IMF and central banks, as you’re finding in Europe.

Question | Virginia Cotts

[00:06:38] Luke Parcher: Fantastic. Thank you for that. First here we have Virginia Cotts, one of the people helping us backstage, has a question – if Virginia wants to come on screen and ask.

[00:06:47] Virginia Cotts: Michael, I’m not an economist. Can you explain debt deflation – but also how debt siphons money away from the real economy.

I once heard you say that the finance sector is the overhead of the real economy. I think these questions are related? If you could explain that.

[00:07:09] Michael Hudson: Well, the classic discussion of debt deflation was in Volume 3 of Capital, by Marx. And Marx said that debts tend to grow by compound interest.

He gave a citation of everybody from Martin Luther onwards about how any interest rate is a doubling time, it doubles in a given number of years. And it grows exponentially in an up-curve, like X equals Y squared. But the economy grows in the shape of an S-curve; it tapers off.

And one of the reasons that it tapers off in the business cycle is that as the cycle gains momentum, people go further and further into debt. And if you have to pay debt to a banker, if you have to pay student loans, if you have to pay credit card debt, if you have to pay mortgages on rising house prices, then the money you pay to the banker is not available to be spent on goods and services.

So as you have the debt ratio growing in every economy, that crowds out the ability to spend your income on goods and services. So right now many graduate students – you graduate from school, you have a student debt, and you have to live at home with your parents because you can’t get a mortgage to buy a house because the banks say, “Well, you’re already paying so much of your income for student debt that you don’t have any money left over to buy a mortgage, so you can’t buy a mortgage.”

Right now, you’re having the debt-ridden American economy being squeezed. More and more money is paid, not only for debt, but also for other overhead, like healthcare and various monopoly services that are not available to buy goods and services.

Debt deflation is when the growth of debt exceeds the rate of growth of the economy. And that’s true of every economy. The most sophisticated mathematical models that I’ve seen were the ones that were taught to every student in Babylon in 1750 BC.

We have the models that they were told. They say, how fast does a debt at the going rate of interest, at 20%, double? Well, it’s five years. How long does it take to redouble? Well, that’s 10 years. How long to quadruple? Well, that’s 15 years. You see how fast it is. They also would have students calculate the growth of a herd of sheep for instance, and it would all taper off. And when Assyriologists began to translate these cuneiform tablets, they thought, well, this must be an actual report of how the herd actually grew.

But then they found out that the Sumerians already in the third millennium had quadratic equations and very sophisticated mathematics. The mathematics that they used 5,000 years ago were far in advance of what the National Bureau of Economic Research uses.

The National Bureau here is officially in charge of explaining when there’s a recession, when there’s a boom, and explaining the business cycle. The basic theory was outlined and traced by Joseph Schumpeter. It’s a sign curve going up and down regularly, up and down. And the whole philosophy of the National Bureau is a right wing anti-government philosophy saying the economy has automatic stabilizers.

It can never get out of balance because the free market is always going to prevent any kind of chronic downturn. If you have a boom, well, prices will rise and that will cut into profits and that’ll slow investment. And that’ll means that wages will fall until it’s more profitable to begin employing labor again. And you’ll have a recovery, and things go on and on and on, like a sign curve, at a given frequency, forever and ever.

Well, what this deliberately leaves out of account, deliberately expurgates, is the fact that every recovery in the United States and every other Western economy since 1945, has occurred with a rising level of debt. And as debt grows each time, each recovery has been slower. And the reason it’s slower is because as the volume of debt rises, this leaves less and less income available to spend on goods and services. And so, the so-called recovery is weaker until finally it grinds to a halt.

Well, Ricardo anticipated something like that in 1817 in his Principles of Political Economy. He said: well, look at what’s going to happen to land rent. If we don’t prevent the landlords from being the planners of the economy, then the more and more population increases, the price of food will rise, the rents to the landlords will rise more and more until the entire economic surplus is paid for rent and there won’t be any opportunities available to industrial employers. And Marx said, well, this was the Armageddon of capitalism.

In Ricardo’s day, people didn’t borrow to buy housing. It was still hereditary landlords. If your ancestors conquered England and killed enough Englishmen to become aristocrats, you’d inherit it and you didn’t have to borrow. But now that real estate has been democratized in the United States, England and Europe, you have to go into debt in order to buy a house.

And the largest amount of debt in every economy is for real estate, which accounts for 80% of bank loans in the United States and England. Essentially, if you want to buy a house you go to a bank they’ll calculate — well, here’s the rental value of that house. The winner, if you’re trying to bid for a house or an apartment against somebody else, the winner is the buyer who promises to pay the most for the property by taking out a bank loan that absorbs most of the rent as interest. So today, the rent that Ricardo said was going to drive industrial capitalism to a halt, is turned into interest. So it’s the rise in interest that is the Armageddon of industrial capitalism driving the economy to a halt.

I chart most of these in my book Killing the Host, where I give a history of compound interest. But basically the Western economies are all subject to debt deflation today.

And that’s why they’re shrinking. And living standards here are not rising and the economy is not growing, in contrast to China, Russia, Iran, India, and the other countries that don’t have this kind of financial sector doing their planning.

Question | Luke Parcher

[00:13:47] Luke Parcher: I was hoping you could expand on a point you actually mentioned just before we went live, distinguishing between different kinds of debt and which kinds of debt are parasitic and need to be rid of and which ones do not. Can you just quickly distinguish between different types of debt?

[00:14:00] Michael Hudson: Well, in textbooks that students read, corporations will borrow from a bank and they will use this borrowing to build a factory, and to buy machinery, and to produce something.

And the profits will be paid – shared 50/50 or so – with the creditor. So a productive debt is debt which, actually, enables the creditor to repay the loan with the interest and still keep something for himself. Banks don’t lend money to build factories. The stock market does that. The money the banks lend is unproductive debt.

Unproductive debt is when the debt doesn’t enable you to earn more money to pay the creditor. In an unproductive debt, you have to earn the money elsewhere and take money that you may earn as wages or profits and pay the bank. And it’s your loss. It’s a zero sum game, not a positive sum game.

Now this distinction between productive and unproductive debt was built into Sumerian and Babylonian laws. Only unproductive debts were canceled under the Jubilee year the rulers announced. Their word was, andurarum and, the Hebrew, cognate was deror and that was the word used for the Jubilee year.

It meant the rural debts – that when there was a crop failure, and the borrower could not pay the advance of the land rent and the other means of production. Obviously, if the borrower couldn’t repay because there was a crop failure, or a drought, or a disease, or a flood, then the debts were wiped out because that debt did not enable anyone to repay.

And if you didn’t cancel the debt, then the poor cultivator would be forced into a debt bondage to the creditor. And if he did that, then his labor would belong to the creditor and he couldn’t serve in the army. He couldn’t go to work on building public infrastructure. The business debts were all left in place. Debt denominated in silver were left in place and not canceled. The debts denominated in grain were canceled.

Well, in the 12th and 13th century, crusades flooded Europe with money. The Christian Church saw that commerce was reviving. You needed credit. The church theorists said, okay, there’s a productive debt. You’ll make loans to a merchant to trade. He’ll have the money to repay you, that’s productive. But, a debt to a consumer who can’t, is usury. And so ancient languages had no words to distinguish interest from usury.

But the churchmen said, okay, usury is unproductive debt. Interest is a productive debt. Those two words, those were the original meanings of the distinction between interest and usury. That’s been eradicated today when everything is considered productive and part of the free market. And, if it makes the billionaire class rich, it’s productive. That’s basically the thing today.

And the only debts that are supposed to be canceled are debts that the financial sector owns. The banks don’t have to pay the billionaires. Only people with less than a billion dollars have to pay debt. The poorer you are, the more debt you have to pay. They’ve reversed the whole last thousand years of Christian morality as the church has become privatized and financialized.

Question | L Lewis

[00:17:21] Luke Parcher: Fantastic. We have a question here in the chat. This is from L Lewis. It says China has opted for industrialization and the U.S. corporate class clearly has not. Why is the U.S. so belligerent if it doesn’t even want an industrial system?

[00:17:35] Michael Hudson: Because it doesn’t want any other country to have an industrial system. Just like the West fought against communism threatening a new social system after the 1917 revolution, America’s terrified that if China can succeed by following the exact same policy that the United States got rich on in the late 19th century, then they might try to make America rich. And, oh my God, if they do that then there’s no more free lunch for the billionaires.

This is life and death for the billionaires. They make their money by exploiting the economy without producing. The Chinese billionaires make their money by producing and exploiting the economy. But they also produce a lot. And then they have to give up much of what they exploit. So the United States doesn’t want there to be any success in any country achieving prosperity in a way that doesn’t siphon off all of the income to the 1%.

Question | Andy Kennedy

[00:18:28] Luke Parcher: And we have a question here from Andy Kennedy.

[00:18:32] Andy Kennedy: Michael, I believe that you coined the phrase monetary hegemony. I believe it was in Super Imperialism, a book that you wrote a while back. But I think that’s something that a lot of people really have a hard time grasping what that even means. Can you talk a little bit about how the U.S. dollar hegemony has been a large part of why the U.S. became de-industrialized.

[00:19:01] Michael Hudson: Well, that is what my book, Super Imperialism, was all about, that I published in 1972. Dollar hegemony really began in 1972. Hegemony is a word that I can never really work into conversation very easily. It was actually Henry Liu that emphasized that term. He’s a friend of mine and we were colleagues for many years. The dollar hegemony means the United States can issue dollar bonds, IOUs, and it never has to repay them. If we run a balance of payments deficit in the United States, the dollars end up in the foreign central banks. Most of the U.S. balance of payments deficits since the Korean war have been for military spending.

While America is spending money on creating military bases all over the world, these countries will end up with the dollars that we spend to build the bases and buy off client oligarchies. And these dollars are turned over to the local central bank for domestic currency. And the central bank is going to say, “What do we do with the dollars?” Well, they will tend to hold the dollars in the form of buying a U.S. Treasury bond because central banks aren’t supposed to take risks.

So they will essentially buy the Treasury bonds and the United States has no intention of ever paying the Treasury bonds. How is it going to pay? It was paying in gold until 1971. So when the United States would spend money in Vietnam, the dollars that were spent in Southeast Asia, in Japan, in other countries, would be sent from Vietnam to their head office in Paris.

And General de Gaulle would say, “Well, here are these dollars. Now give us gold.” And the U.S. gold stock was going down and down and down. The American strategists worried that this was going to really hurt the country’s ability to dominate the world. So when they went off gold in 1971, everybody thought that this was going to end American financial leadership.

Instead, it was a great increase. It created dollar hegemony because there was nothing for foreign central banks to hold their reserves in except U.S. Treasury bills, Treasury bonds. In other words, Treasury IOUs. So the more money that America would spend abroad in a balance of payments deficit, this money would end up being recycled to the United States in the form of Treasury securities. And so it was actually the balance of payments deficit by military spending that helped finance the U.S. domestic budget deficit. Other countries really didn’t have an alternative. And so when the United States took the lead in creating the Eurozone, it made sure that the Eurozone would never make the Euro an alternative currency to the U.S. dollar because it limited the Eurozone’s ability to run a budget deficit to just 3% of GDP.

Well, what that means is that when Europe goes into a recession and needs to increase government spending like the United States does when it’s in a recession, or like the United States is doing today, running a budget deficit way in excess of 3% of the GDP, Europe is not. So there are not enough Euro bonds by the central bank to ever become a rival for the United States dollar.

Well, all of this is now being changed by Russia and China that they have discussed for the last few years. “In order to stop U.S. hegemony, we have to avoid financing our own military encirclement by lending to the U.S. Treasury that turns it over to the military industrial complex and Pentagon to build bases here.So we’re going to have an alternative to the U.S. dollar.”

Well, they were talking about it – Russia, China, other countries – really for five years. And amazingly enough, the end of dollar hegemony occurred last year when the United States itself said if any country pursues a policy that we don’t like, we can grab all of the dollar reserves that they hold in the United States.

We can grab all of the Treasury bonds they hold. We can just take them. All the bank deposits they have, we can grab. They grabbed that of Venezuela first. They grabbed that of Iran. They grabbed that of Afghanistan. And then they grabbed the $300 billion of Russia. So now the United States has told any country, if you do anything that we don’t like, if you do not let our companies buy control of your economy, or if you try to sue one of our oil companies that pollutes your land, we will grab all of your money and you’ll be isolated.

Well, this ends other countries’ ability to finance the American empire anymore. Other countries are terrified now. If they’re all saying “Let’s not denominate our trade in dollars. Let’s not use the dollars. Let’s use each other’s currencies. We will finance other governments’ treasuries.”

And these treasuries that they’re financing – between China, Russia, Iran, India, and their neighboring countries – are loans to help their treasuries build infrastructure and internal improvements to actually increase the economy growing. Well, the United States itself has brought this about by all the sanctions that it’s imposing. It’s an example of the self-defeating character of the U.S. strategists.

Fortunately, none of them understand how an economy actually works anymore than they understand how military strategy really works. So we’re having armchair amateurs essentially ending a whole system that was giving America a free lunch for the last 50 years.

Question | Jordan S

[00:24:54] Luke Parcher: So we have one here in the chat from Jordan Soreff. He asks, how do you see the interaction between major shareholders of large financial institutions and major shareholders of industrial enterprises? Do you see a lot of common ownership between these kinds of institutions? And if so, wouldn’t they collaborate in order to avoid starving industrial enterprises of access to credit and guarantee some basic form of growth, not only for financial institutions, but also for industrial enterprises.

[00:25:20] Michael Hudson: Not at all. They’re collaborating in destroying the industrial sector. They collaborate in turning industrial corporations into financial firms. and when you turn the management of a corporation away from the engineers and turn it over to the chief financial officer, the chief financial officer says, “Our job is not to increase our industrial production. Our job is to increase the stock’s price. And we can maximize the stock’s price by, instead of spending on research and development that’ll take years to pay off, we can spend our income on buying the shares.”

92% of the profits of the Fortune 500 are spent on share buybacks and dividend payouts, not on new investment. Once you financialize an industrial corporation, you’re trying to make money by financial engineering, not industrial engineering. And you do this by essentially using your income to buy up the share price. This is short term – and finance lives in the short term. The reason finance has no interest in building up industrial power is that that takes years and years to actually plan a factory, plan the production. You have to develop a whole marketing system.

How are we going to sell the product once we produce it? How are we going to distribute it? It takes a lot of planning. It’s beyond the ability of the financiers. You don’t need brains to be a financier. All you need is greed. And you really don’t need a business school. All you need is greed.

And greed is short term. I want it now. Greed is not long term planning. And so, you have a completely different mentality of a financial corporate leader, as opposed to an industrial leader. Someone like, let’s say, Henry Ford, or like the old type of industrial leaders that would try to increase the overall profits to expand production more and more. Today the objective is to shrink production more and more.

Question | Jonathan Kadmon

[00:27:18] Luke Parcher: And we have a question here from Jonathan.

[00:27:21] Jonathan Kadmon: There’s a concept you mentioned in the book that’s also very near and dear to my heart. The commodification of essential goods and services, and extortionist incentives that come when you…

[00:27:32] Michael Hudson: Is that the title of a book?

[00:27:33] Jonathan Kadmon: No, it’s definitely a theme you touch on a bunch of times in your book.

[00:27:37] Michael Hudson: Oh, okay.

[00:27:37] Jonathan Kadmon: And I was hoping you could talk a little bit about how the hostage situation created by commodifying things like housing, healthcare, food, transportation, fuel, things like that – that people need rather than want – is used to extract rents and siphon wealth out of the productive economy to service the wealth demand of the FIRE sector [Finance, Insurance, Real Estate]

[00:28:00] Michael Hudson: Well, the free trade ideology that backs monopolies says that all markets are a function of choice. But the way to control a market is not to give the consumers a choice. And when you say hostage, what that means is people don’t have a choice between whether to eat or to pay a bank.

If they have to buy food or if they have to buy medical care, they have to pay whatever the going price is. Anatole France said that the rich person was as free as the poor person to sleep under the bridge when he didn’t have a house. So the objective of rent seeking is to essentially create a situation where people have no alternative but to buy the service or the good that you’re producing.

If they have no alternative, then you can charge whatever you want. This is the case with most public infrastructure. If you want to mail a letter, you have to pay whatever the going postage is, or whatever parcel service costs. Well, this is why, for about a thousand years leading up to the late 20th century, all governments kept basic services in the public domain – the post office, education, healthcare. You don’t want to privatize them and leave them to the market because if you leave them to the market, then it really isn’t a matter of choice at all.

It’s a matter of letting a monopolist take something that everybody needs, no matter what the price, and charge as much as the market will bear. And that’s a rent-seeking monopoly. That basically is the philosophy that Margaret Thatcher, Ronald Reagan, and the free marketers developed since the 1980s, when you had a privatization of basic needs, especially in housing. And the most important utility that’s been privatized of course has been money and credit creation – the banking system. What has enabled China to avoid the financialization that’s occurred in the United States is because the Central Bank of China is run by the government, not by a financial oligarchy of bankers that get together to run the credit system for their own benefit. But if the government treats money as a public utility, everybody needs money, everybody needs credit, and the government will provide the credit as needed for the economy to grow.

And if the economy has a slowdown, or if a company runs into a financial problem, if you’re the government as a creditor, you can write down the debt. In the United States, if you’ve made loans to a company like General Electric and all of a sudden it can’t pay, the company either goes bankrupt or begins to sell off its assets piece by piece to other people and you have industry being turned into gentrified luxury housing.

So the same thing with healthcare. If you privatize healthcare, everybody needs to go to the hospital. Everybody needs doctor care. If you privatize it then in the United States, 18% of your GDP is going to go to healthcare. The objective is to make healthcare as inefficient and cheap as possible to maximize the profits of the health insurance companies. And the sicker you get, the more money they make.

Also, by the way, the sicker you get, the more GDP goes up. GDP goes up because you have to spend more money healing yourself. So, that’s, a growing part of the American GDP – along with rent and debt service and interest. Well, if you keep healthcare in the public sector, the public sector is going to try to actually keep people healthy instead of sick. And they’re trying to minimize the expense of getting sick so that you leave more money in the hands of households to spend on the real economy of production and consumption, not on giving money to the monopolies.

But in the United States the main utility beside money that’s been privatized is government. Under the Citizens United ruling, the government is now really up for sale and auctioned off to the highest campaign contributors. In the Democratic Party, for instance, every Democratic representative has to raise a given amount of money from campaign contributors to give to the Democrat National Committee.

So whoever can raise the most money gets to be the committee heads. Well, you’ll have the pharmaceuticals industry giving a lot of money to some representative they want to be head of the health committee. You’ll have the bankers giving money to whoever they want to be the head of the banking committee and so on. So, the function of government itself once it’s privatized is to make money for the donor class, which basically is the financial class and the monopoly class that finance creates. Banks have always been the mother of monopolies and the financial sector’s largest business market is in creating monopolies. So, you have basically the privatization of monopolies.

And the monopoly rent of these monopolies is used for paying interest to the banks that finance the corporate raiders, or whoever wants to take over and buy these monopoly privileges.

Question | Luke Parcher

[00:33:14] Luke Parcher: We have a question here from Paul Birtwell. Paul, go ahead.

[00:33:18] Paul B: Hi, Dr. Hudson. Could you briefly touch on the concept of economic rent and unearned income as well as how the establishment became established by conquering Europe, privatizing the commons all the way up through colonialism, and how they use all these little privileges through copyrights, patents, formula, and it’s not really through effort or innovation, but it’s through rake off.

I remember you in an interview, I’m paraphrasing, saying something like: For the crime of being conquered, the 99% and all of the descendants are obligated to take care of the 1% and all of their descendants into perpetuity.

But it would be great if you could touch on those historical elements because most folks think, “Hey, these folks that are really rich are smarter, they worked harder.” And as we know, it’s not based on effort or individual contribution but rather just milking society.

[00:34:16] Michael Hudson: Well, it’s very hard to answer that question very briefly in a question and answer. I’ve written two chapters of the Destiny of Civilization describing exactly what you’ve asked: economic rent. All classical economics – from Adam Smith through Ricardo, John Stuart Mill, Marx, Alfred Marshall – was all about value and price theory in order to segregate how much of the price is not reflected by a real cost of production. Economic rent is unnecessary income.

Economic rent is what you’re able to charge more than just the cost of producing goods and service with a profit. It’s “What is a free lunch?” And the free marketers say, “There’s no such thing as a free lunch.” That’s what Milton Friedman said. But a rentier economy is all about a free lunch. The concept of economic rent in the 19th century was aimed at landlords because they inherited the land. The land does not have a cost of production. And yet, if you have an ownership right to the land, a privilege of legal ownership of the land, you have a legal boundary and you can charge rent without any effort of your own.

John Stuart Mill said economic rent is what landlords make in their sleep. They don’t have to make a productive effort. Well, actually a theory of rent went way back to the churchmen in the 13th century describing what is a fair return to bankers. The economy needs credit, all economies work on credit, traders need credit. They need the money exchange from one currency to another. The value of banking services is the cost of living, the cost of doing business, the cost to have a certain lifestyle that’s becoming of a banker.

But everything that’s over and above normal living prosperity and costs is called usury. That’s not a valid cost. And so that was deemed illegal already in the 13th century. Well, Ricardo in the 19th century used the landlords as the main rent recipients of the hereditary landed aristocracy. Rent is what a landlord would get just for the ownership privilege of having a land. And so if you go out and buy a house today and the price of land goes up because the city will increase bus service or a transportation service. For instance, in New York City, a few years ago, they extended and built the Second Avenue subway that went uptown, along Second Avenue. Real estate prices all soared for real estate on Second Avenue. That was a free lunch.

The landlords didn’t do anything at all to increase the real estate rents that they were charging. Rents went way up. If you lived on Second Avenue or First Avenue, even Third Avenue, you had to pay much higher rent because you no longer had to walk half a mile to get to the Lexington subway that was very overcrowded. You could have the nice uncrowded, Second Avenue subway.

And yet, this rent increased not by the expenditure of any cost. It was rent without value. It was the price of housing without cost value. So rent is the unnecessary element of price over and above what it actually costs to produce something. And rentier income is the income that is unnecessary.

To actually pay a industrialist for building a factory… industrialists would be happy with making the normal rate of profit. But if you have a special technology monopoly like the drug companies, then you can make super-profits. So rents are super-profits, basically. That’s the difference. Anyway, that’s to your question.

Question | Roxanne D

[00:37:58] Luke Parcher: Right on. We have, a question here from Roxanne Devereaux. She says, if you’ve answered this, maybe just elaborate on your answer, but in a perfect world where government actually served the people, what would a debt jubilee look like and how could it reverberate through society?

Most examples I’m familiar with happened before the industrial revolution.

[00:38:14] Michael Hudson: Well, the best example is the German financial miracle of 1947, 1948, the allied monetary reform. All internal debts were canceled except for people’s bank accounts up to a given amount and except for the money that employers owed their employees.

And the reason is that most of the wealth, most of the bank deposits, most of the creditors’ claims, were by the Nazis. And the American occupation said, well, we don’t want the Nazis to get rich. So the good thing about canceling debts is you cancel the savings of bad guys. In 1947 it was the Nazis; today it’s the 1%.

If you cancel the debts that I’ve said should be canceled – the sort of bad debts that are not necessarily production – then you cancel all of this vast accumulation of savings by the 1%. For instance, if you cancel student debts, that would free income for spending on democracy.

If you cancel all the debts that US banks owe to the offshore banking centers in the Caribbean, Panama, Liberia. All of this is flight capital. This is criminal capital. Cancel out all the debt of criminal capital and fraud. When Greece was running into its financial crisis seven years ago, Greece owed 50 billion euros of debt that it was trying to write down.

And the IMF produced a list called the Lagarde List that had deposits of Greek crooks and tax evaders in Switzerland were $50 billion. That 50 billion could have been wiped out. One of the first debt cancellations that went wrong was in Sparta in the third century, BC, under Agis and Cleomenes. When they canceled the debts, the people who wanted to cancel the debts were people who’d bought land on credit and they wanted their debt.

They wanted to own the land free and clear and cancel the mortgages. So some debts you don’t want to write down. If you were to write down mortgage debts, Donald Trump and real estate speculators would be the richest people in the country. So you don’t want to write down their debts.

Their debts will remain on the books. But if they were written down, well, first of all then, their debts are the banking systems assets. So Citibank would be even more insolvent than it is already and the banks would go under. They would be taken over by the public sector because if you have the mortgage debt wiped out, there’s still economic rent. Because people are willing to pay more money for a well-situated property that would, uh, in place of the banks getting the rental value as mortgage debt, the government would get the same rental value in the form of a land tax. That was what classical economics was all about. That was Adam Smith. That was John Stuart Mill. That was the whole reform movement of the late 19th century. So you want to cancel the bad debts, but you don’t want to make debtors who are just speculators rich in the process.

You want to make sure that you only cancel the bad debts and you don’t create a new rentier class. The idea is to look at the economy as a system and see what should the government receive as economic rent. And it can decide what is it going to receive for healthcare. The government… if the government took over the healthcare industry, it probably would not charge the prices that healthcare charges today. It would charge less. Same thing for housing. If housing were run like England ran its council housing before Margaret Thatcher, it would be very low. In Germany, Germany pays only 10% of its average family income for rent, not 30 or 40% as in the case of the United States.

That’s what used to make Germany, until last month, so competitive an economy. So, you’d restructure the economy so that it would only have debts that were socially necessary to keep the economy operating. Debts will begin to grow all over again.

Debts will always begin to grow over and over again. If you don’t ban interest, you permit debts to grow, but when they get so problematic that they threaten economic growth, then you have to write them down to a level where they will no longer prevent economic growth from occurring as they’re doing today.

Question | Doug G

[00:42:45] Luke Parcher: So we have one from Doug Greer here. He says many people seem to confuse the lessons of MMT with the super imperialism of the US dollar being the reserve currency of the world. Is the ability to create dollars to finance domestic needs of the US, like healthcare and infrastructure, dependent on the US dollar being the reserve currency?

Can you clarify?

[00:43:05] Michael Hudson: They’re completely separate. Any country can use its credit creation, either by the central bank or by commercial banks, to create credit. It doesn’t have to be linked to the balance of payments, except that if a country’s running a balance of payments deficit its currency will fall, unless it can balance the payments somehow.

So they are different questions.

Question | Fabiano D

[00:43:30] Luke Parcher: We have one from Fabiano D. Being that politicians, therefore government, are in the pockets of the rentier class, how do you think we could get rid of such rentier influence in order to implement socially oriented policies?

[00:43:43] Michael Hudson: That has never happened without a revolution. That’s the problem. How do you get rid of them? Well, I don’t see any way for the United States to get rid of them. It took a revolution in China. It took a revolution in Russia. That’s the problem right there.

You did have the beginning of a peaceful revolution in England in the 19th century and, leading to a constitutional crisis in 1909 and 1910, when the House of Commons actually passed the land tax and the House of Lords, being the landed aristocracy, canceled it. That caused a crisis.

And the upshot was the House of Lords was never, again, going to be able to negate a revenue act passed by the House of Commons. So that was actually a peaceful resolution of a constitutional crisis. Then World War I came and changed everything. But today I don’t see that kind of a peaceful resolution occurring in the United States.

They’re not going to repeal the Citizens United act, and, from what it looks like to me, the economy is going to get more and more highly squeezed and more polarized between the 1% and the 99%. I would say it’s a class war except finance isn’t really a class because everybody is a creditor as well as a debtor in some sense or another. So it’s really a financial dynamic against the rest of the economy. One of the points that Marx made in Volume 3 of Capital was that finance grows by purely mathematical laws of its own, having no relation to the growth of the economy. It’s an autonomous economic system.

And I think that autonomous economic system is independent of the government here and yet, unless you have a study of economics as an economic system – understanding what’s causing the polarization and the poverty in the United States – you’re not going to be able to have a reform movement to change the system.

The role of economics departments is to dumb down the understanding of the economy. You’re not going to have any kind of a peaceful reform movement here.

Question | Cristina

[00:45:47] Luke Parcher: We have a question here from Cristina who asks, what are the steps we can take to fix the housing crisis? Kind of a broad question, but if you have any policy prescriptions there, that would be great.

[00:45:57] Michael Hudson: There’s very little that individuals can do. The 19th century dealt with this question increasingly. And their solution was if you have a calculation of the land rent, as opposed to what it costs to build a building – we all know that if you build a building the contractor and the builder or developer have to make a profit, but if the government will tax the land rent, then it will not be available to the banks to charge as interest.

So, if you tax the land rent, then the land rent is not going to be capitalized into a bank loan, and housing prices will be kept down to the actual cost of construction plus normal profits. And as housing becomes more desirable, or as the economy becomes more profitable, or as cities build more Second Avenue subways and the rental value goes up, the taxes will go up. That will prevent this increased rent from taking a financial form and will simply be the source of a government revenue. It requires a tax system to tax away the economic rent, so that housing does not reflect the speculation and the economic rent that is caused by the privatization that’s been occurring. Especially since 2008.

Question | Tim

[00:47:11] Luke Parcher: So this one is from Tim. Tim says one argument against de-dollarization is the liquidity and stability of the US dollar. For example, oil is based in dollars and many OPEC countries have their currencies pegged to the dollar, such that they benefit from a strong dollar. At this age, the transition into trade in local currency pairs against these advantages of dollar as reserve currency.

[00:47:32] Michael Hudson: Well, that’s exactly what this last weekend’s Shanghai cooperation meetings were all about. Any country that holds its central bank reserves in dollars has a stake and in wanting to lose the money. China has the largest dollar holdings of any government and its currency has gone down and down and down.

China’s willing to take a loss on this by moving out of the dollars. The solution is, as both President Xi and President Putin pointed out, we’re going to move out of the dollar so we don’t have a stake in the dollar. It can go up or down. It is not going to bother us. They’re not buying or selling to us anymore.

Anyway, they’re sanctioning us. So let’s go with what president Biden wants. He says, you go your way, we’ll go our way. Fine. Let’s go our own ways and use each other’s currency, and that way, it won’t matter. So, it won’t matter to them. If moving out of the dollar means that there’s less demand for the dollars and it goes down, what they’re gaining is freedom.

So, this is the price of their economic liberty from dollar diplomacy.

[00:48:34] Luke Parcher: We have another question here from Virginia Cotts.

Question | Virginia Cotts

[00:48:36] Virginia Cotts: Michael, I feel like we have… some people have a lot of nostalgia for the post World War II social democracies of Europe. I can’t remember if it was in your book or in an interview you described Thatcher’s process of privatizing in England. Could you talk about that? Because I didn’t know a lot of that.

[00:49:00] Michael Hudson: Well, Margaret Thatcher said that her greatest contribution was Tony Blair. And Tony Blair was an opportunist who got enough support from the United States to move the British Labour party to the right of the Conservative Party and do what Margaret Thatcher never could have done. By even privatizing the railroads, by being more viciously anti-labor, the social democratic parties in every country have been so pushed by what the CIA called “the mighty Wurlitzer of public opinion” – meaning bribes to the politicians – that they’ve financed the campaigns of neoliberals to pretend to be pro-labor, to pretend to be socialist, while actually they’re the far right wing of the political spectrum. I won’t call them fascist. But let’s just say there’s nothing the fascists would not like in the social democratic parties. So, here you have the most right wing parties in Europe are the social democratic parties. Way to the right.

I guess the most right wing neofascist party is, of course, the Greens in Germany that are the pro-war party. And anti-labor. But basically, there is no longer a real labor party representing the interests of labor. They’ve all been co-opted by demagogues. The social democratic parties in a way have been like the peace parties.

The first thing that every peace party does when there’s a war is they’re at the head of the pro-war patriotism parade. That was what Trotsky noted about World War One. The peace parties jumped on the bandwagon in Germany, Austria, England, America. Social democratic parties have done the same thing when there’s a neoliberal right wing corporatist financialization. They’ve all been persuaded to do it.

The equivalent was like what the Clintons did to the United States since the 1990s. In the United States, the Democratic Party is the far right wing party now. And I guess when I answered the question about what can Americans do to help the housing crisis… You cannot solve the housing crisis until you end the Democratic Party. You cannot solve the labor problem without ending the Democratic Party. Because that is the party of Wall Street. That is the party of the 1%. Its function is to make sure that there cannot be any left wing opposition to block the Republican Party’s program.

What Bill Clinton did, the Republicans never could have done. Backing Alan Greenspan and the right wingers in getting rid of the acts preventing banks from owning insurance companies and brokerage houses. Getting rid of the Glass Steagall Act. And no Republican could have done anything as viciously anti-black and anti-Hispanic as President Obama, whose policies are basically identical with those of the Ku Klux Klan.

Obama’s role was essentially to reverse the attempt by blacks and hispanics to become homeowners. His objective was to replace black home ownership and hispanic home ownership with ownership by private capital companies. His role in 2009 was to bail out the banks – the fraudulent banks that had written the junk mortgages – and to keep the junk mortgages on the hook to evict almost 10 million American families. And not fine the banks, not throw a single crooked banker in jail. This ended the hopes of the low income Americans – and especially the minorities – to have housing.

If you say, what can we do about housing? Well, if you’re black or Hispanic, you must avoid the Democratic Party like the plague. And you must come to terms with the fact that it was Obama that was the most anti-black president of the 20th century, except of course for Woodrow Wilson. The damage that he’s done has not been widely recognized here.

And, he has put in place a Democratic Party leadership that is so anti-labor, so white racist. and so pro-Wall Street that I don’t think it is reformable.

Question | Luke Parcher

[00:53:18] Luke Parcher: And just to build on what you were just talking about there, Michael, I’m kind of stunned by the extent to which people buy into the partisan false dichotomy in this country and seem to think there are all these massive differences between the parties.

And that obviously is an issue-by-issue thing, but I’m curious where you think that buy-in comes from and how we might be able to cut into it. The fear mongering about Trump is I think overstating the differences between Trump and Biden on these issues. Can you talk a little bit about that?

[00:53:43] Michael Hudson: Yes. The Republican Party’s role is to say to Wall Street, “Yes, please.” And the Democratic Party’s policy is to say “Yes, thank you.” But that’s basically it. You’ll notice, like in Ohio, the Democratic National Committee is backing a right-winger who is going to play the role of West Virginia Senator Manchin or Arizona’s Sinema. The Democrats want to make sure that it has enough Republicans running as Democrats, that if there’s ever a danger of promoting a bill that is good for the working class or the racial minorities or ethnic minorities, that you’ll have the Republicans running as Democrat to cancel it, to play the role.

There’ll always be many senators right behind Manchin and Sinema in the wings to prevent the Democrats from doing anything that does not serve the short-term immediate interests of their Wall Street bankers… Backers.

Question | Bruce W

[00:54:39] Luke Parcher: Rotating villain is a very real concept for sure. We have a question here from Bruce Wall who asks, which of the public banking and monetary reform movements do you support, if any? I have in mind Public Banking Institute, American Monetary Institute, the Alliance of Just Money, Christine Desan’s Just Money. What about figures like Robert Hockett?

[00:54:58] Michael Hudson: Well, I’m on the board of directors of the Public Banking Institute. Steve Zarlenga was a good friend of mine.

I was at all of his early conferences. So they both have very good ideas. And… I’m blocking out the name. Who’s the head of the public banking?

[00:55:15] Virginia Cotts: That’s not Ellen Brown, is it?

[00:55:17] Michael Hudson: Yeah. Ellen Brown. Ellen would be all in favor of many of the things I’ve talked about, but she doesn’t think that a debt cancellation is politically feasible right now. And of course, she’s right. So she’s said that, well, public banks can provide the model for what could be. The result of what happens if Obama would have let Citibank go bankrupt.

The Republican head of the FDIC [Federal Deposit Insurance Corporation] urged that Citibank, being run by crooks… but, Obama put an even bigger crook in charge. Geithner, who was working for his banker Robert Rubin, basically did not let Citibank go bankrupt because that would’ve wiped out the stockholders.

And as Sheila Bair, the head of FDIC, said, well, it was all about the bond holders. And Sheila said, if Citigroup would’ve gone under, then that meant the government would’ve had the biggest bank in the country, and it could actually run a commercial bank along making good loans instead of making loans to corporate raiders. Instead of making crooked mortgage loans and fake loans, it could actually make loans to help the economy grow. Well, she’s quite right. That would’ve been a good idea.

So she’s concentrated.on public banks for what they can do. And she said, at least by having a public bank, you’ll keep the deposits of the public sector – the government, the state agencies, and hopefully the local city agencies – in the public domain, out of the hands of, the commercial bankers and Wall Street, so that you can use the money for a good purpose.

So, I’m all in favor of what she’s doing. Steve Zarlenga at American monetary Institute was for the hundred percent reserve plan that was proposed in the 1930s. And that is, commercial banks would actually be reduced to the status of savings banks.

A hundred percent reserves. Could not create credit. They could only make loans from deposits. Of course, if they had a productive loan made, the government, the Treasury, would act as the depositor – simply increase the deposits in the bank to enable them to make productive loans.

And that also, in principle, is a very good idea. That’s why I supported that. And of course that was the program that was introduced by Dennis Kusinich in his presidential run. I was Kusinich’s economic advisor. So those are the two groups that I’m most familiar with and the most in favor of.

Question | Rasha 

[00:57:41] Luke Parcher: We have a question here from Rasha. What role does defining money play in shaping the economy? How do you define money? Is it a record of value transferred between economic actors or is it a commodity? If you agree that money is a record of value transferred between two or more economic actors, isn’t it possible to create money on demand by any two or more economic actors in a decentralized manner, as opposed to central private banks providing there is a scientific formula by which value of goods and services is assigned.

[00:58:10] Michael Hudson: Oh, my God. I can’t even begin to answer that. The jargon is so misleading. Money has nothing to do with value. Money is debt. That’s the opposite of value. It’s a transfer of debt among people, it’s not a transfer of value. You’re using a very right wing, quite frankly, a fascist economic terminology, maybe without meaning to. But it’s not value, it’s debt created out of thin air. It’s credit.

When you go into a bank and you take out a loan the bank doesn’t say let me see how much money I have on deposit to lend you. They will just write you a loan. They’ll create a bank deposit and in exchange you’ll give them an IOU. It’s debt, loans, that create deposits, not the other way around. Anyone who talks about money and value, you want to stop talking to them immediately. Because you know that it’s just going to be patter talk for propaganda.

Question | Tom

[00:59:03] Luke Parcher: So we have one here from Tom. Tom asks: all prices of all things for sale are not rising. Therefore, the term inflation is not what we are experiencing. For example, the market is working. Money is moving from those without oil to those with oil.

Why does no trained economist understand and label this a normal market redistribution period or some term listed in textbooks for reference? And why is the concept called inflation, which scares unknowing economists and today’s consumers who needlessly suffer from money famine, so poorly taught and so poorly understood?

[00:59:33] Michael Hudson: The question is so bizarre, I cannot answer it. It’s just how do you, how do you answer a swamp and straighten out what they’re saying to give them an answer? It’s a swamp. I can’t answer that.

[00:59:42] Luke Parcher: I suppose in general, what would you prescribe the price increases that we’ve seen today to?

[00:59:47] Michael Hudson: Very largely monopoly positions. The reason oil prices are going up is not because there’s an oil shortage. It’s because the oil companies find an excuse to use the newspaper reports that there will be an oil shortage at some point to raise the prices right now. Adam Tooze wrote a good article a few days ago, comparing the inflation in Europe to the inflation in the United States. In Europe, the price inflation is almost exclusively for energy and for oil and gas derivatives. In the United States, the inflation is much broader – it’s over the whole course.

Again, you want to look at the economy as a system. You don’t want to reduce everything to one-dimensional “here’s the price level”. You want to look at the multi-layered economy. What are the cost prices? What are the economic rents? What are the monopoly prices? What’s the tax system? You have to look at the economy as a system, not in a one-dimensional way. So, I can’t untangle all of the jumble any clearer than that.

Question | Paul B

[01:00:55] Luke Parcher: We have one here from Paul Birtwell again. Could Dr. Hudson touch on and acknowledge the validity of MMT? What do you think is the importance of MMT and how does it apply to this discussion?

[01:01:04] Michael Hudson: Well, I was on the faculty of the UMKC, which is MMT center for many years. I’m all in favor of MMT. The point of MMT is that just as banks create endogenous credit on their own computers, the government can create credit. The government doesn’t have to borrow money from the 1% or from bond holders in order to spend it; the government can simply print it as it did under the greenbacks.

The government can create its own credit. And there’s nothing wrong with running a budget deficit because a budget deficit does not have to be paid by taxpayers paying taxes. A government deficit can be funded by simply creating the money on your own computer – not by taxes. That’s the point that Stephanie Kelton has been making again and again in what she writes.

And that really is the essence of MMT. But of course the leading exponent of MMT was Donald.Trump, when he said deficits don’t matter, we can just create whatever we want. And I think, Vice President Cheney also said we can spend whatever we want. It doesn’t matter. George Bush said, you know, it’s all really fictitious anyway; we can do it.

The difference between Donald Trump and the Republicans and the MMTers is, we want the government to run deficits to actually spend into the economy. We do not want deficits to be run for $9 trillion to subsidize quantitative easing for the 1% to promote real estate prices and stock and bond prices.

We want them to actually employ workers and to promote full employment. So the difference is that the MMTers are basically in favor of tangible economic growth, not creating money bad MMT of Cheney and Donald Trump style.

Question | Luke Parcher

[01:02:51] Luke Parcher: Can you talk a little bit about how the IMF [International Monetary Fund] and financialization have contributed to what’s going on right now in Ukraine? I know that’s a little bit broad, but if you could tie in what we’ve been talking about here to the situation in Ukraine.

[01:03:02] Michael Hudson: The IMF’s job is to make sure that the economy is impoverished and that all the money that it gives is to support the currency – to enable the kleptocrats, Kolomoyskyi and others, to take the Ukrainian currency they have and transfer it into dollars and pound sterling at a high exchange rate.

So they will lend Ukraine the dollars – essentially to support the hryvnia, however you pronounce its currency – and enable the kleptocrats to make money and then pull the rug out from under them if any alternatives to the Nazis take power. They make sure that, once the kleptocrats have emptied out the economy, they can let the economy collapse.

They’re of course backing the new labor law president Zelensky has pushed, abolishing labor unions, abolishing the rights of labor to negotiate, and making basically the most fascist labor law in any country’s history. So the role of the IMF is to support client oligarchy, to get their money out of a country before there is a possibility of a leftwing government coming in, and then to deny all credit and organize a currency raid on the leftwing government, to say, “You see, socialism doesn’t work”.

The IMF is one of the institutions that is the arm of American hegemony, preventing economic growth occurring outside of the United States. Essentially the IMF is a… it’s a small office in the basement of the Pentagon, run by the neocons, to make sure that other countries cannot have any policy that would not let American firms come in and buy their raw materials and their natural resources and their monopolies.

So, think of the IMF as a tool of the military, but much more right wing than any general would dare to be.

[01:04:55] Luke Parcher: Thank you so much, Michael. We really appreciate you taking the time today.

I also, once again, want to remind people to please go to to learn more about us, or find our podcasts and articles, including again, Michael, as a guest on Macro N Cheese. With that, we will go ahead and call it a discussion here. Virginia, did you have anything you wanted to add?

[01:05:12] Virginia Cotts: Yes. I wanted to ask Michael where people can find his work.

[01:05:17] Michael Hudson: Well, Amazon, I guess, is the easiest place to go. It’s all available there.

On my website, And you can go to that and join me on Patreon. I do have a Patreon group, and if you’re a contributor at a given level, then you get to talk to me directly every few months.

[01:05:36] Virginia Cotts: Well, we can all use support. Real Progressives also has a Patreon. So, support us all, please.

I just want to say, Michael, you wrote an article with the greatest title I’ve ever seen, which was something like the US Defeats Germany for the Third Time in a Century. I just thought that was such a perfect title. I think you wrote it right when the Ukraine war was beginning.

[01:06:02] Michael Hudson: Right. It was apparent what was going to happen at the very beginning. And I’m amazed that nobody else was writing about that. I’m not very good on military analysis. I can follow what Andrei Raevsky at the Saker says, and Moon of Alabama, and Andrei Martyanov. The one thing I can tell about military operations is the balance of payments aspects and how it all is spelled out.

[01:06:24] Virginia Cotts: Well… and you talked about how the three main sectors benefited.

[01:06:30] Michael Hudson: Yes. Oil is the key to American diplomacy. And I guess if we’re talking about American hegemony, it comes from America’s control of the oil trade. That was one of the reasons that America wanted to isolate first Venezuela, and then Russia, because if the only source of oil are companies controlled by the American oil majors, then…

Every economy needs energy to grow. And in every economy since the beginning of the industrial revolution, there’s a connection between the growth of GDP and energy use per capita. So I talk about the monopoly rent and the victim economy. If you can control oil then you can control, basically, the world economy.

That has been a key to the American policy. The Americans realized that if Europe cannot buy Russian oil anymore, or Venezuelan oil, then it’ll have to spend 10 times as much buying American liquified natural gas. This means the sanctions against Russia have ended German industrial supremacy. It has ended the German steel industry. It has ended German heavy industry.

They’re now going to be dependent thoroughly on the United States. And the euro is going to become a weakening satellite currency of the US dollar as a result of killing off the German economic and industrial leadership of the European economy, along with that of Italy and France.

[01:07:53] Virginia Cotts: Oh, thank you. I hope we didn’t abuse your generosity with your time.

[01:07:59] Michael Hudson: No. I assume if I said anything controversial, you’ll just take it out.

[01:08:03] Virginia Cotts: Oh, no, we like it. We will actually clip it and plaster it all over the internet.

[01:08:12] Luke Parcher: Oh… [laughs]

[01:08:13] Virginia Cotts: Michael Hudson isn’t controversial, is he?

[01:08:18] Luke Parcher: Well, you certainly don’t mince words, and we very much appreciate that about you. Michael, thanks again for giving us so much time today. And I want to give a brief shout out to Jonathan Kadmon, Andy Kennedy, and Virginia Cotts, who’ve been helping behind the scenes today to make this happen.

Thanks to all involved. Great.

[01:08:31] Michael Hudson: Thanks for having me. I liked the discussion.

Berlin Goes to Beijing: The Real Deal

NOVEMBER 4, 2022


The Scholz caravan went to Beijing to lay down the preparatory steps for working out a peace deal with Russia, with China as privileged messenger.

With his inimitable flair for economic analysis steeped in historical depth, Professor Michael Hudson’s latest essay, originally written for a German audience, presents a stunning parallel between the Crusades and the current “rules-based international order” imposed by the Hegemon.

Professor Hudson details how the Papacy in Rome managed to lock up unipolar control over secular realms (rings a bell?) when the game was all about Papal precedence over kings, above all the German Holy Roman Emperors. As we know, half in jest, the Empire was not exactly Holy, nor German (perhaps a little Roman), and not even an Empire.

A clause in the Papal Dictates provided the Pope with the authority to excommunicate whomever was “not at peace with the Roman Church.” Hudson sharply notes how US sanctions are the modern equivalent of excommunication.

Arguably there are Top Two dates in the whole process.

The first one would be the Third Ecumenical Council of 435: this is when only Rome (italics mine) was attributed universal authority (italics mine). Alexandria and Antioch, for instance, were limited to regional authority within the Roman Empire.

The other top date is 1054 – when Rome and Constantinople split for good. That is, the Roman Catholic Church split from Orthodoxy, which leads us to Russia, and Moscow as The Third Rome – and the centuries-old animosity of “the West” against Russia.

A State of Martial Law

Professor Hudson then delves on the trip by “Liver Sausage” Chancellor Scholz’s delegation to China this week to “demand that it dismantle its public sector and stops subsidizing its economy, or else Germany and Europe will impose sanctions on trade with China.”

Well, in fact this happens to be just childish wishful thinking, expressed by the German Council on Foreign Relations in a piece published on the Financial Times (the Japanese-owned platform in the City of London). The Council, as correctly described by Hudson, is “the neoliberal ‘libertarian’ arm of NATO demanding German de-industrialization and dependency” on the US.

So the FT, predictably, is printing NATO wet dreams.

Context is essential. German Federal President Frank-Walter Steinmeier, in a keynote speech at Bellevue Castle, has all but admitted that Berlin is broke: “An era of headwinds is beginning for Germany – difficult, difficult years are coming for us. Germany is in the deepest crisis since reunification.”

Yet schizophrenia, once again, reigns supreme, as Steinmeier, after a ridiculous stunt in Kiev – complete with posing as a unwitting actor huddled in a bunker – announced an extra handout: two more MARS multiple rocket launchers and four Panzerhaubitze 2000 howitzers to be delivered to the Ukrainians.

So even if the “world” economy – actually the EU – is so fragilized that member-states cannot help Kiev anymore without harming their own populations, and the EU is on the verge of a catastrophic energy crisis, fighting for “our values” in Country 404 trumps it all.

The Big Picture context is also key. Andrea Zhok, Professor of Ethical Philosophy at the University of Milan, has taken Giorgio Agamben’s “State of Exception” concept to new heights.

Zhok proposes that the zombified collective West is now completely subjugated to a “State of Martial Law” – where a Forever War ethos is the ultimate priority for rarified global elites.

Every other variable – from trans-humanism to depopulation and even cancel culture – is subordinated to the State of Martial Law, and is basically inessential. The only thing that matters is exercising absolute, raw control.

Berlin – Moscow – Beijing

Solid German business sources completely contradict the “message” delivered by the German Council on Foreign Relations on the trip to China.

According to these sources, the Scholz caravan went to Beijing to essentially lay down the preparatory steps for working out a peace deal with Russia, with China as privileged messenger.

This is – literally – as explosive, geopolitically and geoeconomically, as it gets. As I pointed out in one of my previous columns, Berlin and Moscow were keeping a secret communication back channel – via business interlocutors – right to the minute the usual suspects, in desperation, decided to blow up the Nord Streams.

Cue to the now notorious SMS from Liz Truss’s iPhone to Little Tony Blinken, one minute after the explosions: “It’s done.”

There’s more: the Scholz caravan may be trying to start a long and convoluted process of eventually replacing the US with China as a key ally. One should never forget that the top BRI trade/connectivity terminal in the EU is Germany (the Ruhr valley).

According to one of the sources, “if this effort is successful, then Germany, China and Russia can ally themselves together and drive the US out of Europe.”

Another source provided the cherry on the cake: “Olaf Scholz is being accompanied on this trip by German industrialists who actually control Germany and are not going to sit back watching themselves being destroyed.”

Moscow knows very well what the imperial aim is when it comes to the EU reduced to the role of totally dominated – and deindustrialized – vassal, exercising zero sovereignty. The back channels after all are not lying in tatters on the bottom of the Baltic Sea. Additionally, China has not provided any hint that its massive trade with Germany and the EU is about to vanish.

Scholz himself, one day before his caravan hit Beijing, stressed to Chinese media that Germany has no intention of decoupling from China, and there’s nothing to justify “the calls by some to isolate China.”

In parallel, Xi Jinping and the new Politburo are very much aware of the Kremlin position, reiterated again and again: we always remain open for negotiations, as long as Washington finally decides to talk about the end of unlimited NATO expansion drenched in Russophobia.

So to negotiate means the Empire signing on the dotted line of the document it has received from Moscow on December 1st, 2021, focused on “indivisibility of security”. Otherwise there’s nothing to negotiate.

And when we have Pentagon lobbyist Lloyd “Raytheon” Austin advising the Ukrainians on the record to advance on Kherson, it’s even more crystal clear there’s nothing to negotiate.

So could this all be the foundation stone of the Berlin-Moscow-Beijing trans-Eurasia geopolitical/geoeconomic corridor? That will mean Bye Bye Empire. Once again: it ain’t over till the fat lady goes Gotterdammerung.

(Republished from Strategic Culture Foundation by permission of author or representative)

← No Pain, No Grain: Putin’s Black Sea …

Geopolitical tectonic plates shifting, six months on

August 24, 2022

by Pepe Escobar, posted with the author’s permission and widely cross-posted

Six months after the start of the Special Military Operation (SMO) by Russia in Ukraine, the geopolitical tectonic plates of the 21st century have been dislocated at astonishing speed and depth – with immense historical repercussions already at hand. To paraphrase T.S. Eliot, this is the way the (new) world begins, not with a whimper but a bang.

The vile assassination of Darya Dugina – de facto terrorism at the gates of Moscow – may have fatefully coincided with the six-month intersection point, but that won’t change the dynamics of the current, work-in-progress historical drive.

The FSB may have cracked the case in a little over 24 hours, designating the perpetrator as a neo-Nazi Azov operative instrumentalized by the SBU, itself a mere tool of the CIA/MI6 combo de facto ruling Kiev.

The Azov operative is just a patsy. The FSB will never reveal in public the intel it has amassed on those that issued the orders – and how they will be dealt with.

One Ilya Ponomaryov, an anti-Kremlin minor character granted Ukrainian citizenship, boasted he was in contact with the outfit that prepared the hit on the Dugin family. No one took him seriously.

What’s manifestly serious is how oligarchy-connected organized crime factions in Russia would have a motive to eliminate Dugin as a Christian Orthodox nationalist philosopher who, according to them, may have influenced the Kremlin’s pivot to Asia (he didn’t).

But most of all, these organized crime factions blamed Dugin for a concerted Kremlin offensive against the disproportional power of Jewish oligarchs in Russia. So these actors would have the motive and the local base/intel to mount such a coup.

If that’s the case that spells out a Mossad operation – in many aspects a more solid proposition than CIA/MI6. What’s certain is that the FSB will keep their cards very close to their chest – and retribution will be swift, precise and invisible.

The straw that broke the camel’s back

Instead of delivering a serious blow to Russia in relation to the dynamics of the SMO, the assassination of Darya Dugina only exposed the perpetrators as tawdry operatives of a Moronic Murder Inc.

An IED cannot kill a philosopher – or his daughter. In an essential essay Dugin himself explained how the real war – Russia against the collective West led by the United States – is a war of ideas. And an existential war.

Dugin – correctly – defines the US as a “thalassocracy”, heir to “Britannia rules the waves”; yet now the geopolitical tectonic plates are spelling out a new order: The Return of the Heartland.

Putin himself first spelled it out at the Munich Security Conference in 2007. Xi Jinping started to make it happen when he launched the New Silk Roads in 2013. The Empire struck back with Maidan in 2014. Russia counter-attacked coming to the aid of Syria in 2015.

The Empire doubled down on Ukraine, with NATO weaponizing it non-stop for eight years. At the end of 2021, Moscow invited Washington for a serious dialogue on “indivisibility of security” in Europe. That was dismissed with a non-response response.

Moscow took no time to confirm a trifecta was in the works: an imminent Kiev blitzkrieg against Donbass; Ukraine flirting with acquiring nuclear weapons; and the work of US bioweapon labs. That was the straw that broke the New Silk Road camel’s back.

A consistent analysis of Putin’s public interventions these past few months reveals that the Kremlin – as well as Security Council Yoda Nikolai Patrushev – fully realize how the politico/media goons and shock troops of the collective West are dictated by the rulers of what Michael Hudson defines as the FIRE system (financialization, insurance, real estate), a de facto banking Mafia.

As a direct consequence, they also realize how collective West public opinion is absolutely clueless, Plato cave-style, of their total captivity by the FIRE rulers, who cannot possibly tolerate any alternative narrative.

So Putin, Patrushev, Medvedev will never presume that a senile teleprompter reader in the White House or a cokehead comedian in Kiev “rule” anything. The sinister Great Reset impersonator of a Bond villain, Klaus “Davos” Schwab, and his psychotic historian sidekick Yuval Harari at least spell out their “program”: global depopulation, with those that remain drugged to oblivion.

As the US rules global pop culture, it’s fitting to borrow from what Walter White/Heisenberg, an average American channeling his inner Scarface, states in Breaking Bad: “I’m in the Empire business”. And the Empire business is to exercise raw power – then maintained with ruthlessness by all means necessary.

Russia broke the spell. But Moscow’s strategy is way more sophisticated than leveling Kiev with hypersonic business cards, something that could have been done at any moment starting six months ago, in a flash.

What Moscow is doing is talking to virtually the whole Global South, bilaterally or to groups of actors, explaining how the world-system is changing right before our eyes, with the key actors of the future configured as BRI, SCO, EAEU, BRICS+, the Greater Eurasia Partnership.

And what we see is vast swathes of the Global South – or 85% of the world’s population – slowly but surely becoming ready to engage in expelling the FIRE Mafia from their national horizons, and ultimately taking them down: a long, tortuous battle that will imply multiple setbacks.

The facts on the ground

On the ground in soon-to-be rump Ukraine, Khinzal hypersonic business cards – launched from Tu-22M3 bombers or Mig-31 interceptors – will continue to be distributed.

Piles of HIMARS will continue to be captured. TOS 1A Heavy Flamethrowers will keep sending invitations to the Gates of Hell. Crimean Air Defense will continue to intercept all sorts of small drones with IEDs attached: terrorism by local SBU cells, which will be eventually smashed.

Using essentially a phenomenal artillery barrage – cheap and mass-produced – Russia will annex the full, very valuable Donbass, in terms of land, natural resources and industrial power. And then on to Nikolaev, Odessa, and Kharkov.

Geoeconomically, Russia can afford to sell its oil with fat discounts to any Global South customer, not to mention strategic partners China and India. Cost of extraction reaches a maximum of $15 per barrel, with a national budget based on $40-45 for a barrel of Urals.

A new Russian benchmark is imminent, as well as oil in rubles following the wildly successful gas for rubles.

The assassination of Darya Dugina provoked endless speculation on the Kremlin and the Ministry of Defense finally breaking their discipline. That’s not going to happen. The advances along the enormous 1,800-mile front are relentless, highly systematic and inserted in a Greater Strategic Picture.

A key vector is whether Russia stands a chance of winning the information war with the collective West. That will never happen inside NATOstan – even as success after success is ramping up across the Global South.

As Glenn Diesen has masterfully demonstrated, in detail, in his latest book, Russophobia , the collective West is viscerally, almost genetically impervious to admitting any social, cultural, historical merits by Russia.

And that will extrapolate to the irrationality stratosphere, as the grinding down and de facto demilitarization of the imperial proxy army in Ukraine is driving the Empire’s handlers and its vassals literally nuts.

The Global South though should never lose sight of the “Empire business”. The Empire of Lies excels in producing chaos and plunder, always supported by extortion, bribery of comprador elites, assassinations, and all that supervised by the humongous FIRE financial might. Every trick in the Divide and Rule book – and especially outside of the book – should be expected, at any moment. Never underestimate a bitter, wounded, deeply humiliated Declining Empire.

So fasten your seat belts: that will be the tense dynamic all the way to the 2030s. But before that, all along the watchtower, get ready for the arrival of General Winter, as his riders are fast approaching, the wind will begin to howl, and Europe will be freezing in the dead of a dark night as the FIRE Mafia puff their cigars.

Finance Capitalism’s Self-Destructive Nature

July 20, 2022

Posted with Michael Hudson’s permission

Transcript of Interview on The Left Lens with Danny Haiphong May 25th, 2022

DANNY HAIPHONG: Good afternoon, everyone. Happy Wednesday, May 25th, welcome to the stream, to another left lens. Today we have a very special guest so as you’re coming in make sure you are liking the stream sharing it, make sure that you are subscribing to the channel and hitting that notifications bell, and as always you know please do support this work here at this channel and all the work that I do at But with that said I want to introduce our guests because we have a lot to talk about over the next hour and it is economist Michael Hudson.

He is the author of the new book, The Destiny of Civilization: Finance capitalism, Industrial Capitalism or Socialism and I’ll pull that up from his website very soon but I want to just say about Michael Hudson is that he’s been someone I’ve been following for quite some time. He has been making the rounds on various programs talking about political economy and he’s one of the foremost voices of understanding political economy today. Hi Michael, good to be with you thanks so much for joining us today

MICHAEL HUDSON: Good to meet you, Danny.

DANNY HAIPHONG: Very very good to meet you. So I’m going to pull up your new book in a second just on your website so people know where to go and I’ll make sure to link that in the chat so people know where to get it but I want to talk about first, so I mean we’re in an economic catastrophe in a lot of ways currently and there’s a lot of talk about, inflation and money, prices are skyrocketing, and one thing I really appreciate about your work is that you really do focus on political economy and you have been talking a lot about finance capital and something called super imperialism which you’ve written a book about and that has been updated several times even just last year so I wanted to get your take on the role of finance capital uh under this imperialist arrangement and in this time of the neo-liberal era in the united states and across much of the West in the world.

What is finance capital’s role? It seems so dominant now, it seems like the dominant class at this moment that really does control the levers of economic development. Could you talk about what role it plays and how it has spurred the crises that we’re going through today and you could talk about inflation but I definitely want to just kick it to you there so our viewers can get an understanding of the economics and an analysis of this.

MICHAEL HUDSON: Well, most people think of all kinds of capitalism as being the same and the assumption is that industrial capitalism of the nineteenth century somehow was always financialized because there were always banks but financial capitalism is you just pointed out is a political system and as a political system it’s very different from the industrial capitalism dynamic. In industrial capitalism, the whole aim or the hope of the industrial capitalists in the late nineteenth century, especially in Germany and central Europe was that banking would no longer be just usury, it wouldn’t be just consumer lending to exploit labor, and it wouldn’t be lending to the government somehow.

The financial system  would recycle the economy savings and money creation and credit into industrial production and would finance the means of production to make that productive instead of predatory and parasitic as it became and that seemed to be the way that industrial capitalism was evolving up until World War I. Everything changed after that all of a sudden you had the financial system take over as a result of the crisis caused in the 1920s by the German reparations debt that couldn’t be paid and the inter-ally debt that was insisted upon to repay the United States for the arms that have supplied Europe for a century into World War I. Well, the result was a huge depression.

The allies said, well, we didn’t expect to actually have to pay the United States. If we have to pay the United States, then we have to charge reparations on Germany and for a decade there was a debate between John Maynard Keynes and Harold Moulton and others saying that these debts can’t be paid. How are you going to handle a situation where the debts can’t be paid?

The finance capitalists then were the basically the ancestors of today’s neoliberals and they said any amount of debt can be paid by any country if it just lowers the living standards and squeezes labor enough and that’s what basically the philosophy of the IMF ever since world war II when third world countries can’t pay the debt, the IMF comes in with an austerity program and say you have to lower wages, you have to break up labor unions, if necessary you have to have a democracy, and you can’t have a democracy unless you’re willing to assassinate and arrest the labor leaders and the advocates of land redistribution because a democracy means basically rule by the financial sector  centered in the united states. And so finance capitalism ever since WWI and especially WWII and especially since 1980 is the nationalistic doctrine of American banks and the American one percent, and the American financial sector that is sort of merged into a symbiotic unit with the finance insurance and real estate.

In other words, finance capitalism instead of trying to promote overall economic growth for the 99 percent, instead of financing the industrialization of an economy with rising productivity and rising living standards, is now cannibalizing the industrial sector, cannibalizing the corporate sector. As you’re seeing in the U.S., finance capitalism is the economic doctrine of deindustrialization that has occurred in America in England and is now occurring in Europe.

Well, the problem is how do you survive if you’re not industrializing, if you’re not producing your own means of subsistence and how are you going to get this from other countries? Well, the answer is you don’t go to war with them like countries used to go to war with each other to grab their money and their land, you use finance as the new means of war so finance capitalism is the tactic of economic warfare by the United States against Europe and the global south to sort of draw all of the economic surplus of these countries in the form of debt service and the debt service is supplied by basically economic rent seeking from land rent, natural resource rent,  and just plain interest charges on economy. So, none of these are really the result of industrial profits that are made by employing labor and uh selling its products at a markup.

Finance capitalism is not based on surplus value like industrial capitalism was. In fact, it destroys industry and in this cannibalizing of industrial capital, it basically dries out the economy and makes it unable to break even or even to function and in the United States today, for instance, if you look at the balance sheets of corporate revenue much of it is spent on stock buybacks. You buy back your own stock or dividend payouts. Only eight percent of corporate earnings are spent on new capital investment research and development: factories, machinery, and means of production to employ labor.

How did General Electric (GE) go broke? Basically, Jack Welch said let’s use our income not to continue to invest in making more electronic goods and services and appliances, let’s use it to buy our own stock that’ll push up our stock and essentially, we’ll just sell off our divisions and we’ll use the money of selling off our washing machine companies and stoves and sell it off and we’ll just pay it to the stockholders. That’ll push it up and by the way his salary was based on how much he could push up the stock of GE and he was paid in the form of stock options. Well, all of this is now the normal corporate behavior in the United States and corporations are no longer led by industrial engineers as they were a few centuries ago in the nineteenth and twentieth century.

They’re led by financial engineers of the chief financial officer and the ideal of these corporations is to make money financially not by industrial investment….. so on the narrow microeconomic level finance capitalism is a way of basically selling out a company and giving the proceeds to the stockholders and the bondholders but as a political system, because it is so destructive of the economy as you’ve seen in the United States and you’ve seen in Britain through de-industrializing it, it becomes belligerent in an attempt to make other countries just as equally paralyzed by making these countries pay tribute to the U.S. and England and the financialized economies by means of financial engineering, by means of debt service, by means of selling their mineral resources, their public utilities, their land, their roads all to foreign investors–basically to who borrows the money that’s just simply created in the U.S.  and to save all of their money in their central bank reserves in the forms of loans to the U.S. treasury holding treasury bonds which is how the international monetary system worked until just a few months ago when everything changed.

So if you’re England and America right now you can look at President Biden’s speeches and he said well, China is our number one enemy because it’s competing unfairly. China is actually subsidizing industrial development by having its own infrastructure. It gives free education instead of privatizing education and making its labor pay for it. It has public health instead of privatizing social medicine like we do in the United States and making employers and workers pay for it.

Well, industrial capitalism in the nineteenth century was all in favor of strong government infrastructure. The ideal of industrial capitalism was to keep the wage costs of production down not by reducing wages but having government provide a basic infrastructure to cover the basic
needs of employees. The governments would provide free education so that employers didn’t have to pay for it. The governments would provide medical care so that employees didn’t have to pay for it and employers wouldn’t have to pay employees enough money to cover the education costs and to cover the medical care costs. The government would build roads and infrastructure and everything to facilitate the overall cost of doing business by industrial capital.

Well finance capitalism is just the reverse. Finance capitalism wants to privatize and take education, medical care, roads, turn the roads into toll roads, and take all of these and privatize them and make them financial  corporations that will essentially pay out their economic rent to the bondholders and the stockholders and this economic rent adds to the cost of education and everything else that workers need to live on so the result is to make it a high cost economy and that’s why Biden has said China and Russia are America’s enemies because the only way that America can succeed given our privatized economy, given the fact that Americans have to pay up to forty three percent of their income for rent, given the fact that eighteen percent of America’s GDP is for medical care, given the heavy student loan debt–only if other countries tie themselves in the same knot, only if other countries impose the same economic overhead on their labor force and on their industry can there be equal competition.

If other countries have a mixed economy and are more efficient because they have an active government providing basic needs, that’s “autocracy” and that’s the opposite of “democracy.” Democracy is where everything is privatized and ultimately the one percent own everything.

Autocracy is any government that’s strong enough to have its own public investment. Any government strong enough to tax or regulate the financial sector is called “autocracy” so the U.S. in the 19th century would be called an autocracy as I guess the Austrian school called it  – civilization is basically an “autocracy.”

There never has been an unmixed economy without government regulation, without a government investment, although Rome began to get to that point at the end of its empire and we all know what happened to it. So basically, finance capitalism is a predatory international economic policy aimed at draining the rest of the world all to pay the leading one percent of wealth holders in the U.S. and their satellite oligarchy in England and a few European countries.

DANNY HAIPHONG: Well, I mean that was an incredible summary with so much in there. I mean what you describe reminds me of what we have called at Black Agenda Report, this Great Race to the Bottom, like that is what finance capital facilitates because it’s you know there’s a lot of talk about outsourcing and production going from the U.S. and the West to other places, the global south, poor countries, oppressed nations, and all of it is underwritten by finance capital because it’s this international monetary system that you describe which is actually plundering the Global South for super profits and also plundering the United States and the West’s economic base for super profits.

So it’s like the super profits come rolling in from all sides and oftentimes the jingoists and the chauvinists will frame things as oh well China is taking our jobs. They rarely say Bangladesh or some other country that is actually being super exploited. So in many ways it’s framed like that to distract us from everything that you described. The fact that this class and this policy are plundering from all sides.

MICHAEL HUDSON: Well, you use the word super profit and, in a way, what is super profit? Super profit is what the classical economists called economic rent. It’s over and above profit. Profits are made by employing labor and basically that’s not how most wealth is created in today’s world. A financialized economy sees wealth is not created by making profits by investing in factories and plant and equipment and employing labor to make a profit, it’s made on getting a third world country, a global south country in debt and saying well if you can’t pay the debt yeah that we’ve given you then you have to sell off your raw materials, your land, all of your natural monopolies and the way to make money in finance capitalism is to buy up the monopolies and the whole idea of industrial capitalism was to get rid of economic rent.

The main aim was to get rid of the landlord class that was the carryover from feudalism, the warrior warlords that had conquered England and France and other countries. Land was to be brought into the public domain. That was the first item in the communist manifesto. You tax the land rent and then nationalize and socialize the land. The idea was to get rid of monopoly rent because monopoly rent is unearned income and to get rid and essentially to get rid of financial rent of interest that is just made as John Stewart Mill said and you ‘make it in the sleep’ if you’re a bond holder or a landlord. You get the rents not from playing any productive service at all but making this money in the sleep and so that has nothing to do with profits.

Unfortunately, the national income accounts don’t label economic rent as a distinct category they call any income that someone makes whether it’s a Goldman Sachs and Citibank or GE or any country and call it earnings and the theory is that everybody earns what they make but that wasn’t the idea of industrial capitalism.

The idea of industrial capitalism is from the physiocrats and Adam Smith and John Stewart Mill and Marx was that earnings were something that was actually made productively with money by employing labor to produce a surplus that would be reinvested but economic rent was unearned and that’s why natural monopolies should all be kept in the public domain instead of being available to be monopolized. So, like in America when Indiana ran into trouble it privatized and sold out the roads to be made into a toll road and now almost everybody avoids the toll roads and drives on the side roads.

When Chicago had problems paying its local debt, they sold the rights to the sidewalk and parking meters causing vast increases in the cost of living and doing business if you live in downtown Chicago where you have to park a car. So the ideal of industrial capitalism was I guess what Schumpeter called creative destruction by lowering the cost of production the way that a country would, an industrial country would win out in the world market, first England then the United States, Germany, Japan, and the way that they went out was by underselling competitors.

But finance capitalism adds as much as it can to the cost of production. It adds as much as it can to the cost of living because instead of treating education and healthcare and transportation as a public right, a natural human right, it’s all privatized by the one percent.

DANNY HAIPHONG:  Yeah, I mean it’s so true. Even in the Communist Manifesto there’s a section where Marx outlines the very idea of what socialism would look like and in it, it’s explicit how socialism will begin with the commanding heights of the economy, as you said these natural monopolies, they were going to be public owned like that’s the only way that you can have anything remotely socialist and now we’ve gotten to the point where finance capital has usurped them, has completely privatized them or is attempting to with whatever is left of the public domain, the public sector so to speak globally. And you bring up this really interesting point about the cost of everything going up, especially the cost of production.

I mean that’s just seen in how a lot of these big corporations have enormous amounts of debt now, corporate debt is at this astronomical level and you think well, look at all these super profits they’re making, look at all these huge profits they’re making. We always hear about all these corporations making these huge profits but we rarely hear about all the debt that these corporations are accumulating because of finance capital and so it’s really incredible.

I love talking about this because it’s these things that we don’t hear about because finance capital really is writing the rules and they have such undue influence over the media and over so many things. So I wanted to ask though about China so let’s just jump there because I want to ask you a question because I recently got into a debate with this, I don’t even know if I want to call a journalist but he’s a commentator, Matt Stoller. He’s very anti-China and this is a talking point especially on the far right but I would say that a lot of people think this, a lot of people think China and Wall Street are merged together, that they work together to undermine workers across the world especially in the capitalist epicenters, of the finance capitalist epicenters so to speak, U.S. and the Western countries.

Could you talk about China and its monetary system? You mentioned it briefly about why the U.S. is so hostile right now, why Biden can’t stop talking about competition and autocracy versus democracy. You talk about the differences in the monetary systems and how China treats finance because I think this is not really well understood and it has global implications. I think it has huge implications because I think there’s a general shift in a direction of how we address this flailing dollar-led economy, the global economy of imperialism and China is really at the center of this so could you speak on this if you would?

MICHAEL HUDSON: Well, what gets Americans so upset is that China’s getting rich by doing
exactly what the United States did in the 19th century. I’ve written a book America’s protectionist takeoff where I described the whole idea of American protectionism was tariff protection for its industry, government subsidized research and development, government subsidy of industry by having infrastructure as a fourth factor of production alongside land labor and capital – and it was supposed to have public banking.

So basically China, like the United States, said we want to raise the living standards of labor not because of an abstract ideal but because highly paid labor is more efficient labor, a highly paid labor is more educated, it’s better fed, it’s healthier and the Americans in the nineteenth century pointed out that America was the highest paid labor in the world but it was also the most productive and high paid labor outsold pauper labor.

Well China began under Mao with, you’d look at pictures back in the fifties, and even early sixties and you’d see masses of beggars and I’d look at the pictures and I said how on earth are they going to solve this problem? Well, they actually did it and China realized that in order to survive in the modern world you had to have uh well-paid, well-housed, well-fed, well-educated labor and they’ve done it.

The difference is that America had kept money creation in the hands of the treasury ever since the greenbacks in America’s Civil War. Basically, the government created money but in 1913, JP Morgan and the financial sector got together and they said we’ve got to get the government out of money and credit. If we can control money and credit, we can control the economy so they convinced President Wilson to have the Federal Reserve. They said we’re not even going to let a treasury official be on the Federal Reserve.

We’re going to move the Federal Reserve banks out of Washington. We’re going to have the key bank in New York where Wall Street is the ideal of a Federal Reserve to make a centrally planned economy and America is a much more centralized planned economy than China but its centralized planning is on Wall Street by the financial sector, by the leading financial corporations instead of the government.

So, where America took economic forward planning out of the hands of the government in 1913, China has kept the financial system in the hands of the government. Let’s look at how these two countries create money in a different way since the Obama depression began in 2008.

The Federal Reserve has created a tidal wave of credit, all into the stock market, in the bond market, all of this recent zero interest policy. This flood, these nine trillion dollars of federal reserve credit has only been to support banks, real estate prices, bond and stock prices, to support property prices. That’s not what they do in China, although the prosperity that China has created has increased uh housing prices and there has been private credit increasing housing prices. China has kept money creation in the hands of the government itself so that when the government creates money it can finance the creation of factories plant and equipment, dams, transportation infrastructure, public housing.

It doesn’t create money to lend to financial speculators and stockholders to increase their holdings, it creates actual tangible means of production. Now of course, if you create tangible means of production and employ labor and have high speed railroads and research laboratories,  you’re going to overtake countries that are busy closing down the factories and cutting back research and development because they want quick payouts.

So the chief public utility to be kept in the public domain, (China realizes and has realized from the beginning) is the banking system and credit creation even so there’s still private credit creation to some extent. They’ve also let some participation by American Wall Street firms such as Goldman Sachs because it’s hoped, it wants to avoid war and it hopes that it can by providing opportunities for financial profit to American companies that will somehow uh convince Wall Street to resist the Biden administration’s race hatred of China and the attempt to move towards a new war against China.

Obviously, the assumption that China made that seemed rational at the time was well the American economy is run by Wall street so if we can have Wall Street say we’re doing just fine with China, everything’s going to be okay. But Wall Street and the Federal Reserve bank and the  treasury have not even been consulted on this year’s war, NATO’s war with Russia in Ukraine at all. It’s Blinken and Biden and the neocons basically are waging a war that has sidelined finance and the result is to create the present crash in stock market prices and the parallel decline in bond prices.

So, finance capitalism is intrinsically self-destructive whereas industrial capitalism is self-expansive. Finance capitalism is self-destructive and that’s exactly what’s happening today and that’s what China wants to avoid by basically following the logic of what used to be called industrial capitalism.

By the 19th century, everybody used the word socialism and it wasn’t only the Marxists that were using the word socialism. There were Christian socialists, libertarian socialists, anarchist socialists and all different kinds of socialists. They recognized that you have to have the government sponsorship of a balanced and fair economic development. You have to prevent people from getting rich not by providing any productive service at all but just by being good rip-off artists and that’s basically what finance capitalism is: opportunity for rip-off artists to get rich uh by taking money away from the 99 percent, into their own hands.

DANNY HAIPHONG: Yeah, and that’s exactly what has happened and we’ve seen the differing results between China and the United States since that crash. China was able to sustain growth despite the worldwide economic crisis. As you said, living standards still rose. I think wages were going up something like seven to ten percent every year after the financial crisis and a lot of that was because of investment in jobs.

I’ve spoken to people in China and they say well in China if you go work for a factory, wages tend to rise and actually workers want to go there and sometimes they don’t want to leave even though China is trying to move more into the high-tech sector and the service sector. A lot of people want to stay in the factory jobs because it’s paying and it has some of these benefits and subsidies that are very alien here now.

I tell people there’s a housing allowance and they’re like what’s that? Like how could you say that? It’s China! China’s horrible! It’s like, well, you know factory workers have a housing allowance. How are you going to reproduce labor? We look at Marx and China’s very big on Marx. Look at what Marx was saying you got to reproduce the worker, you got to make sure that the worker has what they need, like that’s the bare minimum of what any economy should do but that’s what capitalism was originally supposed to do.

You reproduce the worker so you can extract the surplus. Finance capital is a great race to the bottom that workers oftentimes are not reproducing themselves. There’s a huge crisis of life expectancy and all sorts of things that didn’t used to be characteristic of capitalism. Standards used to rise as capitalism developed more advanced productive forces.

You mentioned this current crisis of the dollar and finance capital kind of being sidelined in the Ukraine crisis. I find this very interesting because finance capital is so hegemonic and it has so much influence over Washington and Europe but what you’re saying is very true because and we just see it that there’s just a catastrophe. There’s this huge inflation and there’s the crisis of the dollar like what’s happening here?

How come it seems that the further and further the United States gets into this proxy war with Russia over Ukraine, the more and more it deepens its involvement, and it’s been a long involvement, it’s not just since February, but ever since this period we’ve seen just this impending economic collapse. So, what’s happening here? Why is it that finance capital is sidelined and how do you see this going with the Ukraine crisis especially around the dollar?

MICHAEL HUDSON:  What do you mean by crisis of the dollar?

DANNY HAIPHONG: Well, it seems like what the United States is trying to impose its hegemony through its foreign sanctions, is having this blowback effect where now you have countries seeking alternatives to the dollar and the U.S. seems to be more economically vulnerable even though it’s expanding and trying to dominate. It’s this very strange contradiction that feels very unstable and it feels like the dollar is artificially inflating itself as it is also dealing with the fact that there is no end game here in Ukraine. It seems like messing with a big country like Russia and its relationship to Europe is moving us toward economic catastrophe, an economic crisis if there’s not already one underfoot.

MICHAEL HUDSON:  No that’s not what’s happening with the dollar at all. People with all of the emphasis on America’s war against Russia to try to break it away from China before going to war with China, the first thing that America wanted to do was to lock in its control over Europe because that’s the easiest way to get things is you want to take over the richest economies in the
world and lock them into the United States and that means taking over the Eurozone, England and Japan. And the dollar has been soaring against these currencies.

To put it another way, the Euro has been plunging toward one dollar per Euro. The pound sterling has been plunging to one dollar per sterling. The Japanese yen has been plunging even more so there’s a huge movement to safety into the dollar.

The Americans have successfully destroyed the basis of European industry. They’ve finally beaten Germany. They’ve left Germany without energy and GDP in any country compared to energy per worker and basically the productivity that makes goods is basically embodied energy and Europe has been getting its energy from Russia in the form of gas and oil.

Well, the United States has asked Europe to commit economic suicide basically by saying, “don’t buy Russian gas, wait three or four years, spend five billion dollars on building new ports so that you can import American liquefied natural gas at seven or eight times the price and meanwhile let your chemical industry, your car industry, your basic industries go bankrupt.  Take it on the chin for America and Europe said, “okay not Europe but the politicians that America have meddled in European politics to promote to sign on the dotted line for treaties” made that decision so even if the Europeans don’t want to commit suicide, America has its proxy politicians in its Tony Blairs, in the head of the social Democratic Party in the advocates of pollution and global warming at the head of the Green Party.

You have in England you have a Boris Yeltsin and in Japan you have leaders who are willing to continue to sacrifice Japan’s growth to serve the United States. So these countries, the investors in Europe, England, and Japan are moving their money into the United States especially because the United States is raising its interest rates through the Federal Reserve and that’s telling Japan and Europe not to do it so the Eurozone has very low rates.

People are borrowing at under one percent and moving it into the United States to make two, two and a half percent. Japan has almost interest-free money from the central bank. It’s moved its money into the U.S. so the dollar, while I won’t say it’s soaring against these currencies, other currencies in the U.S. orbit are collapsing against the dollar because they’re following U.S. advice.

So, I think when you say other countries are breaking away, you’re talking about the bulk of the world, Central Asia and Latin America and China and the key to the present New Cold War is America has to achieve its almost dictatorial dominance over Europe and Japan. It’s the client oligarchies and client dictatorships and without realizing that this is American democracy, where the leaders of the whole world follow what the United States tells them to do because the United States identifies itself as the democratic center.

So democracy no longer means a political system where voters get to determine who is in charge, democracy is the policy dictated by the United States State Department. Any country that goes its own way or develops the power potentially to go its own way such as China and Russia is called an autocracy. So, you have to realize in today’s world democracy is autocracy and autocracy is democracy.

You could say yeah, the question is of course will the world really break into two halves and it looks like it is breaking into parts and there will be the U.S. and its allies, the U.S., Europe, and Japan against a Eurasian core that will go hand in hand with Africa and Latin America and other Asian countries who are able to rely on trade and investment among themselves. And the United States by seeming to isolate Russia and China and Iran and other countries actually is isolating its own dollar from the rest of the world. So, there is an iron curtain but it’s not to keep other countries out, it’s to keep its own allies within.

DANNY HAIPHONG: Do you see this succeeding? We’ve been hearing a lot about Russia’s relationship with Europe and just how deep its energy sector is with Europe and how that relationship is a very difficult relationship to break economically. Although Europe is doing everything it can, everything you’ve described. It made me think about how throughout this crisis Europe, because of the dominance of the U.S. and just listening to whatever the U.S. said, was actually going way above and beyond what the U.S. would commit to in terms of Russia and how economically they would wage this kind of warfare. But China and Russia, with Russia’s energy and its natural resources but China I think in a broader kind of portfolio, have so much to offer to Europe, do you think that this will succeed?

Europe has been going the road of austerity for many years but this seems like such a huge step in that direction. Europe could look very much like the United States very soon. Do you see this working given how China has so much to offer it and already has a lot of countries in Europe maybe not the biggest of the clients like the UK for example but a lot of European countries have big relationships with China even the UK does despite all of the nonsense, all the New Cold War stuff. What do you think? Do you think this will work?

MICHAEL HUDSON: There’s a lot of crap that futurists tend to fall into and that’s imagining that countries are going to act in their self-interest. This is the mistake Stalin made with Hitler. He thought if Germany attacks Russia in World War II, it’s obviously going to lose. No sane country would attack Russia just as winter’s coming but Hitler attacked Russia. You’d think that if you tried to say what is a logical future.

Let’s go back to 1991 when the Soviet Union self-dissolved. The whole idea, the dream at that point according to Russia’s leaders was well, if we can have peace, we’re not going to have a war budget anymore. Europe is going to invest in us and help us rebuild a rationalized, efficient industry and we will trade with Europe and we’ll both get rich on mutual trade.

Well, this terrified the United States. It said, “oh my! We want it, we Americans want to be the beneficiaries of Russia.” We don’t want to trade with it. We want to carve it up and privatize it and take over. Basically, have Wall Street take over its oil resources, its gas resources, its nickel resources, its electric utilities. The last thing America wanted was this symbiotic mutual gain between Europe and Russia and I think that Putin and most of the leaders at that time expected that Europe would act in its self-interest and they could both end up gaining.

But that’s not what happened obviously. Europe followed American dictates and continues to because it’s, again, its leaders follow, its leaders are really just like Zelensky in Ukraine, they’re just as dependent on what the State Department dictates to them to do as Zelensky is. And there’s something evangelistic about it.

The Europeans I’ve spoken to really believe that America is the land of the future and that neoliberalism, that finance capitalism, somehow is going to be an ideal of private enterprise. They’ve bought the rat poison, they’ve eaten the rat poison, and they actually believe it and think of themselves not simply as servants of the United States following what it’s doing. As the Pakistan former Prime Minister said a few weeks ago, slaves of the United States policy, they actually are evangelistic promoters of neoliberalism and as sort of disciples, just as bishops you could say really. It’s like a religion and they treat the American-centered neoliberalism as the new religion . It’s literally a crusade against Russia and Europe and I think this has shocked Putin.

I would imagine the Chinese leadership also thinking: How can Europe be so completely unrealistic? How can its media lie so constantly about what’s really happening in Ukraine? How can Europe deify the neo-Nazis in Ukraine as freedom fighters, as heroes, as wonderful people to be supported? I think this has been such a shock to the Russian leadership that they realize finally that, well, Europe is not going to act in its self-interest.

There is not going to be any mutual gain.  Europe again and again is just going to grab any money that we have there like they’ve grabbed our whatever was in European or American banks. There’s really nothing we can do. So there’s been a fundamental reorganization with Russia and the rest of the Shanghai Cooperation Organization (SCO), meaning not only with China but with Iran, with India, with all of the other Eurasian countries. So, in that sense the United States has brought about exactly what it feared. The whole rest of the world is going its own way productively in a capital investment way, raising living standards, things that democracies are supposed to do well.

In the United States, we really don’t have democracy because the political parties are controlled by the donor class, the one percent, that’s what the Citizens United Supreme Court ruling meant. The United States is left without any means of self-support and Europe will be left without any means and self-support at some point. Europe may say, gee we made a mistake, maybe we should have tried to profit from Russia because everybody else is profiting with and getting Russian gas and nickel and China and other countries are rebuilding Russian industry and we could have had our car industry build up Russia but we don’t have a car industry anymore because it doesn’t have the gas that it needs and the raw materials and titanium it needs from Russia so now, we’ve seen other countries replace us.

And so, Europe has been rendered pretty much obsolete and even if it says we made a mistake, let’s be friends again, I don’t think Russia or other countries will trust it mainly because they can afford not to trust it.

They say, why take a risk with trusting Europe may not just continue to be America’s poodle?

Why take a risk? Why not just say, we’re doing just fine the way we are? Why not just work with each other peacefully? And all that the United States can do about this is threaten to bomb it and the way to stay away from this threat is simply to say look, you go your way, we’ll go our way and to have enough of the military between them to defend themselves against the American potential military attack despite the almost eight hundred military bases the United States has. If the United States is not getting foreign exchange from these countries anymore, the dollar with the euro and the yen and the sterling will all go way down against the Eurasian currency block and they’re going to move into a common block with their own counterpart to the IMF, their own counterpart to the World Bank, their own trade organization and the world will be split into two parts – just like the world split when the Roman empire fell apart and the east went forward, Western Europe went down. This is really the final submergence of western Europe.

DANNY HAIPHONG:  Yeah, I mean you have more activity now in the BRICS plus, right. The BRIC countries are trying to move forward and add more partners and expand their financial operations. I mean there’s so many multilateral institutions mainly led by China with Russia’s heavy involvement and in other countries that are building a kind of independent monetary system and economic development system that can as you said ‘avoid the risks’.

The Ukraine crisis is such a huge deal in part because of how geopolitics like you were saying, geopolitics plays such a big role. What the United States has done and what Europe has done during this Ukraine crisis is show countries like Russia and China that they not only cannot be trusted but it’s almost a guarantee that not only will this Ukraine situation have no quick ending right, there’s no like, we’re pulling out! The ball is rolling and they can’t catch it. They’re not going to be able to stop what they’re doing. There’s so many issues with that but they’ve even escalated the situation. You have countries like Finland and Sweden saying we’re going to join NATO. You have just so many, just all of these points that show that the United States and Europe can’t be trusted.

What are you to do other than make sure that you can keep the right, as China says, to sovereign economic development safe? And the only way you do that is by increasing that sovereign part, sovereignty, and I think Russia learned a big lesson here. I mean you mentioned those assets that were stolen. They were just stolen. It was bigger than Afghanistan which had the same situation happen to it but with Russia it was probably the biggest problem with all the economic moves that were made against Russia, the assets being stolen right out from under it. That’s a huge blow economically and it facilitated so much change.

But I wanted to and you know this is the last question because I feel like a lot of these developments are leading to a positive thing that we see countries like China and Russia increase the sovereignty of their economic development models. Can you end with talking about socialism and you know, where do you see this concept of socialism going as an economy, as
a political economy?

We know China has its model, other countries are trying their own models, but what do you think are its prospects now in this environment because China has its particular model, it seems like a lot of countries want to emulate that. You see Cuba and other countries wanting to understand how to do what China has done because it is an economic miracle in a lot of ways.

You were talking about how China was living, how people were living in China just in the sixties and seventies, it’s just a completely different situation. What do you see the prospects of it in this a very chaotic environment, the geopolitics imperialist finance capital it’s creating all this chaos, what do you think the prospects are and could you I guess enlighten our audience about socialism and your work on it?

MICHAEL HUDSON: Well socialism is really how industrial capitalism of the 19th century was
supposed to evolve. Everybody thought that it was going to evolve into a more democratic system because the first aim of industrial capitalism, what it really needed politically was to get rid of the landlord class because there’s no way that, as David Ricardo pointed out, there’s no way that England could become the workshop of the world if you let the landlord class continue to get more and more land rent and force labor to pay more and more for its food.

Today, it’s housing as well as food. There’s no way that it could be competitive so in order to get rid of the landlord class, you had to get rid of the house of lords in England and the upper house in every European country because the upper house and the senate were controlled by the hereditary landlords and so industrial capitalism backed democracy.

Already by 1848, the year that the Communist Manifesto was written, that led to revolutions all over European countries getting rid of the old aristocracy. Well, the rentiers fought back and actually it was wasn’t until World War I that the monarchies were overthrown and the aristocracies connected to the monarchies and land no longer was owned by a hereditary class. It was democratized but it was democratized on credit and that you had the banking system replay the role that the landlord class had played out before and the bankers were the new rentier class. The bankers were the new people whose interest charges and debt services and privatization of economic rents prevented economies from underselling non-rentier economies.

So, socialism was basically getting rid of the free lunch. Marx described capitalism as being revolutionary because he said what was revolutionary was getting rid of all of the unnecessary cost of production and that meant the unnecessary rentiers, the rent seekers, the coupon clippers, the financiers, and the monopolists. Everybody could agree that socialism was getting rid of this parasitic class that was not necessary for economies to grow and actually whose takings slowed the economy.

Socialism was to free economies and free markets from rent seeking, not freedom for rent seeking. After the 1890s, socialism was to get rid of a free lunch income whereas finance capitalism is all about how to get a free lunch if you’re a member of the one percent.

So in one sense, socialism is freeing economies from the legacy of feudalism which fought back in the modern world into a kind of neo-feudalism operating through financial control, not simply land ownership and monopoly ownership. And China has been able to get rid of this and at the same time avoid the central planning that gave socialism a bad name under Stalinism because China said well, let one hundred flowers bloom and we’re going to we realize that we can’t plan all sorts of innovations because there are so many possibilities of productive innovations.

We’re going to let people get rich by being creative, by being productive, by adding but we’re not going to let them get super rich. They can get pretty rich but then at a certain point they’re so rich that they’re getting rid of a monopoly we’re going to sort of cut down the high grains of wheat as they say so they’ve got a sort of consensus government where this occurs.

Other countries will have great difficulty putting this in place because there really isn’t any economic doctrine of socialism that’s been developed recently. There’s been just an out of hand rejection of all discussion of what socialism really was and what makes a socialist economy more efficient than a finance capitalist economy and that really is the key.

If countries, if economic theory, would talk about what makes a socialist country more efficient- lower cost with higher living standards-then it wouldn’t be economics anymore because economics are what gets published in the University of Chicago economic journals. I don’t know what you should call it, futurism or reality economics. There has to be a new discipline that our countries are going to develop to try to explain how to think about developing a world that doesn’t have parasites in it.

DANNY HAIPHONG: Right, so true. I mean what you were saying about all this, it just gets you thinking about what China has done to be able to control these forces. You see it in the tech sector especially, now you see it with this common prosperity drive. Like there is a drive to control these forces that can, as industrial capitalism found out of the old in America and Europe, you let those forces get out of control and then finance capital turns around and takes everything. And China has prevented that and you don’t hear it, even in like the Bernie Sanders social democracy milieu, you don’t hear them talk about this.

They’ll say like socialism is when you have Medicare for All but it’s not just that, it’s how as you were saying, what are the forces that need to be arrested? What are the forces that need to be strengthened to be able to ensure that the public good and public wealth is protected? That’s not in the discussion. It’s still not in the discussion.

I mean, it’s not on discussion even among the most so-called progressives. But they don’t talk about it like that because as you said earlier, it’s like autocracy or authoritarianism or something when a government is strong in the interests of economic development for people. It’s almost like finance capital has dominated even just the idea of it and the idea of what socialism is and what it could be.

But Michael, do you have like five to ten more minutes for a couple of questions? We had some in the audience and I think one of them is very good and I wanted to know your take on it.
Thank you for the super chat. So, they said that the People’s Republic of China has three trillion in USD foreign exchange reserves. What measures, I know that you’ve done a lot of work in China and you’ve done a lot of work around this. This person’s asking, what measures should the central government take to ensure they don’t get seized just like how the U.S. seized Russia’s foreign exchange reserves but I’ll let you answer that because I think that’s a great question.

MICHAEL HUDSON: Well, I bet this is just what they’re discussing right now in China. Because of COVID, I haven’t gone there since 2019 because I’d have to be isolated in a hotel room for two weeks so I’m not party to their discussion but they’re obviously worried that the Americans can do to them what they did to Russia. What are they going to do?

They need to keep some dollars just to intervene in the foreign exchange market to stabilize their exchange rate but they don’t need too many dollars and in fact in the third edition of my book Super Imperialism, which is coming out in Chinese now, the first edition sold about sixty thousand copies there and it is the first book of mine translated in China. So that was all about this question that you asked. This is very much in discussion now.

How do they run down their dollar holdings and what are they going to replace it with? Well, in principle they can replace it with holding each other’s currencies: Rubles, Indian currency and Pakistan currency and with gold because gold doesn’t have a liability attached to it. It’s a pure asset.

The world, the whole world is now de-dollarizing. America has, or Biden has, killed the dollar standard. This was America’s free lunch, being able to print dollars and never have to pay them back and now countries are all going to be dumping the dollars. They realize that America is just a gangster state financially and obviously they’re going to dump the dollars and this probably will push up China’s exchange rate and countries selling the dollars will increase their exchange rate against the dollar and that will hurt their relative exports. So, I think they’re trying to figure out how we can all do this together and keep a rough parity among our own currencies while really de-dollarizing. I don’t know what they’re doing but you can be sure this is what is on the forefront of everybody’s mind there.

DANNY HAIPHONG: Indeed indeed. It’s a huge question. I mean it really is trying to unravel and get oneself out of this hegemonic system, the dollar system. It’s something that you cannot escape and there’s been so much unfair, I feel like unfair condemnation and criticism of China and other countries trying to go their own path, for just their participation, it’s something you need to participate in right now to survive absent of another system.

Last question and I mean this isn’t so related to what we’re talking about but it is I think a good super chat question and I think it gets into economics too. What are the chances that China will simply not open back up for the next ten years or so looking at this long term because of COVID-19. I don’t know what you think Michael. My opinion of that from what I’ve learned about China there is a huge domestic tourism industry and foreign tourism is very important but I don’t know for me it feels like it’s going to open up before that. It seems like the economic situation that COVID-19 restrictions are difficult to continue on permanently but what do you think? Do you think that China could maintain these kinds of hard travel restrictions for a long period? I hope not. I want to go back; I need to go back and learn more but what do you think?

MICHAEL HUDSON:  Well, I asked that very question of the universities that I’m associated with yesterday. We had a long discussion and the answer is nobody has a clue. They’ve been criticized in the West for avoiding COVID-19 but there’s no discussion in America or Europe of
long COVID and now that there’s a report that a million Americans have long COVID and it really seems awful, your IQ goes down by ten percent and it’s almost like inheriting a trust fund. You’re stupefied. As a result of that they’re also tired. Some professors I know there say that they still have not fully recovered from COVID months and months ago. They still had very low energy. There’s no way of knowing. This doesn’t look good and if the thought of staying in you know traveling all the way over there, staying in an isolated hotel for two weeks just to have a few days of meetings and then come back and be isolated again, nobody has a clue but it doesn’t look good.

DANNY HAIPHONG: No, it doesn’t and I myself, I’ve avoided COVID unironically like the plague like I am so lucky not to have caught it and part of it is U don’t want, exactly what you’re saying, long COVID. I don’t want that. I don’t want that in my life and I feel like you know I know so many people who have gotten COVID-19 and they lived through it and while they had it, it was awful. It was bad but they lived but now they have all of these other symptoms like I know people who had their whole lives kind of turned upside down because they just can’t get the energy back or the motivation or whatever it is.

It has an effect on your breathing and mental health and there’s so many aspects of long COVID that are difficult to understand and I think China you know at one point it was like a twenty one day quarantine. I know people who are traveling there and who go there often and they were staying twenty-one days you know in a quarantine hotel. I mean you know China has done such a great job containing and addressing COVID as best that they can under these circumstances. And so well of course I have my own deep desires to go back, but I totally understand why the government and why the people there who support this policy would be very careful because you have in China a population so huge. If they did what the United States did, I think the recent estimates are like one point seven million would die and then how many would have long COVID? Millions upon millions more because the case numbers would be astronomical through the roof.

MICHAEL HUDSON I am sure they’re watching what happens in North Korea which is just experiencing its first outbreak. I mean that’s sort of an example. The difference of course is that China is inoculating people and there are also pills the Chinese have sent me and many kinds of medicine in case I get COVID.

DANNY HAIPHONG: That’s great. Amazing, so before we depart Michael, I’ll stay on for another fifteen minutes or so but I definitely want you to plug whatever you’d like to plug now I will pull up the book again and your website. So, if there’s anything you’d like to plug please everyone, keep liking the stream, keep sharing and subscribing to the channel all that good stuff supporting the work at but Michael is there anything you would like to plug?

MICHAEL HUDSON: All of my articles are on my website and I’m also on patreon and they can join on patreon and I have an ongoing discussion there so the website, patreon are my favorite sites where I publish, and Naked Capitalism, the Saker, Counterpunch, my articles are usually on a lot of these different websites and you’re showing it now so yeah and the books are available on Amazon or Xlibris and you can all buy them and they’re well printed and priced not very expensively.

DANNY HAIPHONG: Great conversation Michael. Thanks so much for coming. We will have to talk again as things continue to develop so thanks so much.

MICHAEL HUDSON. It’s good to be here Danny. Thanks for having me.

Mobilization and Real Economy

July 20, 2022

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Will the Global South break free from dollarized debt?

In his latest book, economist Michael Hudson pits socialism against finance capitalism and tears apart the ‘dream civilization’ imposed by the 1 percent.

June 09, 2022

By Pepe Escobar

Let’s jump straight into the fray. Hudson begins with an analysis of the “take the money and run” ethos, complete with de-industrialization, as 90 percent of US corporate revenue is “used to share buybacks and dividend payouts to support company stock prices.”

Michael Hudson’s new book on the world’s urgent global economic re-set is sure to ruffle some Atlanticist feathers.Photo Credit: The Cradle

With The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism, Michael Hudson, one of the world’s leading independent economists, has given us arguably the ultimate handbook on where we’re at, who’s in charge, and whether we can bypass them.

That represents the apex of “Finance Capitalism’s” political strategy: to “capture the public sector and shift monetary and banking power” to Wall Street, the City of London and other western financial centers.

The whole Global South will easily recognize the imperial modus operandi: “The strategy of US military and financial imperialism is to install client oligarchies and dictatorships, and arm-twist allies to join the fight against designated adversaries by subsidizing not only the empire’s costs of war-making (“defense”) but even the imperial nation’s domestic spending programs.” This is the antithesis of the multipolar world advocated by Russia and China.

In short, our current Cold War 2.0 “is basically being waged by US-centered finance capitalism backing rentier oligarchies against nations seeking to build up more widespread self-reliance and domestic prosperity.”

Hudson presciently reminds us of Aristotle, who would say that it is in the interest of financiers to wield their power against society at large: “The financial class historically has been the major beneficiary of empires by acting as collection agents.”

So inevitably the major imperial leverage over the world, a true “strategy of underdevelopment,” had to be financial: instrumentalizing IMF pressure to “turn public infrastructure into privatized monopolies, and reversing 20th century pro-labor reforms” via those notorious ‘conditionalities’ for loans.

No wonder the Non-Aligned Movement (NAM), established in Belgrade in 1961 with 120 nations and 27 observers, became such a threat to US global strategy. The latter predictably fought back with a slew of ethnic wars and the earliest incarnations of color revolution – fabricating dictatorships on an industrial scale, from Suharto to Pinochet.

The culmination was a cataclysmic Houston get-together in December 19, 1990 “celebrating” the dissolution of the USSR, as Hudson reminds us how the IMF and the World Bank “laid out a blueprint for Russia’s leaders to impose austerity and give away its assets – it didn’t matter to whom – in a wave of ‘shock therapy’ to let the alleged magic of free enterprise create a neoliberal free-for-all.”

Lost in a Roman wilderness of debt

To a large extent, nostalgia for the rape-and-pillaging of 1990s-era Russia fuels what Hudson defines as the New Cold War, where Dollar Diplomacy must assert its control over every foreign economy. The New Cold War is not waged only against Russia and China, “but against any countries resisting privatization and financialization under US sponsorship.”

Hudson reminds us how China’s policy “followed almost the same path that American protectionism did from 1865 though 1914 – state subsidy for industry, heavy public-sector capital investment…and social spending on education and health care to upgrade the quality and productivity of labor. This was not called Marxism in the United States; it was simply the logical way to look at industrialization, as part of a broad economic and social system.”

But then, finance – or casino – capitalism gained steam, and left the US economy mainly with “agribusiness farm surpluses, and monopolies in information technology (largely developed as a by-product of military research), military hardware, and pharmaceutical patents (based on public seed-money to fund research) able to extract monopoly rent while making themselves largely tax-exempt by using offshore banking centers.”

That’s the current State of Empire: relying only “on its rentier class and Dollar Diplomacy,” with prosperity concentrated in the top one percent of establishment elites. The inevitable corollary is US diplomacy imposing illegal, unilateral sanctions on Russia, China and anyone else who defies its diktats.

The US economy is indeed a lame post-modern remake of the late Roman empire: “dependent on foreign tribute for its survival in today’s global rentier economy.” Enter the correlation between a dwindling free lunch and utter fear: “That is why the United States has surrounded Eurasia with 750 military bases.”

Delightfully, Hudson goes back to Lactantius, in the late 3rd century, describing the Roman empire on Divine Institutes, to stress the parallels with the American version:

“In order to enslave the many, the greedy began to appropriate and accumulate the necessities of life and keep them tightly closed up, so that they might keep these bounties for themselves. They did this not for humanity’s sake (which was not in them at all), but to rake up all things as products of their greed and avarice. In the name of justice they made unfair and unjust laws to sanction their thefts and avarice against the power of the multitude. In this way they availed as much by authority as by strength of arms or overt evil.”

Socialism or barbarism

Hudson succinctly frames the central issue facing the world today: whether “money and credit, land, natural resources and monopolies will be privatized and concentrated in the hands of a rentier oligarchy or used to promote general prosperity and growth. This is basically a conflict between finance capitalism vs. socialism as economic systems.”

To advance the struggle, Hudson proposes a counter-rentier program which should be the Global South’s ultimate Blueprint for responsible development: public ownership of natural monopolies; key basic infrastructure in public hands; national self-sufficiency – crucially, in money and credit creation; consumer and labor protection; capital controls – to prevent borrowing or denominating debts in foreign currency; taxes on unearned income such as economic rent; progressive taxation; a land tax (“will prevent land’s rising rental value from being pledged to banks for credit to bid up real estate prices”); use of the economic surplus for tangible capital investment; and national self-sufficiency in food.

As Hudson seems to have covered all the bases, at the end of the book I was left with only one overarching question. I asked him how he analyzed the current discussions between the Eurasia Economic Union (EAEU) and the Chinese – and between Russia and China, further on down the road – as being able to deliver an alternative financial/monetary system. Can they sell the alternative system to most of the planet, all while dodging imperial financial harassment?

Hudson was gracious enough to reply with what could be regarded as the summary of a whole book chapter: “To be successful, any reform has to be system-wide, not merely a single part. Today’s western economies have become financialized, leaving credit creation in private hands – to be used to make financial gains at the expense of the industrial economy… This aim has spread like leprosy throughout entire economies – their trade patterns (dependency on US agricultural and oil exports, and IT technology), labor relations (anti-unionism and austerity), land tenure (foreign-owned plantation agriculture instead of domestic self-reliance and self-sufficiency in food grains), and economic theory itself (treating finance as part of GDP, not as an overhead siphoning off income from labor and industry alike).”

Hudson cautions that “in order to break free of the dynamic of predatory finance-capitalism sponsored by the United States and its satellites, foreign countries need to be self-sufficient in food production, energy, technology and other basic needs. This requires an alternative to US ‘free trade’ and its even more nationalistic ‘fair trade’ (deeming any foreign competition to US-owned industry ‘unfair’). That requires an alternative to the IMF, World Bank and ITO (from which Russia has just withdrawn). And alas, an alternative also requires military coordination such as the SCO [the Shanghai Cooperation Organization] to defend against the militarization of US-centered finance capitalism.”

Hudson does see some sunlight ahead: “As to your question of whether Russia and China can ‘sell’ this vision of the future to the Global South and Eurasian countries, that should become much easier by the end of this summer. A major byproduct (not unintended) of the NATO war in Ukraine is to sharply raise energy and food prices (and shipping prices). This will throw the balance of payments of many Global South and other countries into sharp deficit, creating a crisis as their dollar-denominated debt to bondholders and banks falls due.”

The key challenge for most of the Global South is to avoid default:

“The US raise in interest rates has increased the dollar’s exchange rate not only against the euro and Japanese yen, but against the Global South and other countries. This means that much more of their income and export revenue must be paid to service their foreign debt – and they can avoid default only by going without food and oil. So what will they choose? The IMF may offer to create SDRs to enable them to pay – by running even further into dollarized debt, subject to IMF austerity plans and demands that they sell off even more of their natural resources, forests and water.”

So how to break free from dollarized debt? “They need a critical mass. That was not available in the 1970s when a New International Economic Order was first discussed. But today it is becoming a viable alternative, thanks to the power of China, the resources of Russia and those of allied countries such as Iran, India and other East Asian and Central Asian countries. So I suspect that a new world economic system is emerging. If it succeeds, the last century – since the end of World War I and the mess it left – will seem like a long detour of history, now returning to what seemed to be the basic social ideals of classical economics – a market free from rent-seeking landlords, monopolies and predatory finance.”

Hudson concludes by reiterating what the New Cold War is really all about:

“In short, it is a conflict between two different social systems, each with their own philosophy of how societies work. Will they be planned by neoliberal financial centers centered in New York, supported by Washington’s neo-cons, or will they be the kind of socialism that the late 19th century and early 20th century envisioned – a ‘market’ and, indeed, society free from rentiers? Will natural monopolies such as land and natural resources be socialized and used to finance domestic growth and housing, or left to financial interests to turn rent into interest payments eating into consumer and business income? And most of all, will governments create their own money and steer banking to promote domestic prosperity, or will they let private banks (whose financial interests are represented by central banks) take control away from national treasuries?”

The views expressed in this article do not necessarily reflect those of The Cradle.

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